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As filed with the Securities and Exchange Commission on March 21, 2019

Registration No. 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Yunji Inc.

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

Cayman Islands   5990   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

15/F, South Building, Hipark Phase 2, Xiaoshan District

Hangzhou 310000, Zhejiang Province

People’s Republic of China

+86 571 8168-8920

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

Puglisi & Associates

850 Library Avenue, Suite 204

Newark, Delaware 19711

+1 302-738-6680

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

 

 

Copies to:

 

Z. Julie Gao, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

c/o 42/F, Edinburgh Tower, The Landmark

15 Queen’s Road Central

Hong Kong

+852 3740-4700

 

Chris K.H. Lin, Esq.

Daniel Fertig, Esq.

Simpson Thacher & Bartlett LLP

c/o 35th Floor, ICBC Tower

3 Garden Road

Central, Hong Kong

+852 2514-7600

 

 

Approximate date of commencement of proposed sale to the public:

as soon as practicable after the effective date of this registration statement.

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

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

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

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

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

Emerging growth company  ☐

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

 

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.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed maximum

aggregate offering price (2)(3)

 

Amount of

registration fee

Class A Ordinary Shares, par value US$0.000005 per share (1)

  US$200,000,000   US$24,240

 

(1)

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

(2)

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

(3)

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

 

 

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

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We [and the selling shareholders] may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Issued             , 2019.

American Depositary Shares

LOGO

Yunji Inc.

Representing              Class A Ordinary Shares

 

 

Yunji Inc. is offering              American depositary shares, or ADSs[, and the selling shareholders identified in this prospectus are offering             ADSs]. This is our initial public offering and no public market currently exists for our ADSs or Class A ordinary shares. Each ADS represents              of our Class A ordinary shares, par value US $ 0.000005 per share. We anticipate the initial public offering price will be between US $             and US $              per ADS.

 

 

We intend to apply for the listing of the ADSs on the Nasdaq Global Market under the symbol “YJ.”

 

 

Upon the completion of this offering, our outstanding share capital will consist of Class A ordinary shares and Class B ordinary shares, and we will be a “controlled company” as defined under the Nasdaq Listing Rules because Mr. Shanglue Xiao, the chairman of our board of directors and our chief executive officer, will beneficially own all of our issued and outstanding Class B ordinary shares and will be able to exercise         % of our total voting power assuming the underwriters do not exercise their over-allotment option, or         % of our total voting power if the underwriters exercise their over-allotment option in full. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes and is convertible into one Class A ordinary share. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

Investing in the ADSs involves risks. See “ Risk Factors ” beginning on page 16.

 

 

PRICE US$             PER ADS

 

 

 

      

Price to
Public

    

Underwriting
Discounts and
Commissions 1

    

Proceeds to
Us

    

[Proceeds to
Selling
Shareholders

Per ADS

     US$                  US$                  US$                  US$            

Total

     US$                  US$                  US$                  US$            ]

 

1  

For additional underwriting compensation information, see “Underwriting.”

Yunji Inc. [and the selling shareholders] [have/has] granted the underwriters the right to purchase up to an additional              ADSs to cover over-allotments.

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs against payment in U.S. dollars to purchasers on or about             , 2019.

 

 

 

MORGAN STANLEY   CREDIT SUISSE   J.P. MORGAN   CICC

Prospectus dated             , 2019.


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You should rely only on the information contained in this prospectus or in any related free writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or in any related free writing prospectus. We[ and the selling shareholders] are offering to sell, and seeking offers to buy the ADSs, only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ADSs.

Neither we nor any of the underwriters has taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus or any filed free writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus or any filed free writing prospectus outside the United States.

Until                    , 2019 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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L ETTER TO INVESTORS

I created Yunji in May 2015 with a simple mission: “to make commerce simpler and people’s lives better.” As mobile internet continues to reshape people’s consumption behavior, and commerce and social interactions become increasingly intertwined, I believe our innovative membership-based, social e-commerce platform will play an important part in the overall consumption upgrade in China.

I started one of the earliest online stores in China 15 years ago. My success as an entrepreneur has given me valuable experience and helped me identify key pain points that consumers face. It has become more and more difficult for consumers to make purchase decisions because of the overflow of information, and it is also challenging for small emerging businesses to grow on traditional e-commerce platforms, as consumers tend to gravitate towards well-known brands and platforms tend to prioritize resources offered to larger businesses. Our Yunji platform is designed to address these issues and fulfill our mission.

What is Yunji

Yunji has three defining characteristics: first, we are a membership-based platform which brings our members together through the collective value proposition that we provide them; second, we implement a targeted strategy to offer products that cater to the needs and preferences of our savvy and inter-connected users, with a focus on quality and pricing; third, we are keenly focused on the collective trust of our users, as their trust in us is the key to the growth and success of our platform. We empower our members to help extend our reach by sharing their shopping experiences and promoting products through their social networks to build a loyal following.

Embracing Tomorrow

Our platform has exhibited robust growth in a highly competitive e-commerce market, evidenced by significant increases in our member base and transaction volumes in the past three years. We are strategically positioned to continue building on our success and growth to-date and deliver on our mission.

We believe the pursuit of a better life is a natural driving force for people. Looking ahead, China will continue to undergo consumption upgrade. Based on our deep understanding of user behavior, we believe our membership-based, social e-commerce platform provides a superior shopping experience to hundreds of millions of families and will contribute to the overall consumption upgrade through technological innovation. Our team remains committed to expanding and improving our collaborative platform, offering carefully curated high-quality products at attractive prices, and empowering our members and more users to pursue a better life.

Shanglue “Teddy” Xiao

Founder, Chairman & Chief Executive Officer

Yunji Inc.

 

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors” before deciding whether to invest in the ADSs. This prospectus contains information from an industry report commissioned by us and prepared by China Insights Consultancy, or CIC, an independent research firm, to provide information regarding our industry and our market position in China.

Mission

We aim to make commerce simpler and people’s lives better.

Overview

As a leading social e-commerce platform in China, we have pioneered a unique, membership-based model that leverages the power of social interaction. We offer high-quality products at attractive prices and incentivize our members to promote our platform and share our products with their social contacts. We believe this, together with careful product curation, centralized merchandize sourcing and efficient supply chain management, has allowed us to grow organically and made us a trustworthy e-commerce platform providing superior customer experience.

Our platform has attracted a large and growing base of users, including members and non-members. These users are actively purchasing products on our platform. Buyers on our platform increased from approximately 2.5 million in 2016 to approximately 16.9 million in 2017 and further to approximately 23.2 million in 2018. During the same period, our GMV increased by 428.1% from RMB1.8 billion in 2016 to RMB9.6 billion in 2017 and by 134.4% from RMB9.6 billion in 2017 to RMB22.7 billion in 2018. In 2018, 66.4% of our GMV were from purchases made by our members and the remaining were from purchases made by non-members.

Members are the key participants on our platform and drivers of our substantial growth. Our members typically pay to gain access to a dedicated app that provides access to a curated selection of products, exclusive membership benefits and features, including discounted prices. Our members, typically middle-class consumers, are highly social and are interested in discussing and sharing their shopping experiences and various products within their social circles. Members often refer others to become members and are rewarded for doing so. Members can also promote products on various social platforms and are rewarded if those users purchase our products. We also provide support such as training, technology support and customer services and we handle all aspects of fulfillment and logistics, to make the process easier for them. As of December 31, 2018, we had accumulated 7.4 million members. We had approximately 6.1 million transacting members on our platform in 2018.



 

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We offer products across a large variety of categories with the aim of catering to the various daily needs of our users and their households. We also add to our product offerings based on feedback and understanding of our members and users based on various analytics. While we offer products from mainstream and emerging brands, we also work with manufacturers directly to produce private labels. We are also extremely focused on the quality and pricing of our products. We have been intentionally maintaining a balance between expanding the product category coverage to meet our users’ evolving demand and controlling the number of SPUs in each category. As a result, we offered an average of 837, 2,315 and 6,613 SPUs on our platform on a daily basis in December 2016, December 2017 and December 2018, respectively.

 

LOGO

We currently generate revenues primarily from selling products on our platform to users, including both members and non-members. Total orders we fulfilled increased substantially from 13.5 million in 2016 to 75.8 million in 2017 and further to 153.4 million in 2018. Our total revenues increased by 401.7% from RMB1,284.4 million in 2016 to RMB6,444.1 million in 2017, and by 102.0% from RMB6,444.1 million in 2017 to RMB13,015.2 million (US$1,893.0 million) in 2018. We recorded net loss of RMB56.3 million (US$8.2 million), RMB105.7 million and RMB24.7 million in 2018, 2017 and 2016, respectively.

Our Industry

China’s online retail industry has experienced tremendous growth, with the overall market size growing from RMB3.8 trillion in 2015 to RMB7.2 trillion (US$1.0 trillion) in 2017, representing a CAGR of 37.0%, and is expected to grow to RMB15.0 trillion (US$2.2 trillion) in 2022, representing a CAGR of 15.8%. The online penetration rate of retail market increased from 10.3% in 2015 to 17.0% in 2017, and is expected to further increase to 24.4% in 2022, according to China Internet Network Information Center and CIC.

Within the growing online retail industry, social e-commerce platforms experienced robust growth and commanded an increasing share of the overall online retail industry thanks to its well-established supply chain management, diversified products with high quality and scalability. The social e-commerce platform market grew from RMB38.3 billion in 2015 to RMB217.3 billion (US$31.6 billion) in 2017, representing a CAGR of 138.2%, and is expected to increase at a CAGR of 61.9% to RMB2,419.4 billion (US$352.3 billion) in 2022, according to CIC.



 

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Our Competitive Strengths

We believe that the following competitive strengths contribute to our success and differentiate us from our competitors:

 

   

unique membership-based social e-commerce platform with rapid growth;

 

   

efficient user acquisition and high user engagement driven by social interaction;

 

   

carefully curated product selection;

 

   

win-win relationship with suppliers;

 

   

strong commitment to big data and technology; and

 

   

experienced management team with proven track record.

Our Strategies

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

 

   

further increase our member base and engagement;

 

   

expand and refine our products lineup;

 

   

strengthen our data and technology capability;

 

   

enhance our brand recognition; and

 

   

further improve our fulfillment facilities.

Our Challenges

We face risks and uncertainties in realizing our business objectives and executing our strategies, including those relating to our ability to:

 

   

maintain the growth rate that we have experienced to date;

 

   

maintain membership loyalty and sustain membership growth, as well as maintain member relationships and retain existing members;

 

   

anticipate and satisfy changing user needs and preferences in a timely manner and provide products at a satisfactory quality to our users;

 

   

effectively manage members and service managers;

 

   

promote our Yunji brand to enhance brand recognition;

 

   

leverage social networks in China as a tool for member and user acquisition and engagement;

 

   

compete successfully against current or future competitors;

 

   

maintain proper functioning of our IT systems;

 

   

expand our product offerings and optimize our product mix; and

 

   

manage and expand our relationships with suppliers and procure products at favorable terms.



 

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Corporate History and Structure

We commenced operations through Yunji Sharing Technology Co., Ltd., or Yunji Sharing, and launched our Yunji app in May 2015.

In November 2017, Yunji Inc. was established in the Cayman Islands as our offshore holding company to facilitate financing and offshore listing. Shortly following its incorporation, Yunji Inc. established a wholly-owned subsidiary in Hong Kong, Yunji Holding Limited.

In February 2018, Yunji Holding Limited established a wholly-owned subsidiary in China, Hangzhou Yunchuang Sharing Network Technology Co., Ltd., or Yunchuang Sharing. In April 2018, we gained control over Yunji Sharing through Yunchuang Sharing by entering into a series of contractual arrangements with Yunji Sharing and its shareholders. The contractual arrangements with Yunji Sharing were subsequently amended and restated in December 2018.

In June 2018, Zhejiang Yunji Preferred E-Commerce Co., Ltd., or Yunji Preferred, was established. In the same month, we gained control over Yunji Preferred through Yunchuang Sharing by entering into a series of contractual arrangements with Yunji Preferred and its shareholders. The contractual arrangements with Yunji Preferred were subsequently amended and restated in December 2018. We have migrated all of our business operations under Yunji Sharing and its subsidiaries to Yunji Preferred and Yunchuang Sharing and their subsidiaries.



 

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The following diagram illustrates our corporate structure, including our principal subsidiaries, our VIEs and our VIEs’ principal subsidiaries, as of the date of this prospectus:

 

LOGO

 

Notes:    (1)   Daqiao Network Technology (Hangzhou) Co., Ltd., Hangzhou Yuepeng Trading Co., Ltd., and Deqing Jijie Investment Management Partnership (Limited Partnership) each holds 65.53%, 28.09%, and 6.38% of the equity interests in Yunji Sharing, respectively. All of these entities are shareholders or affiliates of shareholders of our company. We plan to dissolve this entity in the near future as it does not engage in substantial business activities.
(2)   Mr. Shanglue Xiao and Mr. Huan Hao each holds 99.0099% and 0.9901% of the equity interests in Yunji Preferred, respectively. Mr. Shanglue Xiao and Mr. Huan Hao are both beneficial owners and directors of our company. Mr. Shanglue Xiao also serves as the chairman of our board of directors and the chief executive officer of our company and Mr. Huan Hao also serves as the chief technology officer of our company.
(3)   We plan to dissolve Zhejiang Jishang Network Technology Co., Ltd. in the near future as it does not engage in substantial business activities.

Our executive officers, directors, and principal shareholders and their affiliated entities together beneficially own approximately 91.3% of our outstanding ordinary shares on an as-converted basis prior to this offering. Upon the completion of this offering, our executive officers, directors, and principal shareholders and their affiliated entities together will beneficially own approximately             % of our total outstanding ordinary shares, assuming the underwriters do not exercise their over-allotment option, or             % of our total outstanding ordinary shares if the underwriters exercise their over-allotment option in full. See “Risk Factors—Risks Related to Our ADSs and This Offering—The concentration of our share ownership among executive officers, directors,



 

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and principal shareholders and their affiliated entities will likely limit your ability to influence corporate matters and could discourage others from pursuing any change of control transaction that holders of our ordinary shares and ADSs may view as beneficial.”

Implication of Being a Foreign Private Issuer and a Controlled Company

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 of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers. Moreover, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. In addition, as a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards. Following this offering, we intend to rely on home country practice to be exempted from the corporate governance requirement that we have a majority of independent directors on our board of directors. As a result, we will not have a majority of independent directors. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq listing standards.

Upon the completion of this offering, our outstanding share capital will consist of Class A ordinary shares and Class B ordinary shares, and we will be a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Shanglue Xiao, the chairman of our board of directors and our chief executive officer, will beneficially own all of our then issued and outstanding Class B ordinary shares and will be able to exercise             % of our total voting power assuming the underwriters do not exercise their over-allotment option, or             % of our total voting power if the underwriters exercise their over-allotment option in full. Under the Nasdaq Stock Market Rules, a “controlled company” may elect not to comply with certain corporate governance requirements. Currently, we do not plan to utilize the “controlled company” exemptions with respect to our corporate governance practice after we complete this offering.

Corporate Information

Our principal executive offices are located at 15/F, South Building, Hipark Phase 2, Xiaoshan District, Hangzhou 310000, Zhejiang Province, People’s Republic of China. Our telephone number at this address is +86 571 8168-8920. Our registered office in the Cayman Islands is located at the office of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

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

Conventions that Apply to this Prospectus

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

 

   

“ADRs” are to the American depositary receipts which may evidence the ADSs;

 

   

“ADSs” are to the American depositary shares, each of which represents             Class A ordinary shares;

 

   

“buyer” in a given period are to a user who places at least one order on our platform during such period, regardless of whether any product in such order is ultimately sold or delivered or whether any product in such order is returned;



 

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

 

   

“Class A ordinary shares” are to our Class A ordinary shares of par value US$0.000005 per share;

 

   

“Class B ordinary shares” are to our Class B ordinary shares of par value US$0.000005 per share;

 

   

“GMV” are to the total value of all orders paid and shipped for merchandise sold on our platform, including the value of the merchandise sold as part of the membership packages, as well as the VAT and tax surcharges paid, regardless of whether the merchandises are returned and without taking into consideration any discounts and incentives. Our revenues recognized on a gross basis are net of the VAT and related tax surcharges paid, discounts and incentives, the value of the merchandises returned, and any adjustments due to the timing difference between shipping and receipt, which are included in the above GMV measure. Our revenues recognized on a net basis are net of the corresponding amount to be paid to the vendor, the principal in the transaction, in addition to the items mentioned above, which are included in the above GMV measure;

 

   

“member” are to an individual who registers an account on our flagship Yunji app and satisfies certain requirements such as purchasing a membership package;

 

   

“ordinary shares” are to our ordinary shares, par value US$0.000005 per share;

 

   

“our VIEs” are to Yunji Sharing Technology Co., Ltd., or Yunji Sharing, and Zhejiang Yunji Preferred E-Commerce Co., Ltd., or Yunji Preferred;

 

   

“our WFOE” are to Hangzhou Yunchuang Sharing Network Technology Co., Ltd.;

 

   

“repeat purchase rate” in a given period are calculated as the number of transacting members who purchased not less than twice divided by the total number of transacting members during such period;

 

   

“RMB” and “Renminbi” are to the legal currency of China;

 

   

“SPUs” are to standard product units offered on our platform. The number of SPUs does not represent the number of distinct products offered on our platform. We assign the same SPU to the same type of product without distinguishing product specifics such as colors and sizes;

 

   

“transacting member” in a given period are to a member who successfully promotes our products to generate at least one order or places at least one order on our platform, regardless of whether any product in such order is ultimately sold or delivered or whether any product in such order is returned;

 

   

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

 

   

“users” are to individuals who access our platform through our mobile apps or sharing interfaces, including our members;

 

   

“Yunji Preferred” are to Zhejiang Yunji Preferred E-Commerce Co., Ltd.;

 

   

“Yunji Sharing” are to Yunji Sharing Technology Co., Ltd.; and

 

   

“Yunji,” “we,” “us,” “our company” and “our” are to Yunji Inc., our Cayman Islands holding company and its subsidiaries, its consolidated variable interest entities and the subsidiaries of the consolidated variable interest entities.

Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus are made at a rate of RMB6.8755 to US$1.00, the exchange rate in effect as of the end of December 2018 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. 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.



 

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THE OFFERING

 

Offering price

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

 

ADSs offered by us

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

 

[ADSs offered by the selling shareholders

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

 

ADSs outstanding immediately after this offering

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

 

Ordinary shares issued and outstanding immediately after this offering

             Class A ordinary shares and              Class B ordinary shares (or              Class A ordinary shares and              Class B ordinary shares if the underwriters exercise their over-allotment option in full).

 

The ADSs

Each ADS represents              Class A ordinary shares, par value US$0.000005 per share.

 

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

 

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

 

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

 

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

 

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


 

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Ordinary Shares

Our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares immediately prior to the completion of this offering. Holders of Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. In respect of all matters subject to a shareholder vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class. 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 thereof to any person or entity that is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the same number of Class A ordinary shares. See “Description of Share Capital” for more information.

 

Over-allotment option

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

 

Use of proceeds

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

 

  We intend to use the net proceeds from this offering as follows: (i) to enhance and expand our business operations, (ii) to enhance our technological capabilities, including our technology infrastructure, (iii) to expand and improve our fulfillment facilities, and (iv) for general corporate purposes, which may include funding working capital needs and potential strategic investments and acquisitions, although we have not identified any specific investments or acquisition opportunities at this time. See “Use of Proceeds” for more information.

 

  [We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.]

 

Lock-up

[We, our directors, executive officers, and all of our existing shareholders] have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or otherwise dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting” for more information.

 

[Directed Share Program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to an aggregate of              ADSs offered in



 

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this offering to some of our directors, officers, employees, business associates and related other persons associated with us through a directed share program.]

 

Listing

We intend to apply to have the ADSs listed on the Nasdaq Global Market under the symbol “YJ.” The ADSs and our Class A ordinary shares will not be listed on any other stock exchange or traded on any automated quotation system.

 

Payment and settlement

The underwriters expect to deliver the ADSs against payment therefor through the facilities of The Depository Trust Company on             , 2019.

 

Depositary

Deutsche Bank Trust Company Americas.


 

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

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

 

    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     RMB     RMB     US$  
    (in thousands, except for percentages, share and per share data)  

Summary Consolidated Statements of Operations Data:

       

Revenues:

       

Sale of merchandise, net

    1,129,053       5,912,109       11,388,425       1,656,378  

Membership program revenue

    155,391       510,818       1,552,437       225,793  

Other revenues

          21,144       74,363       10,816  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,284,444       6,444,071       13,015,225       1,892,987  

Operating cost and expenses (1) :

       

Cost of revenues

    (978,688     (5,172,842     (10,706,596     (1,557,210

Fulfilment

    (184,407     (569,410     (1,162,051     (169,013

Sales and marketing

    (138,046     (707,735     (955,128     (138,918

Technology and content

    (18,207     (58,159     (143,645     (20,892

General and administrative

    (12,153     (50,153     (147,208     (21,410
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating cost and expenses

    (1,331,501     (6,558,299     (13,114,628     (1,907,443
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (47,057     (114,228     (99,403     (14,456
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial income, net

    154       11,564       46,068       6,700  

Foreign exchange gain/(loss), net

    1,525       (7,444     (685     (100

Change in fair value of warrant liabilities

    160       152              

Other income, net

          894       7,048       1,025  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense, and equity in income of affiliates, net of tax

    (45,218     (109,062     (46,972     (6,831

Income tax (expense)/benefit

    20,550       3,331       (12,346     (1,796

Equity in income of affiliates, net of tax

          7       2,992       435  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (24,668     (105,724     (56,326     (8,192
 

 

 

   

 

 

   

 

 

   

 

 

 

Less: net income attributable to non-controlling interests shareholders

                (3,362     (489
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Yunji Inc.

    (24,668     (105,724     (59,688     (8,681
 

 

 

   

 

 

   

 

 

   

 

 

 

Accretion on convertible redeemable preferred shares to redemption value

    (77,179     (1,628,656     (2,187,633     (318,178

Re-designation to Series A convertible redeemable preferred shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature

                (60,796     (8,842

Deemed dividend from preferred shareholders

    132             107       16  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (101,715     (1,734,380     (2,308,010     (335,685
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders

       

Basic

    (0.08     (1.37     (1.98     (0.29

Diluted

    (0.08     (1.37     (1.98     (0.29


 

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    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     RMB     RMB     US$  
    (in thousands, except for percentages, share and per share data)  

Net loss per ADS (2) :

       

Basic and diluted

       

Weighted average number of ordinary shares used in computing net loss per share:

       

Basic and diluted

    1,268,000,000       1,268,000,000       1,165,136,438       1,165,136,438  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to ordinary shareholders (3) :

       

Basic and diluted

        (0.029)       (0.004)  

Weighted average number of shares used in calculating pro forma net loss per share:

       

Basic and diluted

        2,024,130,110       2,024,130,110  

Non-GAAP Financial Measure (4) :

       

Adjusted net loss

    (24,668     (103,716     (2,026     (294
 

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:    (1)    Share-based compensation expenses were allocated as follows:

 

     For the Year Ended December 31,  
     2016      2017      2018  
     RMB      RMB      RMB      US$  
     (in thousands)  

Sales and marketing

             —        144        3,192        464  

Technology and content

            98        4,434        645  

General and administrative

            1,545        41,932        6,099  

Fulfillment

            221        4,742        690  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

            2,008        54,300        7,898  
  

 

 

    

 

 

    

 

 

    

 

 

 
(2)   Each ADS represents            Class A ordinary shares.
(3)   See Note 26 of our consolidated financial statements included elsewhere in this prospectus.
(4)   See “—Non-GAAP Financial Measure.”


 

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The following table presents our summary consolidated balance sheet data as of December 31, 2016, 2017 and 2018:

 

     As of December 31,  
     2016     2017     2018  
     RMB     RMB     RMB     US$  
     (in thousands)  

Summary Consolidated Balance Sheet Data:

        

Cash and cash equivalents

     287,107       328,741       1,519,146       220,951  

Short-term investments

     33,000       663,780       1,099,394       159,900  

Inventories, net

     97,443       332,778       675,543       98,254  

Prepaid expenses and other current assets

     80,724       226,098       410,439       59,696  

Total assets

     540,526       1,673,161       3,918,799       569,965  

Accounts payable

     158,790       770,025       1,432,274       208,316  

Deferred revenue

     112,295       323,551       546,975       79,554  

Incentive payables to members

     81,270       239,840       421,945       61,369  

Refund payable to members

     77,652       147,943       396,024       57,599  

Other payable and accrued liabilities

     35,899       81,377       197,962       28,792  

Total liabilities

     470,817       1,671,064       3,115,206       453,088  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mezzanine equity

     255,938       1,920,698       4,914,048       714,719  

Total shareholders’ deficit

     (186,229     (1,918,601     (4,110,455     (597,842
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, mezzanine equity and shareholders’ deficit

     540,526       1,673,161       3,918,799       569,965  
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents our summary consolidated cash flow data for the years ended December 31, 2016, 2017 and 2018:

 

     For the Year Ended December 31,  
     2016      2017     2018  
     RMB      RMB     RMB     US$  
     (in thousands)  

Summary Consolidated Cash Flow Data:

         

Net cash generated from operating activities

     119,538        699,582       883,037       128,434  

Net cash generated from/(used in) investing activities

     3,002        (644,992     (458,047     (66,620

Net cash generated from financing activities

     123,915        26,255       747,921       108,780  
  

 

 

    

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     6,367        (10,911     34,594       5,031  

Net increase in cash, cash equivalents and restricted cash

     252,822        69,934       1,207,505       175,625  

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

     34,985        287,807       357,741       52,031  
  

 

 

    

 

 

   

 

 

   

 

 

 

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

     287,807        357,741       1,565,246       227,656  
  

 

 

    

 

 

   

 

 

   

 

 

 

We regularly review a number of metrics, including the key metrics listed below, to evaluate our business, measure our performance, formulate financial projections, and make operating and strategic decisions:

 

     For the Year Ended December 31,  
     2016      2017      2018  

Buyers (in millions)

     2.5        16.9        23.2  

Transacting members (in millions)

     0.6        2.3        6.1  

Orders fulfilled (in millions)

     13.5        75.8        153.4  


 

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     As of December 31,  
     2016      2017      2018  

Cumulative members (in millions)

     0.9        2.9        7.4  

Non-GAAP Financial Measure

In evaluating our business, we consider and use adjusted net loss as a supplemental measure to review and assess our operating performance. The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. We define adjusted net loss as net loss excluding share-based compensation.

We present adjusted net loss because it is used by our management to evaluate our operating performance and formulate business plans. Adjusted net loss enables our management to assess our operating results without considering the impact of share-based compensation, which are non-cash charges. We also believe that the use of this non-GAAP measure facilitate investors’ assessment of our operating performance.

This non-GAAP financial measure is not defined under U.S. GAAP and is not presented in accordance with U.S. GAAP. The non-GAAP financial measure has limitations as an analytical tool. One of the key limitations of using adjusted net loss is that it does not reflect all items of income and expense that affect our operations. Share-based compensation has been and may continue to be incurred in our business and is not reflected in the presentation of adjusted net loss. Further, this non-GAAP measure may differ from the non-GAAP information used by other companies, including peer companies, and therefore its comparability may be limited.

We compensate for these limitations by reconciling the non-GAAP financial measure to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.

The following table reconciles our adjusted net loss in 2016, 2017 and 2018 to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, which is net loss:

 

     For the Year Ended December 31,  
     2016     2017     2018  
     RMB     RMB     RMB     US$  
     (in thousands)  

Reconciliation of Net Loss to Adjusted Net Loss:

  

Net loss

     (24,668     (105,724     (56,326     (8,192

Add: share-based compensation

           2,008       54,300       7,898  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net loss

     (24,668     (103,716     (2,026     (294
  

 

 

   

 

 

   

 

 

   

 

 

 


 

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RISK FACTORS

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

Risks Related to Our Business and Industry

Our limited operating history makes it difficult to evaluate our business and prospects. We cannot guarantee that we will be able to maintain the growth rate that we have experienced to date.

We commenced operations in 2015, and have a limited operating history. Our total revenues increased by 401.7% from RMB1,284.4 million in 2016 to RMB6,444.1 million in 2017, and by 102.0% from RMB6,444.1 million in 2017 to RMB13,015.2 million (US$1,893.0 million) in 2018. The total orders we fulfilled increased substantially from 13.5 million in 2016 to 75.8 million in 2017 and further increased to 153.4 million in 2018. However, our historical performance may not be indicative of our future growth or financial results. We cannot assure you that we will be able to grow at the same rate as we did in the past, or avoid any decline in the future. Our growth may slow down or become negative, and revenues may decline for a number of possible reasons, some of which are beyond our control, including decreasing consumer spending, increasing competition, declining growth of our overall market or industry, the emergence of alternative business models, changes in rules, regulations, government policies or general economic conditions. It is difficult to evaluate our prospects, as we may not have sufficient experience in addressing the risks to which companies operating in rapidly evolving markets may be exposed. If our growth rate declines, investors’ perceptions of our business and prospects may be materially and adversely affected and the market price of the ADSs could decline. You should consider our prospects in light of the risks and uncertainties that companies with a limited operating history may encounter.

If we fail to maintain membership loyalty or sustain membership growth, or fail to maintain member relationships effectively and retain existing members, our business and operating results may be materially and adversely affected.

We are a membership-based social e-commerce platform and therefore membership loyalty and growth are essential to our business. The cumulative number of our members reached approximately 7.4 million as of December 31, 2018. The growth of our business depends on our ability to maintain and increase the number of members on our platform and improve the level of their engagement. Individuals can become our members mainly by purchasing our membership packages at a fixed price. We currently do not charge membership renewal fees or periodic membership fees. We may decide to charge membership renewal fees or other type of fees in the future. Such change in practice may negatively impact the membership loyalty and result in a decline in the level of engagement of our members. Damage to our reputation or our failure to anticipate needs of and provide value-added services to our members, among other things, could also diminish membership loyalty and reduce activity of members on our platform, which could cause our revenue and operating income to decline and negatively impact our profitability.

Our membership growth depends on existing members to promote our products and invite new members through their social networks. Our members may decide not to promote our products or invite new members at any time. To increase our revenue, we must increase the number of, or level of activity of, our members. However, we may not be able to accurately predict how the number and level of activity of members may fluctuate, because we outsource provision of member services to third-party service companies. We work with third-party service companies and enter into agreements with them on an annual basis or for a longer term. These

 

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third-party service companies select service managers based on the standards we provide in our agreements and they hire, train and compensate service managers to provide training to our members. However, we cannot guarantee service managers selected by these third-party service companies will provide satisfactory performance. If the service managers fail to motivate our members or facilitate members’ product sales, we may lose our existing members and the level of activity of members may reduce on our platform. Service managers may voluntarily terminate their contracts with third-party service companies at any time. The loss of service managers or the loss of a significant number of members for any reason, could negatively impact our business operations, impair our ability to attract new members. In addition, if our existing and new business opportunities and incentives, products, services and other initiatives do not generate sufficient enthusiasm and economic incentive to retain our existing members or attract new members on a sustained basis, our operating results could be adversely affected. As a result, in order to maintain our business growth in the future, we need to increase our retention of existing members and continue to successfully attract additional members.

If we fail to anticipate user needs and provide products and services attractive to users, or fail to adapt our services or business model to changing user needs, emerging industry standards or rapid technological evolution, or fail to provide products at a satisfactory quality to our users, our business may be materially and adversely affected.

The e-commerce market in which we operate, and user needs and preferences are constantly evolving. As a result, we must continuously respond to changes in the market and user demand and preferences to remain competitive, grow our business and maintain our market position. We intend to further diversify our product and service offerings to contribute to our revenue sources in the future. New products and services, new types of customers or new business models may involve risks and challenges we do not currently face. We continually introduce new sales format on our platform to improve user engagement and our productivity. Any new initiatives may require us to devote significant financial and management resources and may not perform as well as expected. Furthermore, we may have difficulty in anticipating user demand and preferences, and the products offered on our platform may not be accepted by the market or be rendered obsolete or uneconomical. Therefore, any inability to adapt to these changes may result in a failure to capture new members and other users or retain existing members and other users, the occurrence of which would materially and adversely affect our business, financial condition and results of operations. In addition, if we are unable to provide products to users at a satisfactory quality, in a timely manner, in sufficient quantities or at an acceptable cost, our business could be negatively impacted. We may also be subject to claims if our users are not satisfied with the quality of the products or do not have satisfactory experiences in general.

In addition, to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our platform. The internet and the e-commerce markets are characterized by rapid technological evolution, changes in user requirements and preferences, frequent introductions of new products, features and services embodying new technologies and the emergence of new industry standards and practices, any of which could render our existing technologies and systems obsolete. Our success will depend, in part, on our ability to identify, develop and adapt to new technologies useful in our business, and respond to technological advances and emerging industry standards and practices, in particular with respect to mobile internet, in a cost-effective and timely way. We cannot assure you that we will be successful in these efforts.

We will not be able to exert the same level of influence or control over members and service managers as we could if they were our employees, and we may be subject to significant costs and reputational harm in the event our members violate any laws or regulations applicable to our operations.

Members and service managers, most of whom are also our members, are not our employees and do not enter into any employment contracts with us. Accordingly, we are not in a position to provide the same level of control over and oversight of members and service managers as we would if they were our employees. However, our members play an important role in promoting our products and inviting new members to our platform. Some members also interact frequently with the users in their social network regarding our products and platform.

 

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Therefore, such users may associate the members with us and hold us accountable for any misconduct by our members. Also, service managers provide services to our members and communicate with them on a regular basis. The members they serve may view us as vicariously liable for any misconduct by service managers. We may be subject to lawsuits or reputational harm if, for example, a member misrepresents the functionality or provides inaccurate information of our products through the member’s social network, a member or service manager conducts any wrongdoings or otherwise violates applicable laws. While we have implemented policies and procedures designed to govern conduct of our members to comply with the regulatory regime in China and protect our goodwill and the third-party service companies have adopted policies to regulate the conduct of the service managers, there can be no assurance that members or service managers will comply with the policies and procedures. Violations by members or service managers of applicable law or of the policies and procedures could reflect negatively on our products and operations and harm our business reputation. While we have not experienced any significant problems affecting our products, operations or business reputation caused by violations by members or service managers of the policies and procedures, we cannot assure you that we will not face such problems in the future.

Any harm to our Yunji brand or reputation may materially and adversely affect our business and results of operations.

We believe that the recognition and reputation of our Yunji ( LOGO ) brand among our members, other users, suppliers and third-party service providers have contributed significantly to the growth and success of our business. Maintaining and enhancing the recognition and reputation of our brand are critical to our business and competitiveness. Many factors, some of which are beyond our control, are important to maintaining and enhancing our brand and may negatively impact our brand if not properly managed. These factors include our ability to:

 

   

provide a superior shopping experience to our users;

 

   

maintain and grow our member and user base and keep our community, members and other users highly engaged;

 

   

maintain the popularity, attractiveness, diversity, quality and authenticity of our product offerings;

 

   

maintain the efficiency, reliability and quality of our fulfillment services to our users;

 

   

maintain or improve users’ satisfaction with our after-sale services;

 

   

increase brand awareness through marketing and brand promotion activities; and

 

   

preserve our reputation and goodwill in the event of any negative publicity on customer service, internet and data security, product quality, price or authenticity, our industry and other players within the industry or other issues affecting us or other social e-commerce and e-commerce businesses in China.

Public perception that non-authentic, counterfeit or defective goods are sold on our platform or that we or third-party service providers do not provide satisfactory customer service, even if factually incorrect or based on isolated incidents, could damage our reputation, diminish the value of our brand, undermine the trust and credibility we have established and have a negative impact on our ability to attract new users or retain our current users. If we are unable to maintain our reputation, enhance our brand recognition or increase positive awareness of our platform, products and services, it may be difficult to maintain and grow our member and user base, and our business and growth prospects may be materially and adversely affected.

If our business model were found to be in violation of applicable laws and regulations, our business, financial condition and results of operations would be materially and adversely affected.

In August 2005, the State Council promulgated the Regulations on the Prohibition of Pyramid Selling, which prohibits individuals and entities in China from engaging in pyramid selling. See “Regulation—

 

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Regulations Relating to Pyramid Selling in the PRC.” In May 2017, we received a formal notice from the local Administration for Market Regulation in Hangzhou, which ruled that our sales and marketing practice prior to February 2016 violated the Regulations on the Prohibition of Pyramid Selling and imposed a fine of approximately RMB9.6 million (US$1.4 million). Since the early stage of our operations in 2015, the local governmental authorities in Hangzhou had been in discussion with us on potential violation by our then-existing business model of the Regulations on the Prohibition of Pyramid Selling, and we have adjusted our business practices since February 2016 to comply with the Regulations on the Prohibition of Pyramid Selling and other applicable regulations. We fully paid the fine in June 2017. In December 2018, we and Han Kun Law Offices, our PRC legal counsel, consulted with the competent government authority in Hangzhou, the district branch of SAMR having direct jurisdiction over our PRC entities that currently operate our membership-based social e-commerce platform, and the government authority verbally confirmed that these entities have conducted their business operations lawfully and none of these entities is in violation of the Regulations on the Prohibition of Pyramid Selling or any other applicable laws. Based on our discussion with the competent government authorities and the advice of Han Kun Law Offices, we believe that our current business model is not in violation of applicable PRC laws and regulations, including the Regulations on the Prohibition of Pyramid Selling . However, there is no assurance that the competent governmental authorities in China that we communicate with will not change their views, or the other relevant government authorities will share the same view as our PRC legal counsel, or they will find our business model not in violation of any applicable regulations, given the uncertainties in the interpretation and application of existing PRC laws, regulations and policies relating to our current business model, including, but not limited to, regulations regulating pyramid selling. Moreover, new laws, regulations or policies may also be promulgated in the future, and there is no assurance that our current business model will be in full compliance with the new laws, regulations or policies. If our business model were to be found in violation in the future, we will have to make adjustment to our business model or cease certain of our business operations, and the relevant governmental authorities may confiscate any illegal gains and impose a fine, which would have a material and adverse impact on our business, financial condition and results of operations.

Any change, disruption or discontinuity in the features and functions of major social networks in China could severely limit our ability to continue growing our member and user base, and our business may be materially and adversely affected.

Our success depends on our ability to attract and retain new members and other users and expand our member and user base. We leverage social networks in China as a tool for member and user acquisition and engagement. For example, we leverage social networks, such as WeChat, QQ and Weibo, to enable members to share product information and their experiences with products on our platform to their friends, family and other social contacts, who can purchase such products directly via the links shared by the members through social networks. A substantial portion of our member and user traffic comes from such member recommendation through social networks. To the extent that we are banned from using some or all functions of such social networks, or fail to leverage such social networks, our ability to attract or retain members and other users, and maintain an active community may be severely harmed. If WeChat, QQ or Weibo changes its functions or support, such as charging fees for functions or support that is currently provided for free, or stops offering its functions or support to us or discontinues its functions or support in general, we may not be able to locate alternative platforms of similar scale to provide similar functions or support in a timely manner, or at all. Furthermore, we may fail to establish or maintain relationships with additional social network operators to support the growth of our business on economically viable terms, or at all. Any interruption to or discontinuation of our relationships with major social network operators may severely and negatively impact our ability to continue growing our user base, and any occurrence of the circumstances mentioned above may have a material adverse effect on our business, financial condition and results of operations.

We face intense competition. We may lose market share and users if we fail to compete effectively.

The e-commerce industry in China is intensely competitive. We compete to attract, engage and retain members, other users, orders, and other participants on our platform. Our current or potential competitors include

 

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all major e-commerce companies in China and other internet companies in China that engage in social e-commerce businesses. See “Business—Competition.”

Our current or potential competitors may have longer operating histories, greater brand recognition, better supplier relationships, larger customer bases, higher user activity and loyalty or greater financial, technical or marketing resources than we do. Our competitors may leverage their brand recognition, experience and resources to compete with us in a variety of ways, including making investments and acquisitions for the expansion of their product and service offerings. Some of our competitors may be able to secure more favorable terms from suppliers, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory policies and devote substantially more resources to their IT systems and technology than us. In particular, some of these competitors have substantially greater financial resources that may allow them to initiate and sustain aggressive price competition and we experience increased competition when our competitors offer discounts or clearance sale for various reasons. If we are unable to offer products on our platform at competitive prices, we may experience increased negative pressure on pricing for our products and loss of users. Some of our competitors may also utilize social networks to attract users, which may divert traffic or attention of our potential users. In addition, new and enhanced technologies may increase the competition in the e-commerce industry. Increased competition may reduce our profitability, market share, user base and brand recognition. We cannot assure you that we will be able to compete successfully against current or future competitors, and competitive pressures may have a material and adverse effect on our business, financial condition and results of operations.

Any disruption to our IT systems could materially affect our ability to maintain the satisfactory performance of our IT systems and deliver consistent services to our users.

The proper functioning of our IT systems is essential to our business. The satisfactory performance, reliability and availability of our IT systems are critical to our success, our ability to attract and retain members and other users and our ability to maintain and deliver consistent services on our platform. However, our technology infrastructure may fail to keep pace with increased sales on our platform, in particular with respect to our new product and service offerings or in association with traffic and order surges during promotional events and holiday seasons, and therefore our users may experience delays as we seek to source additional capacity, which would adversely affect our results of operations as well as our reputation.

Additionally, we must continue to upgrade and improve our technology infrastructure to support our business growth. However, we cannot assure you that we will be successful in executing these system upgrades, and the failure to do so may impede our growth. We currently use cloud services and servers operated by external cloud service providers to store our data, to allow us to analyze a large amount of data simultaneously and to update our user database and profiles quickly. Any interruption or delay in the functionality of these external cloud service and server providers may materially and adversely affect the operations of our business.

We may be unable to monitor and ensure high-quality maintenance and upgrade of our IT systems and infrastructure on a real-time basis, and users may experience service outages and delays in accessing and using our platform to place orders. In addition, we may experience surges in online traffic and orders associated with promotional activities and generally as we scale, which can put additional demand on our platform at specific times. Our technology or infrastructure may not function properly at all times. Any system interruptions caused by telecommunications failures, computer viruses, physical or electronic break-ins or other attempts to harm our systems could result in the unavailability or slowdown of our platform or reduced order fulfillment performance, which in turn could reduce the volume of products sold and the attractiveness of product offerings on our platform. Any of such occurrences could cause severe disruption to our daily operations. As a result, our reputation may be materially and adversely affected, our market share could decline and we could be subject to liability claims. In addition, in order to ensure that our technology infrastructure can be comprehensively and rapidly upgraded, we need to constantly enhance our technology. Otherwise, we face the risk of our technology infrastructure becoming unstable and susceptible to security breaches, which we may be unable to identify or

 

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rectify rapidly and effectively. Such instability or susceptibility could create serious challenges to the security and uninterrupted operation of our platform and services, which would materially and adversely affect our business and reputation.

We may face challenges in expanding our product offerings and optimizing our product mix.

Our platform carries a wide range of products including, among others, household goods, cosmetics, food and beverage, childcare products, electronic appliances and fresh produce. Expansion into diverse new product categories and increase in number of products we offer involve new risks and challenges. Our lack of familiarity with these products and lack of relevant user data relating to these products may make it more difficult for us to anticipate user demand and preferences. We may misjudge user demand, resulting in inventory buildup and possible inventory write-down. It may also make it more difficult for us to inspect and control quality and ensure proper handling, storage and delivery. We may experience higher return rates on new products, receive more complaints from members and other users about them and face costly product liability claims, which would harm our brand and reputation as well as our financial performance. Furthermore, we may not have much purchasing power in new categories of products and we may not be able to negotiate favorable terms with suppliers. We may need to price aggressively to gain market share or remain competitive in new categories. It may be difficult for us to achieve profitability in the new product categories and our profit margin for these new product categories, if any, may be lower than we anticipate, which would adversely affect our overall profitability and results of operations. We cannot assure you that we will be able to recoup our investments in introducing these new product categories. In addition, some of our existing product categories may have lower profit margins than others, and failure to grow our existing product categories with higher profit margins may adversely impact our overall profitability and results of operations.

We have incurred net loss in the past and we may continue to experience losses in the future.

We incurred a net loss of RMB24.7 million, RMB105.7 million and RMB56.3 million (US$8.2 million) in 2016, 2017 and 2018, respectively. We cannot assure you that we will be able to generate net profits or positive cash flow from operating activities in the future. Our ability to achieve and maintain profitability will depend in large part on our ability to, among other things, increase our number of members and other users, grow and diversify our supplier base, and optimize our cost structure. We may not be able to achieve any of the above. We intend to continue to invest heavily for the foreseeable future in our fulfillment infrastructure and technology platform to support an even more carefully curated selection of products and to offer additional value-added services. As a result of the foregoing, we believe that we may incur net losses for in the future.

If we fail to manage and expand our relationships with suppliers, or otherwise fail to procure products at favorable terms, our business, growth and profitability prospects may suffer.

We source products from third-party suppliers for our online platform. We had 1,369 suppliers as of December 31, 2018. Our suppliers include merchants of mainstream brands and emerging brands, and manufacturing partners we cooperate with. Maintaining strong relationships with these suppliers is important to the growth of our business. In particular, we depend significantly on our ability to procure products from suppliers on favorable pricing terms. We typically enter into one-year framework agreements with our suppliers on an annual basis, and these framework agreements do not ensure the availability of products or the continuation of particular pricing practices or payment terms beyond the end of the contractual term. In addition, our agreements with suppliers typically do not restrict the suppliers from selling products to others. We cannot assure you that our current suppliers will continue to sell products to us on commercially acceptable terms, or at all, after the term of the current agreement expires. Even if we maintain good relations with our suppliers, their ability to supply products to us in sufficient quantity and at competitive prices may be adversely affected by economic conditions, labor actions, regulatory or legal decisions, natural disasters or other causes.

 

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In the event that we are not able to purchase products at favorable prices, our revenues and cost of sales may be materially and adversely affected. In the event any brand owner does not have authority from the relevant manufacturer to sell certain products to us, such brand owner may cease selling such products to us at any time. If our suppliers cease to provide us with favorable payment terms, our need for working capital may increase and our operations may be materially and adversely affected. We will also need to establish new supplier relationships to ensure that we have access to a steady supply of products on favorable commercial terms. If we are unable to develop and maintain good relationships with suppliers that would allow us to obtain a sufficient amount and variety of authentic and quality products on acceptable commercial terms, it may inhibit our ability to offer sufficient products sought by our users, or to offer these products at competitive prices. Any adverse developments in our relationships with suppliers could materially and adversely affect our business and growth prospects. In addition, as part of our growth strategy, we plan to further expand our product offerings. If we fail to attract new suppliers to sell their products to us due to any reason, our business, growth and profitability prospects may be materially and adversely affected.

Our operations could be materially adversely affected if we fail to effectively manage our relationships with, or lose the services of, third-party manufacturing partners.

We rely on third-party manufacturing partners to manufacture our private label products. Our ability to grow revenues in the future will depend in part on our success in maintaining successful relationships with our manufacturing partners. As we do not enter into long-term contracts with third-party manufacturing partners, they may decide not to accept our future orders on the same or similar terms, or at all. If an manufacturing partner decides to substantially reduce its volume of supply to us or to terminate its business relationship with us, we may not be able to find a proper replacement in a timely manner, or at all. This may negatively impact our revenues and adversely affect our reputation, causing a material adverse effect on our financial condition, results of operations and prospects. In particular, a substantial portion of our GMV from private label products is generated from the sale of Solo Life ( LOGO ). If there is any adverse change to the nature of our relationship with the manufacturer of Solo Life or if the manufacturer of Solo Life decides to terminate its cooperation with us, the sale of our private label products and thus our results of operations may be negatively impacted. Moreover, some manufacturing partners may not fully comply with certain laws and regulations, such as consumer protection, labor and environmental laws. If any of our manufacturing partners is found to have violated laws and regulations in China, media reports on such violations may negatively affect our reputation and image, resulting in material adverse impact on our business, financial condition and results of operations. In addition, while we provide the designs of our products to the manufacturing partner, as well as guidance for manufacturing the products ordered by us, we do not have direct control over the manufacturing partners. If any of them is involved in unauthorized production and sale of goods using our brand name, our reputation, financial condition and results of operations may be materially adversely affected.

We use third-party logistics service providers to deliver our orders. If these third-party logistics service providers fail to provide reliable delivery services, our business and reputation may be materially and adversely affected.

We cooperate with a number of third-party logistics service providers to deliver our products to end customers. Interruptions to or failures in these third parties’ delivery services could prevent the timely or proper delivery of our products or may cause product damage or product loss during transit. These interruptions may be due to events that are beyond our control or the control of these third-party logistics companies, such as inclement weather, natural disasters, transportation disruptions or labor unrest. In addition, if our third-party logistics service providers fail to comply with applicable rules and regulations in China, our delivery services may be materially and adversely affected. We may not be able to find alternative third-party logistics companies to provide delivery services in a timely and reliable manner, or at all. Delivery of our products could also be affected or interrupted by the merger, acquisition, insolvency or shut-down of the delivery companies we engage to make deliveries, especially those local companies with relatively small business scales. If our products are not delivered in proper condition or on a timely basis, our users may refuse to accept products purchased on our platform and lose confidence in our platform, and our business and reputation could suffer.

 

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Furthermore, delivery personnel of contracted third-party logistics service providers act on our behalf and interact with our users personally. We need to effectively manage these third-party logistics service providers to ensure the quality of customer services. We have in the past received user complaints from time to time regarding our delivery and return and exchange services. Any failure to provide high-quality delivery services to our users may negatively impact the shopping experience of our users, damage our reputation and cause us to lose users.

If we are unable to successfully manage our relationships with third-party service companies or third-party business process outsourcing companies (BPOs), we may lose service managers or customer service representatives, or fail to provide superior customer services, which could negatively affect our business and operations.

We maintain a limited number of our own employees for customer services and rely on third-party business process outsourcing companies (BPOs) for outsourced customer services. Our customer service center in Hefei, Anhui Province provides real-time assistance to our users and it had 1,239 outsourced customer service representatives as of December 31, 2018. These outsourced customer service representatives may not have the same level of commitment to our users or be as well-trained as our own employees and we have less control over the services provided by them than our own employees. We typically enter into service agreements with third-party BPOs on an annual basis or for a longer term. In the event that one or more of these third-party BPOs unexpectedly become unable or unwilling to provide some or all of these services to us, our own employees may not be able to provide the necessary range of customer services. If these outsourced customer service representatives fail to perform in accordance with the terms of our agreements with third-party BPOs or fail to provide satisfactory customer service, or if waiting times are too long due to the high volume of calls from users at peak times, we may fail to meet user expectations and our brand and user loyalty may be adversely affected. Any negative publicity or poor feedback regarding our customer service may harm our brand and reputation and in turn cause us to lose users and market share.

We outsource provision of member services to third-party service companies and they hire, train and compensate service managers at our request. Service managers enter into service contracts with third-party service companies and are not our employees. We currently work with five third-party service companies and enter into agreements with them on an annual basis or for a longer term. These third-party service companies select service managers based on the standards we provide in our agreements. While we may oversee the performance of service managers and request these third-party service companies to replace service managers that do not meet our standards, management of service managers through third parties may not be as timely and effective were they our employees. If we are unable to enter into new agreements or extend existing agreements with these third-party service companies on terms and conditions acceptable to us, we may lose service managers. We may not be able to find alternative third-party service companies to provide similar services in a timely and reliable manner, or at all. Accordingly, our members may not receive sufficient training or support for promoting the products sold on our platform and they may become less motivated to promote our products via their social networks. Any termination of our arrangements with these third-party service companies, or their refusal to select service managers for us, could have a material adverse effect on our business, financial condition and results of operations.

The newly adopted E-Commerce Law may have a material adverse impact on our business, financial conditions and results of operations.

As the e-commerce industry is still evolving in China, new laws and regulations may be adopted from time to time to address new issues that arise from time to time. For example, in August 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective on January 1, 2019. The E-Commerce Law generally provides that e-commerce operators must obtain administrative licenses if business activities conducted by the e-commerce operators are subject to administrative licensing requirements under applicable laws and regulations. In addition, the E-Commerce Law imposes a number of new obligations

 

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on e-commerce platform operators, including the obligations: (i) to verify and register platform merchants, (ii) to ensure platform cybersecurity, including, but not limited to, data privacy, (iii) to ensure fair dealing and the legitimate rights and interests of consumers on the platform, (iv) to publicize transaction information preservation and transaction rules, and (v) to protect intellectual properties. See “Regulation—Regulations Relating to E-Commerce” for further details. The new regulatory requirements may have a material adverse impact on our business and results of operations. As no detailed interpretation and implementation rules have been promulgated, it remains uncertain how the newly adopted E-Commerce Law will be interpreted and implemented. We cannot assure you that our current business operations satisfy the obligations provided under the E-Commerce Law in all respects. If the PRC governmental authorities determine that we are not in compliance with all the requirements proposed under the E-Commerce Law, we may be subject to fines and/or other sanctions.

The new E-Commerce Law also imposes a requirement on operators of e-commerce platforms, such as our company, to assist in tax collection with respect to income generated by sellers from transactions conducted on e-commerce platforms, including, among others, submitting to the tax authority information on the identities of sellers on e-commerce platforms and other information relating to tax payment. Failure to comply with the requirement may result in operators of e-commerce platforms being subject to fines and, in severe circumstances, suspension of business operations of e-commerce platforms. Substantial uncertainties exist regarding the interpretation and implementation of the new E-Commerce Law. We encourage and incentivize members to promote the products on our platform. If the members were deemed to be selling our products on consignment basis, the PRC tax authorities may require our members to make tax registration and request our assistance in these efforts, pursuant to the new E-Commerce Law and our members may be subject to more stringent tax compliance requirements. Due to the lack of detailed interpretation and implementation rules, we are in discussion with the relevant government authorities on how to comply with the requirements under the new E-Commerce Law. The PRC government may adopt additional requirements from time to time, and we may be requested by tax authorities to provide further assistance in the enforcement of tax regulations, such as disclosure of transaction records and bank account information of the members, and withholding taxes for our members. If any of these were to occur, we may lose our existing members or fail to attract new members and the level of activity of members may reduce on our platform. We may also incur increased costs and expenses as a result. The tightened tax enforcement by PRC tax authorities in the e-commerce industry, such as imposition of reporting or withholding obligations on operators of e-commerce platforms with respect to tax payable of merchants on e-commerce platforms, may have a material and adverse effect on our business, financial condition and results of operations.

If we are unable to manage our growth or execute our strategies effectively, our business and prospects may be materially and adversely affected.

Our business has grown substantially since our inception, and we expect continued growth in our business, revenues and number of employees. We plan to further expand our fulfillment infrastructure and technology platform and continue to optimize our product offerings. For example, we plan to add new warehouse facilities in additional locations across China. We also intend to continue to invest significant resources in training, managing and motivating our workforce. In addition, as we optimize our product offerings, we will need to work with new suppliers efficiently and establish and maintain mutually beneficial relationships with our existing and new suppliers. We may have limited or no experience for certain new product offerings, and our expansion into these new product offerings may not achieve broad user acceptance. In addition, these offerings may present new and difficult technological or operational challenges, and we may be subject to claims if our users are not satisfied with the quality of the products or do not have satisfactory experiences in general. To effectively manage the expected growth of our operations and personnel, we will need to continue to improve our transaction processing, technological, operational and financial systems, policies, procedures and controls. All these endeavors involve risks and will require significant managerial, financial and human resources. We cannot assure you that we will be able to effectively manage our growth or to implement all these systems, procedures and control measures successfully or that our new business initiatives will be successful. If we are not able to manage our growth or

 

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execute our strategies effectively, our expansion may not be successful and our business and prospects may be materially and adversely affected.

We may incur liability or become subject to administrative penalties for counterfeit or unauthorized products sold on our platform, or for products sold on our platform or content posted on our platform that infringe on third-party intellectual property rights, or for other misconduct.

We sourced our products from 1,369 suppliers as of December 31, 2018. We have been and may continue to be subject to allegations and lawsuits claiming that products sold or listed on our platform are counterfeit, unauthorized, illegal, or otherwise infringe third-party copyrights, trademarks and patents or other intellectual property rights, or that content posted on our user interfaces or shared by members through their social networks contain misleading or inaccurate information on description of products and comparable prices. Although we have adopted strict measures to protect us against these potential liabilities, including proactively verifying the authenticity and authorization of products sold on our platform through conducting offline investigations and immediately removing any counterfeit or illegal products or misleading information found on our platform, these measures may not always be successful or timely.

In the event that counterfeit, unauthorized or infringing products are sold on our platform or infringing or misleading content is posted on our platform, we could face claims or be imposed with penalties. We have in the past received claims alleging the sales of defective, counterfeit or unauthorized items on our platform. Irrespective of the validity of such claims, we could incur significant costs and efforts in either defending against or settling such claims. If there is a successful claim against us, we might be required to pay substantial damages or refrain from further sale of the relevant products. Potential liabilities under PRC law for negligence in participating or assisting in infringement activities associated with counterfeit goods include injunctions to cease infringing activities, rectification, compensation, administrative penalties and even criminal liability. Moreover, such third-party claims or administrative penalties could result in negative publicity and our reputation could be severely damaged. In addition, in the event that any of our suppliers fail to obtain proper authorization to sell certain products to us, they may be prevented from selling products to us and we may become subject to claims or disputes alleging that some products are sold on our platform without proper authorization. Any of these events could have a material and adverse effect on our business, results of operations or financial condition.

Under our standard form agreements, we require suppliers to indemnify us for any losses we suffer or any costs that we incur due to any products we source from these suppliers. However, not all of our agreements with suppliers have such terms, and for those agreements that have such terms, we may not be able to successfully enforce our contractual rights and may need to initiate costly and lengthy legal proceedings in China to protect our rights. See “—Risks Related to Doing Business in China—We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies.”

If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected.

Our scale and business model require us to manage a large volume of inventory effectively. We depend on our demand forecasts for various kinds of products to make purchase decisions and to manage our inventory. Demand for products, however, can change significantly between the time inventory is ordered and the date by which we hope to sell it. Demand may be affected by seasonality, new product launches, changes in product cycles and pricing, product defects, changes in consumer spending patterns, changes in consumer tastes with respect to our products and other factors, and our users may not order products in the quantities that we expect. In addition, when we begin selling a new product, it may be difficult to establish supplier relationships, determine appropriate product selection, and accurately forecast demand. The acquisition of certain types of inventory may require significant lead time and prepayment and they may not be returnable. We do not have the right to return unsold items to some of our suppliers.

 

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Our net inventories have increased significantly in recent periods, from RMB97.4 million as of December 31, 2016 to RMB332.8 million as of December 31, 2017 and further to RMB675.5 million (US$98.3 million) as of December 31, 2018. Our inventory turnover days were 25.0 days in 2016, 15.0 days in 2017 and 17.0 days in 2018. We may include more products in our inventory, which will make it more challenging for us to manage our inventory effectively and will put more pressure on our warehousing system.

If we fail to manage our inventory effectively, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values, and significant inventory write-downs or write-offs. In addition, we may be required to lower sale prices in order to reduce inventory level, which may lead to lower margins. High inventory levels may also require us to commit substantial capital resources, preventing us from using that capital for other important purposes. If we underestimate demand for our products, or if our suppliers fail to supply quality products in a timely manner, we may experience inventory shortages, which might result in missed sales, diminished brand loyalty and lost revenues, any of which could harm our business and reputation. Any of the above may materially and adversely affect our results of operations and financial condition.

Failure to successfully manage our fulfillment infrastructure expansion or any interruption in the operation of the warehouse facilities for an extended period may negatively affect our growth potential, business and results of operations.

We believe that our fulfillment infrastructure, consisting of strategically located warehouses and front distribution centers, is essential to our success. We plan to add new warehouse facilities in more locations across China, including establishing more front distribution centers to enhance the efficiency in fulfilling the rapidly increasing orders placed from all areas in China. As we continue to add fulfillment capability, our fulfillment network becomes increasingly complex and challenging to operate. We cannot assure you that we will be able to add suitable warehouse facilities on commercially acceptable terms or at all. We may not be able to recruit a sufficient number of qualified employees in connection with the expansion of our fulfillment infrastructure. In addition, the expansion of our fulfillment infrastructure may strain our managerial, financial, operational and other resources. If we fail to manage such expansion successfully, our growth potential, business and results of operations may be materially and adversely affected. Even if we manage the expansion of our fulfillment infrastructure successfully, it may not give us the competitive advantage that we expect if improved third-party fulfillment services become widely available at reasonable prices to e-commerce platforms in China.

In addition, our ability to process and fulfill orders accurately and provide high quality customer service depends on the smooth operation of the warehouse facilities. Most of the warehouses we use are operated by third-party vendors. We provide our operating standards under our operating agreements with third-party vendors and typically renew these agreements on an annual basis. Any decrease in the quality of service offered by these third-party vendors will adversely affect our reputation and business operations. The warehouse facilities may be vulnerable to damage caused by fire, flood, power outage, telecommunications failure, break-ins, earthquake, human error and other events. If any of the warehouse facilities were rendered incapable of operations, then we may be unable to fulfill our orders on a timely basis. We do not carry business interruption insurance, and the occurrence of any of the foregoing risks could have a material adverse effect on our business, prospects, financial condition and results of operations.

We may not be able to recoup the investments we make to expand and upgrade our fulfillment and technology capabilities.

We have invested and will continue to invest in expanding our fulfillment infrastructure and upgrading our technology platform. We expect to continue to invest heavily in our fulfillment and technology capabilities for a number of years. We also intend to continue to add personnel and other resources to our fulfillment infrastructure and technology platform as we focus on expanding our product selection and offering new services. We are likely to recognize the costs associated with these investments earlier than some of the anticipated benefits, and

 

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the return on these investments may be lower, or may develop more slowly, than we expect. We may not be able to recover our capital expenditures or investments, in part or in full, or the recovery of these capital expenditures or investments may take longer than expected. As a result, the carrying value of the related assets may be subject to an impairment charge, which could adversely affect our financial condition and results of operation.

If we fail to remediate our material weaknesses and implement and maintain an effective system of internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with the audits of our consolidated financial statements included in this prospectus, we and our independent registered public accounting firm identified two material weaknesses and other significant control deficiencies in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses that have been identified relate to (i) our lack of sufficient financial accounting staff and management with appropriate levels of accounting knowledge and experience to address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP and SEC reporting and compliance requirements and (ii) our lack of sufficient documented financial closing policies and procedures, specially those related to period end cut-off and accruals. The material weaknesses, if not remediated timely, may lead to material misstatements in our consolidated financial statements in the future. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weaknesses and other control deficiencies in our internal control over financial reporting. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional deficiencies may have been identified.

Following the identification of the material weaknesses and other significant control deficiencies, we have taken measures and plan to continue to take measures to remediate these deficiencies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting.” However, the implementation of these measures may not fully address these deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remediated. Our failure to correct these deficiencies or our failure to discover and address any other deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.

Upon the completion of this offering, we will become subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2020. In addition, beginning at the same time, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse report if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, once we have become a public company, our reporting obligations may place a significant strain on our

 

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

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

Any lack of requisite approvals, licenses or permits applicable to our business or failure to comply with any requirements of PRC laws, regulations and policies may have a material and adverse impact on our business, financial condition and results of operations.

Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including the Ministry of Commerce, or MOFCOM, the Ministry of Industry and Information Technology, or the MIIT, the State Administration for Market Regulation, or the SAMR, the State Internet Information Office, and other governmental authorities in charge of the relevant categories of products sold and services provided by us. Together, these government authorities promulgate and enforce regulations that cover many aspects of our operation of social e-commerce platform, including entry into this industry, the scope of permissible business activities, licenses and permits for various business activities, and foreign investment. We are required to hold a number of licenses and permits for our business operations. Although we hold all material licenses and permits that are necessary to our business, we have not obtained certain licenses, permits and filings for selling certain specific products or services on our platform. See “Regulation—Licenses, Permits and Filings.” For example, we have not obtained the internet audio-visual program transmission license for the audio-visual program services on our platform, and we are not qualified to apply for such license according to current applicable laws and regulations. In addition, we have not obtained the internet pharmaceutical information services qualification certificate for selling medical devices on our platform, and we have not completed filing for selling medical devices, distributing publications, providing live streaming services and selling food on our platform. We are in the process of applying for these licenses, permits and filings as permitted by relevant laws, regulations and practice of relevant PRC governmental authorities.

As of the date of this prospectus, we have not received any notice of warning or been subject to penalties or other disciplinary actions from relevant governmental authorities regarding our business operations without the required licenses, permits or filings. However, we cannot assure you that we will not be subject to any penalties or disciplinary actions in the future. There exist substantial uncertainties with respect to interpretation and application of existing PRC laws, regulations and policies, and new laws, regulations or policies regulating the internet industry may also be promulgated in the future, which together result in substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses activities of, internet businesses in China, including our social e-commerce platform.

 

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Our success depends on the continuing efforts of our senior management and key employees. If our senior management is unable to work together effectively or efficiently or if we fail to hire, retain and motivate key employees, our business may be severely disrupted.

Our success is significantly dependent upon the continued services of our management and other key employees. In particular, our founder and chief executive officer, Mr. Shanglue Xiao, and other management members are critical to our vision, strategic direction, culture and overall business success. If our senior management cannot work together effectively or efficiently, our business may be severely disrupted. If one or more of our senior management were unable or unwilling to continue in their present positions, we might not be able to locate suitable or qualified replacements easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. If any of our senior management or key employees joins a competitor or forms a competing business, we may lose users, suppliers, know-how and key professionals and staff members. Our senior management has entered into employment agreements and confidentiality and non-competition agreements with us. However, if any dispute arises between any of them and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce such agreements at all.

The increasing scale of our business also requires us to hire and retain a wide range of capable and experienced personnel and technology talents who can adapt to a dynamic, competitive and challenging business environment. Competition for talents is intense, and the availability of suitable and qualified candidates in China is limited. Competition for talents could cause us to offer higher compensation and other benefits to attract and retain them. Even if we were to offer higher compensation and other benefits, these individuals may not choose to join or continue to work for us. Any failure to attract or retain key management and personnel could severely disrupt our business and growth.

We may be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if people or properties are harmed by the products we sell on our platform.

We sell products manufactured by third parties, some of which may be defectively designed or manufactured. Sales of such products could expose us to increasing liability associated with consumer protection laws in those areas, including product liability or health and safety claims relating to personal injury or illness, death, or environmental or property damage, and may require product recalls or other actions. Moreover, pursuant to applicable consumer protection laws in China, consumers or any third parties subject to such injury or damage may bring claims or legal proceedings against the e-commerce platforms as sellers of such products. Although we would have legal recourse against the manufacturer of such products under PRC law if the liabilities are attributable to the manufacturer, attempting to enforce our rights against the manufacturer may be expensive, time-consuming and ultimately futile. In addition, we do not currently maintain any third-party liability insurance or product liability insurance in relation to most of the products we sell. As a result, any material product liability claim or litigation could have a material and adverse effect on our business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation.

Our business generates and processes a large amount of data, and we are required to comply with PRC laws relating to data privacy and security. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.

Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platform, including:

 

   

protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees;

 

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addressing concerns related to privacy and sharing, safety, security and other factors; and

 

   

complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to this data.

The PRC regulatory and enforcement regime with regard to data security and data protection is evolving. We may be required by PRC governmental authorities to share personal information and data that we collect to comply with PRC laws relating to cybersecurity. See “Regulation—Regulations Relating to Internet Information Security and Privacy Protection.” All these laws and regulations may result in additional expenses to us and subject us to negative publicity, which could harm our reputation and negatively affect the trading price of our ADSs. There are also uncertainties with respect to how these laws will be implemented in practice. PRC regulators have been increasingly focused on regulation in the areas of data security and data protection. We expect that these areas will receive greater attention and focus from regulators, and attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to penalties, fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. In addition, regulatory authorities around the world have recently adopted or are considering a number of legislative and regulatory proposals concerning data protection. These legislative and regulatory proposals, if adopted, and the uncertain interpretations and application thereof could, in addition to the possibility of fines, result in an order requiring that we change our data practices, which could have an adverse effect on our business and results of operations.

Failure to protect confidential information of our users and network against security breaches could damage our reputation and brand and substantially harm our business and results of operations.

A significant challenge to the e-commerce industry is the secure storage of confidential information and its secure transmission over public networks. A substantial amount of the orders and the payments for products offered on our platform are made through our mobile apps. In addition, all online payments for our products are settled through third-party online payment services. We also share certain personal information about our users with contracted third-party logistics service providers, such as their names, addresses, phone numbers and transaction records. Maintaining complete security for the storage and transmission of confidential information on our technology platform, such as user’s personal information, payment-related information and transaction information, is essential to maintaining user confidence.

We have adopted security policies and measures, including encryption technology, to protect our proprietary data and user information. 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 users on our platform. Such individuals or entities obtaining our users’ confidential or private information may further engage in various other illegal activities using such information. In addition, we have limited control or influence over the security policies or measures adopted by third-party providers of online payment services through which some of our users may elect to make payment for purchases. The contracted third-party logistics service providers we use may also violate their confidentiality obligations and disclose or use information about our users illegally. Any negative publicity on our platform’s 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 and adverse effect on our public image, reputation, financial condition and results of operations. Any compromise of our information security or the information security measures of our contracted third-party logistics service providers or third-party online payment service providers could have a material and adverse effect on our reputation, business, prospects, financial condition and results of operations.

 

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We rely on third-party online payment service providers for payment processing and escrow services on our platform. If these payment services are restricted or curtailed in any way or become unavailable to us or our users for any reason, our business may be materially and adversely affected.

All online payments for products sold on our platform are settled through third-party online payment service providers. Our business depends on the billing, payment and escrow systems of these payment service providers to maintain accurate records of payments of sales proceeds by users and collect such payments. If the quality, utility, convenience or attractiveness of these payment processing and escrow services declines, or we have to change the pattern of using these payment services for any reason, the attractiveness of our platform 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 our users;

 

   

increasing competition, including from other established PRC 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 users;

 

   

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.

Certain commercial banks in China impose limits on the amounts that may be transferred by automated payment from users’ bank accounts to their linked accounts with third-party online payment services. We cannot predict whether these and any additional restrictions that could be put in place would have a material adverse effect on our platform.

In addition, the commercial banks and third-party online payment service providers that we work with are subject to the supervision of the People’s Bank of China, or the PBOC. The PBOC may publish rules, guidelines and interpretations from time to time regulating the operation of financial institutions and payment service providers, which may in turn affect how they provide payment services to us. For example, in November 2017, the PBOC published a notice, or the PBOC Notice, on the investigation and administration of illegal offering of settlement services by financial institutions and payment service providers to unlicensed entities. The PBOC Notice intends to prevent unlicensed entities from using licensed payment service providers as a conduit for conducting unlicensed payment settlement service business, to safeguard the fund security and information security. We believe that our cooperation with third-party online payment service providers is not in violation of the PBOC Notice, because we sell the products on our platform to users and receive payment from users through the third-party online payment service providers. We plan to explore and expand the marketplace business model in the near future, and will continue to work with third-party online payment service providers to support the new initiatives. We cannot assure you that the PBOC or other governmental authorities will find our cooperation model with third-party online payment service providers with respect to the marketplace business model to be in

 

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compliance with the PBOC Notice. If required by the PBOC or other relevant governmental authorities in the future, we may need to adjust or suspend our cooperation model with third-party payment service providers, and be subject to fines and other sanctions.

In addition, we cannot assure you that we will be successful in entering into and maintaining amicable relationships with these online payment service providers. Identifying, negotiating and maintaining relationships with these providers require significant time and resources. Our current agreements with these service providers also do not prohibit them from working with our competitors. 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.

Changes in our return and exchange policies may adversely affect our results of operations.

Pursuant to the Consumer Protection Law in China, as amended, except for certain types of products, such as custom-made goods, fresh and perishable goods, consumers are generally entitled to return the products purchased within seven days upon receipt without giving any reasons. We have adopted user-friendly return and exchange policies that make it convenient and easy for users to change their minds after completing purchases, including allowing users to return products purchased within seven days upon receipt without giving any reasons. We may be required by new laws or regulations to adopt new or amend existing return and exchange policies from time to time. These policies may subject us to additional costs and expenses which we may not recoup through increased revenue. If our return and exchange policy is misused by a significant number of users, our costs may increase significantly and our results of operations may be materially and adversely affected. If we revise these policies to reduce our costs and expenses, our users may be dissatisfied, which may result in loss of existing users or failure to acquire new users at a desirable pace, which may materially and adversely affect our results of operations.

Our use of some leased properties could be challenged by third parties or government authorities, which may cause interruptions to our business operations.

Certain lessors of our leased properties have not provided us with their property ownership certificates or any other documentation proving their right to lease those properties to us. If our lessors are not the owners of the properties and they have not obtained consents from the owners or their lessors or permits from the relevant government authorities, our leases could be invalidated. If this occurs, we may have to renegotiate the leases with the owners or the parties who have the right to lease the properties, and the terms of the new leases may be less favorable to us. We have not entered into written contracts with our lessors for some of our leased properties and the lessors of such properties may claim to terminate our leases. We may not be able to find alternative properties to lease in a timely and reliable manner, or at all. Some of the leased properties were also subject to mortgage at the time the leases were entered into. If no consent had been obtained from the mortgage holder under such circumstances, the lease may not be binding on the transferee of the property in the event that the mortgage holder forecloses on the mortgage and transfers the property to another party. In addition, a substantial portion of our leasehold interests in leased properties have not been registered with the relevant PRC government authorities as required by PRC law, which may expose us to potential fines if we fail to remediate after receiving any notice from the relevant PRC government authorities. We have subleased a portion of our leased properties to our PRC subsidiaries, VIEs and their subsidiaries as well as other third parties.

As of the date of this prospectus, we are not aware of any claims or actions being contemplated or initiated by government authorities, property owners or any other third parties with respect to our leasehold interests in or use of such properties. However, we cannot assure you that our use of such leased properties will not be challenged. In the event that our use of properties is successfully challenged, we may be subject to fines and forced to relocate the affected operations. In addition, we may become involved in disputes with the property owners or third parties who otherwise have rights to or interests in our leased properties. We can provide no

 

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assurance that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject to material liability resulting from third parties’ challenges on our use of such properties. As a result, our business, financial condition and results of operations may be materially and adversely affected.

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

We lease properties for our offices and the warehouse facility that we operate. We may not be able to successfully extend or renew such leases upon expiration of the current term on commercially reasonable terms or at all, and may therefore be forced to relocate our affected operations. This could disrupt our operations and result in significant relocation expenses, which could adversely affect our business, financial condition and results of operations. In addition, we compete with other businesses for premises at certain locations or of desirable sizes. As a result, even though we could extend or renew our leases, rental payments may significantly increase as a result of the high demand for the leased properties. In addition, we may not be able to locate desirable alternative sites for our current leased properties as our business continues to grow and failure in relocating our affected operations could adversely affect our business and operations.

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

We adopted a share incentive plan in 2017, which was amended and restated in its entirety in March 2019 and referred to as the 2019 Plan in this prospectus, for the purpose of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. We recognize expenses in our consolidated financial statements in accordance with U.S. GAAP. Under the 2019 Plan, we are authorized to grant options, restricted shares, restricted share units and other types of awards. As of the date of this prospectus, options to purchase a total of 91,379,200 Class A ordinary shares and 39,613,000 restricted share units have been granted and outstanding under the 2019 Plan. See “Management—2019 Share Incentive Plan.” We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations. We may re-evaluate the vesting schedules, lock-up period, exercise price or other key terms applicable to the grants under our currently effective share incentive plans from time to time. If we choose to do so, we may experience substantial change in our share-based compensation charges in the reporting periods following this offering.

Our results of operations are subject to seasonal fluctuations which could result in volatility or have an adverse effect on the market price of our ADSs.

We experience seasonality in our business, reflecting a combination of seasonal fluctuations in internet usage and traditional retail seasonality patterns. For example, we generally experience less user traffic and purchase orders during the Chinese New Year holiday season in the first quarter of each year. Furthermore, online sales in China are significantly higher in the fourth quarter of each calendar year than in the preceding three quarters. E-commerce companies in China hold special promotional campaigns on November 11 each year and we hold a special promotional campaign in the second quarter of each year, both of which can affect our results for those quarters. Due to the foregoing factors, our financial condition and results of operations for future quarters may continue to fluctuate and our historical quarterly results may not be comparable to future quarters. As a result, the trading price of our ADSs may fluctuate from time to time due to seasonality.

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

We may in the future 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

 

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associated with sharing proprietary information, non-performance by the counterparty, and an increase in expenses incurred in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have little ability to control or monitor their actions. To the extent the third parties suffer negative publicity or harm to their reputations 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.

In addition, if we are presented with appropriate opportunities, we may invest in or acquire additional assets, technologies or businesses that are complementary to our existing business. Future investments or acquisitions and the subsequent integration of new assets and businesses 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. The costs of identifying and consummating investments and acquisitions may be significant. We may also incur significant expenses in obtaining necessary approvals from relevant government authorities in China and elsewhere in the world. Acquired assets or businesses may not generate the financial results we expect. In addition, 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 business. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations. Any such negative developments could have a material adverse effect on our business, financial condition and results of operations.

We may need additional capital, and financing may not be available on terms acceptable to us, or at all.

We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any changes in our account payable policy, marketing initiatives or investments we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to obtain a credit facility or sell additional equity or debt securities. The sale of additional equity securities could result in dilution of our existing 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.

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, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality, invention assignment and non-compete agreements with our employees and others, to protect our proprietary rights. Although we are not aware of any copycat mobile apps that attempt to cause confusion or diversion of traffic from us at the moment, we may become an attractive target to such attacks in the future because of our brand recognition in the e-commerce industry in China. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. In addition, there can be no assurance that (i) our application for registration of trademarks, patents, and other intellectual property rights will be approved, (ii) any intellectual property rights will be adequately protected, or (iii) such intellectual property rights will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable. Furthermore, because of the rapid pace of technological change in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms.

It is often difficult to register, maintain and enforce intellectual property rights in China. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be

 

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adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the infringement or misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources, and could put our intellectual property at risk of being invalidated or narrowed in scope. We can provide no assurance that we will prevail in such litigation, and even if we do prevail, we may not obtain a meaningful recovery. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in maintaining, protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate patents, copyrights or other intellectual property rights held by third parties. We have been, and from time to time in the future may be, subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be other third-party intellectual property that is infringed by our products, services or other aspects of our business. There could also be existing patents of which we are not aware that our products may inadvertently infringe. We cannot assure you that holders of patents purportedly relating to some aspect of our technology platform or business, if any such holders exist, would not seek to enforce such patents against us in China, the United States or any other jurisdictions. Further, the application and interpretation of China’s patent laws and the procedures and standards for granting patents in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against these third-party infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question. Finally, we use open source software in connection with our products and services. Companies that incorporate open source software into their products and services have, from time to time, faced claims challenging the ownership of open source software and compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and make available any derivative works of the open source code on unfavorable terms or at no cost. Any requirement to disclose our source code or pay damages for breach of contract could be harmful to our business, results of operations and financial condition.

We rely on proper operation and maintenance of our mobile platform and internet infrastructure and telecommunications networks in China. Any malfunction, capacity constraint or operation interruption may have an adverse impact on our business.

Currently, substantially all of our sales of products are generated online through our mobile platform. Therefore, the satisfactory performance, reliability and availability of our mobile platform are critical to our success and our ability to attract and retain users. Our business depends on the performance and reliability of the internet infrastructure in China. The reliability and availability of our mobile platform depends on telecommunications carriers and other third-party providers for communications and storage capacity, including bandwidth and server storage, among other things. If we are unable to enter into and renew agreements with these providers on acceptable terms, or if any of our existing agreements with such providers are terminated as a

 

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result of our breach or otherwise, our ability to provide products and services could be adversely affected. Access to internet in China is maintained through state-owned telecommunications carriers under administrative control, and we obtain access to end-user networks operated by such telecommunications carriers and internet service providers to give users access to our mobile platform. The failure of telecommunications network operators to provide us with the requisite bandwidth could also interfere with the speed and availability of our mobile platform. Service interruptions prevent users from accessing our mobile platform and placing orders, and frequent interruptions could frustrate users and discourage them from attempting to place orders, which could cause us to lose users and in turn suppliers and harm our operating results.

We have limited insurance coverage which could expose us to significant costs and business disruption.

We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased food safety insurance for our products. In addition to providing social security insurance for our employees as required by PRC law, we also provide supplemental commercial medical insurance for our employees. We do not maintain business interruption insurance, nor do we maintain product liability insurance or key-man life insurance. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

Our failure to comply with anti-corruption laws and regulations, or effectively control the corruptive activities of our employees, could severely damage our reputation, and materially and adversely affect our business, financial condition, results of operations and prospects.

We are subject to risks in relation to actions taken by us or our employees that may constitute violations of the anti-corruption laws and regulations. While we adopt strict internal procedures and work closely with relevant government agencies to assure compliance of our business operations with relevant laws and regulations, our efforts may not be sufficient to ensure that we comply with relevant laws and regulations at all times or prevent corruptive activities of our employees. If we or our employees violate any such laws, rules or regulations, we could be subject to fines and/or other penalties. Our reputation, corporate image, and business operations may be materially and adversely affected if we or our employees engage in corruptive activities or violate any anti-corruption laws or regulations or if we become the target of any negative publicity as a result of corruptive actions taken by us or our employees, which may in turn have a material adverse effect on our business, financial condition, results of operations and prospects.

We may increasingly become a target for public scrutiny, including complaints to regulatory agencies, which could severely damage our reputation and materially and adversely affect our business and prospects. Negative media coverage or publicity of us, our management or our employees or public dissemination of malicious assessments of our business could harm our reputation and cause us to lose market share, users and revenues and adversely affect the price of our ADSs.

The high volume of transactions taking place on our platform as well as publicity about our business create the possibility of heightened attention from the public, regulators and the media. Heightened regulatory and public concerns over consumer protection and consumer safety issues may subject us to additional legal and social responsibilities and increased scrutiny and negative publicity over these issues, due to the large number of transactions that take place on our platform and the increasing scope of our overall business operations. We may become the target of detrimental conduct by third parties, which include complaints, anonymous or otherwise, to regulatory agencies. We may be subject to government or regulatory investigation as a result of such third-party conduct and may be required to expend significant time and incur substantial costs to address such third-party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Moreover, as our business expands and grows, we may be exposed to

 

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heightened public scrutiny in jurisdictions where we already operate as well as in new jurisdictions where we may operate. There is no assurance that we would not become a target for regulatory or public scrutiny in the future or that scrutiny and public exposure would not severely damage our reputation as well as our business and prospects. Any illegal or immoral conducts by our management or employees could also result in negative publicity of us and thus harm our public image and reputation.

In addition, allegations, directly or indirectly against us, may be posted in social media or on blogs or websites by anyone, whether or not related to us, on an anonymous basis. Consumers value readily available information concerning retailers, manufacturers, and their goods and services and often act on such information without further investigation or authentication and without regard to its accuracy. The availability of information on social media platforms and devices is virtually immediate, as is its impact. Social media platforms and devices immediately publish the content their subscribers and participants post, often without filters or checks on the accuracy of the content posted. Information posted may be inaccurate and adverse to us, and it may harm our financial performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public dissemination of anonymous allegations or malicious statements about our business, which in turn may cause us to lose market share, users and revenues and adversely affect the price of our ADSs.

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

We are vulnerable to natural disasters, health epidemics, and other calamities. Any of such occurrences could cause severe disruption to our daily operations, and may even require a temporary closure of our facilities, which may disrupt our business operations and adversely affect our results of operations. In addition, our results of operations could be adversely affected to the extent that any of these catastrophic events harms the PRC economy in general.

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

Our independent registered public accounting firm that issues the audit report included in our prospectus filed with the U.S. Securities and Exchange Commission, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board, or the PCAOB, is subject to the laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with applicable professional standards. Because our auditors are located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the PRC authorities, our auditors are not currently inspected by the PCAOB. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with 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 CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit PRC companies that are listed on U.S. securities exchanges. On December 7, 2018, the SEC and the 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. However, it remains unclear what further actions, if any, the SEC and PCAOB will take to address the problem.

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

 

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

Proceedings instituted by the SEC against PRC affiliates of the “big four” accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

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

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the PRC accounting firms, including our independent registered public accounting firm. A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms were to receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they failed to meet specified criteria, during a period of four years starting from the settlement date, the SEC retained authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. It is uncertain whether the SEC will further challenge the four PRC-based accounting firms’ compliance with U.S. laws in connection with U.S. regulatory requests for audit work papers or if the results of such challenge would result in the SEC imposing penalties such as suspensions. If additional remedial measures are imposed on the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

In the event the Chinese affiliates of the “big four” become subject to additional legal challenges by the SEC or PCAOB, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in China, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of our common stock may be adversely affected.

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

 

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Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Foreign ownership of certain parts of our businesses, including value-added telecommunications services, is subject to restrictions under current PRC laws and regulations. For example, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (excluding e-commerce) and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain a good track record, and foreign investors are prohibited from engaging in the distribution of audio and video products in China via the internet in accordance with the Special Administrative Measures for Market Access of Foreign Investment (Negative List) promulgated in 2018.

We are a Cayman Islands company and our PRC subsidiaries are considered foreign-invested enterprises. Accordingly, none of these PRC subsidiaries is eligible to provide internet content-related services. As a result, we conduct such business activities through one of our VIEs, Zhejiang Yunji Preferred E-Commerce Co., Ltd., or Yunji Preferred, whose wholly owned subsidiary holds a VATS License for online data processing and transaction processing business (operating e-commerce, excluding internet finance and e-hailing services) and internet content-related services (excluding information search and inquiry services and real-time interactive information services). Yunji Preferred is 99.0099% owned by Mr. Shanglue Xiao, the chairman of our board of directors and our chief executive officer, and 0.9901% owned by Mr. Huan Hao, a beneficial owner of the shares of our company. Mr. Shanglue Xiao and Mr. Huan Hao are PRC citizens. Our WFOE has entered into a series of contractual arrangements with our VIEs (including Yunji Preferred) and their respective shareholders, which enable us to:

 

   

exercise effective control over our VIEs;

 

   

receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of our VIEs; and

 

   

have an exclusive option to purchase all or part of the equity interests in our VIEs when and to the extent permitted by PRC law.

As a result of these contractual arrangements, we have control over and are the primary beneficiary of our VIEs and hence consolidate their financial results and their subsidiaries into our consolidated financial statements under U.S. GAAP. For a detailed discussion of these contractual arrangements, see “Corporate History and Structure.”

In the opinion of Han Kun Law Offices, our PRC legal counsel, (i) the ownership structures of our WFOE and our VIEs in China, both currently and immediately after giving effect to this offering, are not in violation of PRC laws and regulations currently in effect; and (ii) the contractual arrangements between our WFOE, our VIEs and their respective shareholders governed by PRC law are not in violation of PRC laws or regulations currently in effect, and valid and binding upon each party to such arrangements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations currently in effect. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules; accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or our VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail

 

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to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:

 

   

revoking the business licenses and/or operating licenses of such entities;

 

   

discontinuing or placing restrictions or onerous conditions on our operations;

 

   

imposing fines, confiscating the income from our WFOE or our VIEs, or imposing other requirements with which we or our VIEs may not be able to comply;

 

   

requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with our VIEs and deregistering the equity pledges of our VIEs, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over our VIEs; or

 

   

restricting or prohibiting our use of the proceeds of this offering to finance our business and operations in China.

The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of our VIEs in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of our VIEs or our right to receive substantially all the economic benefits and residual returns from our VIEs and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of our VIEs in our consolidated financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.

Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which will take effect on January 1, 2020. Since it is relatively new, uncertainties exist in relation to its interpretation and implementation. The Foreign Investment Law does not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision under definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or the State Council. Therefore it still leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment. Therefore, there can be no assurance that our control over our VIEs through contractual arrangements will not be deemed as foreign investment in the future.

The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in a “negative list” that is yet to be published. It is unclear whether the “negative list” to be published will differ from the current Special Administrative Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that foreign-invested entities operating in “restricted” or “prohibited” industries will require market entry clearance and other approvals from relevant PRC government authorities. If our control over our VIEs through contractual arrangements are deemed as foreign investment in the future, and any business of our VIEs is “restricted” or “prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed to be in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over our VIEs may be deemed as invalid and illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations, any of which may have a material adverse effect on our business operation.

 

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Furthermore, if future laws, administrative regulations or provisions 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 and business operations.

We rely on contractual arrangements with our VIEs and their respective shareholders for a large portion of our business operations, which may not be as effective as direct ownership in providing operational control.

Our VIEs contributed 19.6% of our consolidated total revenues in 2018. We have relied and expect to continue to rely on contractual arrangements with our VIEs and their respective shareholders to conduct our business. For a description of these contractual arrangements, see “Corporate History and Structure.” These contractual arrangements may not be as effective as direct ownership in providing us with control over our VIEs. For example, our VIEs and their respective shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of our VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of our VIEs, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, we rely on the performance by our VIEs and their respective shareholders of their obligations under the contracts to exercise control over our VIEs. The shareholders of our VIEs may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate our business through the contractual arrangements with our VIEs. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. See “—Any failure by our VIEs or their respective shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.” Therefore, our contractual arrangements with our VIEs may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

Any failure by our VIEs or their respective shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.

If our VIEs or their respective shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if the shareholders of our VIEs were to refuse to transfer their equity interest in our VIEs to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, we may have to take legal actions to compel them to perform their contractual obligations.

All of the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes 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. The legal system in China is not as developed as in some 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. See “Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.” Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be

 

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interpreted or enforced under PRC law, and as a result it may be difficult to predict how an arbitration panel would view such contractual arrangements. Additionally, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay.

Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, one of our VIEs, holds our VATS License for online data processing and transaction processing business (operating e-commerce, excluding internet finance and e-hailing services) and internet content-related services (excluding information search and inquiry services and real-time interactive information services). In the event we are unable to enforce our contractual arrangements, we may not be able to exert effective control over Yunji Preferred, and our ability to conduct these businesses may be negatively affected.

The shareholders of our VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

The shareholders of our VIEs may have potential conflicts of interest with us. For example, Mr. Shanglue Xiao and Mr. Huan Hao are the shareholders of Yunji Preferred, one of our VIEs. Mr. Shanglue Xiao is the chairman of our board of directors and our chief executive officer and Mr. Huan Hao is a beneficial owner of shares of our company. The shareholders may breach, or cause our VIEs to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIEs, which would have a material and adverse effect on our ability to effectively control our VIEs and receive substantially all the economic benefits from them. For example, the shareholders may be able to cause our agreements with our VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor.

Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in the VIEs to a PRC entity or individual designated by us, to the extent permitted by PRC law. For individuals who are also our directors and officers, we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to the company that requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. The shareholders of our VIEs have executed shareholders’ voting rights proxy agreement to appoint our WFOE or a person designated by our WFOE to vote on their behalf and exercise voting rights as shareholders of our VIEs. If we cannot resolve any conflict of interest or dispute between us and the shareholders of our VIEs, 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.

The shareholders of our VIEs may be involved in personal disputes with third parties or other incidents that may have an adverse effect on their respective equity interests in the relevant VIEs and the validity or enforceability of our contractual arrangements with the relevant entity and its shareholders. For example, in the event that any of the shareholders of our VIEs divorces his or her spouse, the spouse may claim that the equity interest of the relevant VIE held by such shareholder is part of their community property and should be divided between such shareholder and his or her spouse. If such claim is supported by the court, the relevant equity interest may be obtained by the shareholder’s spouse or another third party who is not subject to obligations under our contractual arrangements, which could result in a loss of the effective control over the relevant VIE by us. Similarly, if any of the equity interests of our VIEs is inherited by a third party with whom the current contractual arrangements are not binding, we could lose our control over the relevant VIE or have to maintain such control by incurring unpredictable costs, which could cause significant disruption to our business and operations and harm our financial condition and results of operations.

 

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Although under our current contractual arrangements, (i) each of the spouses of Mr. Shanglue Xiao and Mr. Huan Hao has respectively executed a spousal consent letter, under which each spouse agrees that she will not raise any claims against the equity interest, and will take every action to ensure the performance of the contractual arrangements, and (ii) the VIEs and the their shareholders shall not assign any of their respective rights or obligations to any third party without the prior written consent of our WFOE, we cannot assure you that these undertakings and arrangements will be complied with or effectively enforced. In the case any of them is breached or becomes unenforceable and leads to legal proceedings, it could disrupt our business, distract our management’s attention and subject us to substantial uncertainties as to the outcome of any such legal proceedings.

Contractual arrangements in relation to our VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or our VIEs owe additional taxes, which could negatively affected our financial condition and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the variable interest entity contractual arrangements were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income of our VIEs in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our VIEs for PRC tax purposes, which could in turn increase their tax liabilities. In addition, the PRC tax authorities may impose punitive interest on our VIEs for the adjusted but unpaid taxes at the rate of 5% over the basic RMB lending rate published by the People’s Bank of China for a period according to the applicable regulations. Our financial position could be materially and adversely affected if our VIEs’ tax liabilities increase or if they are required to pay punitive interest.

Risks Related to Doing Business in China

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 operations 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. The PRC 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 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 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 China’s 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 the PRC economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the

 

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overall PRC 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. In addition, in the past the PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.

Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.

We conduct our business primarily through our PRC subsidiaries and our VIEs. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are subject to laws and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. In addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business environment and our ability to operate our business in China.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions 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. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property and procedural rights could adversely affect our business and impede our ability to continue our operations.

We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies.

The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. 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.

We only have contractual control over our Yunji mobile app. We do not directly own the mobile apps due to the restrictions on foreign investment in businesses providing internet content-related services. This may significantly disrupt our business, subject us to sanctions, compromise enforceability of related contractual arrangements, or have other harmful effects on us.

The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of the State Internet Information Office (with the involvement of the State Council Information Office, MIIT, and the Ministry of Public Security). The primary role of the State Internet Information Office is to facilitate the policy-making and legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet industry.

 

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Our online platform, operated by Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, may be deemed to be providing commercial internet content-related services and online data processing and transaction processing services, which would require Jishang Preferred to obtain an ICP License and an EDI License. Each of ICP License and EDI License is under the category of value-added telecommunications business operating licenses, or VATS License. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued by the MIIT in July 2006, prohibits domestic telecommunications service providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in China. The circular also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its license. According to the recent practice in China, if any commercial internet content-related service or online data processing and transaction processing service is to be carried out via mobile apps, such mobile apps are required to be registered on the VATS License of the operator of such mobile apps. Our Yunji mobile app has been registered on the VATS License held by Jishang Preferred.

The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain new ones.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus based on foreign laws.

We are a company incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of the time and all of them are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors as none of them currently resides in the United States or has substantial assets located in the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

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

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the

 

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following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of IMF completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. This depreciation halted in 2017, and the RMB appreciated approximately 7% against the U.S. dollar during this one-year period. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the 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.

Significant revaluation of the Renminbi may have a material and adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our Class A 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 amount available to us.

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.

Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company primarily relies on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiary in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries and VIEs to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.

In light of the flood of capital outflows of China, the PRC government may from time to time impose more restrictive foreign exchange policies and step up scrutiny of major outbound capital movement. More restrictions and substantial vetting process may be required by SAFE or other government authorities to regulate cross-border transactions falling under the capital account. The PRC government may at its discretion restrict access to

 

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foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.

Among other things, the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise and involves any of the following circumstances: (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. We do not expect that this offering will trigger MOFCOM pre-notification under each of the above-mentioned circumstances or any review by other PRC government authorities, except as disclosed in “Risks Related to Doing Business in China—The approval of the CSRC may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.” Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the NPC which became effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by MOFCOM before they can be completed. In addition, PRC national security review rules that became effective in September 2011 require acquisitions by foreign investors of PRC companies engaged in military related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition. We may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

MOFCOM approval may be required for our WFOE’s acquisition of certain PRC subsidiaries

Pursuant to the M&A Rules, if an overseas company established or controlled by PRC companies or individuals, or PRC Citizens, intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC Citizens, such acquisition must be submitted to MOFCOM for approval. Our WFOE acquired certain PRC subsidiaries that were wholly-owned, directly or indirectly, by Yunji Sharing, in 2018. Such acquisitions may be subject to MOFCOM approval, but were not submitted to the MOFCOM for approval. There is no definite penalty provided under M&A Rules for failure to obtain MOFCOM approval in transactions where such approval is required. If it is determined that MOFCOM approvals are required for the acquisitions, we may be required to revert the transactions. Nevertheless, considering that all the PRC subsidiaries involved in such transactions were wholly-owned, directly or indirectly, by Yunji Sharing, which is one of our VIEs, before the acquisitions, and the acquisition of the PRC subsidiaries are inter-group companies transactions, we understand that the failure to obtain the MOFCOM approvals for the acquisitions of the PRC subsidiaries will not have a material adverse effect on our financial condition and results of operations. Our WFOE acquired Shanghai Suye Cosmetics Co., Ltd, or Shanghai Suye, which was owned by an affiliated entity of Mr. Shanglue Xiao, in January 2019. Shanghai Suye was then transferred to Yunji Preferred from our WFOE in February 2019. The acquisition by our WFOE may also be subject to MOFCOM approval, but was not submitted to the MOFCOM for approval.

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to change their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws.

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC

 

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corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

If our shareholders who are PRC residents fail to make the required registration or to update the previously filed registration, our PRC subsidiaries may be prohibited from distributing their profits or the proceeds from any capital reduction, share transfer or liquidation to us, and we may also be prohibited from making additional capital contributions into our PRC subsidiaries. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, effective June 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

All of our shareholders who we are aware of being subject to the SAFE regulations have completed the initial registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. However, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we cannot provide any assurance that these PRC residents will comply with our request to make or obtain any applicable registrations or continuously comply with all requirements under SAFE Circular 37 or other related rules. The failure or inability of the relevant shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, such as restrictions on our cross-border investment activities, on the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive 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 Plan of Overseas Publicly Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who reside in China for a continuous period of not less than one year and who have been granted options will be subject to these regulations when our company becomes an overseas-listed company upon the completion of this offering. Failure to complete SAFE registrations may subject them to fines of up to RMB300,000 for entities and up to RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Regulation—Regulations Relating to Labor Protection in the PRC—Employee Stock Incentive Plan.”

 

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In addition, the State Administration of Taxation, or SAT, has issued certain circulars concerning employee share options and restricted shares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares 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 we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities. See “Regulation—Regulation—Regulations Relating to Labor Protection in the PRC—Employee Stock Incentive Plan.”

We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

We are a Cayman Islands holding company and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If any of our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries, each of which is a wholly foreign-owned enterprise may pay dividends only out of its respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to a staff welfare and bonus fund. These reserve fund and staff welfare and bonus fund cannot be distributed to us as dividends.

Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their Renminbi revenues to pay dividends to us.

The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by PRC companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans to our PRC subsidiaries and our VIEs in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We are an offshore holding company conducting our operations in China through our PRC subsidiaries and our VIEs. We may make loans to our PRC subsidiaries and VIEs subject to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China.

Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example,

 

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loans by us to our wholly foreign-owned subsidiaries in China to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of a foreign invested enterprise shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks’ principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).

SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective June 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within China, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in China in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in China.

In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiaries or VIEs or future capital contributions by us to our wholly foreign-owned subsidiaries in China. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries or VIEs when needed. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management body” within China is considered a “resident enterprise” and will be

 

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subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the SAT, issued the Circular of the State Administration of Taxation on Issues Relating to Identification of PRC-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the De Facto Standards of Organizational Management, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in China; and (iv) at least 50% of voting board members or senior executives habitually reside in China.

We believe that we are not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we could be subject to PRC tax at a rate of 25% on our worldwide income, which could materially reduce our net income, and we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or Class A ordinary shares, if such income is treated as sourced from within China. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or Class A ordinary shares by such shareholders may be subject to PRC tax at a rate of 10% in the case of non-PRC enterprises or a rate of 20% in the case of non-PRC individuals unless a reduced rate is available under an applicable tax treaty. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or Class A ordinary shares.

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

In February 2015, the SAT issued the Public Notice Regarding Certain Enterprise Income Tax Matters on Indirect Transfer of Properties by Non-Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 extends its tax jurisdiction to not only indirect transfers but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7 provides certain criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Public 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 owns the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result,

 

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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 tax rate of 10% for the transfer of equity interests in a PRC resident enterprise. 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. However, according to the aforesaid safe harbor rule, the PRC tax would not be applicable to the transfer by any non-resident enterprise of ADSs of the Company acquired and sold on public securities markets.

On October 17, 2017, the SAT issued the Public Notice on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or the SAT Public Notice 37, which came into effect on December 1, 2017. According to SAT Public Notice 37, where the non-resident enterprise fails to declare its tax payable pursuant to Article 39 of the EIT Law, the tax authority may order it to pay its tax due within required time limits, and the non-resident enterprise shall declare and pay its tax payable within such time limits specified by the tax authority. If the non-resident enterprise voluntarily declares and pays its tax payable before the tax authority orders it to do so, it shall be deemed that such enterprise has paid its tax payable in time.

We face uncertainties on the reporting and consequences of future private equity financing transactions, share exchanges or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed under SAT Public Notice 7 and SAT Public Notice 37, and may be required to expend valuable resources to comply with them or to establish that we and our non-resident enterprises should not be taxed under these regulations, which may have a material adverse effect on our financial condition and results of operations.

The approval of the CSRC may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies requires an overseas special purpose vehicles that are controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies using shares of such special purpose vehicles or held by its shareholders as considerations to obtain the approval of the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval, and any failure to obtain or delay in obtaining CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.

Our PRC counsel has advised us based on their understanding of the current PRC laws, rules and regulations that the CSRC’s approval may not be required for the listing and trading of our ADSs on the Nasdaq Global Market in the context of this offering, given that: (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours in this prospectus are subject to this regulation, (ii) our WFOE was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are our beneficial owners, and (iii) no provision in this regulation clearly classifies contractual arrangements as a type of transaction subject to its regulation.

However, our PRC counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the

 

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CSRC, would reach the same conclusion as we do. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering. These sanctions may include fines and penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the ADSs that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the ADSs we are offering, you would be doing so at the risk that the settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver.

Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact our business and operating results.

The U.S. government has recently made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies, including recently-imposed tariffs affecting certain products manufactured in China. It is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry and users. Although cross-border business may not be an area of our focus, if we plan to sell our products internationally in the future, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impact the competitive position of our products or prevent us from being able to sell products in certain countries. If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government takes retaliatory trade actions due to the recent U.S.-China trade tension, such changes could have an adverse effect on our business, financial condition, results of operations.

Risks Related to Our ADSs and This Offering

There has been no public market for our shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.

Prior to this initial public offering, there has been no public market for our shares or ADSs. We will apply to list our ADSs on the Nasdaq Global Market. Our shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected.

Negotiations with the underwriters will determine the initial public offering price for our ADSs which may bear no relationship to their market price after the initial public offering. We cannot assure you that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.

The trading price of our ADSs may be volatile, which could result in substantial losses to you.

The trading prices of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other listed companies based in China. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading

 

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performances of other PRC companies’ securities after their offerings, including internet and e-commerce companies, may affect the attitudes of investors toward PRC companies listed in the United States, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other PRC companies may also negatively affect the attitudes of investors towards PRC companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early 2009 and the second half of 2011, which may have a material and adverse effect on the trading price of our ADSs.

In addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the following:

 

   

regulatory developments affecting us or our industry, users, suppliers or third-party sellers;

 

   

announcements of studies and reports relating to the quality of our product and service offerings or those of our competitors;

 

   

changes in the economic performance or market valuations of other e-commerce companies;

 

   

actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

 

   

changes in financial estimates by securities research analysts;

 

   

conditions in the e-commerce market;

 

   

announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments;

 

   

additions to or departures of our senior management;

 

   

fluctuations of exchange rates between the RMB and the U.S. dollar;

 

   

release or expiry of lock-up or other transfer restrictions on our issued and outstanding shares or ADSs;

 

   

sales or perceived potential sales of additional Class A ordinary shares or ADSs; and

 

   

proceedings instituted recently by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm.

The concentration of our share ownership among executive officers, directors, and principal shareholders and their affiliated entities will likely limit your ability to influence corporate matters and could discourage others from pursuing any change of control transaction that holders of our ordinary shares and ADSs may view as beneficial.

Our executive officers, directors, and principal shareholders and their affiliated entities together beneficially own approximately 91.3% of our outstanding ordinary shares on an as-converted basis prior to this offering. Upon the completion of this offering, our executive officers, directors, and principal shareholders and their affiliated entities together will beneficially own approximately             % of our total outstanding ordinary shares, assuming the underwriters do not exercise their over-allotment option, or             % of our total outstanding ordinary shares if the underwriters exercise their over-allotment option in full. As a result of the concentration of ownership, these shareholders will have considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Such shareholders 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

 

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company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of our ordinary shares and ADSs may view as beneficial.

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

The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.

Because our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.

If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of US$             per ADS, representing the difference between the initial public offering price of US$             per ADS and our adjusted net tangible book value per ADS as of December 31, 2018, after giving effect to our sale of the ADSs offered in this offering. In addition, you may experience further dilution to the extent that our Class A ordinary shares are issued upon the exercise of share options. See “Dilution” for a more complete description of how the value of your investment in the ADSs will be diluted upon completion of this offering.

Our proposed dual-class voting structure 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 the ADSs may view as beneficial.

Immediately prior to the completion of this offering, we will have a dual-class ordinary share structure. Our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder thereof to any person or entity that is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equal number of Class A ordinary shares.

Immediately prior to the completion of this offering, all of the 949,960,000 ordinary shares held by Lanlan Ltd., an entity controlled by Mr. Shanglue Xiao, the chairman of our board of directors and our chief executive officer, will be re-designated as Class B ordinary shares. Upon the completion of this offering, Mr. Shanglue Xiao will beneficially own an aggregate of 949,960,000 Class B ordinary shares, which will represent             % of our total voting power, assuming the underwriters do not exercise their over-allotment option, or representing             % of our total voting power if the underwriters exercise their over-allotment option in full. Therefore, upon the completion of this offering, Mr. Shanglue Xiao will continue to have decisive influence over matters requiring shareholders’ approval, including election of directors and significant corporate transactions, such as a merger or sale of our company or our assets. 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 our Class A ordinary shares and the ADSs may view as beneficial.

 

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

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

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

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

Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our 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 declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.

Sales of our ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Upon completion of this offering, we will have                  Class A ordinary shares issued and outstanding including                  Class A ordinary shares represented by ADSs, assuming the underwriters do not exercise their over-allotment option. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act. The remaining ordinary shares issued and outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the date of this prospectus, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. Any or all of these shares may be released prior to the expiration of the lock-up period at the discretion of the representatives of the underwriters of this offering. To the extent shares are released before the expiration of the lock-up period and sold into the market, the market price of our ADSs could decline.

After completion of this offering, certain holders of our Class A ordinary shares may cause us to register under the Securities Act the sale of their shares, subject to the 180-day lock-up period in connection with this

 

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offering. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise the same rights as our shareholders.

Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. As an ADS holder, you will only be able to exercise the voting rights carried by the underlying Class A ordinary shares indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the Class A ordinary shares underlying your ADSs in accordance with your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A ordinary shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares unless you withdraw the shares, and become the registered holder of such shares prior to the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our post-offering memorandum and articles of association that will become effective prior to completion of this offering, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the depositary notice of shareholder meetings sufficiently in advance of such meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the shares underlying your ADSs are voted and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting. Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the Class A ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests.

Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote the Class A ordinary shares underlying your ADSs at shareholders’ meetings unless:

 

   

we have instructed the depositary that we do not wish a discretionary proxy to be given;

 

   

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

 

   

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.

 

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The effect of this discretionary proxy is that you cannot prevent our Class A ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our Class A ordinary shares are not subject to this discretionary proxy.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

You may not receive cash dividends if the depositary decides it is impractical to make them available to you.

The depositary will pay cash dividends on the ADSs only to the extent that we decide to distribute dividends on our Class A ordinary shares or other deposited securities, and we do not have any present plan to pay any cash dividends on our Class A ordinary shares in the foreseeable future. To the extent that there is a distribution, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to you.

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 transfer 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. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it 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.

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

We are an exempted company incorporated under the laws of the Cayman Islands. We conduct our operations in China and substantially all of our assets are located in China. In addition, our directors and executive officers, and some of the experts named in this prospectus, reside within China, and most of the assets of these persons are located within China. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been

 

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infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil Liabilities.”

Your investment in our ADSs may be impacted if we are encouraged to issue CDRs in the future.

Currently the PRC central government is proposing new rules that would allow PRC technology companies listed outside China to list on the mainland stock market through the creation of Chinese Depositary Receipts, or CDRs. Once the CDR mechanism is in place, we might consider and be encouraged by the evolving PRC governmental policies to issue CDRs and allow investors to trade our CDRs on PRC stock exchanges. However, there are uncertainties as to whether a pursuit of CDRs in China would bring positive or negative impact on your investment in our ADSs.

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

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, subject to the depositary’s right to require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

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

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

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

 

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

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

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

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

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

We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

The post-offering memorandum and articles of association that we have adopted and that will become effective immediately prior to the completion of this offering will contain anti-takeover provisions that could discourage a third party from acquiring us and adversely affect the rights of holders of our Class A ordinary shares and the ADSs.

We have conditionally adopted amended and restated memorandum and articles of association that will become effective immediately prior to the completion of this offering. Our new memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to

 

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engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and ADSs may be materially and adversely affected.

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

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

As a Cayman Islands company listed on the Nasdaq Global Market, we are subject to Nasdaq’s corporate governance requirements. However, Nasdaq 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, may differ significantly from Nasdaq’s corporate governance requirements. For example, neither the Companies Law of the Cayman Islands nor our post-offering memorandum and articles of association that will become effective immediately prior to the completion of this offering requires a majority of our directors to be independent and we could include non-independent directors as members of our compensation committee and nominating committee, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. Currently, we do not plan to rely on home

 

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country practice with respect to our corporate governance after we complete this offering. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under Nasdaq’s corporate governance requirements applicable to U.S. domestic issuers.

We will be a “controlled company” within the meaning of the Nasdaq Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

Upon the completion of this offering, we will be a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Shanglue Xiao, the chairman of our board of directors and our chief executive officer, will own more than 50% of our total voting power. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors or that we have to establish a nominating committee and a compensation committee composed entirely of independent directors. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

There can be no assurance that we will not be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could subject U.S. investors in our ADSs or Class A ordinary shares to significant adverse U.S. income tax consequences.

We will be a “passive foreign investment company,” or “PFIC,” if, in any particular taxable year, either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the average quarterly value of our assets (as determined on the basis of fair market value) during such year produce or are held for the production of passive income (the “asset test”). Although the law in this regard is unclear, we intend to treat our VIEs (including their subsidiaries) as being owned by us for U.S. federal income tax purposes, not only because we exercise effective control over the operation of such entity but also because we are entitled to substantially all of its economic benefits, and, as a result, we consolidate its results of operations in our consolidated financial statements. Assuming that we are the owner of our VIEs (including their subsidiaries) for U.S. federal income tax purposes, and based upon our current and expected income and assets, including goodwill, (taking into account the expected proceeds from this offering) and projections as to the market price of our ADSs following the offering, we do not presently expect to be a PFIC for the current taxable year or the foreseeable future.

While we do not expect to become a PFIC, because the value of our assets for purposes of the asset test may be determined by reference to the market price of our ADSs, fluctuations in the market price of our ADSs may cause us to become a PFIC for the current or subsequent taxable years. The determination of whether we will be or become a PFIC will also depend, in part, on the composition of our income and assets, which may be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. If we determine not to deploy significant amounts of cash for active purposes or if it were determined that we do not own the stock of our VIEs for U.S. federal income tax purposes, our risk of being a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.

If we are a PFIC in any taxable year, a U.S. holder (as defined in “Taxation—United States Federal Income Tax Considerations”) may incur significantly increased U.S. 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 U.S. federal income tax rules and such holder may be subject to burdensome reporting requirements. Further, 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 for all succeeding years during which such U.S. holder holds our ADSs or Class A

 

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ordinary shares. For more information see “Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

We will incur increased costs and become subject to additional rules and regulations as a result of being a public company.

As a result of this offering, we will become a public company and expect to incur significant accounting, legal and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market, have detailed requirements concerning corporate governance practices of public companies, including Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. We expect these rules and regulations applicable to public companies to increase our accounting, legal and financial compliance costs and to make certain corporate activities more time-consuming and costly. Our management will be required to devote substantial time and attention to our public company reporting obligations and other compliance matters. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. Our reporting and other compliance obligations as a public company may place a strain on our management, operational and financial resources and systems for the foreseeable future.

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 and adverse effect on our financial condition and results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

 

   

our mission, goals and strategies;

 

   

our future business development, financial conditions and results of operations;

 

   

the expected growth of the online retail industry in China;

 

   

our expectations regarding demand for and market acceptance of our products and services;

 

   

our expectations regarding our relationships with our members, users, suppliers and other partners;

 

   

competition in our industry;

 

   

our proposed use of proceeds; and

 

   

relevant government policies and regulations relating to our industry.

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

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

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

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You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$            , or approximately US$            if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$            per ADS, which is the midpoint of the price range shown on the front page of this prospectus. A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS would increase (decrease) the net proceeds to us from this offering by US$            , assuming the number of ADSs offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

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

 

   

approximately US$             to enhance and expand our business operations;

 

   

approximately US$             to enhance our technological capabilities, including our technology infrastructure;

 

   

approximately US$             to expand and improve our fulfillment facilities; and

 

   

the balance for general corporate purposes, which may include funding working capital needs and potential strategic investments and acquisitions, although we have not identified any specific investments or acquisition opportunities at this time.

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

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

In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiaries only through loans or capital contributions and to our VIEs only through loans, subject to satisfaction of applicable government registration and approval requirements. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, or at all. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans to our PRC subsidiaries and our VIEs in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

[We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.]

 

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DIVIDEND POLICY

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

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

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

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

 

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2018:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (i) the automatic re-designation of 949,960,000 ordinary shares held by Lanlan Ltd. as 949,960,000 Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering, (ii) the automatic re-designation of all of our remaining 201,440,000 ordinary shares as 201,440,000 Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering, and (iii) the automatic conversion of all of our issued and outstanding 895,216,752 preferred shares into 895,216,752 Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to reflect (i) the automatic re-designation of 949,960,000 ordinary shares held by Lanlan Ltd. as 949,960,000 Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering, (ii) the automatic re-designation of all of our remaining 201,440,000 ordinary shares as 201,440,000 Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering, (iii) the automatic conversion of all of our issued and outstanding 895,216,752 preferred shares into 895,216,752 Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering, and (iv) the sale of              Class A ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$             per ADS, which is the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the over-allotment option.

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

 

     As of December 31, 2018  
     Actual      Pro Forma      Pro Forma
As
Adjusted (1)
 
     (in thousands of US$) (3)  

Mezzanine Equity:

        

Series Seed convertible redeemable preferred shares (US$0.000005 par value, 373,000,000 shares authorized, issued and outstanding on an actual basis; and nil outstanding on a pro forma and pro forma as adjusted basis)

     287,592            

Series A convertible redeemable preferred shares (US$0.000005 par value, 389,200,000 shares authorized, issued and outstanding on an actual basis; and nil outstanding on a pro forma and pro forma as adjusted basis)

     304,083            

Series B convertible redeemable preferred shares (US$0.000005 par value, 111,911,357 shares authorized, issued and outstanding on an actual basis; and nil outstanding on a pro forma and pro forma as adjusted basis)

     103,063            

Series B+ convertible redeemable preferred shares (US$0.000005 par value, 21,105,395 shares authorized, issued and outstanding on an actual basis; and nil outstanding on a pro forma and pro forma as adjusted basis)

     19,981            

Total mezzanine equity

     714,719            

 

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     As of December 31, 2018  
     Actual     Pro Forma     Pro Forma
As
Adjusted (1)
 
     (in thousands of US$) (3)  

Shareholders’ equity/(deficit):

      

Ordinary shares (US$0.000005 par value, 9,104,783,248 shares authorized, 1,151,400,000 shares issued on an actual basis)

     5          

Class A ordinary shares (par value of US$0.000005 per share; nil authorized, issued and outstanding on an actual basis, 17,000,000,000 shares authorized, 1,096,656,752 shares issued and outstanding on a pro forma basis; 17,000,000,000 shares authorized,              shares issued and outstanding on a pro forma as adjusted basis)

           5    

Class B ordinary shares (par value of US$0.000005 per share; nil authorized, issued and outstanding on an actual basis, 2,000,000,000 shares authorized, 949,960,000 shares issued and outstanding on a pro forma and pro forma as adjusted basis)

           4    

Additional paid-in capital

           714,715    

Statutory reserve

     1,237       1,237    

Accumulated other comprehensive income

     8,082       8,082    

Accumulated deficit

     (608,091     (608,091  

Non-controlling interests

     925       925    

Total shareholders’ (deficit)/equity (2)

     (597,842     116,877    

Total mezzanine equity and shareholders’ (deficit)/equity (2)

     569,965       569,965    
  

 

 

   

 

 

   

 

Notes:    (1)   The pro forma as adjusted information discussed above is illustrative only. Our additional paid-in capital, total shareholders’ (deficit)/equity and total mezzanine equity and shareholders’ (deficit)/equity following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing.
(2)   A US$1.00 increase/(decrease) in the assumed initial public offering price of US$             per ADS, the mid-point of the estimated range of the initial public offering price shown on the cover page of this prospectus, would increase/(decrease) each of additional paid-in capital, total shareholders’ (deficit)/equity and total mezzanine equity and shareholders’ (deficit)/equity by US$             million.
(3)   The pro forma and pro forma as adjusted equity securities are reflected using a rate of RMB6.8755 to US$1.00, the exchange rate in effect as of the end of December 2018.

 

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DILUTION

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

Our net tangible book value as of December 31, 2018 was approximately US$106.4 million, representing US$0.09 per ordinary share as of that date and US$             per ADS, or US$             per ordinary share and US$             per ADS on a pro forma basis. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Pro forma net tangible book value per ordinary share is calculated after giving effect to the automatic conversion of all of our issued and outstanding convertible preference shares. Dilution is determined by subtracting pro forma net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price of US$             per ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus adjusted to reflect the ADS-to-ordinary share ratio, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Without taking into account any other changes in pro forma net tangible book value after December 31, 2018, other than to give effect to our sale of the ADSs offered in this offering at the assumed initial public offering price of US$             per ADS, which is the midpoint of the estimated initial public offering price range, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2018 would have been US$             , or US$             per ordinary share and US$             per ADS. This represents an immediate increase in net tangible book value of US$             per ordinary share and US$             per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$             per ordinary share and US$             per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 

     Per
Ordinary
Share
     Per ADS  

Assumed initial public offering price

   US$                    US$                

Net tangible book value as of December 31, 2018

   US$                    US$                

Pro forma net tangible book value after giving effect to the conversion of our preferred shares

   US$                    US$                

Pro forma as adjusted net tangible book value after giving effect to the conversion of our preferred shares and this offering

   US$                    US$                

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

   US$                    US$                

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

The following table summarizes, on a pro forma as adjusted basis as of December 31, 2018, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and per ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses payable

 

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by us. The total number of ordinary shares does not include Class A ordinary shares underlying the ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.

 

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

Existing shareholders

                                           US$                                 US$                    US$                

New investors

         US$                                 US$                    US$                
  

 

 

    

 

 

    

 

 

    

 

 

      

Total

         US$                      100.0     
  

 

 

    

 

 

    

 

 

    

 

 

      

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

The discussion and tables above assume no exercise of any share options or restricted share units outstanding as of the date of this prospectus. As of the date of this prospectus, there are 91,379,200 ordinary shares issuable upon the exercise of outstanding share options with exercise prices ranging from US$0.0925 per share to US$0.5 per share, and there are 39,613,000 outstanding restricted share units. To the extent that any of these options and restricted share units are exercised, there will be further dilution to new investors.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

 

   

political and economic stability;

 

   

an effective judicial system;

 

   

a favorable tax system;

 

   

the absence of exchange control or currency restrictions; and

 

   

the availability of professional and support services.

However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include but are not limited to:

 

   

the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States; and

 

   

Cayman Islands companies may not have standing to sue before the federal courts of the United States.

Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and most of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these individuals, or to bring an action against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

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

Maples and Calder (Hong Kong) LLP has informed us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the courts of the Cayman Islands will, at common law, recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without any re-examination of the merits of the underlying dispute based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor a liability to pay the liquidated sum for which such judgment has been given, provided such judgment (i) is final and conclusive, (ii) is not in

 

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respect of taxes, a fine or a penalty; and (iii) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

Han Kun Law Offices, our counsel as to PRC law, has advised us that there is uncertainty as to whether the courts of China would:

 

   

recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

 

   

entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Han Kun Law Offices has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. It will be, however, difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding the ADSs or our ordinary shares, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

 

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CORPORATE HISTORY AND STRUCTURE

We commenced operations through Yunji Sharing Technology Co., Ltd., or Yunji Sharing, and launched our Yunji app in May 2015.

In November 2017, Yunji Inc. was established in the Cayman Islands as our offshore holding company to facilitate financing and offshore listing. Shortly following its incorporation, Yunji Inc. established a wholly-owned subsidiary in Hong Kong, Yunji Holding Limited.

In February 2018, Yunji Holding Limited established a wholly-owned subsidiary in China, Hangzhou Yunchuang Sharing Network Technology Co., Ltd., or Yunchuang Sharing. In April 2018, we gained control over Yunji Sharing through Yunchuang Sharing by entering into a series of contractual arrangements with Yunji Sharing and its shareholders. The contractual arrangements with Yunji Sharing were subsequently amended and restated in December 2018.

In June 2018, Zhejiang Yunji Preferred E-Commerce Co., Ltd., or Yunji Preferred, was established. In the same month, we gained control over Yunji Preferred through Yunchuang Sharing by entering into a series of contractual arrangements with Yunji Preferred and its shareholders. The contractual arrangements with Yunji Preferred were subsequently amended and restated in December 2018. We have migrated all of our business operations under Yunji Sharing and its subsidiaries to Yunji Preferred and Yunchuang Sharing and their subsidiaries.

 

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The following diagram illustrates our corporate structure, including our principal subsidiaries, our VIEs and our VIEs’ principal subsidiaries, as of the date of this prospectus:

 

LOGO

 

Notes:    (1)   Daqiao Network Technology (Hangzhou) Co., Ltd., Hangzhou Yuepeng Trading Co., Ltd., and Deqing Jijie Investment Management Partnership (Limited Partnership) each holds 65.53%, 28.09%, and 6.38% of the equity interests in Yunji Sharing, respectively. All of these entities are shareholders or affiliates of shareholders of our company. We plan to dissolve this entity in the near future as it does not engage in substantial business activities.
(2)   Mr. Shanglue Xiao and Mr. Huan Hao each holds 99.0099% and 0.9901% of the equity interests in Yunji Preferred, respectively. Mr. Shanglue Xiao and Mr. Huan Hao are both beneficial owners and directors of our company. Mr. Shanglue Xiao also serves as the chairman of our board of directors and the chief executive officer of our company and Mr. Huan Hao also serves as the chief technology officer of our company.
(3)   We plan to dissolve Zhejiang Jishang Network Technology Co., Ltd. in the near future as it does not engage in substantial business activities.

The following is a summary of the currently effective contractual arrangements relating to Yunji Sharing and Yunji Preferred.

Contractual Arrangements with Our Consolidated Affiliated Entities and Their Respective Shareholders

Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services and certain other businesses. We are an exempted company incorporated in the Cayman Islands. Yunchuang Sharing is our PRC subsidiary and a foreign-invested enterprise under PRC laws. To comply with PRC laws and regulations, we conduct certain of our business in China through Yunji Sharing and Yunji Preferred, our consolidated affiliated entities in the PRC,

 

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based on a series of contractual arrangements by and among Yunchuang Sharing, our VIEs and their shareholders. We refer to Yunchuang Sharing as our WFOE, and Yunji Sharing and Yunji Preferred collectively as our VIEs in this prospectus.

Our contractual arrangements with our VIEs and their respective shareholders allow us to (i) exercise effective control over our VIEs, (ii) receive substantially all of the economic benefits of our VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests in our VIEs when and to the extent permitted by PRC law.

As a result of our direct ownership in our WFOE and the contractual arrangements with our VIEs, we are regarded as the primary beneficiary of our VIEs, and we treat them and their subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIEs and their subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.

Agreements that provide us with effective control over our VIEs

Voting Trust Agreements and Powers of Attorney. Pursuant to the amended and restated voting trust agreement and powers of attorney, dated December 14, 2018, among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred, each of the shareholders of Yunji Preferred has executed a power of attorney to irrevocably authorize our WFOE, or any person designated by our WFOE, to act as its attorney-in-fact to exercise all of its rights as a shareholder of Yunji Preferred, including, but not limited to, the right to (i) convene and attend shareholders’ meetings, (ii) sign and deliver written resolutions on behalf of such shareholder, (iii) vote on any resolution that requires shareholders to vote, such as the sale, transfer and disposal of all or part of the assets owned by a shareholder, and (iv) sell, transfer, pledge or dispose all or part of a shareholder’s equity interests in Yunji Preferred. The powers of attorney will remain effective until such shareholder ceases to be a shareholder of Yunji Preferred or otherwise instructed by our WFOE.

On December 17, 2018, our WFOE, Yunji Sharing and the shareholders of Yunji Sharing entered into an amended and restated voting trust agreement and powers of attorney, and each of the shareholders of Yunji Sharing executed a power of attorney, which contained terms substantially similar to the voting trust agreement and powers of attorney by and among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred described above.

Equity Interest Pledge Agreements. Pursuant to the amended and restated equity interest pledge agreement, dated December 14, 2018, among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred, the shareholders of Yunji Preferred have pledged 100% equity interests in Yunji Preferred to our WFOE to guarantee performance by the shareholders of their obligations under the exclusive option agreement, the exclusive service agreement, the voting trust agreement and powers of attorney, as well as the performance by Yunji Preferred of its obligations under the exclusive option agreement and the exclusive service agreement. In the event of a breach by Yunji Preferred or any of its shareholders of contractual obligations under these contractual arrangements, our WFOE, as pledgee, will have the right to dispose of the pledged equity interests in Yunji Preferred and will have priority in receiving the proceeds from such disposal. The shareholders of Yunji Preferred also covenant that, without the prior written consent of our WFOE, they will not dispose of, create or allow any encumbrance on the pledged equity interests. The equity interest pledge agreement will remain effective until the pledges are released.

On December 17, 2018, our WFOE, Yunji Sharing and the shareholders of Yunji Sharing entered into an amended and restated equity interest pledge agreement, which contained terms substantially similar to the equity interest pledge agreement by and among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred described above.

We have completed the registration of the equity interest pledge under the amended and restated equity interest pledge agreements in relation to both Yunji Preferred and Yunji Sharing with the relevant office of the State Administration of Market Regulation in accordance with the PRC Property Rights Law.

 

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Agreements that allow us to receive economic benefits from our VIEs

Exclusive Service Agreements. Pursuant to the amended and restated exclusive service agreement, dated December 14, 2018, between our WFOE and Yunji Preferred, our WFOE has the exclusive right to provide Yunji Preferred with operational supports as well as consulting and technical services required by Yunji Preferred’s business. Without our WFOE’s prior written consent, Yunji Preferred may not accept the same or similar operational supports as well as consulting and technical services provided by any third party during the term of the agreement. Yunji Preferred agrees to pay our WFOE service fees at an amount determined by our WFOE in its sole discretion, which should be paid within ten business days upon receipt of invoice from our WFOE. Our WFOE has the exclusive ownership of all the intellectual property rights created as a result of the performance of the exclusive service agreement. To guarantee Yunji Preferred’s performance of its obligations thereunder, the shareholders of Yunji Preferred have pledged all of their equity interests in Yunji Preferred to our WFOE pursuant to the equity interest pledge agreement. The exclusive service agreement has an initial term of ten years and shall automatically renew at the end of each term for a further term of ten years, unless otherwise terminated by our WFOE in its sole discretion with 30 days’ prior written notice.

On December 17, 2018, our WFOE and Yunji Sharing entered into an amended and restated exclusive service agreement, which contains terms substantially similar to the exclusive service agreement between our WFOE and Yunji Preferred described above.

Agreements that provide us with the option to purchase the equity interests in and assets of our VIEs

Exclusive Option Agreements. Pursuant to the amended and restated exclusive option agreement, dated December 14, 2018, among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred, each of the shareholders has irrevocably granted our WFOE an exclusive option to purchase all or part of its equity interests in Yunji Preferred, and Yunji Preferred has irrevocably granted our WFOE an exclusive option to purchase all or part of its assets. Our WFOE may exercise such options at a price equal to the loan provided by our WFOE to the shareholders of Yunji Preferred, which price may be adjusted based on the proportion of the equity interests or assets to be transferred. Yunji Preferred and the shareholders of Yunji Preferred covenant that, without our WFOE’s prior written consent, they will not, among other things, (i) create any pledge or encumbrance on their equity interests in Yunji Preferred, other than those created under the equity interest pledge agreement, (ii) transfer or otherwise dispose of their equity interests in Yunji Preferred, (iii) change Yunji Preferred’s registered capital, (iv) amend Yunji Preferred’s articles of association, (v) dispose any assets of Yunji Preferred or enter into any material contract (except in the ordinary course of business), or (vi) merge Yunji Preferred with any other entity. The exclusive option agreement has an initial term of ten years and shall automatically renew at the end of each term for a further term of ten years, unless otherwise terminated by our WFOE in its sole discretion with ten days’ prior written notice.

On December 17, 2018, our WFOE, Yunji Sharing and the shareholders of Yunji Sharing entered into an amended and restated exclusive option agreement, which contained terms substantially similar to the exclusive option agreement by and among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred described above, except that our WFOE may exercise the options to purchase the equity interests and assets of Yunji Sharing at the price of RMB1.00 or the lowest price permitted under applicable PRC law.

Loan Agreement. Pursuant to the loan agreement, dated December 14, 2018, between our WFOE and the shareholders of Yunji Preferred, our WFOE made loans in an aggregate amount of RMB12.12 million to the shareholders of Yunji Preferred for the sole purpose of making capital contribution to Yunji Preferred. The shareholders of Yunji Preferred can only repay the loans by the sale of all or part of their equity interests in Yunji Preferred to our WFOE or its designated person pursuant to the amended and restated exclusive option agreement, and, to the extent permitted under PRC law, pay all of the proceeds from sale of such equity interests to our WFOE. In the event that the shareholders of Yunji Preferred sell their equity interests in Yunji Preferred to our WFOE or its designated person at a purchase price equal to or less than the principal amount of the loans, the

 

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loans will be interest free and the loans shall be deemed to be duly repaid. If the purchase price is higher than the principal amount of the loans, the excess amount will be deemed as interest on the loans and shall be paid to our WFOE. The term of the loan agreement is ten years from the date of the loan agreement, which may be extended upon mutual agreement.

Spousal Consent Letters. The spouses of the shareholders of Yunji Preferred have each signed a spousal consent letter agreeing that the equity interests in Yunji Preferred held by and registered under the name of the respective shareholders will be disposed pursuant to the contractual agreements with our WFOE. Each spouse agreed not to assert any rights over the equity interest in Yunji Preferred held by the respective shareholder.

In the opinion of Han Kun Law Offices, our PRC legal counsel:

 

   

the ownership structures of our VIEs in China and our WFOE, both currently and immediately after giving effect to this offering, are not in violation of applicable PRC laws and regulations currently in effect; and

 

   

the contractual arrangements between our WFOE, our VIEs and their respective shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of applicable PRC laws and regulations currently in effect.

However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of our VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.”

 

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

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

 

    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     RMB     RMB     US$  
    (in thousands, except for percentages, share and per share data)  

Selected Consolidated Statements of Operations Data:

       

Revenues:

       

Sale of merchandise, net

    1,129,053       5,912,109       11,388,425       1,656,378  

Membership program revenue

    155,391       510,818       1,552,437       225,793  

Other revenues

          21,144       74,363       10,816  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,284,444       6,444,071       13,015,225       1,892,987  

Operating cost and expenses (1) :

       

Cost of revenues

    (978,688     (5,172,842     (10,706,596     (1,557,210

Fulfilment

    (184,407     (569,410     (1,162,051     (169,013

Sales and marketing

    (138,046     (707,735     (955,128     (138,918

Technology and content

    (18,207     (58,159     (143,645     (20,892

General and administrative

    (12,153     (50,153     (147,208     (21,410
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating cost and expenses

    (1,331,501     (6,558,299     (13,114,628     (1,907,443
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (47,057     (114,228     (99,403     (14,456
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial income, net

    154       11,564       46,068       6,700  

Foreign exchange gain/(loss), net

    1,525       (7,444     (685     (100

Change in fair value of warrant liabilities

    160       152              

Other income, net

          894       7,048       1,025  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense, and equity in income of affiliates, net of tax

    (45,218     (109,062     (46,972     (6,831

Income tax (expense)/benefit

    20,550       3,331       (12,346     (1,796

Equity in income of affiliates, net of tax

          7       2,992       435  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (24,668     (105,724     (56,326     (8,192
 

 

 

   

 

 

   

 

 

   

 

 

 

Less: net income attributable to non-controlling interests shareholders

                (3,362     (489
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Yunji Inc.

    (24,668     (105,724     (59,688     (8,681
 

 

 

   

 

 

   

 

 

   

 

 

 

Accretion on convertible redeemable preferred shares to redemption value

    (77,179     (1,628,656     (2,187,633     (318,178

Re-designation to Series A convertible redeemable preferred shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature

                (60,796     (8,842

Deemed dividend from preferred shareholders

    132             107       16  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (101,715     (1,734,380     (2,308,010     (335,685
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders

       

Basic

    (0.08     (1.37     (1.98     (0.29

Diluted

    (0.08     (1.37     (1.98     (0.29

 

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    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     RMB     RMB     US$  
    (in thousands, except for percentages, share and per share data)  

Net loss per ADS (2)

       

Basic and diluted

       

Weighted average number of ordinary shares used in computing net loss per share:

       

Basic and diluted

    1,268,000,000       1,268,000,000       1,165,136,438       1,165,136,438  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to ordinary shareholders (3) :

       

Basic and diluted

        (0.029)       (0.004)  

Weighted average number of shares used in calculating pro forma net loss per share:

       

Basic and diluted

        2,024,130,110       2,024,130,110  

Non-GAAP Financial Measure (4) :

       

Adjusted net loss

    (24,668     (103,716     (2,026     (294
 

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:    (1)   Share-based compensation expenses were allocated as follows:

 

     For the Year Ended December 31,  
     2016      2017      2018  
     RMB      RMB      RMB      US$  
     (in thousands)  

Sales and marketing

             —        144        3,192        464  

Technology and content

            98        4,434        645  

General and administrative

            1,545        41,932        6,099  

Fulfillment

            221        4,742        690  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

            2,008        54,300        7,898  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Each ADS represents              Class A ordinary shares.

(3)

See Note 26 of our consolidated financial statements included elsewhere in this prospectus.

(4)

See “Summary Consolidated Financial and Operating Data—Non-GAAP Financial Measure.”

The following table presents our selected consolidated balance sheet data as of December 31, 2016, 2017 and 2018:

 

     As of December 31,  
     2016     2017     2018  
     RMB     RMB     RMB     US$  
     (in thousands)  

Selected Consolidated Balance Sheet Data:

  

Cash and cash equivalents

     287,107       328,741       1,519,146       220,951  

Short-term investments

     33,000       663,780       1,099,394       159,900  

Inventories, net

     97,443       332,778       675,543       98,254  

Prepaid expenses and other current assets

     80,724       226,098       410,439       59,696  

Total assets

     540,526       1,673,161       3,918,799       569,965  

Accounts payable

     158,790       770,025       1,432,274       208,316  

Deferred revenue

     112,295       323,551       546,975       79,554  

Incentive payables to members

     81,270       239,840       421,945       61,369  

Refund payable to members

     77,652       147,943       396,024       57,599  

Other payable and accrued liabilities

     35,899       81,377       197,962       28,792  

Total liabilities

     470,817       1,671,064       3,115,206       453,088  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mezzanine equity

     255,938       1,920,698       4,914,048       714,719  

Total shareholders’ deficit

     (186,229     (1,918,601     (4,110,455     (597,842
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, mezzanine equity and shareholders’ deficit

     540,526       1,673,161       3,918,799       569,965  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table presents our selected consolidated cash flow data for the years ended December 31, 2016, 2017 and 2018:

 

    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     RMB     RMB     US$  
    (in thousands)  

Selected Consolidated Cash Flow Data:

       

Net cash generated from operating activities

    119,538       699,582       883,037       128,434  

Net cash generated from/(used in) investing activities

    3,002       (644,992     (458,047     (66,620

Net cash generated from financing activities

    123,915       26,255       747,921       108,780  
 

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

    6,367       (10,911     34,594       5,031  

Net increase in cash, cash equivalents and restricted cash

    252,822       69,934       1,207,505       175,625  

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

    34,985       287,807       357,741       52,031  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    287,807       357,741       1,565,246       227,656  
 

 

 

   

 

 

   

 

 

   

 

 

 

We regularly review a number of metrics, including the key metrics listed below, to evaluate our business, measure our performance, formulate financial projections, and make operating and strategic decisions:

 

     For the Year Ended December 31,  
     2016      2017      2018  

Buyers (in millions)

     2.5        16.9        23.2  

Transacting members (in millions)

     0.6        2.3        6.1  

Orders fulfilled (in millions)

     13.5        75.8        153.4  

 

     As of December 31,  
     2016      2017      2018  

Cumulative members (in millions)

     0.9        2.9        7.4  

 

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Consolidated Financial and Operating Data” and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under “Risk Factors” and elsewhere in this prospectus. See “Special Note Regarding Forward-Looking Statements.”

Overview

As a leading social e-commerce platform in China, we have pioneered a unique, membership-based model that leverages the power of social interaction. We offer high-quality products at attractive prices and incentivize our members to promote our platform and share our products with their social contacts. We believe this, together with careful product curation, centralized merchandize sourcing and efficient supply chain management, has allowed us to grow organically and made us a trustworthy e-commerce platform providing superior customer experience.

We generate most of our revenues from selling the products on our platform to users, including members and non-member users. Users access our platform primarily through mobile channels. One can become a member of our platform mainly by accepting an invitation from existing members and purchasing our membership package. Our members enjoy a number of exclusive benefits and features, including more attractive prices than non-member users for products offered on our platform. We also provide incentives to members for promoting and initiating transactions of our products and inviting new members through their social networks. Our suppliers include both merchants of mainstream brands and emerging brands, and manufacturing partners we cooperate with. We fulfill orders mainly by collaborating with third-party logistics service providers in warehousing and last-mile delivery, cooperating with third-party online payment platforms in providing various payment options, and providing customer service through business process outsourcing (BPO) arrangement.

We have grown rapidly while at the same time improving our cost efficiency. Our total revenues increased by 401.7% from RMB1,284.4 million in 2016 to RMB6,444.1 million in 2017, and by 102.0% from RMB6,444.1 million in 2017 to RMB13,015.2 million (US$1,893.0 million) in 2018. We recorded net loss of RMB56.3 million (US$8.2 million), RMB105.7 million and RMB24.7 million in 2018, 2017 and 2016, respectively.

Key Factors Affecting Our Results of Operations

Our results of operations and financial condition are affected by the general factors affecting China’s retail industry, including, among others, China’s overall economic growth, the increase in per capita disposable income, the growth in consumer spending and consumption upgrade, and the competitive environment in China. In addition, they are also affected by factors driving online retail in China, such as the growing number of online shoppers, the improved logistics infrastructure and the increasing adoption of mobile payments. Unfavorable changes in any of these general factors could materially and adversely affect our results of operations.

While our business is influenced by general factors affecting our industry, our results of operations are more directly affected by company specific factors, including the following major factors:

Our ability to attract members and users and increase their activities

Attracting, engaging and retaining users have been one of our key focuses since our inception. We measure our effectiveness in attracting, engaging and retaining users through several key performance indicators,

 

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including the number of buyers who place orders on our platform and the number of orders we fulfill. Our ability to attract and retain users and increase user activities depends on our ability to continue to offer carefully curated authentic products at attractive prices, provide superior shopping and social experience, and promote and enhance community value among members and other users. We have been able to build a large base of users through, among other means, word-of-mouth referrals via our members’ social networks. Only when our members are satisfied with the products and experience on our platform, would they stay active on our platform, and in turn promote our products and recommend platform to their family, friends and other social contacts. To grow our user base and keep them engaged, we have implemented a distinctive product offering strategy whereby we offer broad coverage of product categories with an aim of catering to the various daily needs of users and their households, but carefully select items within each category meeting the preferences of users with attractive pricing, and we design our sales formats to meet our members’ evolving needs and preferences. We also facilitate communications among members based on geographical location or shared interest. Furthermore, we provide incentives and organize campaign activities to enhance user activities.

Our ability to manage product offerings and supply chain

Our results of operations are also affected by whether we can successfully implement our product selection strategy and manage our product offerings. We offer broad coverage of product categories to cater to the various daily needs of our users and their households, but provide carefully curated items within each category to meet the preferences of our users. In December 2018, we offered an average of 6,613 SPUs on our platform on a daily basis, including products of mainstream brands, emerging brands and our own brands. While we will continue to work with reputable brand owners with good track records, we intend to broaden and deepen our cooperation with high-quality manufacturing partners to increase our offering of private label products. We review and continually monitor the performance of each SPU and supplier, and carefully manage the mix of products we offer, based on a number of metrics such as the preferences of users, revenue contribution and margin.

We make continual efforts to maintain and improve an efficient cost structure and create incentives for our suppliers to provide us with competitive prices. As our business further grows in scale, we strive to obtain more favorable terms from suppliers, including pricing terms and volume-based rebates. In addition, we aim to create value for our suppliers by providing an effective channel for selling large volumes of their products online and by offering them comprehensive information on customer preferences and market demand and ensuring the high quality of fulfillment services. We believe this value proposition also helps us obtain favorable terms from suppliers.

Our ability to conduct sales and marketing efficiently

A key advantage of our business model that distinguishes us from many other players in China’s e-commerce industry is our ability to leverage our members’ social networking activities to conduct sales and marketing efficiently. We provide incentives to members for promoting our products and inviting new members through their social networks, and the referral incentives are recorded as reduction of our revenues. We outsource some member services to third-party service companies, which select, hire and train service managers to provide the services. Most of the service managers are members. We pay member management fees to the third-party service companies for their product sales facilitation services. The member management fees have accounted for the substantial majority of our sales and marketing expenses.

In addition, we intend to invest more efforts in marketing and brand promotion activities. Such initiatives would not only support an increase in the number and activities of our members, but also allow us to expand our user base to reach a broader range of online purchasers. We believe an increase in the number of users accessing and making purchases on our platform, whether or not they are members, would result in significant growth in our revenues and scale.

 

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Our ability to fulfill orders cost-effectively

Our results of operations depend in part on our ability to fulfill orders quickly and accurately, as it is an important part of a compelling customer experience. We provide centralized and comprehensive fulfillment and customer service to users primarily through collaboration with contracted third-party vendors. As of December 31, 2018, warehouse facilities in our fulfillment network included 17 central warehouses, 17 regional warehouses, 5 front distribution centers and 2 supermarket warehouses, with an aggregate gross floor area of approximately 323,517 square meters in 23 cities. We plan to expand the fulfillment infrastructure over the next several years to accommodate our future expansion plans and enhance customer experience. We have primarily relied on third-party logistics service providers to operate the warehouses and provide last-mile delivery, third-party online payment platforms to provide various payment options, and BPO arrangements to provide customer services. As our user base grows and business evolves, we may invest more resources in operating fulfillment facilities and hiring our own personnel to better meet the demands of our anticipated growth, and we must make such investments in a cost-effective manner.

Our ability to effectively invest in technology

We have invested, and will continue to invest, in research and development and technology. As our business grows, and as we continue to expand and enhance our platform, we will continue to invest in personnel with expertise in big data analytics and AI technologies, and other research and development personnel. In addition, we have dedicated and will continue to dedicate significant resources to research and development efforts, focusing on developing innovative applications and solutions aimed at providing more convenience to users, further enhancing our supply chain management capabilities and increasing our operational efficiency. Moreover, we will also continue to invest resources in the expansion and enhancement of our technology infrastructure to support the growth of our business. We expect that our research and development expenses will increase significantly in the near future.

Key Components of Results of Operations

Revenues

Revenues are comprised of sale of merchandise, net, membership program revenue and other revenues. The following table sets forth the components of our revenues by amounts and percentages of our total revenues for the periods presented:

 

    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     %     RMB     %     RMB     US$     %  
    (in thousands, except for percentages)  

Revenues:

 

Sale of merchandise, net

    1,129,053       87.9       5,912,109       91.7       11,388,425       1,656,378       87.5  

Membership program revenue

    155,391       12.1       510,818       8.0       1,552,437       225,793       11.9  

Other revenues

                21,144       0.3       74,363       10,816       0.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,284,444       100.0       6,444,071       100.0       13,015,225       1,892,987       100.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues generated from sales of most products on our platform are recorded as revenues from sale of merchandise, net of discounts, coupons, referral incentives provided to members, return allowances and VAT. We acquire products from suppliers and sell them to users. We expect revenue generated from sale of merchandise will continue to account for a majority of our total revenues.

We earn membership fees from our members, who pay a fixed fee in exchange for (1) a package of selected products, (2) the right to receive member exclusive discounts for products sold on our flagship Yunji app,

 

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(3) access rights to our flagship Yunji app and its member-exclusive features, (4) the right to receive units of Yun-coin upon a successful new member referral, (5) member exclusive training, and (6) certain units of Yun-coin. Yun-coin can only be used as credits when making purchases on our platform, with one unit of Yun-coin representing RMB1.00. Yun-coins cannot be redeemed for cash. Members may transfer Yun-coins to others for free.

Other revenues include revenues earned on net basis from sales of certain products on our platform, such as mobile phones, tickets to tourist attractions, bookings of cruise, group tour and hotel, and car insurance policies.

Operating Cost and Expenses

Operating cost and expenses consist primarily of cost of revenues, fulfillment expenses, sales and marketing expenses, research and development expenses, and general and administrative expenses. The following table sets forth the components of our operating expenses by amounts and percentages of total revenues for the periods presented:

 

    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     %     RMB     %     RMB     US$     %  
    (in thousands, except for percentages)  

Operating Cost and Expenses:

             

Cost of revenues

    978,688       76.2       5,172,842       80.3       10,706,596       1,557,210       82.3  

Fulfillment

    184,407       14.4       569,410       8.8       1,162,051       169,013       8.9  

Sales and marketing

    138,046       10.7       707,735       11.0       955,128       138,918       7.3  

Technology and content

    18,207       1.4       58,159       0.9       143,645       20,892       1.1  

General and administrative

    12,153       0.9       50,153       0.8       147,208       21,410       1.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,331,501       103.6       6,558,299       101.8       13,114,628       1,907,443       100.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues. Cost of revenues consists of purchase price of merchandise, inbound shipping charges, write-downs of inventory and member training costs. Inbound shipping charges to receive merchandise from suppliers are included in the inventories, and recognized as cost of revenues upon sale of the merchandise to the customers.

Fulfillment expenses. Fulfillment expenses represent packaging material costs and those costs incurred in outbound shipping, operating and staffing our fulfillment and customer service facilities, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, processing payment and related transaction costs and responding to inquiries from customers, depreciation expenses, payroll costs including share-based compensation expenses, and other daily expenses which are related to the purchasing functions. Fulfillment costs also include third-party payment transaction fees, such as bank card processing and debit card processing fees. We expect our fulfillment expenses to increase in absolute amounts in the foreseeable future as our sales volume grows.

Sales and marketing expenses . Sales and marketing expenses comprise primarily of member management fees, promotion expenses, payroll costs including share-based compensation expenses, depreciation expenses and other daily expenses which are related to the sales and marketing functions. We engage third-party vendors to provide member management services, which are ultimately performed by service managers who enter into contracts with the third-party vendors. Certain of our members (customers) have been engaged by third-party vendors to serve as service managers. We have concluded that the member management services provided by the service managers, including those who are also members, are for distinct services at fair value, and records the member management fees paid to the third-party vendors as sales and marketing expenses. We expect our sales and marketing expenses to increase in absolute amounts in the foreseeable future as our member base and business scale grows and as we seek to increase our brand awareness.

 

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Technology and content expenses . Technology and content expenses are expensed as incurred and primarily consist of payroll costs including share-based compensation expenses, rental expenses, costs associated with the computing, storage and telecommunications infrastructure for internal use that support our system and the services of our apps and other expenses related to the technology and content functions, which are responsible for technology research and development and content editing. We account for internal use software development costs in accordance with guidance on intangible assets and internal use software. This requires capitalization of qualifying costs incurred during the software’s application development stage and to expense costs as they are incurred during the preliminary project and post implementation/operation stages. We expect our technology and content expenses to increase in absolute amounts in the foreseeable future as we continue to invest in the expansion and enhancement of our technology capabilities to support the growth of our business.

General and administrative expenses . General and administrative expenses consist of payroll costs including share-based compensation expenses and other expenses which are related to the general corporate functions, including accounting, finance, tax, legal and human relations, costs associated with use by these functions of facilities and equipment, such as depreciation expenses, rental and other general corporate related expenses. We expect our general and administrative expenses to increase in absolute amounts in the foreseeable future due to the anticipated growth of our business as well as accounting, insurance, investor relations and other public company costs.

Taxation

Cayman Islands

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments.

Hong Kong

Our subsidiary incorporated in Hong Kong, Yunji HongKong Limited, is subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong. 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 Hong Kong subsidiary to us are not subject to any Hong Kong withholding tax. No provision for Hong Kong profits tax was made as we had no estimated assessable profit that was subject to Hong Kong profits tax during 2016 and 2017.

PRC

In accordance with PRC Enterprise Income Tax Law, foreign-invested enterprises and domestic companies are subject to enterprise income tax on their taxable income at a statutory rate of 25%. In accordance with the implementation rules of PRC Enterprise Income Tax Law, a qualified “High and New Technology Enterprise” is eligible for a preferential tax rate of 15%. The “High and New Technology Enterprise” certificate is effective for a period of three years. An entity may re-apply for the “High and New Technology Enterprise” certificate when the prior certificate expires.

Jishang Preferred obtained its “High and New Technology Enterprise” certificate on November 30, 2018. Therefore, Jishang Preferred is eligible to enjoy a preferential tax rate of 15% from 2018 to 2020 to the extent it has taxable income under the PRC Enterprise Income Tax Law, as long as it maintains the “High and New Technology Enterprise” qualification and duly conducts relevant tax filing procedures with the relevant tax authority.

 

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Our other PRC subsidiaries, VIEs and their subsidiaries are subject to the statutory income tax rate of 25%.

In accordance with the relevant laws and regulations promulgated by the SAT effective from 2008 onwards, enterprises engaging in research and development activities are entitled to claim 150% of their qualified research and development expenses so incurred as tax deductible expenses when determining their assessable profits for the year. The additional deduction of 50% of qualified research and development expenses can only be claimed directly in the annual tax filing and subject to the approval from the relevant tax authorities. Effective from 2018 onwards, enterprises engaging in research and development activities are entitled to claim 175% of their qualified research and development expenses so incurred as tax deductible expenses. The additional deduction of 75% of qualified research and development expenses can be directly claimed in the annual tax filing.

We are subject to value-added tax rate of 16% on our sales of products, and 6% on the services provided to members (such as technology support, product promotion consulting and support, online training, customer service and order fulfillment), in each case less any deductible value-added tax we have already paid or borne. While we generate a portion of our revenues by selling products to end users through member referrals, such referrals are treated as if selling products to members while the members being deemed as selling products to end users on a consignment basis under PRC tax law. We are also subject to surcharges on value-added tax payments in accordance with the PRC tax law.

Dividends paid by our WFOE to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective from November 1, 2015, the above mentioned approval requirement has been abolished, but a Hong Kong entity is still required to file application package with the relevant tax authority, and settle the overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application package by the relevant tax authority. See “Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”

If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

 

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our total revenues for the periods presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. The results of operations in any period are not necessarily indicative of our future trends.

 

    For the Year Ended December 31,  
    2016     2017     2018  
    RMB     %     RMB     %     RMB     US$     %  
    (in thousands, except for percentages, share and per share data)  

Revenues:

             

Sale of merchandise, net

    1,129,053       87.9       5,912,109       91.7       11,388,425       1,656,378       87.5  

Membership program revenue

    155,391       12.1       510,818       8.0       1,552,437       225,793       11.9  

Other revenues

                21,144       0.3       74,363       10,816       0.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,284,444       100.0       6,444,071       100.0       13,015,225       1,892,987       100.0  

Operating cost and expenses :

             

Cost of revenues

    (978,688     (76.2     (5,172,842     (80.3     (10,706,596     (1,557,210     (82.3

Fulfillment

    (184,407     (14.4     (569,410     (8.8     (1,162,051     (169,013     (8.9

Sales and marketing

    (138,046     (10.7     (707,735     (11.0     (955,128     (138,918     (7.3

Technology and content

    (18,207     (1.4     (58,159     (0.9     (143,645     (20,892     (1.1

General and administrative

    (12,153     (0.9     (50,153     (0.8     (147,208     (21,410     (1.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating cost and expenses (1)

    (1,331,501     (103.6     (6,558,299     (101.8     (13,114,628     (1,907,443     (100.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (47,057     (3.6     (114,228     (1.8     (99,403     (14,456     (0.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial income, net

    154       0.0       11,564       0.2       46,068       6,700       0.6  

Foreign exchange gain/(loss), net

    1,525       0.1       (7,444     (0.1     (685     (100     (0.0

Change in fair value of warrant liabilities

    160       0.0       152       0.0                    

Other income, net

                894       0.0       7,048       1,025       0.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense, and equity in income of affiliates, net of tax

    (45,218     (3.5     (109,062     (1.7     (46,972     (6,831     (0.4

Income tax (expense)/benefit

    20,550       1.6       3,331       0.1       (12,346     (1,796     (0.1

Equity in income of affiliates, net of tax

                7       0.0       2,992       435       0.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (24,668     (1.9     (105,724     (1.6     (56,326     (8,192     (0.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:    (1)    Share-based compensation expenses were allocated as follows:

 

     For the Year Ended December 31,  
     2016      2017      2018  
     RMB      RMB      RMB      US$  
     (in thousands)  

Sales and marketing

            144        3,192        464  

Technology and content

            98        4,434        645  

General and administrative

            1,545        41,932        6,099  

Fulfillment

            221        4,742        690  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

            2,008        54,300        7,898  
  

 

 

    

 

 

    

 

 

    

 

 

 

Year ended December 31, 2018 compared to year ended December 31, 2017

Revenues

Our revenues increased by 102.0% from RMB6,444.1 million in 2017 to RMB13,015.2 million (US$1,893.0 million) in 2018, primarily due to the growth in the number of our buyers from 16.9 million in 2017 to 23.2 million in 2018, and the growth in the number of orders fulfilled from 75.8 million in 2017 to 153.4 million in 2018. The significant increase in the number of buyers and number of orders fulfilled was primarily due to (i) our ability to continually optimize the mix of our product offerings and carefully curate products of higher quality at attractive prices to fulfill buyers’ needs, and (ii) our unique membership-based social e-commerce model that led

 

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to exponential growth in our member base, which we have relied upon for promotion of products and new membership referrals. Revenues from sale of merchandise, net increased by 92.6% from RMB5,912.1 million in 2017 to RMB11,388.4 million (US$1,656.4 million) in 2018 in line with growth in the total revenues. Membership program revenue increased by 203.9% from RMB510.8 million in 2017 to RMB1,552.4 million (US$225.8 million) in 2018, as our member base grew. Furthermore, as we diversified our product mix and revenue streams, our other revenues increased by 251.7% from RMB21.1 million in 2017 to RMB74.4 million (US$10.8 million) in 2018.

Operating cost and expenses

Our total operating cost and expenses increased by 100.0% from RMB6,558.3 million in 2017 to RMB13,114.6 million (US$1,907.4 million) in 2018. This increase was due to increases in all of our operating cost and expenses line items.

 

   

Cost of revenues. Our cost of revenues increased by 107.0% from RMB5,172.8 million, representing 80.3% of our total revenues, in 2017 to RMB10,706.6 million (US$1,557.2 million), representing 82.3% of our total revenues, in 2018, which reflects the increase in our sales of merchandise.

 

   

Fulfillment expenses. Our fulfillment expenses increased by 104.1% from RMB569.4 million, representing 8.8% of our total revenues, in 2017 to RMB1,162.1 million (US$169.0 million), representing 8.9% of our total revenues, in 2018. This increase was primarily attributable to an increase in our warehousing and logistics expenses from RMB446.7 million in 2017 to RMB866.6 million (US$126.0 million) in 2018, which was primarily due to the increase in sales volume. The increase in fulfillment expenses is also attributable to (i) an increase in third-party payment transaction fees from RMB48.4 million in 2017 to RMB114.7 million (US$16.7 million) in 2018, which was primarily due to increase in sales volume, and (ii) an increase in personnel costs from RMB62.8 million in 2017 to RMB123.1 million (US$17.9 million) in 2018, which was due to the increase in the number of our fulfillment employees from 291 as of December 31, 2017 to 392 as of December 31, 2018.

 

   

Sales and marketing expenses . Our sales and marketing expenses increased by 34.9% from RMB707.7 million, representing 11.0% of our total revenues, in 2017 to RMB955.1 million (US$138.9 million), representing 7.3% of our total revenues, in 2018. The increase in sales and marketing expenses was primarily attributable to (i) an increase in member management fees from RMB631.2 million in 2017 to RMB834.6 million (US$121.4 million) in 2018 due to the substantial increase in the number of our members, (ii) an increase in personnel costs from RMB25.5 million in 2017 to RMB34.8 million (US$5.1 million) in 2018, as the headcount of our sales and marketing personnel increased from 94 as of December 31, 2017 to 105 as of December 31, 2018, and (iii) an increase in market promotion fees from RMB31.0 million in 2017 to RMB44.9 million (US$6.5 million) in 2018 due to more brand and business promotion activities in 2018.

 

   

Technology and content expenses . Our technology and content expenses increased by 147.0% from RMB58.2 million, representing 0.9% of our total revenues, in 2017 to RMB143.6 million (US$20.9 million), representing 1.1% of our total revenues, in 2018, primarily due to (i) an increase in personnel costs from RMB43.6 million in 2017 to RMB86.6 million (US$12.6 million) in 2018, as the number of our research and development employees increased from 155 as of December 31, 2017 to 409 as of December 31, 2018, and (ii) an increase in costs of servers from RMB10.7 million in 2017 to RMB41.6 million (US$6.1 million) in 2018, which was due to the growth in user traffic.

 

   

General and administrative expenses . Our general and administrative expenses increased by 193.5% from RMB50.2 million, representing 0.8% of our total revenues, in 2017 to RMB147.2 million (US$21.4 million), representing 1.1% of our total revenues, in 2018. The increase was primarily attributable to (i) an increase in personnel costs from RMB22.2 million in 2017 to RMB54.9 million (US$8.0 million) in 2018, which was in turn due to an increase in headcount of general and administrative employees from 65 as of December 31, 2017 to 107 as of December 31, 2018, and (ii)

 

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an increase in share-based compensation expenses from RMB1.5 million in 2017 to RMB41.9 million (US$6.1 million) in 2018, as we started to grant share-based awards in December 2017.

Loss from operations

Our loss from operations was RMB99.4 million (US$14.5 million) in 2018, compared to RMB114.2 million in 2017. Despite the significant growth in our revenues, our loss from operations did not improve as substantially, primarily due to an increase in share-based compensation expenses and greater campaign efforts that led to reduced margin.

Financial income, net

Our financial income, net was RMB46.1 million (US$6.7 million) in 2018, compared to RMB11.6 million in 2017. This increase was primarily due to increased return on investments in wealth management products. For 2017 and 2018, the expected return per annum ranged from 2.2% to 3.9%, and 2.1% to 4.8%, respectively, and the weighted average return of the wealth management products increased from 3.3% in 2017 to 4.1% in 2018. Furthermore, our cash balance increased in 2018 mainly due to the proceeds from the issuance of preferred shares during the period, which also contributed to the increase in financial income, net.

Foreign exchange gain/(loss), net

We recorded foreign exchange loss, net of RMB0.7 million (US$0.1 million) in 2018, compared to foreign exchange loss, net of RMB7.4 million in 2017 as a result of the loss for the exchange settlement of our preferred shareholders’ capital due to our reorganization, which was partially offset by the appreciation of the U.S. dollar against the Renminbi.

Income tax benefit/(expense)

We recorded income tax expense of RMB12.3 million (US$1.8 million) in 2018, compared to income tax benefit of RMB3.3 million in 2017, primarily because (i) the tax rate of Jishang Preferred changed from 25% in 2017 to 15% in 2018 because Jishang Preferred obtained a “High and New Technology Enterprise” certificate in November 2018, which resulted in a reduction of RMB35.7 million (US$5.2 million) of deferred tax assets on the revaluation in 2018, and (ii) our share-based compensation expense was RMB54.3 million (US$7.9 million) in 2018 compared to RMB2.0 million in 2017, partially offset by an increase in deduction for research and development expenses, which was RMB77.6 million (US$11.3 million) in 2018 compared to RMB22.9 million in 2017, as the number of our research and development employees increased.

Net loss

As a result of the foregoing, we recorded net loss of RMB56.3 million (US$8.2 million) in 2018, compared to RMB105.7 million in 2017.

Year ended December 31, 2017 compared to year ended December 31, 2016

Revenues

Our revenues increased by 401.7% from RMB1,284.4 million in 2016 to RMB6,444.1 million in 2017, primarily due to the growth in the number of our buyers from 2.5 million in 2016 to 16.9 million in 2017, and the growth in the number of orders fulfilled from 13.5 million in 2016 to 75.8 million in 2017. The significant increase in the number of buyers and number of orders fulfilled was primarily due to changes in product mix and carefully curated selection of quality products at attractive prices to fulfill buyers’ needs, and substantial growth in our member base, which we have relied upon for promotion of products and new membership referrals.

 

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Revenues from sale of merchandise, net increased by 423.6% from RMB1,129.1 million in 2016 to RMB5,912.1 million in 2017 in line with growth in the total revenues. Membership program revenue increased by 228.7% from RMB155.4 million in 2016 to RMB510.8 million, as our member base grew. Furthermore, as we diversified our product mix and revenue streams in 2017 by selling products for which revenue is recognized on a net basis, we generated other revenues of RMB21.1 million in 2017, as compared to nil in 2016.

Operating cost and expenses

Our total operating cost and expenses increased by 392.5% from RMB1,331.5 million in 2016 to RMB6,558.3 million in 2017. This increase was due to increases in all of our operating cost and expenses line items.

 

   

Cost of revenues. Our cost of revenues increased by 428.5% from RMB978.7 million, representing 76.2% of our total revenues, in 2016 to RMB5,172.8 million, representing 80.3% of our total revenues, in 2017, which reflects the increase in our sales of merchandise.

 

   

Fulfillment expenses. Our fulfillment expenses increased by 208.8% from RMB184.4 million, representing 14.4% of our total revenues, in 2016 to RMB569.4 million, representing 8.8% of our total revenues, in 2017. This increase was primarily attributable to an increase in our warehousing and logistics expenses from RMB153.2 million in 2016 to RMB446.7 million in the 2017, which was primarily due to the increase in sales volume. The increase in fulfillment expenses is also attributable to an increase in personnel costs from RMB16.7 million in 2016 to RMB62.8 million in 2017, which was due to the increase in the number of our fulfillment employees from 214 as of December 31, 2016 to 291 as of December 31, 2017.

 

   

Sales and marketing expenses . Our sales and marketing expenses increased by 412.7% from RMB138.0 million, representing 10.7% of our total revenues, in 2016 to RMB707.7 million, representing 11.0% of our total revenues, in 2017, primarily attributable to an increase in member management fees from RMB102.2 million in 2016 to RMB631.2 million in 2017 due to the substantial increase in the number of our members.

 

   

Technology and content expenses . Our technology and content expenses increased by 219.4% from RMB18.2 million, representing 1.4% of our total revenues, in 2016 to RMB58.2 million, representing 0.9% of our total revenues, in 2017, primarily due to (i) an increase in personnel costs from RMB13.4 million in 2016 to RMB43.6 million in 2017, as the number of our research and development employees increased from 82 as of December 31, 2016 to 155 as of December 31, 2017, and (ii) an increase in costs of servers from RMB3.3 million to RMB10.7 million, which was due to the growth in user traffic.

 

   

General and administrative expenses . Our general and administrative expenses increased by 312.7% from RMB12.2 million, representing 0.9% of our total revenues in 2016 to RMB50.2 million, representing 0.8% of our total revenues in 2017. The increase was primarily attributable to (i) an increase in personnel costs from RMB5.9 million in 2016 to RMB22.2 million in 2017, which was in turn due to an increase in headcount of general and administrative employees from 29 as of December 31, 2016 to 65 as of December 31, 2017; (ii) an increase in professional service fees from RMB1.4 million in 2016 to RMB7.8 million in 2017; (iii) an increase in general corporate management expenses from RMB1.7 million in 2016 to RMB7.7 million in 2017; and (iv) an increase in office rental costs from RMB1.9 million in 2016 to RMB5.1 million in 2017.

Loss from operations

Our loss from operations was RMB114.2 million in 2017, compared to RMB47.1 million in 2016.

 

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Financial income, net

Our financial income, net was RMB11.6 million in 2017, compared to RMB0.2 million in 2016. This increase was primarily due to increased return on investments in wealth management products. For 2016 and 2017, the expected return per annum ranged from 2.3% to 3.8%, and 2.2% to 3.9%, respectively, and the weighted average return of the wealth management products increased from 2.8% in 2016 to 3.3% in 2017.

Foreign exchange gain/(loss), net

We recorded foreign exchange loss, net of RMB7.4 million in 2017, compared to foreign exchange gain, net of RMB1.5 million in 2016, due to depreciation of the U.S. dollar against the Renminbi.

Income tax benefit

We recorded income tax benefit of RMB3.3 million in 2017, compared to RMB20.6 million in 2016. In 2017, valuation allowance on a large part of deferred tax assets were provided because we would not be able to utilize tax loss carry forwards generated by certain unprofitable subsidiaries, while in 2016, one unprofitable subsidiary made an one-time profit, and valuation of RMB9.2 million was released.

Net loss

As a result of the foregoing, we recorded net loss of RMB105.7 million in 2017, compared to RMB24.7 million in 2016.

Seasonality

We experience seasonality in our business, reflecting a combination of seasonal fluctuations in internet usage and traditional retail seasonality patterns. For example, we generally experience less user traffic and purchase orders during the Chinese New Year holiday season in the first quarter of each year. Furthermore, sales are significantly higher in the fourth quarter of each calendar year than in the preceding three quarters. E-commerce companies in China hold special promotional campaigns on November 11 each year that boost sales in the fourth quarter relative to other quarters, and we hold a special promotional campaign in the second quarter of each year, on May 16, to celebrate the anniversary of the founding of our platform. Overall, the historical seasonality of our business has been relatively mild due to our rapid growth but may increase further in the future. 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.

Liquidity and Capital Resources

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

 

     For the Year Ended December 31,  
     2016      2017     2018  
     RMB      RMB     RMB     US$  
     (in thousands)  

Net cash generated from operating activities

     119,538        699,582       883,037       128,434  

Net cash generated from/(used in) investing activities

     3,002        (644,992     (458,047     (66,620

Net cash generated from financing activities

     123,915        26,255       747,921       108,780  
  

 

 

    

 

 

   

 

 

   

 

 

 

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

     6,367        (10,911     34,594       5,031  

Net increase in cash, cash equivalents and restricted cash

     252,822        69,934       1,207,505       175,625  

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

     34,985        287,807       357,741       52,031  
  

 

 

    

 

 

   

 

 

   

 

 

 

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

     287,807        357,741       1,565,246       227,656  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

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To date, we have primarily financed our operating and investing activities through cash generated by historical mezzanine equity financing activities. As of December 31, 2018, our cash, cash equivalents and restricted cash were RMB1,565.2 million (US$227.7 million). Our cash and cash equivalents consist of cash at banks. Cash held in accounts with third-party online payment platforms are recorded as other receivables.

Our accounts payable include merchandise purchase payables, warehouse and logistics fees payables and payable to suppliers representing the unpaid balances of cash collected by us on behalf of suppliers for products sold on our platform. As of December 31, 2016, 2017 and 2018, our accounts payable amounted to RMB158.8 million, RMB770.0 million and RMB1,432.3 million (US$208.3 million), respectively. These increases were primarily contributed by the substantial growth in merchandise purchase payables, which increased from RMB112.4 million as of December 31, 2016 to RMB595.9 million as of December 31, 2017 and RMB1,247.2 million (US$181.4 million) as of December 31, 2018, and reflected a significant growth in our sales volumes and scale of our operations. Our merchandise purchase payable turnover days were 24.2 days in 2016, 24.6 days in 2017 and 31.0 days in 2018. Merchandise purchase payable turnover days for a given period equal to average merchandise purchase payable at the beginning and the end of the period divided by cost of revenues during the period and then multiplied by the number of days during the period.

Our net inventories have increased significantly in recent periods, from RMB97.4 million as of December 31, 2016 to RMB332.8 million as of December 31, 2017 and RMB675.5 million (US$98.3 million) as of December 31, 2018. These increases reflected the additional inventory required to support our substantially expanded sales volumes. Our inventory turnover days were 25.0 days in 2016, 15.0 days in 2017 and 17.0 days in 2018. Inventory turnover days for a given period equal to average inventory balances at the beginning and the end of the period divided by cost of revenues during the period and then multiplied by the number of days during the period. Our inventory balances will fluctuate over time due to a number of factors, including changes in our product mix. Our inventory balances typically increase when we prepare for special promotion events, such as the special promotional campaign on our founding anniversary May 16 and the online shopping festival on November 11.

We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for at least the next 12 months from the date of this prospectus. After this offering, we may decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital and finance funding. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

As of December 31, 2018, we had RMB1,565.2 million (US$227.7 million) in cash, cash equivalents and restricted cash, of which approximately 60.0% were held in Renminbi, 39.9% in U.S. dollars, and the remainder in other currencies. Although we consolidate the results of our VIEs and their subsidiaries, we only have access to the assets or earnings of our VIEs and their subsidiaries through our contractual arrangements with our VIEs and their shareholders. See “Corporate History and Structure—Contractual Arrangements with Our Consolidated Affiliated Entities and Their Respective Shareholders.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.”

In utilizing the proceeds we expect to receive from this offering, we may make additional capital contributions to our PRC subsidiaries, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, make loans to our PRC subsidiary, or acquire offshore entities with operations in China in offshore transactions. However, most of these uses are subject to PRC regulations.

See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may

 

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delay or prevent us from using the proceeds of this offering to make loans to our PRC subsidiaries and our VIEs in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” and “Use of Proceeds.”

A majority of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions.

We expect that substantially all of our future revenues will be denominated in Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.

Operating activities

Net cash generated from operating activities in 2018 was RMB883.0 million (US$128.4 million), as compared to net loss of RMB56.3 million (US$8.2 million) in the same period. In 2018, the principal items accounting for the difference between our net cash generated from operating activities and our net loss were (i) an increase in accounts payable of RMB662.2 million (US$96.3 million), (ii) an increase in incentive payables to members of RMB182.1 million (US$26.5 million), (iii) an increase in refund payable to members of RMB248.1 million (US$36.1 million), and (iv) an increase in deferred revenue of RMB223.4 million (US$32.5 million), partially offset by (i) an increase in inventories of RMB345.3 million (US$50.2 million), and (ii) an increase in prepaid expenses and other current assets of RMB184.3 million (US$26.8 million). The increases in accounts payable, incentive payables to members and inventories were primarily due to the growth of our business. The increase in refund payable to members was primarily due to an increase in the number of members referring products and hence becoming eligible to receive refunds. The increase in prepaid expenses and other current assets was primarily due to an increase in prepaid member training costs.

Net cash generated from operating activities in 2017 was RMB699.6 million, as compared to net loss of RMB105.7 million in the same period. In the year ended December 31, 2017, the principal items accounting for the difference between our net cash generated from operating activities and our net loss were (i) an increase in accounts payable of RMB611.2 million (US$89.0 million), (ii) an increase in deferred revenue of RMB211.3 million (US$30.8 million), and (iii) an increase in member management fees payable of RMB100.0 million (US$14.6 million), partially offset by (i) an increase in inventories of RMB242.8 million (US$35.4 million), and (ii) an increase in prepaid expenses and other current assets of RMB145.4 million (US$21.2 million). The increase in accounts payable was primarily due to the growth of our business and the resulting increase in our ability to negotiate more favorable payment terms from suppliers. The increase in advance from customers was primarily due to an increase in sales volume. The increase in member management fees payable was primarily due to an increase in the number of members. The increase in inventories was primarily due to the growth of our business. The increase in prepaid expenses and other current assets was primarily due to an increase in prepaid member training costs. The increase in other receivables was primarily due to an increase in cash held in accounts with third-party payment settlement platforms.

Net cash generated from operating activities in 2016 was RMB119.5 million, as compared to net loss of RMB24.7 million in the same period. In the year ended December 31, 2016, the principal items accounting for the difference between our net cash generated from operating activities and our net loss were (i) an increase in accounts payable of RMB130.2 million and (ii) an increase in deferred revenue of RMB64.1 million, partially

 

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offset by (i) an increase in inventories of RMB59.2 million, and (ii) an increase in prepaid expenses and other current assets of RMB79.0 million. The increase in accounts payable was primarily due to the growth of our business. The increase in advance from customers was primarily due to an increase in sales volume. The increase in inventories was primarily due to the growth of our business. The increase in prepaid expenses and other current assets was primarily due to an increase in prepaid member training costs.

Investing activities

Net cash used in investing activities in 2018 was RMB458.0 million (US$66.6 million), primarily due to purchase of short-term investments of RMB11,539.4 million (US$1,678.3 million) and purchase of property, equipment and software of RMB28.7 million (US$4.2 million), partially offset by maturity of short-term investments of RMB11,124.6 million (US$1,618.0 million).

Net cash used in investing activities in 2017 was RMB645.0 million (US$93.9 million), primarily due to purchase of short-term investments of RMB2,195.3 million (US$319.6 million) and purchase of property, equipment and software of RMB13.7 million (US$2.0 million), partially offset by maturity of short-term investments of RMB1,564.5 million (US$227.8 million).

Net cash generated from investing activities in 2016 was RMB3.0 million, primarily due to maturity of short-term investments of RMB45.0 million, partially offset by purchase of short-term investments of RMB33.0 million and purchase of property, equipment and software of RMB9.0 million.

Financing activities

Net cash generated from financing activities in 2018 was RMB747.9 million (US$108.8 million), mainly consisting of the proceeds from the issuance of preferred shares.

Net cash generated from financing activities in 2017 was RMB26.3 million (US$3.8 million), consisting of the proceeds from the issuance of preferred shares.

Net cash generated from financing activities in 2016 was RMB123.9 million, consisting of RMB137.3 million in proceeds from the issuance of preferred shares, partially offset by repayment of borrowing in the amount of RMB13.4 million.

Capital expenditures

Our capital expenditures were RMB9.0 million, RMB13.8 million and RMB28.7 million (US$4.2 million) in 2016, 2017 and 2018, respectively. We intend to fund our future capital expenditures with our existing cash balance and cash flow from operating activities. We will continue to make capital expenditures to meet the expected growth of our business.

Contractual obligations

The following table sets forth our contractual obligations as of December 31, 2018:

 

            Payment Due by Period  
     Total      Less than
1 year
     1-3
years
     3-5
years
     More than
5 years
 
     (in RMB thousands)  

Operating lease

     34,730        13,126        19,925        1,679         

Our operating lease obligations relate to our leases of offices. Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2018.

 

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Off-Balance Sheet Commitments and Arrangements

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

Critical Accounting Policies

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

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

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

Revenue Recognition

We adopted ASC Topic 606, “Revenue from Contracts with Customers,” for all periods presented. Consistent with the criteria of Topic 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to receive in exchange for those goods or services.

To achieve that core principle, we apply the five steps defined under Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We assess its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate distinct goods or services. We allocate the transaction price to each performance obligation based on the relative standalone selling price of the goods or services provided. Revenue is recognized upon the transfer of control of promised goods or services to a customer.

Revenue is recorded net of value-added tax.

 

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Revenue recognition policies for each type of revenue steam are as follows:

Sales of merchandise

We primarily sell merchandise through its Yunji Apps. We present the revenue generated from its sales of merchandise on a gross basis as we have control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits. In making this determination, We also assesse whether it is primarily obligated in these transactions, is subject to inventory risk, has latitude in establishing prices, or has met several but not all of these indicators. The cash collected from the sales of merchandise is initially recorded in Deferred revenue in the Consolidated Balance Sheets and subsequently recognized as revenue when the receipt of merchandise is confirmed by the customers, which is the point that the title of the merchandise is transferred to the customer. The revenue is recorded net of value-added tax, discounts, coupons, incentives and return allowances. Return allowances are estimated based on historical experiences and updated at the end of each reporting period.

Membership program

We earn membership fees from our members, who pay a fixed fee in exchange for (1) a merchandise gift package, (2) the right to receive member exclusive discounts for merchandise sold on the Yunji flagship app, (3) access rights to the Yunji flagship app and its member-exclusive features, (4) the right to receive units of Yun-coin upon a successful new member referral (“Referral Yun-coins”), (5) member exclusive training, and (6) units of Yun-coins (“New Member Yun-coins”). Each of these items represents a separate performance obligation. Yun-coin can be used as coupons for the member’s future purchases on our apps and therefore reflect material rights. In order to promote our membership program, we, at our discretion, allow our users to join the membership program by purchasing any merchandise of equivalent value of the membership fee through our flagship Yunji app within a defined period as an alternative way of paying the upfront fixed membership fee. When users become members in this manner, they are not entitled to the merchandise gift package and member-exclusive training. We allocate the transaction price to each performance obligation, after taking into consideration expected refunds payable to members, based on their relative standalone selling price. When the standalone selling price of a performance obligation is not directly observable, it is estimated by us by using an expected cost plus a margin approach. For the merchandise gift package, revenue is recognized when the receipt of the gift package is confirmed by the members. For the right to receive Referral Yun-coins, revenue is recognized when Referral Yun-coin is used and redeemed, or upon expiration if not redeemed. For New Member Yun-coins, revenue is recognized when the New Member Yun-coin is used and redeemed, or upon expiration if not redeemed. For member exclusive training, revenue is recognized when the training courses are delivered over the service period by the third party vendors engaged by us. For the remaining performance obligations, revenue is recognized over the period of the active life cycle of our members on a straight-line basis. The active life cycle of our members is estimated based on historical behavior of these members, which is approximately one year.

In addition, when members subsequently purchase merchandise, the members initially pay for their purchases at non-member regular prices, and then are issued refunds equal to the member-exclusive discounts from us as a credit upon the members confirming receipt of the merchandise. We record such anticipated refunds as a reduction of revenue and as discounts payables to the members.

Remaining performance obligations

The remaining performance obligations associated with our sale of merchandise represent the cash collected upfront from the customers for their purchase of merchandise on our apps, but the underlying merchandise has not yet been received by the customers, which is included in the presentation of deferred revenue.

Revenue allocated to remaining performance obligations of our membership program represents that portion of the overall transaction price that has been received (or for which we have an unconditional right to payment)

 

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allocated to obligations under the membership program that we have not yet fulfilled, which is included in the presentation of deferred revenue.

Other goods and services

We offer products such as mobile phones, tourist attractions tickets, cruise, group tour, hotel reservation and car insurance through our apps. We present the revenue generated from such sales on a net basis as we do not have control of the goods or services or have the ability to direct the use of the goods or services and obtain substantially all of their benefits. Revenue is recognized when we have fulfilled its selling performance obligations on behalf of the principal in the transaction, which is either when the products are accepted by the customer, or once the order of the products become non-cancellable on our apps, depending on the terms of the particular agreement.

Refund payable to members

After joining our membership program, members are able to make referrals to other users through their social networks. We provide incentives to those referring members by paying a cash refund upon a successful merchandise referral.

Since customers are only able to receive referral incentives after they become members by paying the membership fees, the referral incentives related to merchandise referral are considered payments to customers (and are not payment for a distinct good or service) and accounted for as a refund payable to members. Such refunds are estimated at the time the membership fee is received and recorded as refund payable to members, and reduce the transaction price (that we expect to be entitled to keep) for the membership fee revenue recognition calculation described above accordingly. Any amount of referral incentives expected to be paid in excess of the initial membership fee received is recorded as refund payable to members (and reduces merchandise revenue subsequently generated from those members) at the time they make subsequent merchandise purchases, up to the amount of the expected future referral incentives.

The estimation of refunds payable to members is based upon the historical data of referral incentives earned by referring members within their active life cycle. Once the referral incentives are earned by the referring members, the amounts are transferred to the members’ individual Yunji flagship app accounts and reclassified from refund payable to members to Incentive payables to members.

Users Incentive Programs

We grant certain units of Yun-coin and other coupons (collectively referred to as coupons), from time to time, to our customers at our discretion in different situations. Yun-coins are not redeemable for cash and can be used as a coupon for the customer’s future purchase on our apps. The value of one unit of Yun-coin is equivalent to one RMB. The coupons granted can be categorized into (i) coupons granted concurrent with a revenue transaction and (ii) coupons granted not concurrent with a revenue transaction. When the coupon is granted concurrent with a revenue transaction, we determine whether the coupon represents a material right of the current transaction. If the coupon represents a material right, the transaction price is allocated between merchandise sale and the coupon based on the estimated standalone selling price taking into consideration the coupon’s forfeiture rate. If the coupon does not represent a material right, it is recognized as a reduction of revenue when they are applied in the future sales. When the coupon is not granted concurrent with a revenue transaction, we assess whether the coupons were granted in exchange for a distinct service at fair value. When the coupons are granted in exchange for a distinct service at fair value, they are recorded as expense upon grant. In this case, the person granted coupons in return for their service activities does not need to be a member. When the coupons are not granted in exchange for a distinct service, they can only be applied to the future purchase of certain specified

 

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merchandise. These coupons are not accounted for when they are granted and are recognized as a reduction of revenue when they are applied in future sales.

Inventories, net

Inventories, consisting of products available for sale, are stated at the lower of cost and net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. Write-downs of RMB0.1 million, RMB7.4 million and RMB2.5 million are recorded in cost of revenues in the consolidated statements of comprehensive loss for the years ended December 31, 2016, 2017 and 2018, respectively.

Share-based Compensation

On December 19, 2017, we adopted the 2017 Share Incentive Plan, or the 2017 Plan, which allows the compensation committee to grant options and restricted share units our directors and employees, and other personnel to acquire our ordinary shares at an exercise price as determined by the compensation committee at the time of grant. The 2017 Plan was subsequently replaced by the 2019 Plan in March 2019, and is no longer effective. The awards granted and outstanding under the 2017 Plan survive the termination of the 2017 Plan and remain effective and binding under the 2019 Plan. See “Management—2019 Share Incentive Plan.” Under the 2019 Plan, 227,401,861 ordinary shares were authorized and reserved for issuance.

Since adoption of the 2017 Plan, we granted options and restricted share units to our employees. All options and restricted share units granted have a contractual term of six years from the grant date, and the vest over a period of four years of continuous service, half (1/2) of which vest upon the second anniversary of the stated vesting commencement date and one-fourth (1/4) of the remaining will vest upon the third and fourth anniversaries of the stated vesting commencement date. Under the 2017 Plan, options are exercisable subject to the grantee’s continuous service.

We accounted for the share based compensation costs on a straight-line bases over the requisite service period for the award based on the fair value on their respectively grant date.

On December 19, 2017, June 30, 2018 and November 28, 2018, we granted 73,225,200, 12,021,500 and 5,540,000 stock options to our directors and employees, respectively. In addition, on December 19, 2017 and November 28, 2018, we granted 5,000,000 and 19,800,000 restricted share units to our directors and employees, respectively.

 

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(a) Options

The following table sets forth the stock options activity for the years ended December 31, 2016, 2017 and 2018:

 

     Number of
shares
    Weighted-
average
exercise price
     Weighted
average
remaining
contractual term
     Aggregate
intrinsic
value
 
           US$             000’US$  

Outstanding as of January 1, 2016 and 2017

                          

Granted

     73,225,200       0.09        
  

 

 

   

 

 

       

Outstanding as of December 31 2017

     73,225,200       0.09        5.96        25,623  
  

 

 

   

 

 

    

 

 

    

 

 

 

Granted

     17,561,500       0.22        

Forfeited

     (3,674,300     0.10        
  

 

 

   

 

 

       

Outstanding as of December 31, 2018

     87,112,400       0.12        5.09        60,399  
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest as of December 31, 2018

     87,112,400       0.12        5.09        60,399  
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable as of December 31, 2018

                          
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the underlying stock at each reporting date (December 31, 2017: US$0.44, December 31, 2018: US$0.81).

We uses the Binominal option pricing model to estimate the fair value of stock options. The assumptions used to value our options grants were as follow:

 

     2017     2018  

Exercise price (USD)

     0.0925       0.1~0.4  

Exercise multiple

     2.2~2.8       2.2~2.8  

Risk-free interest rate

     2.35     2.53%~2.60

Expected term (in years)

     6       6  

Expected dividend yield

            

Expected volatility

     43.34     40.87%~41.81

Expected forfeiture rate (post-vesting)

     5     5

Fair value of the underlying shares on the date of options grants (US$)

     0.44       0.81  

Fair value of share option (US$)

     0.37       0.4  

Risk-free interest rate is estimated based on the yield curve of US Sovereign Bond as of the option valuation date. The expected volatility at the grant date and each option valuation date is estimated based on annualized standard deviation of daily stock price return of comparable companies with a time horizon close to the expected expiry of the term of the options. We have never declared or paid any cash dividends on its capital stock, and we do not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the options.

Share-based compensation expense is recorded on a straight-line basis over the requisite service period, which is generally four years from the date of grant. We recognized share-based compensation expenses of nil, RMB1.9 million and RMB48.3 million for share options granted under the 2017 Plan in the consolidated statements of comprehensive loss for the years ended 2016, 2017 and 2018, respectively.

As of December 31, 2016, 2017 and 2018, there was nil, RMB174.3 million and RMB181.1 million, respectively, in total unrecognized compensation expense, related to unvested share options, which is expected to

 

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be recognized over a weighted average period of 3.96 and 3.07 years, respectively. The unrecognized compensation expense may be adjusted for future changes in actual forfeitures.

(b) Restricted share units

A summary of activities of the service-based restricted share units for the years ended December 31, 2016, 2017 and 2018 is presented below:

 

     Number of
RSUs
     Weighted-Average
Grant-Date Fair Value
 
           

US$

 

Unvested at January 1, 2016 and 2017

             

Granted

     5,000,000        0.44  

Unvested at December 31, 2017

     5,000,000        0.44  

Granted

     19,800,000        0.81  
  

 

 

    

 

 

 

Unvested at December 31, 2018

     24,800,000        0.74  
  

 

 

    

 

 

 

The fair value of each restricted share units granted with service conditions is estimated based on the fair market value of the underlying our ordinary shares on the date of grant.

As of December 31, 2016, 2017 and 2018, no restricted share units were vested.

As of December 31, 2016, 2017 and 2018, there was nil, RMB14.3 million and RMB114.7 million in total unrecognized compensation expense, related to unvested RSUs, which is expected to be recognized over a weighted average period of 3.96 and 3.72 years, respectively.

For the years ended December 31, 2016, 2017 and 2018, our total share-based compensation expenses recognized for the restricted share units granted were nil, RMB0.2 million and RMB6.0 million, respectively.

Fair Value of Our Ordinary Shares

We are a private company with no quoted market prices for our ordinary shares. We therefore need to make estimates of the fair value of our ordinary shares at various dates in order to determine the fair value of our ordinary shares at the date of the grant of a share-based compensation award to our employees. Estimates will not be necessary to determine the fair value of new awards once the American depositary shares underlying our ordinary shares begin trading.

The following table sets forth the fair value of our ordinary shares estimated at different times with the assistance from an independent valuation firm:

 

Date

   Fair Value per
Ordinary Share
(US$)
     Discount
Rate
    DLOM     Type of Valuation  

December 19, 2017

     0.44        27.0     19.0     Retrospective  

June 30, 2018

     0.66        25.0     15.0     Retrospective  

November 28, 2018

     0.81        24.0     14.0     Retrospective  

In determining the fair value of our ordinary shares, we relied in part on a valuation retrospectively determined with the assistance of an independent valuation firm based on data we provided. The valuation report provided us with guidelines in determining the fair value, but the determination was made by our management. We obtained a retrospective valuation instead of a contemporaneous valuation, because, on the various valuation dates, our financial and limited human resources were principally focused on our business development efforts. This approach is consistent with the guidance prescribed by the AICPA Audit and Accounting Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

 

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We applied the income approach/discounted cash flow analysis based on our projected cash flow using our best estimate as of the valuation date. The determination of the fair value of our common shares requires complex and subjective judgments to be made regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of valuation.

The major assumptions used in calculating the fair value of ordinary shares include:

Discount rates . The discount rates listed out in the table above were based on the weighted average cost of capital, which was determined based on a consideration of the factors including risk-free rate, comparative industry risk, equity risk premium, company size and non-systemic risk factors.

Comparable companies . In deriving the weighted average cost of capital used as the discount rates under the income approach, seven publicly traded companies were selected for reference as our guideline companies. The guideline companies were selected based on the following criteria: (i) they operate in similar industries as we do, and (ii) their shares are publicly traded in developed capital markets, i.e., the United States.

Discount for lack of marketability, or DLOM.  We also applied a DLOM to reflect the fact that there is no ready market for shares in a closely-held company like us. When determining the DLOM, the Black-Scholes option pricing model was used. Under this option-pricing method, the cost of the put option, which can hedge the price change before the privately held shares can be sold, was considered as a basis to determine the DLOM. This option pricing method was used because it takes into account certain company-specific factors, including the timing of the expected initial public offering and the volatility of the share price of the guideline companies engaged in the same industry.

The income approach involves applying appropriate discount rates to estimated cash flows that are based on earnings forecasts. Our revenue growth rates, as well as major milestones that we have achieved, contributed to the increase in the fair value of our ordinary shares. However, these fair values are inherently uncertain and highly subjective. The assumptions used in deriving the fair values are consistent with our business plan. These assumptions include: no material changes in the existing political, legal and economic conditions in China; our ability to retain competent management, key personnel and staff to support our ongoing operations; and no material deviation in market conditions from economic forecasts. These assumptions are inherently uncertain.

The option-pricing method was used to allocate enterprise value to preferred and ordinary shares, taking into account the guidance prescribed by the AICPA Audit and Accounting Practice Aid, “Valuation of Privately-Held Company Equity Securities Issued as Compensation.” The method treats common stock and preferred stock as call options on the enterprise’s value, with exercise prices based on the liquidation preference of the preferred stock.

The option-pricing method involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board of directors and management. Estimating the volatility of the share price of a privately held company is complex because there is no readily available market for the shares. We estimated the volatility of our shares to range from 41.81% to 43.34% based on the historical volatilities of comparable publicly traded companies engaged in similar lines of business. Had we used different estimates of volatility, the allocations between preferred and ordinary shares would have been different.

Significant factors contributing to the difference in fair value determined

The determined fair value of our ordinary shares increased from US$0.44 per share as of December 19, 2017 to US$0.66 per share as of June 30, 2018. We believe the increase in the fair value of our ordinary shares was primarily attributable to the rapid organic growth of our business. We raised additional capital by issuing preferred shares in February and June 2018. The funding strengthened our financial status, and indicated an increase in investors’ confidence in our business prospect.

The determined fair value of our ordinary shares increased from US$0.66 per share as of June 30, 2018 to US$0.81 per share as of November 28, 2018. We believe the increase in the fair value of our ordinary shares was primarily attributable to the rapid organic growth of our business.

 

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Internal Control Over Financial Reporting

Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with the audits of our consolidated financial statements included in this prospectus, we and our independent registered public accounting firm identified two material weaknesses and other significant control deficiencies in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses that have been identified relate to (i) our lack of sufficient financial accounting staff and management with appropriate levels of accounting knowledge and experience to address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP and SEC reporting and compliance requirements and (ii) our lack of sufficient documented financial closing policies and procedures, specially those related to period end expenses cut-off and accruals. The material weaknesses, if not timely remedied, may lead to significant misstatements in our consolidated financial statements in the future.

We have implemented and plan to implement a number of measures to address the material weaknesses that have been identified in connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2016 and 2017. We have hired additional qualified financial and accounting staff with working experience of U.S. GAAP and SEC reporting requirements, including our chief financial officer, and plan to continue such hiring efforts. We intend to conduct regular and continuous U.S. GAAP accounting and financial reporting training programs for our financial reporting and accounting personnel. We plan to enhance an internal audit function and engage an external consulting firm to assist us to assess Sarbanes-Oxley Act compliance requirements and improve our overall internal controls. Furthermore, we plan to prepare comprehensive accounting policies, manuals and closing procedures to improve the quality and accuracy of our period end financial closing process. However, we cannot assure you that all of these measures will be sufficient to remediate our material weaknesses in time, or at all.

Holding Company Structure

Yunji Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries, our VIEs and their subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and our VIEs and their subsidiaries 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 their registered capital. In addition, our wholly foreign-owned subsidiaries in China may allocate a portion of their after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at their discretion, and our VIEs and their subsidiaries may allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

 

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Inflation

To date, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China, the year-over-year percentage changes in the consumer price index for December 2016, 2017 and 2018 were increases of 2.1%, 1.8% and 1.9%, respectively. Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of inflation in the future.

Quantitative and Qualitative Disclosures about Market Risk

Foreign exchange risk

Substantially all of our revenues and most of our costs and expenses are denominated in RMB. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. 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 value of Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the Renminbi to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. On August 11, 2015, the People’s Bank of China announced plans to improve the central parity rate of the Renminbi against the U.S. dollar by authorizing market-makers to provide parity to the China Foreign Exchange Trading Center operated by the People’s Bank of China with reference to the interbank foreign exchange market closing rate of the previous day, the supply and demand for foreign currencies as well as changes in exchange rates of major international currencies. Effective from October 1, 2016, the International Monetary Fund added Renminbi to its Special Drawing Rights currency basket. Such change and additional future changes may increase volatility in the trading value of the Renminbi against foreign currencies. The PRC government may adopt further reforms of its exchange rate system, including making the Renminbi freely convertible in the future. Accordingly, it is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our Class A ordinary shares or ADSs, servicing our outstanding debt, or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amounts available to us.

As of December 31, 2018, we had Renminbi-denominated cash, cash equivalents and restricted cash of RMB939.7 million, U.S. dollar-denominated cash, cash equivalents and restricted cash of US$90.9 million. Assuming we had converted RMB939.7 million into U.S. dollars at the exchange rate of RMB6.8755 for US$1.00 as of December 31, 2018, our U.S. dollar-denominated cash, cash equivalents and restricted cash would have been US$227.6 million. If the RMB had depreciated by 10% against the U.S. dollar, our U.S. dollar cash, cash equivalents and restricted cash would have been US$215.1 million instead. Assuming we had converted US$91.0 million into RMB at the exchange rate of RMB6.8755 for US$1.00 as of December 31, 2018, our Renminbi-denominated cash, cash equivalents and restricted cash would have been RMB1,564.6 million. If the

 

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RMB had depreciated by 10% against the U.S. dollar, our Renminbi-denominated cash, cash equivalents and restricted cash would have been RMB1,627.1 million instead.

Interest rate risk

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

After completion of this offering, we may invest the net proceeds we receive from the offering in interest-earning instruments. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.

Recently Issued Accounting Pronouncements

A list of recently issued accounting pronouncements that are relevant to us is included in note 2 of our consolidated financial statements included elsewhere in this prospectus.

 

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INDUSTRY

Large and fast-growing retail industry in China

China’s consumption expenditure has experienced substantial growth over the past few years. According to National Bureau of Statistics, total consumption expenditure increased from RMB37.3 trillion in 2015 to RMB42.2 trillion (US$6.2 trillion) in 2017, representing a compound annual growth rate, or CAGR, of 6.4%, and is expected to continue to increase rapidly to RMB61.4 trillion (US$8.9 trillion) in 2022, representing a CAGR of 7.8%.

The growth in consumption expenditure is mainly driven by the factors below:

 

   

Rising disposable income and middle-class in China. According to the National Bureau of Statistics, per capita disposable income grew at a CAGR of 8.7% from RMB22.0 thousand in 2015 to RMB26.0 thousand (US$3.8 thousand) in 2017, and is expected to grow at a CAGR of 8.0% to RMB38.1 thousand (US$5.5 thousand) in 2022. According to China Insights Consultancy, or CIC, there has also been continuous increase in the middle-class population, defined as individuals with an implied per capita monthly income between RMB2.5 thousand and RMB10.0 thousand (US$1.5 thousand), as it grew from 542.7 million in 2015 to 588.6 million in 2017, and is expected to increase to 692.1 million by 2022.

 

   

Consumption upgrade. Consumption upgrade refers to the trend where consumers prefer high quality and good services at attractive prices. According to CIC, an increasing number of Chinese consumers now tend to make their purchasing decisions based on quality, diversity, experience and customization. They also look for convenient and integrated shopping experience and customer services with higher standard. According to a survey conducted by CIC, or CIC Survey, the top factors affecting purchasing decisions are quality, authenticity of products, value for money, word-of-mouth, price and brand.

China’s thriving e-commerce industry

Driven by the expansion and increasing online penetration of retail market, China’s online retail industry has experienced tremendous growth, with the overall market size growing from RMB3.8 trillion in 2015 to RMB7.2 trillion (US$1.0 trillion) in 2017, representing a CAGR of 37.0%, and is expected to grow to RMB15.0 trillion (US$2.2 trillion) in 2022, representing a CAGR of 15.8%. The online penetration rate of retail market increased from 10.3% in 2015 to 17.0% in 2017, and is expected to further increase to 24.4% in 2022, according to China Internet Network Information Center and CIC.

 

LOGO

 

Source: China Internet Network Information Center and CIC

 

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Key trends in the growing e-commerce industry, according to CIC, include:

 

   

Increasing contribution from B2C e-commerce. The increasing sophistication of Chinese consumers led to higher demand for tailored and quality products. The B2C e-commerce business model is better positioned to capture such opportunities. According to CIC, compared to the C2C e-commerce business model, B2C e-commerce platforms are typically able to react quickly based on customer and market feedback collected, provide better customer services, adopt more stringent quality control measures, maintain higher flexibility in supply chain management and drive product innovation with customer-to-manufacturer (C2M) capabilities. As a result, according to CIC, the share of B2C in the overall e-commerce market grew from 51.0% in 2015 to 58.4% in 2017, and is expected to further increase to 64.2% in 2022.

 

LOGO

 

Source: CIC

 

   

Women are the major spenders of a household. According to CIC, with the increase in disposable income, consumers in China started to have more leeway for spending on discretionary items, which has set the stage for a fast-growing e-commerce industry. And among these consumer and their households, women aged between 25 and 39 years old tend to be the major spenders, according to CIC Survey.

 

   

Well-established online payment and logistics infrastructure . Online payment has continued to flourish in China over the past few years, with the total number of users growing at a CAGR of 13.6% from 413.3 million in 2015 to 533.4 million in 2017, and the transaction volume through online payment systems growing at a CAGR of 28.0% from RMB11.9 trillion in 2015 to RMB19.5 trillion (US$2.8 trillion) in 2017, according to China Internet Network Information Center and CIC. In addition, average express delivery time has been reduced and customer satisfaction has been improved thanks to the well-established logistics system covering substantially all regions of China. According to State Post Bureau of The People’s Republic of China and CIC, the average express delivery time was 56.0 hours in 2017, and the average customer satisfaction score on express delivery services was 80.8 in 2017. The development of such infrastructure has vastly improved the convenience of and customer experience in online shopping, and paved the way for further geographical and categorical expansion in e-commerce.

 

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The new social e-commerce industry in China

Overview of social e-commerce industry

Fueled by the strong overall economic growth and technological advancements, consumers in China are well-adapted to digital lifestyles and upgraded consumption levels. Increasing social and sharing elements in shopping have also been observed, which are driven by the following factors:

 

   

Increase in mobile internet usage, especially on social apps . With the proliferation of mobile internet, the new generation of consumers spends more time on mobile internet, especially on social apps, including social e-commerce apps. According to CIC, consumers’ average monthly time spent on major social e-commerce apps amounted to 19.4 billion hours in 2017, growing at a CAGR of 138.7% from 3.4 billion hours in 2015. There is also an increasing tendency to share one’s everyday life, including shopping needs and experience through social media, according to CIC.

 

   

Emergence of wider social connections . According to CIC, online social network has expanded from personal and familial relationships to communities and groups of common interests, which has become a major source of information acquisition and distribution, hence influencing one’s decision making in various aspects, including shopping decisions.

In the meantime, traditional search-based e-commerce has become increasingly inefficient and presented a number of challenges to various stakeholders. These key challenges include:

 

   

Customers: Overflow of information. From consumers’ perspectives, overflow of information on traditional e-commerce platforms became a pain point, according to CIC. While huge amount of products and information are available on traditional e-commerce platforms, such information is often unilateral, and difficult for customers to relate to and rely upon. The time and efforts required for customers to make informed purchase decisions became much higher.

 

   

Merchants:

 

   

Established brands: Increasing customer acquisition costs. As to established brands, direct customer acquisition costs for traditional e-commerce platforms have been increasing, which in turn squeezes the profit margins of the online businesses for these brands. Therefore, such brands turn to new and more cost-effective e-commerce platforms to reach and interact with customers.

 

   

Emerging brands: Difficulty in building brand awareness. As to emerging brands or quality original brand manufacturers, it is difficult for them to effectively and efficiently acquire customers and improve their brand awareness on traditional e-commerce platforms, as customers tend to search for established brands, who have already built their names and are able to devote more resources in both online and offline mass marketing.

In light of these challenges, social e-commerce, defined as the sharing-based online shopping model built on customers’ social networks and communities, has emerged as a solution:

 

   

Customers: Trusted source of information. Social e-commerce, characterized by recommendation and marketing through customers’ own social network and communities, saves customers time and effort by presenting to them the products they need through recommendations. Customers also tend to find recommendations by influencers, including friends and families, more trustworthy. There are also Key Opinion Leaders, or KOLs, who oftentimes generate content, including experience sharing, product demos, etc., and engage in various ways of interactions with their followers and communities, which enables them to build rapport with the community over time. According to CIC Survey, recommendations from influencers, communities and KOLs is one of the key factors affecting purchasing decisions.

 

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Merchants :

 

   

Established brands: Cost-effective customer acquisition. Social e-commerce platforms combine the attributes of mobile e-commerce and social media through its sharing element, and leverage social networks of its customers to lower the costs of customer acquisition. They also allow established brands to receive direct and timely feedback from KOLs, their followers, influencers and communities, enabling them to adjust business strategies, conduct effective targeted marketing and enhance customer stickiness.

 

   

Emerging brands: Quickly establishing brand awareness. Social e-commerce platforms enables emerging brands to reach and interact with targeted customers through their personal and familial connections, communities and groups of common interests in a more cost-effective manner. The timely feedback from customers also allows emerging brands to better understand the market and further enhances their customer-to-manufacturer (C2M) capability.

As a result of the above factors, social e-commerce platforms experienced robust growth and commanded an increasing share of the overall online retail industry thanks to its well-established supply chain management, diversified products with high quality and scalability. The social e-commerce platform market grew from RMB38.3 billion in 2015 to RMB217.3 billion (US$31.6 billion) in 2017, representing a CAGR of 138.2%, and is expected to increase at a CAGR of 61.9% to RMB2,419.4 billion (US$352.3 billion) in 2022, according to CIC.

 

LOGO

 

Source: CIC

Business model

Social e-commerce platforms are the major players in China’s social e-commerce market, defined as marketplaces that enables customers to conveniently browse, make purchases, share, promote and facilitate online transactions through their social networks by providing features such as IT infrastructure support, embedded marketing tools and content. These platforms can be further segmented by their business models into three types:

 

   

Membership-based model, where one has to become a member of the platform before enjoying some member-exclusive rights.

 

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Content-sharing model, where customers’ purchasing decisions are initiated by sharing experience, generating a discover-purchase-share loop.

 

   

Team purchase model, where customers form a team to purchase products, typically at competitive prices, and are encouraged to invite others to join the team.

According to CIC, membership-based model has experienced the fastest growth among the abovementioned business models on social e-commerce platforms, with its market size growing from RMB0.9 billion in 2015 to RMB18.0 billion (US$2.6 billion) in 2017, representing a CAGR of 356.8%, and is expected to grow at a CAGR of 84.8% to RMB386.7 billion (US$56.3 billion) in 2022.

 

LOGO

 

Source: CIC

Challenges faced by social e-commerce platforms

The key challenges faced by social e-commerce platforms, according to CIC, include:

 

   

Difficulty in attracting users and maintaining users’ engagement . An active community with robust growth is crucial to the development of a social e-commerce platform. With rising competition in the e-commerce industry, the cost of acquiring new users and maintaining high user stickiness has increased.

 

   

Effectiveness of users’ promotional activities . As users of social e-commerce platforms are typically not professional full-time sales or marketing personnel, they might not be best-equipped to effectively promote products even if they are users of the products themselves. There could be inconsistencies in product representation and disparity between users’ promotional efforts, which might in turn impact the platforms’ overall ability to market and/or sell products.

 

   

Inadequacy in quality control . As an emerging form of e-commerce, many social e-commerce platforms have yet to establish a sound quality control system. In particular, under C2C business models, platforms do not source products nor take principal of products listed. Platforms might be materially and negatively impacted by any product quality issues, including but not limited to potential penalties, litigation and reputational harm.

 

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Lack of logistics and back-end services support . Some early-adopters in social e-commerce industry, especially individuals or small-scale merchants under C2C business model and certain less-integrated B2C e-commerce platforms, have yet to build strong back-end support functions, such as logistics and e-payment capabilities. This may impact the users’ ability to effectively share and promote products, as well as fulfillment and overall efficiency of the platform.

Key success factors

Key success factors of social e-commerce platforms, according to CIC, include:

 

   

Strong community bonding and highly sticky members . As social e-commerce leverages all kinds of social networks from familial and friends relationships to groups with common interests, e.g. following the same KOLs, establishing a strong community bonding and high customer loyalty is key to boosting the effectiveness of marketing and reducing the costs of customer acquisition.

 

   

Full-serviced model enabling users to engage in buying and marketing of products easily . An integrated full-serviced social e-commerce platform which enables influencers, KOLs and members to easily navigate, share, create content and interact with other members, as well as provides the influencers, KOLs and members with centralized order fulfillment, product delivery and after-sale customers services, is likely to achieve higher customer stickiness, as it fulfills different needs of both members as buyers and as promoters of the products. Also, a full-serviced model maintains its advantage by providing marketing training for members to improve effectiveness of users’ promotional activities.

 

   

Well-developed logistics and online payment infrastructure. A seamless shopping experience through strong online payment infrastructure and timely delivery empowered by well-established logistics infrastructure is likely to increase customer satisfaction level and result in higher customer loyalty.

 

   

Advanced IT infrastructure . As the online retail market in China grew rapidly over the past five years, an advanced IT infrastructure has become crucial for platforms to handle sales during peak times. Moreover, for social e-commerce platforms, leveraging customer relationship management, or CRM, systems and AI-powered analyses on customers’ needs and feedback would enable them to better understand the market trends, such as common interests among certain groups of customers or the next hot-sellers on the platforms, and to create stronger bonding with the customers, thus raising the awareness of the platforms.

 

   

Reliable and flexible supply chain with customer-to-manufacturer (C2M) capability and strong manufacturing partner network . Platforms equipped with reliable and flexible supply chain as well as customer-to-manufacturer (C2M) capabilities are more likely to better understand the customers’ needs and coordinate more effectively with the suppliers on marketing, inventory management, etc., so as to improve operating efficiency and provide products and services that are more tailored to customers’ demands.

 

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BUSINESS

Mission

We aim to make commerce simpler and people’s lives better.

Overview

As a leading social e-commerce platform in China, we have pioneered a unique, membership-based model that leverages the power of social interaction. We offer high-quality products at attractive prices and incentivize our members to promote our platform and share our products with their social contacts. We believe this, together with careful product curation, centralized merchandize sourcing and efficient supply chain management, has allowed us to grow organically and made us a trustworthy e-commerce platform providing superior customer experience.

Our platform has attracted a large and growing base of users, including members and non-members. These users are actively purchasing products on our platform. Buyers on our platform increased from approximately 2.5 million in 2016 to approximately 16.9 million in 2017 and further to approximately 23.2 million in 2018. During the same period, our GMV increased by 428.1% from RMB1.8 billion in 2016 to RMB9.6 billion in 2017 and further increased by 134.4% from RMB9.6 billion in 2017 to RMB22.7 billion in 2018. In 2018, 66.4% of our GMV were from purchases made by our members and the remaining were from purchases made by non-members.

Members are the key participants on our platform and drivers of our substantial growth. Our members typically pay to gain access to a dedicated app that provides access to a curated selection of products, exclusive membership benefits and features, including discounted prices. Our members, typically middle-class consumers, are highly social and are interested in discussing and sharing their shopping experiences and various products within their social circles. Members often refer others to become members and are rewarded for doing so. Members can also promote products on various social platforms and are rewarded if those users purchase our products. We also provide support such as training, technology support and customer services and we handle all aspects of fulfillment and logistics, to make the process easier for them. As of December 31, 2018, we had accumulated 7.4 million members. We had approximately 6.1 million transacting members on our platform in 2018.

 

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We offer products across a large variety of categories with the aim of catering to the various daily needs of our users and their households. We also add to our product offerings based on feedback and understanding of our members and users based on various analytics. While we offer products from mainstream and emerging brands, we also work with manufacturers directly to produce private labels. We are also extremely focused on the quality and pricing of our products. We have been intentionally maintaining a balance between expanding the product category coverage to meet our users’ evolving demand and controlling the number of SPUs in each category. As a result, we offered an average of 837, 2,315 and 6,613 SPUs on our platform on a daily basis in December 2016, December 2017 and December 2018, respectively.

 

LOGO

We currently generate revenues primarily from selling products on our platform to users, including both members and non-members. Total orders we fulfilled increased substantially from 13.5 million in 2016 to 75.8 million in 2017 and further increased to 153.4 million in 2018. Our total revenues increased by 401.7% from RMB1,284.4 million in 2016 to RMB6,444.1 million in 2017, and by 102.0% from RMB6,444.1 million in 2017 to RMB13,015.2 million (US$1,893.0 million) in 2018. We recorded net loss of RMB56.3 million (US$8.2 million), RMB105.7 million and RMB24.7 million in 2018, 2017 and 2016, respectively.

Our Strengths

We believe that the following competitive strengths contribute to our success and differentiate us from our competitors:

Unique membership-based social e-commerce platform with rapid growth

We have pioneered a unique membership-based social e-commerce model, offering a curated selection of high-quality products at attractive prices. According to China Insights Consultancy, we are the largest membership-based social e-commerce platform in China in terms of GMV. In addition to providing value and convenience to our members, we reward them for referring new members and promoting our products and helping to generate transactions using our tools and support. Our platform also enjoys meaningful network effects. As more members promote our platform, and the products and services on our platform, more transactions occur and our understanding of our users’ demands improve, allowing us to provide better products and services, which helps us acquire more members.

As of December 31, 2018, we had attracted over 7.4 million members, increasing from 0.9 million and 2.9 million as of December 31, 2016 and 2017, respectively. Our members are highly engaged. We had

 

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approximately 0.6 million, 2.3 million and 6.1 million transacting members on our platform in 2016, 2017 and 2018, respectively.

Efficient user acquisition and high user engagement driven by social interaction

We leverage social networks as an effective and efficient tool for user acquisition and engagement. Our members are rewarded when they promote our products through their social networks to people such as family members, friends and other social contacts and they subsequently make purchases. Given the close social connection between our members and their network, purchases are relatively more likely to occur. These help drive the growth of our overall user and buyer base and kept our customer acquisition costs low. We also provide tools to make it easy for members to promote our products, including refined product promotional materials as well as other tools and training to facilitate product sales. For purchases made through our members’ recommendation, we also provide centralized order fulfillment, product delivery and real-time customer service.

Our members are highly active in promoting the products on our platform through their social networks. In 2018, 64.7% of transacting members promoted products through their social networks where such promotion resulted in order placement on our platform. In the same period, 66.4% of our GMV were from purchases that our members made and we had approximately 93.6% repeat purchase rate from our transacting members. The buyers on our platform increased from approximately 2.5 million in 2016 to approximately 16.9 million in 2017 and further to approximately 23.2 million in 2018. Our sales and marketing expenses accounted for 10.7%, 11.0% and 7.3% of total revenues in 2016, 2017 and 2018, respectively.

Carefully curated product selection

We offer a carefully curated selection of quality products at attractive prices on our platform to help fulfill the various daily needs of our users and their households based on our understanding of their preferences. We have been continuously expanding the product categories available on our platform with the help of big data and analytics. Our procurement teams are able to utilize unique insights into our users’ needs and preferences as they work with our suppliers. Our customer-to-manufacturer (C2M) model also helps our suppliers to develop new and customized products to better fit our users’ preferences. In some cases, we also develop private label products with various manufacturing partners. We control the number of SPUs in each category to ensure quality. Due to the relatively limited number of SPUs, we can deliver large sales volumes per SPU for suppliers. This allows us to command better pricing and pass that on to our buyers, which contributes to enhancing user experience on our platform. Finally, we are focused on the quality of products and employ a strict selection process. In December 2016, December 2017 and December 2018, we offered an average of 837, 2,315 and 6,613 SPUs on a daily basis, respectively.

Win-win relationship with suppliers

Our suppliers benefit from our scale and highly efficient marketing capabilities. Through our business model, suppliers are able to market products in a cost effective manner. Our suppliers include merchants of mainstream and emerging brands, and manufacturing partners. We help mainstream brands expand their business in China and enable emerging brands and manufacturing partners to enhance brand awareness and recognition with broader distribution. We also collaborate with manufacturing partners to create private label products with generally higher margins.

Additionally, based on our understanding of our members and users, we help our suppliers improve their products and marketing strategy. Our data and analytics allow us to predict the demands for different products at different times and in different regions. By leveraging the feedback received from our members and the insights gained from our big data analytics, we help our suppliers adjust their operations, maintain an optimal inventory level and develop new and customized products catering to the needs of our users. Through these benefits that we provide to our suppliers, we are able to establish strong relationships with our suppliers and offer products at better prices.

 

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Strong commitment to big data and technology

Technology is the foundation of our platform. Using big data and technology, we are able to improve our users’ shopping experience and our suppliers’ operational efficiency. We apply big data analytics and AI capabilities to create and provide customized recommendation and layout of products to members based on their profiles and purchasing patterns to enhance their shopping experience. The data that we collect and our analysis of the data provide us with a better understanding of our users’ demands and preferences. This allows us to better curate our products and manage our supply chain. Additionally, it allows us to recommend more relevant products to users. We are committed to enhancing our big data and technological capabilities. Our dedicated technology team, consisting of 409 employees as of December 31, 2018, comprises 40.4% of our total employees.

Experienced management team with proven track record

Our management team has extensive e-commerce, retail, social networks, engineering and financial management background and experience. Our founder, chairman of our board of directors and chief executive officer, Mr. Shanglue Xiao, has more than 15 years of experience in e-commerce. Our director and chief technology officer, Mr. Huan Hao, has 10 years of experience in technology companies, including Tencent and Oracle. Our chief operating officer, Ms. Jianjian Hu, has 20 years of professional experience in traditional retail sector, having served various roles at Walmart, Trustmart and Yonghui Superstores. Mr. Chen Chen, our chief financial officer, has 16 years of professional experience in accounting and auditing, including serving as a partner at one of the “Big Four” accounting firms, and has strong capability and extensive experience in financial management, risk assessment and internal control.

Our Strategies

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

Further increase our member base and engagement

We will continue to leverage our existing members’ social reach and increase our marketing and brand promotion efforts to attract more members to our platform and increase member engagement. We have recently also started to open our platform to new members by no longer requiring an invitation to join in order to expand our member base broadly, although revenue generated from these new members has been immaterial to date. We will further enhance our value proposition and improve the tools and support that we provide to our members.

Expand and refine our products lineup

We plan to continue to expand our product offerings while maintaining our focus on quality. We will further develop and strengthen our cooperation with suppliers of emerging brands and manufacturing partners to provide better designed and customized products that match the specific demand and preferences of our users. We intend to invest in selected suppliers to deepen our cooperation with them. In addition, we have started and will further explore supply chain financing initiatives with selected suppliers to help them keep up with the demand of our platform.

In addition to our existing sales formats, we aim to further invest in other sales formats, such as our supermarket sales format. We believe this can further improve the shopping experience and help attract and retain more members and users. By leveraging our large user base and power of social networks, we plan to explore and expand the marketplace business model, allowing third-party merchants to sell their products on our platform to our members and users.

 

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Strengthen our data and technological capability

We intend to increase our resources and investment in strengthening our technological capability, including big data analytics and AI, to improve the user experience on our platform. We will continue to invest in our customer-to-manufacturer (C2M) system, through which we can seamlessly connect our users with suppliers so that our suppliers can easily adjust their operation and provide customized products timely. We also plan to further enhance our AI-based recommendation system to promote best fit products for every single member and user who has different demand and preference.

Enhance our brand recognition

We believe that building our brand and strengthening the reputation of our platform are crucial to our continued success. We plan to invest more on marketing through online and social network channels, as well as traditional media channels such as commercial on TV and magazines.

Further improve our fulfillment capabilities

We will continue to expand and improve our fulfillment capabilities, mainly through partnering with third-party providers of warehouses and distribution centers, to keep up with our rapidly increasing scale. We will also deploy highly efficient fulfillment solutions such as warehouse management systems to improve the efficiency of order fulfillment.

Yunji Platform

We conduct our social e-commerce business primarily through our flagship Yunji app. In addition, we create visually appealing interfaces in mini programs and HTML-5 webpages available in major social platforms in China, including WeChat, QQ, Weibo, to promote our platform and products. Through these promotional channels, potential users can learn about our platform and visit our mobile apps.

Our members can easily share the mini programs and links to HTML-based webpages with their family, friends and other social contacts who may be interested in buying products on our platform. The promotional interfaces visually aid the shopping experience on our platform, and enable viral dissemination of product information on a large scale at low costs.

Yunji App

Our flagship Yunji app is used by our members and non-member users to discover, explore and purchase a wide range of high-quality products at attractive prices and to access other membership features and benefits. We have recently consolidated services to members and non-member users under the same app to open up our platform and provide better user experience. To date, revenue from product sales to non-member users not resulting from promotion made by existing members has been immaterial.

 

   

One can become a member of our platform mainly by accepting invitation from existing members and purchasing our membership package. Our members can invite their social contacts to become our members by sending them an invitation link or QR code whereby the invitee can register an account on the Yunji app and purchase a membership package consisting of a set of selected products or services and access to the Yunji app containing membership benefits and features. Then the invitee becomes a member and can start browsing, shopping and accessing other membership features.

 

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LOGO

 

Note:    1. Yun-coin can only be used as credits when making purchases on our platform, usually 1 Yun-coin = RMB1.00

 

   

The member can choose to view our product offerings by clicking on three of the tabs at the bottom of our user-friendly app interface, representing our three sales formats, i.e. flash sale ( LOGO ), supermarket ( LOGO ) and boutique virtual shops ( LOGO ). See “—Our Product Offerings—Sales Formats.” The following screenshots illustrate our different sales formats.

 

LOGO

 

   

The member can click on the desired product to view detailed product description and consider whether to make the purchase. In addition to the attractive price, the app also offers features to encourage the member to recommend his/her family, friends or other social contacts to purchase our products. In the product listings, the member can see the amount of incentives he/she will earn if someone purchases

 

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products via the links he/she shares through his/her social network. Our app provides the member with ready-to-use promotional materials containing product description and reviews, which can be easily posted on social network platforms such as WeChat, QQ and Weibo with the seamless integration of our platform with such social network platforms. The member may also create promotional materials on his/her own and share them with other members.

 

LOGO

 

   

The member can access our community feature by clicking on the “Discover” tab at the bottom of the app interface to see what other members are buying and sharing. Our members write product description and reviews, and upload photographs and short video clips to express their opinions on and share their experience with a variety of products. From time to time, we organize campaigns featuring popular brands and products, in which members can post product reviews on the Yunji app. These campaigns offer an open forum for members to share their experience with the relevant products, making it easier for members to find others with similar shopping interest.

 

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LOGO

Our Member Community

Our member community is driven by social connections. Users access our platform mostly through invitation and recommendation by our existing members via their social networks. As a result, new users come to us with established trust in their own family and friends, as well as shared interests and similar purchasing preferences with our existing members. Therefore, they are more likely to find our platform credible and refer our platform and products through their social networks. We keep close contacts with our member community to learn their changing consumption needs and preferences, which serve as crucial references to product curation and procurement for our supply chain team.

Members

One can become a member of our platform mainly by accepting invitation from existing members and purchasing our membership package. A membership package consists of a set of selected products or services and access to the Yunji app containing membership benefits and features. Membership packages are offered at a fixed price, depending on the different selection of products or services included in the package. A vast majority of our members purchase the membership package priced at RMB398. We currently do not charge renewal fees or periodic membership fees. We may also seek to diversify the ways that individuals can become members other than purchasing a membership package. Our members enjoy more attractive prices than non-member users when purchasing products on our platform, and receive incentives for promoting and initiating transactions of our products via their social networks and for inviting new members to our platform. We had a cumulative number of approximately 0.9 million, 2.9 million and 7.4 million members on our platform as of December 31, 2016, 2017 and 2018, respectively.

Our members generally come from middle-class households and make purchase decisions for their respective households. The majority of our members are female. Our members typically spend much time on social networks and take an interest in discussing trends and sharing shopping experience and product information among their social contacts. We offer social experience as an integral part of our member experience. Our members not only enjoy shopping as supported by membership benefits and features on our

 

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platform, but also can become more involved in the promotion of our products and platform and the building of our member community. Many of our members promote our products via their social networks, and some of them become influential opinion leaders within their social networks affecting the consumption preferences of many others. Our members also form groups based on their existing social network, geographic locations and interests, which allow them to obtain relevant product information more easily, and keep them engaged with our platform.

We provide members with benefits both in the form of Yun-coins and cash incentives. Through these benefits, we attract members to our platform and encourage and motivate our members to share product reviews and promotional materials of our products via their social networks. Members receive units of Yun-coin, each equivalent to RMB1.00, when they join as a member, when they successfully refer a new member, and from time to time as a form of coupon. Additionally, members enjoy exclusive discounts when purchasing products on our platform, and receive referral incentives for products sold via the links they share through their social networks. For each transaction completed from the promotion by a member, such member earns a certain percentage of the listed price, with the percentage being determined based on the market price and margin of the product. Additionally, we may provide extra incentive to a member depending on the number of completed promotions or purchases made as a result of the member’s referral. The referral incentive is allocated to the member’s account immediately following payment for the transaction, and may be used by the member after seven days following the receipt of product by the buyer. We also provide members with a variety of tools and support to enable them to promote our products via their social networks, including ready-to-use product promotional materials, online training to facilitate product sales, and centralized order fulfillment, product delivery and real-time customer service.

We facilitate member groups to provide support to members and enable further communication among members. The grouping system helps us enhance member engagement and promote community value. Driven by social interaction, our platform has accumulated a highly active member base. We had approximately 0.6 million, 2.3 million and 6.1 million transacting members on our platform in 2016, 2017 and 2018, respectively. In 2018, 64.7% of transacting members promoted products through their social networks where such promotion resulted in order placement on our platform. In the same period, 66.4% of our GMV were from purchases that our members made and we had approximately 93.6% repeat purchase rate from our transacting members.

We outsource some member services to third-party service companies and they hire service managers based on the standards we provide in our agreements with the third-party service companies. Most of service managers are also our members. Third-party service companies select service managers based on their capability in facilitating members’ product sales and in training members, and assign them to provide services to a group of members. The member groups operate on social network platforms such as WeChat, QQ and Weibo.

As of December 31, 2018, our members were served by more than 70,000 service managers. Service managers provide training and support to our members, including teaching members how to use our apps and platform, responding to questions from members on a daily basis, and organizing online training courses to share their sales experience. Service managers also facilitate members’ product sales, including monitoring and collecting member feedback on a real-time basis, designing and implementing marketing strategies for popular products in the member group, and helping to address member queries related to our products.

Non-Member Users

Through our members’ word-of-mouth referral via their social networks, our platform has garnered trust and attracted a large and growing base of users. Users actively purchase products on our platform. The number of buyers increased from approximately 2.5 million in 2016 to approximately 16.9 million in 2017 and further to approximately 23.2 million in 2018. Since our platform is recommended by family and friends, users may find us more credible and have more confidence in the quality of products offered on our platform.

 

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Our Product Offerings

We implement a strategy of offering a mix of products of mainstream brands, emerging brands and private labels on our platform. We offer broad coverage of product categories with an aim of catering to the various daily needs of our users and their households, including beauty and personal care, household goods, food and fresh produce, computer and electronics, apparel, bags and cases, baby and maternity products and home appliances. Our top product categories that each contributed to more than 10% of our GMV are (i) beauty and personal care, food and fresh produce in 2016, (ii) beauty and personal care, food and fresh produce, computer and electronics, and household goods in 2017, and (iii) beauty and personal care, computer and electronics, food and fresh produce, and apparel, bags and cases in 2018, while each of the other product categories contributed less than 10% of our GMV in each of 2016, 2017 and 2018. Within each product category, we offer carefully curated items meeting the preferences of our users with attractive pricing. In December 2016, December 2017 and December 2018, we offered an average of 837, 2,315 and 6,613 SPUs for sale on our platform on a daily basis, respectively.

Product and Supplier Selection

Our product procurement team, consisting of 268 employees as of December 31, 2018, possess extensive knowledge and understanding of existing and potential users’ needs and preferences, and our big data capabilities enable us to better analyze market trends and understand customer behavior. We reflect such knowledge and understanding in product selection and when working with our suppliers. This customer-to-manufacturer (C2M) model allows us to source products in response to evolving customer needs and preferences, and enable us to help our suppliers, especially our manufacturing partners, provide products better designed for end customers and manage regional inventory storage. From time to time, we are directly involved in the product design process of our manufacturing partners. We review and continually monitor the performance of each SPU based on a few key dimension, in particular revenue contribution and margin, and suspend and replace SPUs with poor performance each month.

We believe it is crucial for us to carefully select the suppliers with high-quality product offerings, and empower them with our understanding of market trends and insights on customer behavior to better design products meeting customer preferences. We have adopted a set of selection guidelines for identifying potential suppliers. Our key supplier selection criteria include size, reputation, sales records among consumers similar to those in our user community, and product offerings. Once a potential supplier is identified, we conduct due diligence reviews on its qualifications. We generally choose to work with reputable brand owners with good track records and high-quality product offerings. For manufacturing partners producing private labels, we conduct on-site visits and examine candidates based on our selection criteria, including the relevant qualifications and governmental permits. We also conduct detailed factory auditing on the supplier’s manufacturing capability and production process to control product quality.

Sales Formats

We offer products in three sales formats—flash sale, supermarket and boutique virtual shops.

Flash sale ( LOGO ). We organize flash sale events every day to sell a finite quantity of discounted products for a limited period of time beginning at 9:00 a.m. (Beijing time) each day. To foster user interest, we periodically analyze historical data, seasonality and user feedback to determine the types of products we should offer for different hours and days. In addition, we carefully adjust our product mix to achieve a balanced and complementary product offering across different product categories so as to maximize sales.

Supermarket ( LOGO ). Supermarket is our online grocery store selling products meeting the day-to-day needs of our members, such as milk, fruits and snacks. Many of our members are young mothers managing household, and grocery shopping is an essential part of their daily lives. Recognizing its significant potential in enhancing

 

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member stickiness to our platform, we have introduced the supermarket format to be a convenient destination for our members’ daily grocery shopping.

Boutique virtual shops ( LOGO ). We sell products of selected brands also through virtual shops dedicated to the respective brands on our platform. Through these boutique virtual shops, our members can purchase branded products without the quantity and time limit of the flash sale format. This sales format is a new initiative to meet demand of our existing members and attract new members.

To complement our existing direct sales business model, we plan to launch a marketplace business whereby third-party merchants can sell products on our platform and pay us commissions on their sales. We believe this can help further expand our product offerings, improve the shopping experience, and attract and retain more members and users.

Pricing

We strive to offer attractive pricing for all the products offered on our platform. We make continual efforts to maintain and improve an efficient cost structure and create incentives for our suppliers to provide us with competitive prices. For the products with recognized brand names, we set our prices to be competitive with those on other major e-commerce platforms in China. We typically negotiate with our suppliers for discounted prices based on our large sales volume and other value propositions. For the products we offer with private labels, we set our prices to be not only appealing to the users but also satisfactory to us in terms of margin contribution. For these products, we typically have more discretion in setting the retail price and more leverage in negotiating with our manufacturing partners.

We also offer a selection of discounted products on special occasions, such as the anniversary of the founding of our company on May 16 and China’s new online shopping festival on November 11, and on important holidays. We also hold daily promotions through flash sale events for selected products for a limited period of time. Special promotions attract bargain hunters and give our users an additional incentive to visit our platform regularly.

Quality Control

We have a dedicated team and stringent quality assurance and control procedures to ensure product quality and prevent counterfeit products. We carefully scrutinize the products before listing them on our platform. We diligently examine the product sourcing channel and qualification of our suppliers, carefully inspect products delivered to the warehouses, and reject or return products that do not meet our quality standards or the purchase order specifications. We also reject any products with broken or otherwise compromised packaging. In addition, we inspect all products before shipment to our users and conduct random periodic quality checks on our inventory.

Our Suppliers

Seeking to offer a balanced mix of products of mainstream brands, emerging brands and private labels on our platform, we provide values to a variety of suppliers. We help owners of mainstream brands expand their business in China or certain specific regions in China cost effectively. We support owners of emerging brands in reaching a wider customer base and gaining better recognition and reputation. We empower manufacturing partners with closer reach to end customers and eventually some of them may become branded suppliers and can achieve further growth. Our suppliers included merchants of mainstream brands and emerging brands and manufacturing partners we cooperate with. Our private labels include Solo Life ( LOGO ), Yuan Sheng Huang and Unibeauty, among others.

We generally enter into framework supply agreements with suppliers annually based on our standard form. We constantly communicate with our suppliers to keep them informed of any changes to the inventory levels of

 

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their products in order for them to timely respond to our sales demands. Before hosting a major sales event, we provide advance notice to our suppliers so that they can prepare ample stock to meet a potential surge in demand and increased purchases. Our standard form agreement requires suppliers to represent that their goods are authentic and from lawful sources and do not infringe upon the intellectual property rights or other lawful rights of third parties and to pay us liquidated damages for any breach.

Fulfillment and Customer Service

We deliver a compelling customer experience by fulfilling orders quickly and accurately. We provide centralized and comprehensive fulfillment and customer service to users regardless of whether they purchase products on our apps directly or through the introduction of our members. Our fulfillment infrastructure for the prompt receipt, storage and shipment of products is primarily comprised of a nationwide warehouse and delivery network, which we operate mainly through collaboration with contracted third-party logistics service providers. We fulfilled approximately 13.5 million, 75.8 million and 153.4 million orders in 2016, 2017 and 2018, respectively.

Fulfillment Process

Our products are strategically stored at warehouses we use and the suppliers’ warehouses. The volume of products to be stored at the warehouses and the choice of warehouse to be placed are determined based on customer demand. When a user places an order and makes payment, our warehouse management system automatically processes the order and assigns it to the warehouse or warehouses with the appropriate inventory. The third-party logistics service provider that we have hired in the region picks up the order at the warehouse to make the delivery. Once the order has shipped, our warehouse management system automatically updates the inventory level for each product in the order, ensuring that additional inventory will be ordered as needed. For some of our products that are not stored at the warehouses, such as fresh produce or home appliances, the third-party logistics service providers will pick up the order from the facilities of the respective suppliers to make the delivery. To further enhance inventory accountability and security, we track our inventory at all stages of the receiving and order fulfillment process. Our users can track the shipping status of their orders through our platform at each step of the process.

Payment

We provide our users with a number of payment options, including credit or debit cards or e-wallets. We cooperate with major third-party online payment platforms such as Alipay, WeChat Pay, JD Pay and UnionPay to provide these options.

Warehouses

We strategically select the locations for warehouse facilities and choose the type of warehouse facilities at these locations based on the density of orders we expect to be fulfilled. As of December 31, 2018, warehouse facilities in our fulfillment network included 17 central warehouses, 17 regional warehouses, 5 front distribution centers and 2 supermarket warehouses, with an aggregate gross floor area of approximately 323,517 square meters in 23 cities. We plan to add new warehouse facilities in additional locations in China, including establishing more front distribution centers to enhance the efficiency in fulfilling the rapidly increasing orders placed from all areas in China.

Most of the warehouses we use are operated by third-party vendors. We establish our operating standards under our operating agreements with third-party vendors and typically renew these agreements on an annual basis.

At each warehouse location, inventory is bar-coded and tracked through our warehouse management system, allowing real-time monitoring of inventory levels across our fulfillment network and item tracking at

 

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each warehouse location. We repackage all products to our standardized boxes for optimized storage at the warehouses. Our warehouse management system is specifically designed to support the frequent curated sales events on our platform and the large volume of inventory turnover.

Delivery

We deliver products to users across China through collaboration with third-party logistics service providers. The warehouses have a dispatch system to more effectively manage the pick-up and delivery services by third-party logistics service providers. We closely monitor the speed and service quality of the third-party logistics service providers through our internal tracking system as well as customer surveys and feedbacks to ensure customer satisfaction.

To ensure timely delivery of our products, third-party logistics service providers are bound by the terms of cooperation agreements with us to deliver the products within the stipulated timeframe that we had promised to our users at the time of purchase. We leverage our large-scale operations and reputation to obtain favorable contractual terms from third-party logistics service providers. To reduce the risk of reliance on any single logistics service provider, we typically contract with two or more local delivery companies in each major city or region. We typically negotiate and enter into agreements on an annual basis.

Customer Service

Providing superior customer service is our high priority. Our commitment to users is reflected in the high service levels provided by our customer service staff as well as in our product return policy.

Customer service center . We have a customer service center in Hefei, Anhui to provide real-time assistance to our users. Users can communicate with online representatives through our mobile apps. We train our customer service representatives to answer user inquiries and proactively educate potential users about our products and promptly resolve customer complaints. We typically enter into service agreements on an annual basis with third-party BPO companies to provide customer service. As of December 31, 2018, 1,239 of our customer service representatives were outsourced from third-party BPO companies and 35 were our employees.

Product returns. We generally allow users to return unused goods within seven days, counting from the date when the user receives the product. Once a user submits a return application request on our mobile app, our customer service representative will review and process the request or contact the user through our mobile app or by phone if there are any questions relating to the request. Upon receipt of the returned product, we credit the user’s payment account with the purchase price. We believe our product return policy helps build user trust and increase user loyalty.

Technology

Our smooth operation and rapid growth are supported by our technological capabilities. Our technology team, coupled with our proprietary technology and infrastructure and the large volume of data generated and collected on our platform, have created opportunities for continuous improvements in our technology capabilities. The key components of our technology include big data analytics and artificial intelligence (AI), which are also the focus of our research and development efforts.

Big Data and Artificial Intelligence

We are able to obtain feedback timely from users on our platform, and gain access to a large volume of transaction and user behavioral data. We develop and leverage big data analytics to enhance the accuracy of user behavior predictions and user profiling, optimize targeted marketing and platform operations, and deliver best-in-class user experience. We utilize AI and machine learning technologies to conduct modeling exercises

 

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and data mining in order to gain actionable and effective insights from the data. For example, we not only look into the basic order information but also user behavioral data, and then build predictive and statistical models based on the data we have accumulated. Our big data capabilities enable us to better analyze market trends and understand customer behavior, and we reflect such understanding in SPU selection and when working with our suppliers. This customer-to-manufacturer (C2M) model allows us to source products in response to evolving customer needs and preferences, and enable us to help our suppliers, especially our manufacturing partners, provide products better designed for end customers and manage regional inventory storage.

With access to a massive amount of data, we believe we are in a strong position to capitalize on the use of AI and machine learning technologies in the new e-commerce arena. To date, we have applied various AI and machine learning technologies on our platform in multiple areas, such as personalization of product recommendation, intelligent inventory management, automated risk assessment, automated fulfillment process, and automated question answering. We will continue to explore the application of the big data and AI technologies on our platform and use them in more areas such as intelligent customer services to enhance user experience.

Technology Infrastructure

We build our technology infrastructure to support our business in a cost-effective manner. We have built a reliable and smart network infrastructure to ensure high availability and a low risk of downtime. We currently utilize third-party clouds in China to host our network infrastructure, renting public servers and bandwidth. We plan to build a secure, cost-effective and scalable infrastructure that is a hybrid of self-owned and rented data center and cloud infrastructure.

We focus on maintaining and enhancing the reliability, stability and scalability of our service-oriented technology infrastructure. Our technology infrastructure enables us to accurately process and fulfill increasingly large numbers of orders at peak periods while maintaining processing speed and quality consistency, as well as powering full supply chain visibility and control. For example, we have adopted a micro-service architecture that is built on top of our technology infrastructure to support horizontal scaling at all times. We have also designed a complex transaction processing system and supply chain management system which can support the continued growth in our business.

Our Technology Team

We invest significant resources in research and development to improve our technology and develop solutions supporting our platform operations. We incurred RMB18.2 million, RMB58.2 million and RMB143.6 million (US$20.9 million) of technology and content expenses in 2016, 2017 and 2018, respectively.

Our technology team primarily consists of four groups. We have a team of engineers who focus on the development and implementation of new functions or features of our transaction and supply chain management systems. We have a team of research and development personnel who focus on technology development and providing user support services. A team of data scientists who leverage big data analytics to support our business decision making. We also have a team of IT personnel who provide internal system maintenance and system operations and development. As of December 31, 2018, our technology team had a total of 409 personnel.

Data Privacy and Security

We are committed to protecting our users’ personal information and privacy. We have established and implemented a strict platform-wide policy on data collection, processing and usage. We collect personal information and other data that is related to the services we provide and use the collected data for our platform operations, all with users’ consent.

 

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To ensure the confidentiality and integrity of our data, we maintain a comprehensive and rigorous data security program. We anonymize and encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. We have also established stringent internal protocols under which we grant classified access to confidential personal data only to limited employees with strictly defined and layered access authority.

We back-up our user and other forms of data on a daily basis in separate and various secured data back-up systems to minimize the risk of data loss. We also conduct frequent reviews of our back-up systems to ensure that they function properly and are well maintained. Our back-end security system is capable of handling malicious attacks each day to safeguard the security of our platform and to protect the privacy of our users.

Intellectual Property

We regard our trademarks, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. As of December 31, 2018, we owned 26 computer software copyrights in China relating to various aspects of our operations and maintained 263 trademark registrations inside China and 4 trademark registrations outside China. As of December 31, 2018, we had 141 trademark applications inside China and 29 outside China. As of December 31, 2018, we had 3 patent applications pending in China. As of December 31, 2018, we had registered 9 domain names, including www.yunjiglobal.com , among others.

Marketing

We have been able to build a large base of loyal users through, among other means, word-of-mouth referrals via users’ social networks, which we intend to utilize to further grow our user base. Our ability to do so depends on whether we can continue to provide superior user experience and promote and enhance our community value.

To enhance our brand awareness, we also have engaged in offline marketing and brand promotion activities. For example, we host offline promotion campaigns for the shopping festival on November 11 each year in major cities in China. We plan to invest more efforts in marketing and brand promotion initiatives, such as placing advertisement outdoor in high-traffic locations in major cities.

Competition

The e-commerce industry in China is intensely competitive. Our competitors include all major e-commerce companies in China, and other internet companies in China that engage in social e-commerce businesses.

We anticipate that the e-commerce industry will continually evolve and will continue to experience rapid technological change, evolving industry standards, shifting customer requirements, and frequent innovation. We must continually innovate to remain competitive.

We compete primarily on the basis of the following factors: (i) our ability to attract and retain a large number of members and other users and establish strong community bonding and maintain member loyalty through social interaction effectively, (ii) our full-serviced platform that enables users to buy products easily, (iii) strong fulfillment capabilities, including logistics and online payment, (iv) advanced technology infrastructure, and (v) reliable and flexible supply chain with customer-to-manufacturer (C2M) capability and strong manufacturing partner network.

We believe that we are well-positioned to effectively compete on the basis of the factors listed above. However, some of our current or future competitors may have longer operating histories, greater brand recognition, better supplier relationships, larger user base or greater financial, technical or marketing resources

 

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than we do, and they may also adopt membership-based or social network-driven e-commerce models or other similar models on their platforms.

Employees

As of December 31, 2018, we had a total of 1,013 employees. We had a total of 368 and 605 employees as of December 31, 2016 and 2017, respectively. The following table gives breakdowns of our employees as of December 31, 2018 by function:

 

Function:

   As of December 31, 2018  

Procurement

     268  

Operations, including customer service and logistics

     124  

Technology

     409  

Sales and Marketing

     105  

General and Administrative

     107  
  

 

 

 

Total

     1,013  
  

 

 

 

To focus corporate resources on the more crucial parts of our business model and for better operating efficiency, we enter into arrangements with third-party BPO companies to provide certain ancillary services available on our platform, such as real-time customer service. As of December 31, 2018, 1,239 of our customer service personnel were outsourced from third-party BPO companies, representing 97% of the total customer service personnel.

We outsource provision of member services to third-party service companies and they select, hire, train and compensate service managers at our request. Most of the service managers are our members. Service managers enter into contracts with third-party service companies and are not our employees. As of December 31, 2018, our members were served by more than 70,000 service managers. We currently work with five third-party service companies and enter into agreements with them on an annual basis or for a longer term. These third-party service companies select service managers based on the standards we provide in our agreements. We have the right to supervise the performance of the service managers and may request third-party service companies to replace service managers who do not meet our standards. We pay training fees to third-party service companies based on the number of members managed by these service companies through service managers that provide training and support to our members. We pay member management fees to third-party service companies for their product sales facilitation services. The service companies compensate the service managers based on the length of work hours and other performance criteria.

Our success depends on our ability to attract, retain and motivate qualified employees that share our values. We place great emphasis on our corporate culture to ensure that we maintain consistently high standards everywhere we operate. We believe that we maintain a good working relationship with our employees.

As required by regulations in China, we participate in various government statutory employee benefit plans, including social insurance funds, namely, medical insurance, maternity insurance, workplace injury insurance, unemployment insurance and pension benefits, as well as a housing provident fund. We are required under PRC law to contribute to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees up to a maximum amount specified by the local government from time to time.

We enter into standard labor contracts with our employees. We also enter into standard confidentiality and non-compete agreements with all of our employees. The non-compete restricted period typically expires two years after the termination of employment, and we agree to compensate the employee with a certain percentage of his/her pre-departure salary during the restricted period.

 

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Corporate Social Responsibilities

Corporate social responsibility has been central to how we do business, starting with operating with integrity in all we do and extending to serving the community at large in China. We strive to help more consumers achieve consumption upgrade by providing high-quality authentic products at attractive prices. For our members, we provide them with opportunities to do business and improve their lifestyle. We have partnered with a number of non-profit organizations to implement various social responsibility initiatives, including the following:

Land of Plenty. ” We have launched the “Land of Plenty” project, seeking to discover unrecognized, high-quality producers of local specialty products across China and help them increase sales volume through our word-of-mouth marketing channels. We have achieved a number of records since the project was launched. For example, we facilitated the sale of 500 kilogram pomegranates from Lintong, Shaanxi in five hours and 1,000 kilogram apples from Luochuan, Shaanxi in three hours. We have helped over 40 poverty-stricken counties create over 40 brands.

Yunji Care. ” We partnered with the Hong Foundation to launch “Yunji Care” campaign, which was dedicated to providing support to left-behind children in impoverished rural areas. Leveraging our massive network consisting of millions of members, we recruited members for volunteer activities organized by the Hong Foundation and enable our members to provide caring to left-behind children in a variety of forms, such as schoolwork tutoring, emotional counseling and safety knowledge education.

Properties and Facilities

We are headquartered in Hangzhou, China and have leased an aggregate of approximately 14,868 square meters of office space in Hangzhou. As of the date of this prospectus, we have also leased an aggregate of approximately 5,220 and 5,446 square meters of office space in Hefei and Shenzhen, China respectively.

As of December 31, 2018, warehouse facilities in our fulfillment network included 17 central warehouses, 17 regional warehouses, 5 front distribution centers and 2 supermarket warehouses in China. We operate 5 of these warehouse facilities and lease properties for such facility with an aggregate floor area of approximately 29,117 square meters. We engage third-party vendors for the remaining warehouse facilities in 21 cities with an aggregate floor area of approximately 294,400 square meters, including providing physical space for such facilities and operating the day-to-day activities of such facilities.

We plan to expand the fulfillment infrastructure over the next several years to accommodate our future expansion plans and enhance customer experience.

Insurance

We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased food safety insurance for our products. In addition to providing social security insurance for our employees as required by PRC law, we also provide supplemental commercial medical insurance for our employees. We do not maintain business interruption insurance, nor do we maintain product liability insurance or key-man life insurance.

Legal Proceedings

From time to time, we may be involved in disputes and legal or administrative proceedings in the ordinary course of our business. In May 2017, we received a notice from the local Administration for Market Regulation in Hangzhou, which ruled that our sales and marketing practice adopted in our early stage of development prior to February 2016 violated the Regulations on the Prohibition of Pyramid Selling and imposed a penalty of approximately RMB9.6 million (US$1.4 million). We paid this fine in June 2017 and have adjusted our business

 

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practices since February 2016 to comply with the Regulations on the Prohibition of Pyramid Selling and other applicable regulations. See “Regulation—Regulations Relating to Pyramid Selling in the PRC” and “Risk Factors—Risks Related to Our Business and Industry—Any lack of requisite approvals, licenses or permits applicable to our business or failure to comply with any requirements of PRC laws, regulations and policies may have a material and adverse impact on our business, financial condition and results of operations.” We are currently not a party to any material legal or administrative proceedings. However, litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.

 

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REGULATION

This section sets forth a summary of the most significant rules and regulations that affect our business and operations in China.

Regulations Relating to Foreign Investment

Guidance Catalogue of Industries for Foreign Investment

Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Guidance Catalog, which was promulgated and is amended from time to time by the Ministry of Commerce, or MOFCOM, and the National Development and Reform Commission, or NDRC. The Guidance Catalog lays out the basic framework for foreign investment in China, classifying businesses into three categories with regard to foreign investment: “encourage,” “restricted” and “prohibited.” Industries not listed in the catalog are generally deemed as falling into a fourth category “permitted” unless specifically restricted by other PRC laws. In addition, in June 2018 the MOFCOM and the National Development and Reform Commission promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or the Negative List, which became effective on July 28, 2018 to amend the Guidance Catalog. Foreign investment in value-added telecommunications services (except for e-commerce) falls within the Negative List. As a result, foreign investors can only conduct investment activities through equity or contractual joint ventures with certain shareholding requirements and approvals from competent authorities. PRC partners are required to hold the majority interests in the joint ventures and approval from MOFCOM, MIIT for the incorporation of the joint ventures and the business operations.

In October 2016, MOFCOM issued the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises, or the FIE Record-filing Interim Measures, most recently amended in July 2017. Pursuant to the FIE Record-filing Interim Measures, the establishment and change of foreign-invested enterprises are subject to record-filing procedures, instead of prior approval requirements, provided that such establishment or change does not involve special entry administration measures. If the establishment or change of foreign-invested enterprises matters involve the special entry administration measures, the approval of the Ministry of Commerce or its local counterparts is still required.

Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises promulgated by the State Council in December 2001 and most recently amended in February 2016, or the FITE Regulations, the ultimate foreign equity ownership in a value-added telecommunications services provider may not exceed 50%. Moreover, for a foreign investor to acquire any equity interest 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 Ministry of Industry and Information Technology, or MIIT, and MOFCOM or their authorized local counterparts, which retain considerable discretion in granting approvals. MIIT issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MIIT Circular, in July 2006. The MIIT Circular reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign invested enterprises and obtain telecommunications business operating licenses to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an telecommunications business operating licenses 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.

Pursuant to publicly available information, the PRC government has issued telecommunications business operating licenses to only a limited number of FIEs, most of which are Sino-foreign joint ventures engaging in

 

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the value-added telecommunication business. In June 2015, MIIT issued the Circular on Removing the Restrictions on Equity Ratio Held by Foreign Investors in Online Data Processing and Transaction Processing (Operating E-Commerce) Business to amend the relevant provisions in the FITE Regulations, allowing foreign investors to own more than 50% of equity interest in an operator that “conducts e-commerce” business. However, other requirements provided by the Foreign Investment Telecommunications Rules (such as the track record and experience requirement for a major foreign investor) still apply, and foreign investors are still prohibited from holding more than 50% of equity interest in a provider of other subcategories of value-added telecommunications services.

To comply with PRC laws and regulations, we rely on contractual arrangements with our VIE to operate our e-commerce business in China. See “Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with our VIEs and their respective shareholders for a large portion of our business operations, which may not be as effective as direct ownership in providing operational control.”

Foreign Investment Law

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which will take effect on January 1, 2020 and replace three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies 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 invested enterprises in China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.

According to the Foreign Investment Law, “foreign investment” refer to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.

According to the Foreign Investment Law, the State Council will publish or approve to publish a catalogue for special administrative measures, or the “negative list.” The Foreign Investment Law grants national treatment to foreign invested entities, except for those foreign invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list”. Because the “negative list” has yet to be published, it is unclear whether it will differ from the current Special Administrative Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that foreign invested entities operating in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental authorities.

Furthermore, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.

In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; foreign-invested enterprises are allowed to issue stocks and corporate bonds; except for special circumstances, in which case statutory procedures shall be followed and fair and

 

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reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors within China, may be freely remitted inward and outward in RMB or a foreign currency. Also, foreign investors or the foreign investment enterprise should be imposed legal liabilities for failing to report investment information in accordance with the requirements.

Licenses, Permits and Filings

The PRC government extensively regulates the telecommunications industry, including the internet sector. The State Council, MIIT, MOFCOM, SAMR, the former State Administration of Press, Publication, Radio, Film and Television (which has been replaced by the State Administration of Radio and Television), and other relevant government authorities have promulgated an extensive regulatory scheme governing telecommunications, on-line sales and e-commerce. 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. In addition, substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to the telecommunications, on-line sales and e-commerce.

We are required to hold certain licenses and permits and to make certain filings with the relevant PRC governmental authorities in connection with various aspects of our business, including the following:

Value-Added Telecommunication Business Operating Licenses

The PRC Telecommunications Regulations, or the Telecom Regulations, which were issued by the State Council in 2000 and were most recently amended in February 2016 are the primary governing law on telecommunication services. The Telecom Regulations set out the general framework for the provision of telecommunication services by PRC entities. Under the Telecom Regulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The Telecom Regulations draw a distinction between “basic telecommunications services” and “value-added telecommunications services.” A “Catalog of Telecommunications Business” was issued as an attachment to the Telecom Regulations to categorize telecommunications services as basic or value-added. In December 2015, MIIT released the Catalog of Telecommunication Business (2015 Revision), or the 2015 Telecom Catalog, implemented in March 2016. Under the 2015 Telecom Catalog, both the online data processing and transaction processing business (i.e., operating e-commerce business) and information service business, continue to be categorized as value-added telecommunication services.

In March 2009, MIIT issued the Administrative Measures for Telecommunications Business Operating Permit, or the Telecom Permit Measures, which was implemented in 2009 and most recently amended in 2017. Pursuant to the Telecom Permit Measures, the operation scope of the value-added telecommunication business operating license, or VATS license, shall detail the permitted activities of the enterprise to which it is granted. An approved telecommunication services operator shall conduct its business in accordance with the specifications recorded on its VATS License. The VATS Licenses can be further categorized based on the specific business operations permitted to be carried out under such licenses, including among others, the VATS Licenses for internet information services, or the ICP License, and the VATS License for electronic data interchange business, or the EDI License. In addition, a VATS License holder is required to obtain approval from the original permit-issuing authority prior to any change to its shareholders, business scope or other information recorded on such license. In February 2015, the State Council has issued the Decisions on Cancelling and Adjusting a Batch of Administrative Approval Items, which, among others, replaced the pre-registration approval requirement for telecommunications business with post-registration approval requirement.

 

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In September 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, most recently amended in January 2011. Under the Internet Measures, “internet information services” refer to the provision of information through the internet to online users, and are divided into “commercial internet information services” and “non-commercial internet information services”. Commercial internet information services operators shall obtain an ICP License, from the relevant government authorities within China.

Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, one of our VIEs, holds our VATS License for online data processing and transaction processing business (operating e-commerce, excluding internet finance and e-hailing services) and internet content-related services (excluding information search and inquiry services and real-time interactive information services).

Filing by Third-Party Platforms Providers for Publications Online Trading Services and by Sellers of Publications via Online Trading

We are also subject to regulations relating to online trading platform services provided for distribution of publications including books and audio-video products. According to the Provisions on the Administration of the Publication Market, or the Publication Market Provisions, which were jointly promulgated by General Administration of Press and Publication and MOFCOM in May 2016 and implemented in June 2016, an online trading platform that provides services for the distribution of publications shall complete record-filing formalities with the competent publication administrative authority, and is required to examine the identity of a dealer distributing publications through the platform, verify its business license and Publications Operation Permit, establish a mechanism to prevent and control the trading risks and take effective measures to rectify illicit actions conducted by the dealers distributing publications on the platform. If any entity subject to such requirements fails to complete the filing or fails to fulfill the relevant duties of examination and management in accordance with the Publication Market Provisions, it may be subject to an order to cease illegal acts and a warning by the competent publication administrative authority, as well as a penalty not exceeding RMB30,000. In practice, such filing has not been open for trading platform services provided through mobile applications like Yunji app. Jishang Preferred will submit its record-filing application with the competent authority for providing services for distribution of publications as soon as practical.

Pursuant to the Publication Market Provisions, an entity engaged in the wholesale or retail of publications shall obtain an operation permit for publications. If an entity fails to obtain operation permit for publications, it may be subject to an order to cease illegal acts, fines or confiscation of illegal gains and devices, equipment used for the illegal business operation. In cases where an entity that is engaged in the distribution of publications via the internet or other information networks within the approved business scope has obtained the operation permit for publications, such entity shall complete its record-filing formalities with the publication administrative department that has approved its business scope within 15 days after launching its online distribution business. Zhejiang Jiyuan Network Technology Co., Ltd., or Zhejiang Jiyuan, a wholly-owned subsidiary of our WFOE, holds an operation permit for publications whose scope includes online sales of publications.

Filing by Third-Party Platforms Providers for Medical Device Online Trading Services and by Sellers of Medical Devices via Online Trading

Pursuant to the Regulations on the Supervision and Administration of Medical Devices, an enterprise engaging in the operation of medical devices shall have business premises and storage facilities suitable for the operation scale and scope, and shall have a quality control mechanism or personnel suitable for the medical devices it operates. An enterprise engaged in the distribution of class two medical devices shall complete record-filing formalities with the municipal level food and drug administration and provide supporting materials to satisfy the relevant conditions of engaging in the operation of medical devices, while an enterprise engaged in the distribution of class three medical devices shall apply for an operation permit with the municipal level food and

 

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drug administration and provide supporting materials to satisfy the relevant conditions of engaging in the operation of medical devices. Zhejiang Jiyuan is the process of completing its record-filing for its operation of class two medical devices.

The former China Food and Drug Administration, or the CFDA, which has been merged into SAMR promulgated the Measures for the Supervision and Administration of Online Sale of Medical Devices, or the Medical Devices Online Sale Measures, in December 2017, which became effective in March 2018, and the Administrative Measures for Online Drug Information Service, or the Measures for Online Drug Information Service, in July 2004 and amended in November 2017. Pursuant to the Medical Devices Online Sale Measures and the Measures for Online Drug Information Service, a provider of a third-party platform for online trading services for medical devices shall complete filing procedures with the competent provincial food and drug administrative department and obtain an Internet Pharmaceutical Information Services Qualification Certificate. A provider of a third-party platform for online trading services for medical devices that fails to complete the filing in accordance with the Medical Devices Online Sale Measures may be ordered by the competent provincial food and drug administrative department to make rectification within a prescribed time limit, and failure to make such rectification may be subject to public exposure of incompliance and a penalty of not exceeding RMB30,000. In the case of any engagement in the online drug information service without obtaining a valid Internet Pharmaceutical Information Services Qualification Certificate, the provider of a third-party platform may be subject to an order to cease illegal acts and a warning by the competent administrative authority. Jishang Preferred is applying for the Internet Pharmaceutical Information Services Qualification Certificate and is in the process of submitting its record-filing application with the competent authority for its online trading services for medical devices.

Pursuant to the Medical Devices Online Sale Measures and the Measures for Online Drug Information Service, a seller of medical devices via online transactions shall complete record-filing procedures with the competent food and drug administrative department, or such seller may be ordered to make rectification within a prescribed time limit, and failure to make such rectification may be subject to public exposure of incompliance and a penalty of up to RMB10,000. Zhejiang Jiyuan is in the process of submitting its record-filing application with the competent authority for its online sales of medical devices.

Food Operation Permit

China has adopted a licensing system for food supply operations under the Food Safety Law and its implementation rules. Entities or individuals that intend to engage in food production, food distribution or food service businesses must obtain licenses or permits for such businesses. Pursuant to the Administrative Measures on Food Operation Licensing issued by the CFDA in August 2015 and amended in November 2017, an enterprise needs to obtain a Food Operation Permit from the local food and drug administration, and the permits already obtained by food business operators prior to the effective date of these new measures will remain valid for their originally approved validity period. Zhejiang Youji Supply Chain Management Co., Ltd., or Youji Supply Chain, a wholly-owned subsidiary of our WFOE, holds the Food Operation Permit.

Filing by Third-Party Platform Providers for Food Online Trading

In July 2016, the CFDA promulgated the Measures for Investigation and Handling of Illegal Acts Involving Online Food Safety, pursuant to which a third-party platform provider for online food trading in the PRC shall file a record with the food and drug administration at the provincial level and obtain a filing number. Where an online food trading third-party platform provider fails to complete such filing, the provider may be ordered to make rectifications and given a warning by the competent food and drug administration, and failure to make such rectification may be subject to fines ranging from RMB5,000 to RMB30,000. In practice, such filing has not been open for trading platform services provided through mobile applications like Yunji app. Jishang Preferred will submit its record-filing application as a third-party platform provider for online food trading as soon as practical.

 

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Licenses Relating to Internet Audio-Visual Program Services

Pursuant to the Regulations on the Protection of the Right to Network Dissemination of Information, promulgated by the State Council in May 2006 and amended in January 2013, a network service provider of information storage, searching and linking services, should delete or disconnect the link to the work, performance or audio-video products suspected of infringing on other’s right immediately upon receiving a notice alleging such infringement issued by the owner of such work, performance or audio-video products.

The State Administration of Radio Film and Television, or SARFT, and the former Ministry of Information Industry jointly issued the Administrative Regulations on Internet Audio-Visual Program Service, or the Internet Audio-Visual Program Regulations, in December 2007 and amended in August 2015. The Internet Audio-Visual Program Regulations define “internet audio-visual programs services” as the production, edition and integration of audio-video programs, the supply of audio-video programs to the public via the internet, and providing uploading and audio-video programs transmission services to a third party. Entities engaging in internet audio-visual programs services must obtain internet audio-visual program transmission licenses, which will only be issued to state-owned or state-controlled entities unless the license applicants have obtained internet audio-visual program transmission licenses prior to the promulgation of the Audio-visual Program Provisions in accordance with the then-in-effect laws and regulations. According to the Categories of the Internet Audio-Video Program Services (Trial) promulgated by SARFT in March 2017, “aggregation of internet audio-visual programs”, meaning “editing and arranging the internet audio-visual programs on the same website and providing searching and watching services to public users,” falls into the definition of the aforementioned “internet audio-visual programs services.” As of the date of this prospectus, we have not obtained the internet audio-visual program transmission license for our business, and are not qualified to apply for such license according to currently applicable law.

According to the Administrative Regulations on Production of Broadcasting and Television Programs, which was promulgated by SARFT on July 19, 2004, an entity engaged in producing broadcasting and television programs shall obtain the Production and Operation of Broadcasting and Television Programs Permit. If an entity engages in producing broadcasting and television programs without such permit, the relevant governmental authority may order such entity to cease its operations and confiscate its relevant equipment and impose a fine. We provide and display video programs on our apps, and therefore, are required obtain the Production and Operation of Broadcasting and Television Programs Permit. Jishang Preferred currently holds the Production and Operation of Broadcasting and Television Programs Permit.

Regulations on Commercial Factoring

The commercial factoring is a relatively new business in China, the MOFCOM issued the circulars to promote commercial factoring in specific regions. Pursuant to the Circular on the Pilot Work of Commercial Factoring, which was promulgated by the MOFCOM on June 27, 2012, a trial implementation of commercial factoring pilot work was permitted in Tianjin Binhai New Area and Shanghai Pudong New Area to explore the approaches to develop the commercial factoring. Certain specific requirements for establishment of commercial factoring companies in Tianjin Binhai New Area and Shanghai Pudong New Area were provided under the Reply Letter on Pilot Plan of Commercial Factoring issued by the MOFCOM on October 9, 2012. In December 2012, the said trial implementation of commercial factoring pilot work was extended to Guangzhou and Shenzhen under the Notice on Trial Establishment of Commercial Factoring Companies in Shenzhen and Guangzhou by Service Providers from Hong Kong and Macau, which allowed qualified investors from Hong Kong and Macau to establish commercial factoring companies in the said cities. The MOFCOM issued the Notice on Industrial Administration of Commercial Factoring on August 15, 2013, which imposes reporting requirements on commercial factoring companies established in the trial zones. Pursuant to the Reply of the Ministry of Commerce on Launching Pilot Commercial Factoring Business in the Chongqing Liangjiang New Area, the Sunan Modernization Development Demonstration Zone and the Suzhou Industrial Park, released by the MOFCOM on August 26, 2013, and amended on October 28, 2015, the trial implementation of commercial factoring was extended to Chongqing Liangjiang New Area, Sunan Modernization Development Demonstration Zone, and the Suzhou Industrial Park.

 

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Regulations Relating to Financing Lease

On September 18, 2013, MOFCOM issued the Administration Measures of Supervision on Financing Lease Enterprises, or the Leasing Measures, to regulate and administer the business operations of financing lease enterprises. According to the Leasing Measures, financing lease enterprises are allowed to carry out financing lease business in such forms as direct lease, sublease, sale-and-lease-back, leveraged lease, entrusted lease and joint lease in accordance with the provisions of relevant laws, regulations and rules. However, the Leasing Measures prohibit financing lease enterprises from engaging in financial business such as accepting deposits, providing loans or entrusted loans. Without the approval from relevant authorities, financing lease enterprises shall not engage in inter-bank borrowing and other businesses. In addition, financing lease enterprises are prohibited from carrying out illegal fund-raising activities in the name of financing lease. The Leasing Measures require financing lease enterprises to establish and improve their financial and internal risk control systems, and a financing lease enterprise’s risk assets shall not exceed ten times of its total net assets. Risk assets generally refer to the adjusted total assets of a financing lease enterprise excluding cash, bank deposits, sovereign bonds and entrusted leasing assets.

Regulations Relating to OEM Production and Labeling of Domestic Cosmetic Products

Pursuant to the Regulations Concerning the Hygiene Supervision over Cosmetics Products, the Hygiene Regulations, which was promulgated by the former Ministry of Health and became effective in 1990, and its implementation rules, the Implementation of Hygiene Regulations, which was promulgated by the former Ministry of Health and became effective in 1991 and amended in 2005, cosmetic products are divided into “special purpose cosmetic products” and “non-special purpose cosmetic products”. “Special purpose cosmetic products” refer to those cosmetics used for hair growth, hair-dye, hair perm, hair removal, breast massage, deodorant, fading cream and sun protection. Any cosmetic product not covered by such scope is a non-special purpose cosmetic product.

Pursuant to the Implementation of Hygiene Regulations and other applicable laws, a producer of cosmetic products shall obtain and maintain the Cosmetic Production Enterprise Hygiene License issued by the local branch of the CFDA. In addition, a producer shall obtain the Special Cosmetics Approval Certificate issued by the local branch of the CFDA for production of domestic special purpose cosmetics products. In cases where producers cooperate with OEMs to manufacture such products, the OEM, instead of the producer, shall obtain and maintain the above-mentioned certificates. Pursuant to the Implementation of Hygiene Regulations and the Measures for the Administration of Record-Filing of Domestic Non-Special Purpose Cosmetic Products, which was promulgated by the CFDA and become effective in 2011, a producer shall complete the Non-Special Purpose Cosmetics Filing with the local branch of the CFDA for production of domestic non-special purpose cosmetics products. In cases where producers cooperate with OEMs to manufacture such products, such producer shall apply for such record-filing with province-level branch of CFDA where such OEM is located. If any information of such record-filing changes, the producer shall renew the record-filing accordingly.

The Administrative Provisions on the Labeling of Cosmetics, which was promulgated in August 2007 by the General Administration of Quality Supervision, Inspection and Quarantine and became effective in September 2008, requires labels of cosmetic products to contain information such as name and address of the producers, date of production, expiry date, batch number, applicable industrial standards, quality inspection certificates, and production license number. No claim or implication that a cosmetic product has medical or therapeutic effects is permitted to be included in the labels of such cosmetic product.

Licenses Relating to Live Streaming Services

SARFT issued the Notice on Strengthening the Management of Live Streaming Service for the Network Audio-visual Programs in September 2016, pursuant to which an internet live streaming service provider shall (i) equip personnel to review the content of the live-stream; (ii) establish the technical methods and work

 

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mechanisms in order to emergently replace the unlawful content by using backup program; (iii) record the live streaming program and keep records for at least 60 days to fulfil the inspections requirements from the competent administrative authorities. The State Internet Information Office promulgated the Administrative Provisions on Internet Live Streaming Services in November 2016, pursuant to which an internet live streaming service provider shall (i) establish a live streaming content review platform; (ii) conduct authentication registration of internet live streaming issuers based on their identity certificates, business licenses and organization code certificates, etc.; and (iii) enter into a service agreement with internet live streaming services user to specify both parties’ rights and obligations.

According to the Notice of Filing by Entities Engaged in Live Streaming Services which was issued by Cyberspace Administration of China on July 12, 2017, an entity that operates as a transmission platform for live streaming activities shall complete record-filing procedures with local branch of Cyberspace Administration of China. Currently, no specific regulation has been promulgated with respect to the consequence of breach of such requirements. According to the Circular on Tightening the Administration of Online Live Services which was issued jointly by National Working Group of Attacking Pornography and Illegal Publications, MIIT, Ministry of Public Security, Ministry of Culture and Tourism, National Radio and Television Administration and Cyberspace Administration of China on August 1, 2018, online live streaming service providers shall fulfill the website ICP filing formalities with competent authority according to applicable laws, and online live streaming service providers who are involved in the operation of telecommunications services and internet news information, online performances, live broadcast of internet audio-visual programs and other services shall respectively apply to the relevant departments for obtaining licenses for the operation of telecommunications services, internet news information services, network cultural operations, and dissemination of audio-visual programs through information networks and shall go to the local public security organs to fulfill the public security filing formalities in accordance with the relevant regulations within 30 days of their live services being launched. Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, is in the process of completing its record-filing procedures with the competent authority.

Regulations Relating to E-Commerce

In January 2014, the former State of Administration of Industry and Commerce (which has been merged into SAMR) adopted the Administrative Measures for Online Trading, or the Online Trading Measures, which took effect in March 2014. Under the Online Trading Measures, e-commerce platform operators are required to examine, register and archive the identity information of the merchants applying for access to their platforms as sellers, and verify and update such information regularly. The Online Trading Measures also provide that e-commerce platform operators must make publicly available (i) the link to or the information contained in the business licenses of the merchants, in the case of business entities, or (ii) a label confirming the verified identity of the merchants, in the case of individuals. A consumer is entitled to return the commodities within seven days after receipt of the commodities without giving a reason, except for the following commodities: customized commodities, fresh and perishable commodities, audio-visual products downloaded online or unpackaged by consumers and computer software and other digital commodities, and newspapers and journals that have been delivered. E-commerce platform operators must, within seven days upon receipt of the returned commodities, provide full refunds to consumers. In addition, operators are prohibited from setting forth provisions in contracts or other terms that are not fair or reasonable to consumers such as those excluding or restraining consumers’ rights, relieving or exempting operators’ responsibilities, and increasing the consumers’ responsibilities, or conducting transactions in a forcible manner taking advantage of contractual terms or technical means.

In March 2016, the State Administration of Taxation, or the SAT, the Ministry of Finance, or the MOF, and the General Administration of Customs jointly issued the Circular on Tax Policy for Cross-Border E-Commerce Retail Imports, which took effect in April 2016. Pursuant to this circular, goods imported through the cross-border e-commerce retail are subject to tariff, import value-added tax, and consumption tax based on the types of goods. Individuals purchasing any goods imported through cross-border e-commerce retail are taxpayers, and e-commerce companies, companies operating e-commerce transaction platforms or logistic companies are required to withhold the taxes.

 

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On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective on January 1, 2019. The E-Commerce Law sets forth a series of requirements on e-commerce platform operators. According to the E-Commerce Law, e-commerce platform operators shall verify and register platform merchants, and cooperate with the market regulatory administrative department and tax administrative department to conduct industry and commerce registrations and tax registrations for merchants. The e-commerce platform operators shall also prepare a contingency plan for cybersecurity events and take technological measures and other measures to prevent online illegal and criminal activities. The E-Commerce Law also expressly requires platform operators to take necessary actions to ensure fair dealing on their platforms to safeguard the legitimate rights and interests of consumers, including to prepare platform service agreements and transaction information record-keeping and transaction rules, to prominently display such documents on the platform’s website, and to keep such information for no less than three years following the completion of a transaction. To legally handle intellectual property infringement disputes, upon receipt of the notice specifying preliminary evidence for alleged infringement, the platform operators are required to take necessary measures in a timely manner, such as deleting, blocking and disconnecting the hyperlinks, terminating transactions and services, and to forward notices to merchants on its platform. If an e-commerce platform operator fails to take necessary measures when it knows or should have known that a merchant on the platform infringes any third-party intellectual property rights, products or services provided by a merchant on its platform do not meet the requirements regarding personal or property safety, or any merchant otherwise impairs the lawful rights and interests of consumers, the e-commerce platform operator will be held jointly liable with the merchants on its platform.

Moreover, the E-Commerce Law imposes a requirement on operators of e-commerce platforms to assist in tax collection with respect to income generated by sellers from transactions conducted on e-commerce platforms, including among others, submitting to the tax authority information on the identities of sellers on e-commerce platforms and other information relating to tax payment. Failure to comply with the requirement may result in operators of e-commerce platform being subject to fines and, in severe circumstances, suspension of business operations of e-commerce platforms. If the members on our platform were deemed to be selling our products on consignment basis, the PRC tax authorities may require our members to make tax registration and request our assistance in these efforts, pursuant to the new E-Commerce Law and our members may be subject to more stringent tax compliance requirements. See “Risk Factors—Risks Related to Our Business and Industry—The newly adopted E-Commerce Law may have a material impact on our business, financial conditions and results of operations.” According to the EIT Law, the VAT Law and other applicable regulations, sellers that conduct transactions on e-commerce platforms are generally subject to enterprise income tax at a rate of 25%, and value-added tax at a rate of 16% or 10% for services or products sold on the e-commerce platforms. Certain sellers that are deemed as small taxpayers under PRC law are subject to reduced value-added tax at a rate of 3%.

Regulations Relating to Pyramid Selling in the PRC

The Regulations on Prohibition of Pyramid Selling, that were promulgated by the State Council in August 2005 and became effective in November 2005, prohibit pyramid selling activities. According to the Regulations on Prohibition of Pyramid Selling, the following activities taken by organizers or operators are considered as “pyramid selling”: (i) taking in new members and compensating each member by giving material awards or other financial benefits, based upon the number of new members directly or indirectly introduced by such member on a rolling basis, so as to gain illegal benefits; or (ii) requesting a sum of money as entry fee or as a condition to membership for new members, either directly or through purchasing commodities, so as to gain illegal benefits; or (iii) requesting members to introduce additional members to establish a multi-level relationship and compensating each member based on the level of sales generated by the additional members introduced by such member, so as to gain illegal benefits. The PRC laws and regulations have not defined “illegal benefit” and the determination of gaining “illegal benefit” is to a large extent subject to discretionary view of the competent authorities in the PRC. Any individual or entity engaging in organization of pyramid selling may be subject to confiscation of illegal gains and fines ranging from RMB0.5 million to RMB2.0 million (US$0.3 million), and even criminal liabilities if a crime is constituted. On March 23, 2016, the former State of Administration of

 

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Industry and Commerce (which has been merged into SAMR) promulgated the Risk Warning for New Types of Pyramid Selling, which provides that if an activity satisfies the three features stated above at the same time, it will be identified as pyramid selling, regardless of whether any illegal benefit is obtained.

In May 2017, we received a formal notice from the local Administration for Market Regulation in Hangzhou, which ruled that our sales and marketing practice adopted in our early stage of development prior to February 2016 violated the Regulations on the Prohibition of Pyramid Selling and imposed a penalty of approximately RMB9.6 million (US$1.4 million). We fully paid this fine in June 2017 and have adjusted our business practices since February 2016 to comply with the Regulations on the Prohibition of Pyramid Selling and other applicable regulations. We have adjusted our practices specifically as follows: (i) to avoid being deemed as requesting a sum of money as entry fee through purchasing commodities, we have adjusted our membership package, which individuals are required purchase to become a member of our platform, to include a set of selected products or services and access to the Yunji app containing membership benefits and features; (ii) to avoid being deemed as giving material awards or other financial benefits to existing members for new member referrals, we have adjusted the rewards that we grant to our members upon a successful new member referral to Yun-coins, which are not redeemable for cash and can only be used as coupons for future purchases on our platform; and (iii) to avoid establishing multi-level relationship of members, we grant members incentives only for products sold directly via the links that such member shares through his/her social network, and not for products sold via links shared by any other member that was originally invited by such member. In addition, since we have provided products of value and services to our members as consideration for purchasing our membership package, and the products on our platform are offered at market prices, we believe our current business practices do not constitute as gaining “illegal benefits.” In December 2018, we and Han Kun Law Offices, our PRC legal counsel, consulted with the competent government authority in Hangzhou on our current business model and operations, and the district branch of SAMR having direct jurisdiction over our PRC entities that currently operate our membership-based social e-commerce platform verbally confirmed that these entities have conducted their business operations lawfully and none of these entities is in violation of the Regulations on the Prohibition of Pyramid Selling or any other applicable laws. Based on our discussion with the competent government authorities and the advice of Han Kun Law Offices, we believe that our current business model is not in violation of applicable PRC laws and regulations, including the Regulations on the Prohibition of Pyramid Selling. See “Risk Factors—Risks Related to Our Business and Industry—If our business model were found to be in violation of applicable laws and regulations, our business financial condition and results of operations would be materially and adversely affected.”

Regulations Relating to Internet Information Security and Privacy Protection

Internet information in China is regulated from a national security standpoint. The National People’s Congress, or the NPC, has enacted the Decisions on Preserving Internet Security in December 2000 and amended in August 2009, which subject violators to potential criminal punishment in China for any attempt to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security of the PRC, or the MPS, has promulgated the Administrative Measures for the Computer Information Network and Internet Security Protection in December 1998 and amended in January 2011, which prohibits use of the internet in ways which, among other things, result in a leak of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the MPS and its local branches may issue warning, confiscate the illegal gains, impose fines, and, in severe cases, advice competent authority to revoke its operating license or shut down its websites.

Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011 and implemented in March 2012, an internet information service provider may not collect any user personal information or provide any such information to third parties without the consent of the user. An internet information service provider must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information

 

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necessary for the provision of its services. An internet information service provider is also required to properly maintain the user’s personal information, and in case of any leak or likely leak of the user’s personal information, the internet information service provider must take immediate remedial measures and, in severe circumstances, immediately report to the telecommunications authority. Moreover, pursuant to the Ninth Amendment to the Criminal Law issued by the SCNPC in August 2015 and implemented in November 2015, any internet service provider that fails to fulfill the obligations related to internet information security administration as required by applicable laws and refuses to rectify upon orders, shall be subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation. Any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or illegally obtains any personal information, shall be subject to criminal penalty in severe situation. 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 implemented in June 2017, clarified certain standards for the conviction and sentencing of the criminals in relation to personal information infringement.

In November 2016, the SCNPC, promulgated the Cyber Security Law of the PRC, or the Cyber Security Law, which became effective on June 1, 2017. The Cyber Security Law requires that a network operator, which includes, among others, internet information services providers, take technical measures and other necessary measures in accordance with applicable laws and regulations and the compulsory requirements of the national and industrial standards to safeguard the safe and stable operation of its networks. We are subject to such requirements as we are operating website and mobile applications and providing certain internet services mainly through our mobile applications. The Cyber Security Law further requires internet information service providers to formulate contingency plans for network security incidents, report to the competent departments immediately upon the occurrence of any incident endangering cyber security and take corresponding remedial measures.

Internet information service providers are also required to maintain the integrity, confidentiality and availability of network data. The Cyber Security Law reaffirms the basic principles and requirements specified in other existing laws and regulations on personal data protection, such as the requirements on the collection, use, processing, storage and disclosure of personal data, and internet information service providers being required to take technical and other necessary measures to ensure the security of the personal information they have collected and prevent the personal information from being divulged, damaged or lost. Any violation of the Cyber Security Law may subject the internet information service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, shutdown of websites or criminal liabilities.

Furthermore, MIIT’s Rules on Protection of Personal Information of Telecommunications and Internet Users promulgated in July 2013, effective September 2013, contain detailed requirements on the use and collection of personal information as well as security measures required to be taken by telecommunications business operators and internet information service providers.

Regulations Relating to Product Quality and Consumer Protection

The PRC Product Quality Law, or the Product Quality Law, which was promulgated by the MOFCOM in February 1993 and most recently amended in December 2018, applies to all production and sale activities in China. Pursuant to the Product Quality Law, products offered for sale must satisfy the relevant quality and safety standards. Enterprises may not produce or sell counterfeit products in any fashion, including forging brand labels or giving false information regarding a product’s manufacturer. Violations of state or industrial standards for health and safety and any other related violations may result in civil liabilities and administrative penalties, such as compensation for damages, fines, suspension or shutdown of business, as well as confiscation of products illegally produced and sold and the proceeds from such sales. Severe violations may subject the responsible individual or enterprise to criminal liabilities. Where a defective product causes physical injury to a person or damage to another person’s property, the victim may claim compensation from the manufacturer or from the

 

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seller of the product. If the seller pays compensation and it is the manufacturer that should bear the liability, the seller has a right of recourse against the manufacturer. Similarly, if the manufacturer pays compensation and it is the seller that should bear the liability, the manufacturer has a right of recourse against the seller.

The PRC Consumer Rights and Interests Protection Law, or the Consumer Protection Law, as amended in October 2013 and implemented in March 2014 sets out the obligations of business operators and the rights and interests of the consumers. Pursuant to the Consumer Protection Law, business operators must guarantee that the sold commodities satisfy the requirements for personal or property safety, provide consumers with authentic information about the commodities, and guarantee the quality, function, usage and term of validity of the commodities, failure of which may subject business operators to civil liabilities such as refunding purchase prices, exchange of commodities, repairing, ceasing damages, compensation, and restoring reputation, and even subject the business operators or the responsible individuals to criminal penalties if business operators commit crimes by infringing the legitimate rights and interests of consumers. The Consumer Protection Law further strengthens the protection of consumers and imposes more stringent requirements and obligations on business operators, especially on the business operators through the internet. For example, the consumers are entitled to return the goods (except for certain specific goods) within seven days upon receipt without any reasons when they purchase the goods from business operators via the internet. The consumers whose interests are harmed due to their purchase of goods or acceptance of services on online marketplace platforms may claim damages from the sellers or service providers.

Furthermore, the Consumer Protection Law and the Online Trading Measures, have provided stringent requirements and obligations on business operators, including internet business operators and platform service providers. For example, consumers are entitled to return goods purchased online, subject to certain exceptions, within seven days upon receipt of such goods for no reason. To ensure that sellers and service providers comply with such regulations, the platform operators are required to implement rules governing transactions on the platform, monitor the information posted by sellers and service providers, and report any violations by such sellers or service providers to the competent authorities. In addition, online platform providers may, pursuant to the relevant PRC consumer protection laws, be exposed to liabilities if rights and interests of any consumer are infringed upon in connection with consumers’ purchase of goods or acceptance of services on such online platforms and the online marketplace platform providers fail to provide consumers with the contact information of the seller or manufacturer. In addition, online marketplace platform providers may be jointly and severally liable with sellers and manufacturers of relevant goods or services if they are aware or should be aware that such sellers or manufacturers are using the online platform to infringe the rights and interests of any consumers and fail to take measures necessary to prevent or stop such activities.

The PRC Tort Liability Law, which was enacted by the SCNPC in December 2009 and took effect in July 2010, also provides that if an online service provider is aware that an online user is committing infringing activities, such as selling counterfeit products, through its internet services and fails to take necessary measures, it shall be jointly liable with the said online user for such infringement. If the online service provider receives any notice from the infringed party on any infringing activities, the online service provider shall take necessary measures, including deleting, blocking and unlinking the infringing content, in a timely manner. Otherwise, it will be held jointly liable with the relevant online user for the extended damages. We are subject to such requirements and liabilities as we are operating website and mobile applications and providing online platforms to our consumers for consumption and communications.

Regulations Relating to Intellectual Property in the PRC

Trademark

The PRC Trademark Law and its implementation rules protect registered trademarks. The PRC Trademark Office of State Administration of Industry and Commerce is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to

 

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trademark registration. Registered trademarks are granted a valid term of ten years, which could be renewed each time for another ten years commencing from the day after the expiry date of the last period of validity if the required renewal formalities have been completed. Pursuant to the PRC Trademark Law, counterfeit or unauthorized production of the label of another person’s registered trademark, or sale of any label that is counterfeited or produced without authorization will be deemed as an infringement to the exclusive right to use a registered trademark. The infringing party will be ordered to stop the infringement immediately, a fine may be imposed and the counterfeit goods will be confiscated. The infringing party may also be held liable for the right holder’s damages, which will be equal to the gains obtained by the infringing party or the losses suffered by the right holder as a result of the infringement, including reasonable expenses incurred by the right holder for stopping the infringement.

Domain Name

The MIIT promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017. The MIIT is the major regulatory body responsible for the administration of the PRC internet domain names, under supervision of which the China Internet Network Information Center, or CNNIC, is responsible for the daily administration of “.cn” domain names and Chinese domain names. CNNIC adopts a “first-to-file” principle with respect to the registration of domain names. Applicants for registration of domain names must provide the true, accurate and complete information of their identities to domain name registration service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure.

Copyright

The PRC Copyright Law, or the Copyright Law, which took effect on June 1, 1991 and was amended in 2001 and in 2010, provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright in their copyrightable works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners enjoy certain legal rights, including right of publication, right of authorship and right of reproduction. The Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, the Copyright Law provides for a voluntary registration system administered by the China Copyright Protection Center, or the CPCC. According to the Copyright Law, an infringer of the copyrights shall be subject to various civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners and compensating the loss of copyright owner. Infringers of copyright may also subject to fines and/or administrative or criminal liabilities in severe situations.

Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council on December 20, 2001 and amended on January 30, 2013, Chinese citizens, legal persons and other organizations shall enjoy copyright on software they develop, regardless of whether the software is released publicly. Software copyright commences from the date on which the development of the software is completed. The protection period for software copyright of a legal person or other organizations shall be 50 years, concluding on December 31 of the 50th year after the software’s initial release. The software copyright owner may go through the registration formalities with a software registration authority recognized by the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright, and is entitled to receive remuneration.

Patent

According to the PRC Patent Law (revised in 2008), the State Intellectual Property Office is responsible for administering patent law in the PRC. The patent administration departments of provincial, autonomous region or municipal governments are responsible for administering patent law within their respective jurisdictions. The Chinese patent system adopts a first-to-file principle, which means that when more than one person files different

 

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patent applications for the same invention, only the person who files the application first is entitled to obtain a patent of the invention. Patents in China fall into three categories: invention, utility model and design. To be patentable, an invention or a utility model must meet three criteria: novelty, inventiveness and practicability. A patent is valid for twenty years in the case of an invention and ten years in the case of utility models and designs.

Regulations Relating to Labor Protection in the PRC

Labor Contract Law

The PRC Labor Contract Law, or the Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28, 2012, is primarily aimed at regulating rights and obligations of employer and employee relationships, including the establishment, performance and termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance to national regulations. In addition, employee wages shall be no lower than local standards on minimum wages and must be paid to employees in a timely manner.

Interim Provisions on Labor Dispatch

Pursuant to the Interim Provisions on Labor Dispatch, or the Labor Dispatch Provisions, promulgated by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, dispatched workers are entitled to equal pay with full-time employees for equal work. Employers are allowed to use dispatched workers for temporary, auxiliary or substitutive positions, and the number of dispatched workers may not exceed 10% of the total number of employees.

Social Insurance and Housing Fund

As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004 and amended in 2010, the Provisional Measures for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, the Decisions of the State Council on the Establishment of a Unified Program for Old-Aged Pension Insurance issued on July 16, 1997, the Decisions of the State Council on the Establishment of the Medical Insurance Program for Urban Workers promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999 and the Social Insurance Law of the PRC implemented on July 1, 2011, employers are required to provide their employees in the PRC with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance. These payments are made to local administrative authorities. Any employer that fails to make social insurance contributions may be order to rectify the non-compliance and pay the required contributions within a prescribed time limit and be subject to a late fee. If the employer still fails to rectify the failure to make the relevant contributions within the prescribed time, it may be subject to a fine ranging from one to three times the amount overdue. In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and amended in 2002, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.

Employee Stock Incentive Plan

Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company, or Circular 7, which was issued by the SAFE on February 15, 2012, employees, directors, supervisors, and other senior management who participate in any stock incentive plan of an publicly-listed overseas company and who are PRC citizens or non-PRC citizens

 

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residing in China for a continuous period of no less than one year, subject to a few exceptions, are required to register with SAFE through a qualified domestic agent, which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, the SAT has issued certain circulars concerning employee stock options and restricted shares. Under these circulars, employees working in the PRC who exercise stock options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company are required to file documents related to employee stock options and restricted shares with relevant tax authorities and to withhold individual income taxes of employees who exercise their stock option or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries fail to withhold income tax in accordance with relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC governmental authorities.

Regulations Relating to Tax in the PRC

Income Tax

The PRC Enterprise Income Tax Law, or the EIT Law, imposes a uniform enterprise income tax rate of 25% on all PRC resident enterprises, including foreign-invested enterprises, unless they qualify for certain exceptions. The enterprise income tax is calculated based on the PRC resident enterprise’s global income as determined under PRC tax laws and accounting standards. If a non-resident enterprise sets up an organization or establishment in the PRC, it will be subject to enterprise income tax for the income derived from such organization or establishment in the PRC and for the income derived from outside the PRC but with an actual connection with such organization or establishment in the PRC. The EIT Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate. In January 2016, the SAT, the Ministry of Science and Technology and the MOF jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises specifying the criteria and procedures for the certification of High and New Technology Enterprises.

On April 22, 2009, the SAT issued the Circular of the State Administration of Taxation on Issues Relating to Identification of PRC-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the De Facto Standards of Organizational Management, or the SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to the SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. Further to SAT Circular 82, on July 27, 2011, the SAT issued the Announcement of the State Administration of Taxation on Printing and Distributing the Administrative Measures for Income Tax on PRC-controlled Resident Enterprises Incorporated Overseas (Trial Implementation), or 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.

 

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Value-added Tax

The Provisional Regulations of the PRC on Value-added Tax, the VAT Regulation, were promulgated by the State Council on December 13, 1993 and came into effect on January 1, 1994 which were subsequently amended from time to time. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) was promulgated by the MOF on December 25, 1993 and subsequently amended on December 15, 2008 and October 28, 2011, or collectively, the VAT Law. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and Amending the Provisional Regulations of the PRC on Value-added Tax, or the Order 691. On April 4, 2018, MOF and SAT jointly promulgated the Circular on Adjustment of Value-Added Tax Rates, or Circular 32. According to the VAT Law, the Order 691 and the Circular 32, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers of VAT. The VAT tax rates generally applicable are simplified as 16%, 10%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%.

Dividend Withholding Tax

The EIT Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.

Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such 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 the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities determine, in their discretions, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by the SAT and took effect on April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of his or her income in twelve months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to prove his or her status of the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.

On February 3, 2015, the SAT issued the Public Notice Regarding Certain Enterprise Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or the SAT Public Notice 7. The SAT Public Notice 7 extends its tax jurisdiction to cover not only where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, but also to transactions involving transfer of other taxable assets through

 

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offshore transfer of a foreign intermediate holding company. The SAT Public Notice 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers taxable asset indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. 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 10% for the transfer of equity interests in a PRC resident enterprise. 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.

On October 17, 2017, the SAT issued the Public Notice on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or the SAT Public Notice 37, which came into effect on December 1, 2017. According to SAT Public Notice 37, where the non-resident enterprise fails to declare its tax payable pursuant to Article 39 of the EIT Law, the tax authority may order it to pay its tax due within required time limits, and the non-resident enterprise shall declare and pay its tax payable within such time limits specified by the tax authority. If the non-resident enterprise voluntarily declares and pays its tax payable before the tax authority orders it to do so, it shall be deemed that such enterprise has paid its tax payable in time.

Regulations relating to Foreign Exchange

General Administration of Foreign Exchange

Under the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and most recently amended on August 5, 2008 and various regulations issued by the State Administration of Foreign Exchange of the PRC, or the SAFE and other relevant PRC government authorities, Renminbi is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside the PRC for of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from the SAFE or its local office.

Payments for transactions that take place within the PRC must be made in Renminbi. Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad or retain the same abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local office. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from the SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.

Pursuant to the Circular of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or the SAFE Circular 59, promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012 and was further amended on May 4, 2015, approval of SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments. The SAFE Circular 59 also simplified foreign exchange-related registration required for the foreign investors to acquire the equity interests of Chinese companies and further improve the administration on foreign exchange settlement for foreign-invested enterprises.

The Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, or the SAFE Circular 13, effective from June 1, 2015, cancels the administrative approvals of foreign

 

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exchange registration of direct domestic investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration. Pursuant to the SAFE Circular 13, the investors shall register with banks for direct domestic investment and direct overseas investment.

The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or the SAFE Circular 19, which was promulgated by the SAFE on March 30, 2015 and became effective on June 1, 2015, provides that a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to the SAFE Circular 19, for the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capital on a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.

The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or the SAFE Circular 16, which was promulgated by the SAFE and became effective on June 9, 2016, provides that enterprises registered in the PRC may also convert their foreign debts from foreign currency into Renminbi on self-discretionary basis. The SAFE Circular 16 also provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-discretionary basis, which applies to all enterprises registered in the PRC.

According to the FIE Record-filing Interim Measures, the Administrative Rules on the Company Registration, which was promulgated by the State Council on June 24, 1994, became effective on July 1, 1994 and latest amended on February 6, 2016, and other laws and regulations governing the foreign invested enterprises and company registrations, the establishment of a foreign invested enterprise and any capital increase and other major changes in a foreign invested enterprise shall be registered with the State Administration for Market Regulation, or the SAMR, or its local counterparts, and shall be filed via the foreign investment comprehensive administrative system, or the FICMIS, if such foreign invested enterprise does not involve special access administrative measures prescribed by the PRC government.

Pursuant to the SAFE Circular 13 and other laws and regulations relating to foreign exchange, when setting up a new foreign invested enterprise, the foreign invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating to the basic information of the foreign-invested enterprise, including without limitation any increase in its registered capital or total investment, the foreign invested enterprise must register such changes with the bank located at its registered place after obtaining approval from or completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-mentioned foreign exchange registration with the banks will typically take less than four weeks upon the acceptance of the registration application.

Based on the forgoing, if we intend to provide funding to our wholly foreign owned subsidiaries through capital injection at or after their establishment, we must register the establishment of and any follow-on capital increase in our wholly foreign owned subsidiaries with the SAMR or its local counterparts, file such via the FICMIS and register such with the local banks for the foreign exchange related matters.

Offshore Investment

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Residents via Special Purpose Vehicles, or the SAFE Circular 37, issued by the SAFE and effective on July 4, 2014, PRC residents are required to register with the local SAFE branch prior to contributing assets or equity interests in an offshore special purpose vehicle, or SPV, which is defined as offshore enterprises directly established or indirectly controlled by PRC residents for investment and financing purposes, with the enterprise assets or interests they hold in China or overseas. The term “control” means obtain the operation rights, right to proceeds or decision-making power of a SPV through acquisition, trust, holding shares on behalf of others, voting rights, repurchase, convertible bonds or other means. An amendment to registration or subsequent filing with the local SAFE branch by such PRC resident is also required if there is any change in basic information of the offshore company or any material change with respect to the capital of the offshore company. At the same time, the SAFE has issued the Operation Guidance for the Issues Concerning Foreign Exchange Administration over Round-trip Investment regarding the procedures for SAFE registration under the SAFE Circular 37, which became effective on July 4, 2014 as an attachment of Circular 37.

Under the relevant rules, failure to comply with the registration procedures set forth in the SAFE Circular 37 may result in bans on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliates, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

Regulations on Dividend Distribution

The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in the PRC include the PRC Company Law, as amended in 1999, 2004, 2005, 2013 and 2018, the Wholly Foreign-owned Enterprise Law promulgated in 1986 and amended in 2000 and 2016 and its implementation regulations promulgated in 1990 and subsequently amended in 2001 and 2014, the PRC Equity Joint Venture Law promulgated in 1979 and subsequently amended in 1990, 2001 and 2016 and its implementation regulations promulgated in 1983 and subsequently amended in 1986, 1987, 2001, 2011 and 2014, and the PRC Cooperative Joint Venture Law promulgated in 1988 and amended in 2000, 2016 and 2017 and its implementation regulations promulgated in 1995 and amended in 2014 and 2017. Under the current regulatory regime in the PRC, foreign-invested enterprises in the PRC may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

Regulations Relating to M&A Rule and Overseas Listing in the PRC

On August 8, 2006, six PRC governmental and regulatory agencies, including MOFCOM and CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, governing the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006 and was revised on June 22, 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or individuals, or PRC Citizens, intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC Citizens, such acquisition must be submitted to MOFCOM for approval. The M&A Rules also requires that an offshore SPV that is controlled directly or indirectly by the PRC companies or individuals and that has been formed for overseas listing purposes through acquisitions of PRC domestic interest held by such PRC companies or individuals, shall obtain the approval of CSRC prior to overseas listing and trading of such SPV’s securities on an overseas stock exchange.

 

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MANAGEMENT

Directors and Executive Officers

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

 

Directors and Executive Officers

   Age     

Position/Title

Shanglue Xiao

     40      Chairman of the Board of Directors and Chief Executive Officer

Huan Hao

     37      Director and Chief Technology Officer

Qingrong Kong

     32      Director

Yanhua Sun

     41      Director

Wei Ying

     52      Director

Li-Lan Cheng

     54      Independent Director Appointee*

Gao Wang

     53      Independent Director Appointee*

Zhi Wan

     33      Vice President

Tiecheng Zhang

     41      Vice President

Jianjian Hu

     39      Chief Operating Officer

Hui Ma

     41      Chief People Officer and Chief Strategy Officer

Chen Chen

     38      Chief Financial Officer

 

*

Mr. Li-Lan Cheng and Mr. Gao Wang have accepted appointments as our independent directors, effective upon the SEC’s declaration of effectiveness of our registration statement on Form F-1 of which this prospectus is a part.

Mr.  Shanglue Xiao is our founder, and has served as the chairman of our board of directors and chief executive officer since our inception. Mr. Xiao is a serial entrepreneur with more than 15 years of experience in the e-commerce industry. Prior to founding our company, Mr. Xiao founded the Xiaoye Perfume, an online cosmetics retailer in China, in 2003. Mr. Xiao received his EMBA from China Europe International Business School.

Mr.  Huan Hao has served as our director since February 2018 and our chief technology officer since our inception. Mr. Hao has extensive knowledge of internet companies and the technology industry. Mr. Hao served as a senior manager in Tencent (700.HK), a provider of comprehensive internet services serving the largest online community in China and listed on Hong Kong Stock Exchange, from December 2011 to May 2015. Mr. Hao worked as a consultant in Oracle from April 2009 to November 2011. Mr. Hao received his bachelor’s degree from Nanchang University.

Mr.  Qingrong Kong has served as our director since February 2018. Mr. Kong is currently a director in Crescent HydePark Advisors China, where he focuses on private equity investment in consumer-related industries. From October 2010 to July 2012, Mr. Kong worked as an assistant manager of transaction service department in PricewaterhouseCoopers. Prior to this, Mr. Kong was a senior consultant in Ernst & Young from July 2007 to September 2010. Ms. Kong is a Chartered Financial Analyst (CFA) and a member of China Institute of Certified Public Accountants (CICPA). Mr. Kong received his dual bachelor’s degree in law and accounting from Shanghai Jiaotong University.

Mr.  Yanhua Sun has served as our director since February 2018. Mr. Sun has over 13 years of experience in direct investment, strategic management and marketing management. Mr. Sun is currently the managing director of Eastern Bell Venture Capital. Mr. Sun was as a director of Envision Capital from September 2011 to December 2013. Prior to joining Envision Capital, Mr. Sun was a vice president at Capital Today. Mr. Sun received his bachelor’s degree from Zhejiang University and an MBA from Fudan University.

 

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Mr.  Wei Ying has served as our director since February 2018. Mr. Ying is currently a managing director of CDH Investments. Prior to joining CDH Investments, Mr. Ying was a vice president of China Water Affairs Group Limited from February 2007 to March 2009 and president and executive director of China Plant Development Holdings Limited from July 2008 to July 2009. Prior to this, Mr. Ying served as an executive director of China Resources Textiles (Holding) Co., Ltd. Mr. Ying currently serves as non-executive director for several Hong Kong listed companies, such as CHTC Fong’s International Company Limited (0641.HK), New Focus Auto Tech Holdings Ltd (0360.HK), Fountain Set (Holdings) Limited (0420.HK), China Health Group Limited (0673.HK) and Zhongsheng Group Holdings Limited (0881.HK). Mr. Ying received his bachelor’s degree in accounting from Zhejiang Gongshang University and an MBA from University of San Francisco.

Mr. Li-Lan Cheng will serve as our director starting from the SEC’s declaration of effectiveness of our registration statement on Form F-1 of which this prospectus is a part. Mr. Cheng has served as the acting chief financial officer of Leju Holdings Limited (NYSE: LEJU) since June 2017. Mr. Cheng also served as Leju’s executive director from March 2014 to March 2017. Mr. Cheng has served as the chief operating officer of E-House (China) Holdings Limited, a real estate services company in China, since April 2012. He was E-House’s chief financial officer from November 2006 to April 2012. Prior to joining E-House, Mr. Cheng served as the chief financial officer of SouFun Holdings Limited, a real estate internet company in China, from 2005 to 2006. From 2002 to 2004, Mr. Cheng served as an executive director and the chief financial officer of SOHO China Limited, a real estate developer in Beijing. Mr. Cheng was an assistant director and the head of the Asian transportation sector investment banking group of ABN AMRO Asia from 1997 to 2002. Mr. Cheng is an independent director of 51job, Inc. (NASDAQ: JOBS), a human resource service provider, and LAIX Inc. (NYSE: LAIX), an artificial intelligence company for English language training. Mr. Cheng received a bachelor’s degree in Economics from Swarthmore College and a Ph.D. degree in Economics from the Massachusetts Institute of Technology. Mr. Cheng is a chartered financial analyst (CFA).

Mr. Gao Wang will serve as our director starting from the SEC’s declaration of effectiveness of our registration statement on Form F-1 of which this prospectus is a part. Mr. Wang has been a professor of marketing at China Europe International Business School (CEIBS) since 2009. Prior to joining CEIBS, Mr. Wang was an associate professor of marketing at the School of Economics and Management, Tsinghua University from 2002 to 2008. Before joining the faculty of Tsinghua University, he worked as a manager of the Strategic Analytics Group at the Minute Maid Company, a division of Coca Cola in Houston, for two years with responsibility for sales planning/evaluation and marketing plan. Prior to that, Mr. Wang was a senior consultant at Information Resources Inc. (IRI) in Chicago from 1998 to 2000 with responsibility for marketing model development. Mr. Wang received his bachelor’s degree in demography from Renmin University of China and his master’s and Ph.D. degrees in sociology from Yale University.

Ms.  Zhi Wan has served as our vice president in charge of user management since our inception. Prior to joining us, Ms. Wan worked as a project manager of the Zhejiang branch of State Street (NYSE: STT), a global asset management company, from July 2009 to February 2015. Ms. Wan received her master’s degree from Zhejiang University.

Mr.  Tiecheng Zhang has served as our vice president of public relations since July 2016. Prior to joining us, Mr. Zhang served as the general manager of Fudi Industrial Park from September 2016 to June 2017. From December 2012 to December 2015, Mr. Zhang was a vice general manager of Supcon Energy Equipment Co., Ltd. Mr. Zhang served as General Electric’s regional chief representative in Zhejiang from January 2010 to November 2012. Prior to this, Mr. Zhang worked as an investment manager in the strategic management head office of Sinochem International (Holding) Co., Ltd. from May to December 2009 and as a senior manager in the B2B department of Alibaba (NYSE: BABA) from February 2008 to April 2009. Mr. Zhang received his bachelor’s degree in polymer chemistry and his master’s degree in chemical engineering from Zhejiang University.

 

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Ms.  Jianjian Hu has served as our chief operating officer since October 2016. Ms. Hu has over 19 years of extensive experience in fast moving consumer goods and retail industry. Prior to joining our company, Ms. Hu served as the national procurement director of Yonghui Superstores Co., Ltd (SSE: 601933), a company operating top chain supermarkets in China, from May 2010 to October 2016. Prior to this, Ms. Hu was the district procurement director of Walmart’s Fujian branch from April 2007 to May 2010. Ms. Hu also worked in Fujian Trust-Mart Supermarket Chain Co., Ltd. from October 1999 to March 2007, serving as the senior district procurement manager. Ms. Hu is now pursuing her EMBA in Zhejiang University.

Mr.  Hui Ma has served as our chief people officer and chief strategy officer since November 2018. Mr. Ma is an industry veteran and has over 12 years of experience in the e-commerce sector in China. Prior to joining us, Mr. Ma served as the chief operating officer of SKIO Group, an innovated new energy automobile company in China, from June 2015 to November 2018. Before that, Mr. Ma held various positions at Alibaba (NYSE: BABA), including serving as general manager of its consumer experience development division from June 2013 to June 2015, as director of its information platform technology department from September 2011 to June 2013, and as senior manager of its human resources department from November 2009 to September 2011. Mr. Ma received his bachelor’s degree in civil engineering and his Ph.D. in advanced manufacturing engineering and information system from Zhejiang University.

Mr.  Chen Chen has served as our chief financial officer since May 2018. Mr. Chen has more than 16 years of comprehensive experience in audit and consulting services. Prior to joining us, Mr. Chen was a partner at Deloitte, and had been working in Deloitte since July 2002. Mr. Chen is a member of the Association of International Certified Professional Accountants (AICPA) and China Institute of Certified Public Accountants (CICPA). Mr. Chen received his bachelor’s degree from Shanghai Jiaotong University.

Board of Directors

Our board of directors will consist of seven directors upon the SEC’s declaration of effectiveness of our registration statement on Form F-1 of which this prospectus is a part. A director is not required to hold any shares in our company by way of qualification. A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company is required to declare the nature of his interest at a meeting of our directors. Subject to the Nasdaq Stock Market Rules and disqualification by the chairman of the relevant board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein, and if he does so his vote shall be counted and he shall be counted in the quorum at any meeting of our directors at which any such contract or transaction or proposed contract or transaction is considered. Our directors may exercise all the powers of our company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.

Committees of the Board of Directors

We will establish three committees under the board of directors immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee . Our audit committee will consist of Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Huan Hao. Mr. Li-Lan Cheng will be the chairman of our audit committee. We have determined that Mr. Li-Lan Cheng and Mr. Gao Wang satisfy the “independence” requirements of the Nasdaq Stock Market Rules and Rule 10A-3 under the Exchange Act. We have determined that Mr. Li-Lan Cheng qualifies as an “audit committee financial

 

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expert.” The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

 

   

appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

 

   

reviewing with the independent auditors any audit problems or difficulties and management’s response;

 

   

discussing the annual audited financial statements with management and the independent auditors;

 

   

reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;

 

   

reviewing and approving all proposed related party transactions;

 

   

meeting separately and periodically with management and the independent auditors; and

 

   

monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Compensation Committee . Our compensation committee will consist of Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Huan Hao. Mr. Li-Lan Cheng will be the chairman of our compensation committee. We have determined that Mr. Li-Lan Cheng and Mr. Gao Wang satisfy the “independence” requirements of the Nasdaq Stock Market Rules. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:

 

   

reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;

 

   

reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;

 

   

reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and

 

   

selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.

Nominating and Corporate Governance Committee . Our nominating and corporate governance committee will consist of Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Hao Huan. Mr. Li-Lan Cheng will be the chairman of our nominating and corporate governance committee. Mr. Li-Lan Cheng and Mr. Gao Wang satisfy the “independence” requirements of the Nasdaq Stock Market Rules. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:

 

   

selecting and recommending to the board nominees for election by the shareholders or appointment by the board;

 

   

reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;

 

   

making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and

 

   

advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making

 

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recommendations to the board on all matters of corporate governance and on any remedial action to be taken.

Duties of Directors

Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth Courts have moved toward an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

 

   

convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings;

 

   

declaring dividends and distributions;

 

   

appointing officers and determining the term of office of the officers;

 

   

exercising the borrowing powers of our company and mortgaging the property of our company; and

 

   

approving the transfer of shares in our company, including the registration of such shares in our share register.

Terms of Directors and Officers

Our directors may be elected by an ordinary resolution of our shareholders. Alternatively, our board of directors may, by the affirmative vote of a simple majority of the directors present and voting at a board meeting appoint any person as a director to fill a casual vacancy on our board or as an addition to the existing board. Our directors are not automatically subject to a term of office and hold office until such time as they are removed from office by an ordinary resolution of our shareholders. In addition, a director will cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without special leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.

Our officers are appointed by and serve at the discretion of the board of directors, and may be removed by our board of directors.

Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, for certain acts of the executive officer, such as continued failure to satisfactorily perform, willful misconduct or gross negligence in the performance of agreed duties, conviction or entry of a guilty or nolo

 

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contendere plea of any felony or any misdemeanor involving moral turpitude, or dishonest act that results in material to our detriment or material of the employment agreement. We may also terminate an executive officer’s employment without cause upon 60-day advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as may be agreed between the executive officer and us. The executive officer may resign at any time with a 60-day advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) solicit from any customer doing business with us during the effective term of the employment agreement business of the same or of a similar nature to our business; (ii) solicit from any of our known potential customer business of the same or of a similar nature to that which has been the subject of our known written or oral bid, offer or proposal, or of substantial preparation with a view to making such a bid, proposal or offer; (iii) solicit the employment or services of, or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with our business or accounts, including, but not limited to, with respect to any relationship or agreement between any vendor or supplier and us.

We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

Compensation of Directors and Executive Officers

In 2018, we paid an aggregate of RMB2.7 million (US$0.4 million) in cash to our executive officers, and we did not pay any compensation to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our PRC subsidiaries and our VIEs are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

2019 Share Incentive Plan

In December 2017, our shareholders and board of directors approved the 2017 Share Incentive Plan, which we refer to as the 2017 Plan in this prospectus, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. In March 2019, we adopted a 2019 Share Incentive Plan, or the 2019 Plan, which replaced the 2017 Plan in its entirety, and the 2017 Plan is no longer effective. The awards granted and outstanding under the 2017 Plan survive the termination of the 2017 Plan and remain effective and binding under the 2019 Plan. The maximum aggregate number of ordinary shares that may be issued under 2019 Plan is initially 227,401,861 ordinary shares, which shall be increased by a number equal to 1% of the then total issued and outstanding ordinary shares on an as-converted and fully diluted basis, on each of the first, second, third, fourth and fifth anniversary of the date of

 

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effectiveness of the 2019 Plan. As of the date of this prospectus, options to purchase a total of 91,379,200 Class A ordinary shares and 39,613,000 restricted share units are outstanding under the 2019 Plan.

The following paragraphs summarize the principal terms of the 2019 Plan.

Type of Awards . The 2019 Plan permits the awards of options, restricted share units, restricted shares, share appreciation rights, dividend equivalents and share payments.

Plan Administration. Our board of directors or a committee appointed by the board of directors will administer the 2019 Plan. The plan administrator will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant.

Award Agreement. Awards granted under the 2019 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that 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 directors, employees, consultants and members.

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 relevant award agreement. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is ten years from the date of effectiveness of the 2019 Plan.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2019 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the 2019 Plan. Unless terminated earlier, the 2019 Plan has a term of ten years from the date of effectiveness of the 2019 Plan. Our board of directors has the authority to terminate, amend, suspend or modify the 2019 Plan in accordance with our articles of association. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the 2019 Plan.

 

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The following table summarizes, as of the date of this prospectus, the number of ordinary shares underlying outstanding options, restricted shares and other equity awards that we granted to our directors and executive officers.

 

Name

   Ordinary Shares
Underlying
Options and
Restricted Share
Units
    Exercise Price
(US$/Share)
     Date of Grant      Date of Expiration  

Shanglue Xiao

     20,000,000       0.0925        December 19, 2017        December 18, 2023  
     15,000,000 (1)               November 28, 2018        November 27, 2024  

Huan Hao

     *       0.0925        December 19, 2017        December 18, 2023  
     * (1)               November 28, 2018        November 27, 2024  

Qingrong Kong

                          

Yanhua Sun

                          

Wei Ying

                          

Zhi Wan

     *       0.0925        December 19, 2017        December 18, 2023  
     * (1)               November 28, 2018        November 27, 2024  

Li-Lan Cheng†

                          

Gao Wang†

                          

Tiecheng Zhang

     *       0.0925        December 19, 2017        December 18, 2023  
     * (1)               November 28, 2018        November 27, 2024  

Jianjian Hu

     *       0.0925        December 19, 2017        December 18, 2023  
     * (1)               November 28, 2018        November 27, 2024  

Hui Ma

     *       0.4        November 28, 2018        November 27, 2024  

Chen Chen

     *       0.1        June 30, 2018        June 29, 2024  
     * (1)               November 28, 2018        November 27, 2024  

All directors and executive officers as a group

  

 

81,110,000

 

 

 

0.0925 to 0.4

 

  

 

December 19, 2017
and November 28,
2018

 
 
 

    

December 18, 2023
and November 27,
2024
 
 
 

 

Note:

*

All awards granted to such director or officer were less than 1% of our total ordinary shares on an as-converted basis outstanding as of the date of this prospectus.

(1)

Represents restricted share units.

Mr. Li-Lan Cheng and Mr. Gao Wang have accepted appointment to be a director of our company, effective upon the SEC’s declaration of effectiveness of our registration statement on Form F-1 of which this prospectus is a part.

As of the date of this prospectus, our employees, other than our directors and executive officers held options to purchase 33,569,200 Class A ordinary shares, with exercise prices ranging from US$0.0925 per share to US$0.5 per share and 16,313,000 restricted share units.

 

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PRINCIPAL [AND SELLING] SHAREHOLDERS

Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares on an as-converted basis as of the date of this prospectus by:

 

   

each of our directors and executive officers;

 

   

each of our principal shareholders who beneficially own more than 5% of our total issued and outstanding shares[; and

 

   

each selling shareholder.]

The calculations in the table below are based on 2,046,616,752 ordinary shares on an as-converted basis issued and outstanding as of the date of this prospectus (excluding 227,401,861 ordinary shares reserved for issuance under our share incentive plan), assuming an initial public offering price of US$                per ADS, the mid-point of the estimated initial public offering price range on the front cover page of this prospectus, and                ordinary shares issued and outstanding immediately after the completion of this offering, assuming the underwriters do not exercise their over-allotment option.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

 

    Ordinary Shares
Beneficially
Owned Prior to

This Offering
    Ordinary Shares
Beneficially Owned
Immediately After
This Offering
 
    Number     %     Class A
Ordinary Shares
    Class B
Ordinary Shares
    % of
Total
Ordinary
Shares
    % of
Aggregate
Voting
Power
**
 

Directors and Executive Officers * :

           

Shanglue Xiao (1)

    949,960,000       46.4          

Huan Hao (2)

    50,720,000       2.5          

Qingrong Kong (3)

                   

Yanhua Sun (4)

                   

Wei Ying (5)

                   

Zhi Wan

                   

Li-Lan Cheng† (6)

                   

Gao Wang† (7)

                   

Tiecheng Zhang

                   

Jianjian Hu

                   

Hui Ma

                   

Chen Chen

                   

All Directors and Executive Officers as a Group

    1,000,680,000       48.9          

Principal [and Selling] Shareholders:

           

Lanlan Ltd. (8)

    949,960,000       46.4          

Entities affiliated with Eastern Bell (9)

    280,600,000       13.7          

CPYD Singapore Pte. Ltd. (10)

    215,800,000       10.5          

Fasturn Overseas Limited (11)

    149,200,000       7.3          

Trustbridge Partners IV, L.P. (12)

    111,000,000       5.4          

Acceleration S Limited (13)

    110,803,324       5.4          

 

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*

Except as indicated otherwise below, the business address of our directors and executive officers is 15/F, South Building, Hipark Phase 2, Xiaoshan District, Hangzhou 310000, Zhejiang Province, People’s Republic of China.

**

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, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

Mr. Li-Lan Cheng and Mr. Gao Wang have accepted appointment to be a director of our company, effective upon the SEC’s declaration of effectiveness of our registration statement on Form F-1 of which this prospectus is a part.

(1)

Represents 949,960,000 ordinary shares held by Lanlan Ltd., a BVI business company. Lanlan Ltd. is wholly owned by Mr. Shanglue Xiao. The registered address of Lanlan Ltd. is Maples Corporate Services (BVI) Limited of Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. All the ordinary shares held by Lanlan Ltd. will be automatically re-designated as Class B ordinary shares immediately prior to the completion of this offering.

(2)

Represents 50,720,000 ordinary shares held by Qiuqiu Inc., a BVI business company. Qiuqiu Inc. is wholly owned by Mr. Huan Hao. The registered address of Qiuqiu Inc. is Maples Corporate Services (BVI) Limited of Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. All the ordinary shares held by Qiuqiu Inc. will be automatically re-designated as Class A ordinary shares immediately prior to the completion of this offering.

(3)

The business address of Mr. Qingrong Kong is 378 Wukang Road, 6/F, Shanghai, People’s Republic of China.

(4)

The business address of Mr. Yanhua Sun is Unit C, 7 th Floor, East Hope Plaza, 1777 Century Avenue, Shanghai, People’s Republic of China.

(5)

The business address of Mr. Wei Ying is 3/F, K.stone Building, No. 1 East Yan’an Road, Huangpu District, Shanghai, People’s Republic of China.

(6)

The business address of Mr. Li-Lan Cheng is 11/F Floor, Yinlin Building, No. 788 Guangzhong Road, Shanghai, China.

(7)

The business address of Mr. Gao Wang is 699 Hongfeng Road, Pudong New District, Shanghai 201206, China.

(8)

Represents 949,960,000 ordinary shares held by Lanlan Ltd., a BVI business company. Lanlan Ltd. is wholly owned by Mr. Shanglue Xiao. The registered address of Lanlan Ltd. is Maples Corporate Services (BVI) Limited of Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. All the ordinary shares held by Lanlan Ltd. will be automatically re-designated as Class B ordinary shares immediately prior to the completion of this offering.

(9)

Represents (i) 223,800,000 preferred shares held by Eastern Bell XIX Investment Limited, a BVI business company, and (ii) 56,800,000 preferred shares held by Eastern Bell XII Investment Limited, a British Virgin Islands company. The registered address of each of Eastern Bell XIX Investment Limited and Eastern Bell XII Investment Limited is Trinity Chambers, P.O. Box 4301, Road Town, Tortola, British Virgin Islands. Eastern Bell XIX Investment Limited is wholly-owned by Suzhou Zhongding No. 3 Venture Capital Center (Limited Partnership) ( LOGO ), whose general partners are Shanghai Dingying Investment Management Center (Limited Partnership) ( LOGO ) and Suzhou Zhongding Hengtang Equity Investment Management Center (Limited Partnership) ( LOGO ), each of which is ultimately controlled by Mr. Li Yan. Eastern Bell XII Investment Limited is wholly-owned by Suzhou Zhongding No. 4 Venture Capital Center (Limited Partnership) ( LOGO ), whose general partners are Shanghai Dingying Investment Management Center (Limited Partnership) ( LOGO ) and Shanghai Zhongding Investment Center (Limited Partnership) ( LOGO ), each of which is ultimately controlled by Mr. Li Yan. All the preferred shares held by Eastern Bell XIX Investment Limited and Eastern Bell XII Investment Limited will be automatically converted into Class A ordinary shares immediately prior to the completion of this offering.

(10)

Represents 215,800,000 preferred shares held by CPYD Singapore Pte. Ltd., a Singapore exempted private company limited by share. The registered address of CPYD Singapore Pte. Ltd. is Marker Icon, 1 Temasek Avenue, #20-01 Millennia Tower, Singapore 039192. CPYD Singapore Pte. Ltd. is beneficially owned and controlled by Mr. David Hand. All the preferred shares held by CPYD Singapore Pte. Ltd. will be automatically converted into Class A ordinary shares immediately prior to the completion of this offering.

(11)

Represents 149,200,000 preferred shares held by Fasturn Overseas Limited, a BVI business company. Fasturn Overseas Limited is wholly owned by Mr. Yuan Chen. The registered address of Fasturn Overseas Limited is Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands. All the preferred shares held by Fasturn Overseas Limited will be automatically converted into Class A ordinary shares immediately prior to the completion of this offering.

(12)

Represents 111,000,000 preferred shares held by Trustbridge Partners IV, L.P. a Cayman Islands limited partnership. Trustbridge Partners IV, L.P. is managed by an investment committee consisting of Mr. Shujun Li, Mr. Feng Ge, Mr. David Ning Lin, Mr. Hongyan Guan and Mr. Xiaodong Liang, which committee by majority vote has the power to make investment or divestment decisions for Trustbridge Partners IV, L.P. The registered address of Trustbridge Partners IV, L.P. is c/o Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands. The business address of each of Mr. Shujun Li, Mr. Feng Ge, Mr. David Ning Lin, Mr. Hongyan Guan and Mr. Xiaodong Liang is 2001, Agricultural Bank of China Tower, 50 Connaught Road Central, Central, Hong Kong. All the preferred shares held by Trustbridge Partners IV, L.P. will be automatically converted into Class A ordinary shares immediately prior to the completion of this offering.

(13)

Represents 110,803,324 preferred shares held by Acceleration S Limited, a BVI business company. Acceleration S Limited is ultimately controlled by Mr. Shangzhi Wu. The registered address of Acceleration S Limited is Maples Corporate Services (BVI) Limited, Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. All the preferred shares held by Acceleration S Limited will be automatically converted into Class A ordinary shares immediately prior to the completion of this offering.

 

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As of the date of this prospectus, none of our ordinary shares or preferred shares are held by record holders in the United States.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

 

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RELATED PARTY TRANSACTIONS

Contractual Arrangements with Our Consolidated Affiliated Entities and Their Respective Shareholders

See “Corporate History and Structure.”

Shareholders Agreement

See “Description of Share Capital—History of Securities Issuances.”

Private Placements

See “Description of Share Capital—History of Securities Issuances.”

Employment Agreements and Indemnification Agreements

See “Management—Employment Agreements and Indemnification Agreements.”

Share Incentive Plan

See “Management—2019 Share Incentive Plan.”

Transactions with our Founder and Related Entities

Transactions with Hangzhou Yuepeng Trading Co., Ltd., or Hangzhou Yuepeng . Hangzhou Yuepeng is under control of Mr. Shanglue Xiao, our chairman and chief executive officer. As of December 31, 2016, 2017 and 2018, we had RMB0.8 million, RMB0.9 million and nil, respectively, due from Hangzhou Yuepeng, representing the payment made on behalf of Hangzhou Yuepeng. The outstanding balances have been fully repaid and there is no amount due from the related party as of the date of this prospectus.

Transactions with Hongkong Smallye International Investment Limited, or Hongkong Smallye . Hongkong Smallye is under control of Mr. Shanglue Xiao, our chairman and chief executive officer. As of December 31, 2016, 2017 and 2018, we had RMB0.2 million, RMB0.2 million and nil, respectively, due from Hongkong Smallye and RMB1.5 million, RMB1.4 million and nil, respectively, due to Hongkong Smallye, representing ordinary course trade receivables generated from our business operations. The outstanding balances have been fully repaid and there is no amount due from or to the related party as of the date of this prospectus.

Transactions with Small Ye Group, or Small Ye . Small Ye is under control of Mr. Shanglue Xiao, our chairman and chief executive officer. As of December 31, 2016, 2017 and 2018, we had nil, RMB40,000 and nil, respectively, due from Small Ye, representing the payment made on behalf of Small Ye. The outstanding balances have been fully repaid and there is no amount due from the related party as of the date of this prospectus.

Transactions with Mr.  Shanglue Xiao . As of December 31, 2016, 2017 and 2018, we had RMB1.5 million, RMB1.8 million and nil, respectively, due to Mr. Shanglue Xiao, our chairman and chief executive officer, representing the expenses he incurred in connection with his business activities for our company that have not been reimbursed by us. The outstanding balances have been fully repaid and there is no amount due to Mr. Shanglue Xiao as of the date of this prospectus. As of December 31, 2016, 2017 and 2018, we had nil, nil and RMB355 thousand (US$51.6 thousand), respectively, due from Mr. Shanglue Xiao, our chairman and chief executive officer, representing payment on behalf of Mr. Shanglue Xiao for his personal education purposes. Mr. Xiao has fully repaid the outstanding balance as of the date of this prospectus.

 

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DESCRIPTION OF SHARE CAPITAL

We are a Cayman Islands exempted company incorporated with limited liability and our affairs are governed by our memorandum and articles of association, the Companies Law (2018 Revision) of the Cayman Islands, which we refer to as the Companies Law below, and the common law of the Cayman Islands.

As of the date of this prospectus, our authorized share capital is US$50,000 divided into 10,000,000,000 shares, comprising of (i) 9,104,783,248 ordinary shares with a nominal or par value of US$0.000005 each, and (ii) 895,216,752 preferred shares with a nominal or par value of US$0.000005 each, 373,000,000 of which are designated as Series Seed Preferred Shares, 389,200,000 of which are designated as Series A preferred shares, 111,911,357 of which are designated as Series B preferred shares, and 21,105,395 of which are designated as Series B+ preferred shares. As of the date of this prospectus, 1,151,400,000 ordinary shares, 373,000,000 Series Seed preferred shares, 389,200,000 Series A preferred shares, 111,911,357 Series B preferred shares, and 21,105,395 Series B+ preferred shares are issued and outstanding. All of our issued and outstanding shares are fully paid.

Immediately prior to the completion of this offering, our authorized share capital will be changed into US$100,000 divided into 20,000,000,000 shares comprising of (i) 17,000,000,000 Class A ordinary shares of a par value of US$0.000005 each, (ii) 2,000,000,000 Class B ordinary shares of a par value of US$0.000005, and (iii) 1,000,000,000 shares of a par value of US$0.000005 each of such class or classes (however designated) as the board of directors may determine in accordance with our post-offering memorandum and articles of association. Immediately prior to the completion of this offering, all of our issued and outstanding ordinary shares and preferred shares will be converted into, and/or re-designated and re-classified as, Class A ordinary shares on a one-for-one basis, except that the 949,960,000 ordinary shares held by Lanlan Ltd. will be re-designated as Class B ordinary shares.

Our Post-Offering Memorandum and Articles of Association

We have conditionally adopted an amended and restated memorandum and articles of association, which will become effective and replace our current amended and restated memorandum and articles of association in its entirety immediately prior to the completion of this offering. The following are summaries of material provisions of the post-offering memorandum and articles of association and of the Companies Law, insofar as they relate to the material terms of our ordinary shares.

Objects of Our Company . Under our post-offering memorandum and articles of association, the objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the laws of the Cayman Islands.

Ordinary Shares . Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and are issued when registered in our register of members. We may not issue shares to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

Each Class B ordinary share is convertible into an equal number of Class A ordinary shares upon the occurrence of certain matters as set forth in our post-offering memorandum and articles of association, including upon any direct or indirect sale, transfer, assignment or disposition of Class B ordinary shares by a holder thereof to any person other than holders of Class B ordinary shares or their affiliates. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

Dividends . Our directors may from time to time declare dividends (including interim dividends) and other distributions on our shares in issue and authorize payment of the same out of the funds of our company lawfully

 

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available therefor. In addition, our shareholders may declare dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our post-offering memorandum and articles of association provide that dividends may be declared and paid out of the funds of our Company lawfully available therefor. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account; provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

Voting Rights . In respect of all matters subject to a shareholders’ vote, each holder of Class A ordinary shares is entitled to one vote per share and each holder of Class B ordinary shares is entitled to ten votes per share. Our Class A ordinary shares and Class B ordinary shares votes together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Voting at any 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 shareholder holding not less than 10% of the votes attaching to the shares present in person or by proxy.

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 issued and outstanding 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 post-offering memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary resolution.

General Meetings of Shareholders . As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’ annual general meetings. Our post-offering memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.

Shareholders’ general meetings may be convened by the chairman of our board of directors or by our directors (acting by a resolution of our board). Advance notice of at least seven days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of, at the time when the meeting proceeds to business, one or more of our shareholders holding shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to all of our shares in issue and entitled to vote at such general meeting.

The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our post-offering memorandum and articles of association provide that upon the requisition of any one or more of our shareholders holding shares which carry in aggregate not less than one-third of all votes attaching to all issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our post-offering memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

Conversion . Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale of Class B ordinary shares by a holder thereof to any person or entity, such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares.

 

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Transfer of Ordinary Shares . Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

 

   

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 Nasdaq Stock Market 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, on ten calendar days’ notice being given by advertisement in such one or more newspapers, by electronic means or by any other means in accordance with the rules of the Nasdaq Stock Market 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.

Liquidation . On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, such the assets will be distributed so that, as nearly as may be, the losses are borne by our shareholders in proportion to the par value of the shares held by them.

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

Redemption, Repurchase and Surrender of Shares . We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or by our shareholders by special resolution. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Law, the redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies

 

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Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares . Whenever the capital of our company is divided into different classes the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the holders of all of the issued shares of that class or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.

Issuance of Additional Shares . Our post-offering memorandum and 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 post-offering memorandum and 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.

Inspection of Books and Records . Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we intend to provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”

Anti-Takeover Provisions . Some provisions of our post-offering memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:

 

   

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; and

 

   

limit the ability of shareholders to requisition and convene general meetings of shareholders.

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our post-offering memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

 

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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;

 

   

is not required to open its register of members for inspection;

 

   

does not have to hold an annual general meeting;

 

   

may issue negotiable or bearer shares or 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 (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

Differences in Corporate Law

The Companies Law is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory enactments and accordingly there are significant differences between the Companies Law and the current Companies Act of England. In addition, the Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and Similar Arrangements . The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to

 

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every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Law. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

Separate from the statutory provisions relating to mergers and consolidations, the Companies Law also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

 

   

the statutory provisions as to the required majority vote have been met;

 

   

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;

 

   

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

 

   

the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

The Companies Law also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted in accordance with the foregoing statutory procedures, a 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 to sue for a wrong done to us as a company, 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, the

 

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Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge actions where:

 

   

a company acts or proposes to act illegally or ultra vires;

 

   

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

 

   

those who control the company are perpetrating a “fraud on the minority.”

Indemnification of Directors and Executive Officers and Limitation of Liability . Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our post-offering memorandum and articles of association provide that that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including, without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our post-offering 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 owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his position as

 

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director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

Shareholder Action by Written Consent . Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our post-offering memorandum and articles of association provide that our 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.

The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our post-offering memorandum and articles of association allow any one or more of our shareholders holding shares which carry in aggregate not less than one-third of the total number votes attaching to all issued and the outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our post-offering memorandum and articles of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings.

Cumulative Voting . Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our post-offering 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 issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our post-offering memorandum and articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders. A director will also cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without special leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.

 

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Transactions with Interested Shareholders . The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.

Dissolution; Winding up . Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by either an order of the courts of the Cayman Islands or by the board of directors.

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.

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 our post-offering memorandum and articles of association, if our share capital is divided into more than one class of shares, the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the holders of all of the issued shares of that class or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.

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. Under the Companies Law and our post-offering memorandum and articles of association, our memorandum and articles of association may only be amended by a special resolution of our shareholders.

Rights of Non-resident or Foreign Shareholders . There are no limitations imposed by our post-offering memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise

 

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voting rights on our shares. In addition, there are no provisions in our post-offering memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

History of Securities Issuances

The following is a summary of our securities issuances in the past three years.

Ordinary Shares

We were established in the Cayman Islands in November 2017. In January 2018, we effected a 1-to-20 share split, following which each of our previously issued ordinary shares was subdivided into 20 ordinary shares, and we then issued a total of 1,151,399,980 ordinary shares to Lanlan Ltd. and Kingwangpeng Holdings Limited for an aggregate consideration of approximately US$5,757.

On November 19, 2018, we issued an aggregate of 101,440,000 ordinary shares to Qiuqiu Inc. and Skyxiaolaba Inc. for an aggregate consideration of US$507 after we repurchased the same number of shares from Lanlan Ltd.

Preferred Shares

On February 12, 2018, we issued (i) 223,800,000 Series Seed preferred shares to Eastern Bell XIX Investment Limited in consideration of its execution and delivery of a promissory note in the principal amount of USD in equivalent to RMB30 million in favor of us; (ii) 149,200,000 Series Seed preferred shares to Fasturn Overseas Limited in consideration of its execution and delivery of a promissory note in the principal amount of USD in equivalent to RMB20 million in favor of us; (iii) 215,800,000 Series A preferred shares to CPYD Singapore Pte. Ltd in consideration of its execution and delivery of a promissory note in the principal amount of US$20 million in favor of us; (iv) 56,800,000 Series A preferred shares to Eastern Bell XII Investment Limited in consideration of its execution and delivery of a promissory note in the principal amount of USD in equivalent to approximately RMB33.2 million in favor of us; (v) 111,000,000 Series A preferred shares to Trustbridge Partners IV, L.P. for an aggregate consideration of US$555; (vi) 5,600,000 Series A preferred shares to China Renaissance Corporation for an aggregate consideration of US$28; and (vii) 110,803,324 Series B preferred shares to Acceleration S Limited for an aggregate consideration of US$100 million. We received settlement of the promissory notes in November and December 2018.

On June 4, 2018, we issued (i) 1,108,033 Series B preferred shares to China TH Capital Limited for an aggregate consideration of US$1 million, and (ii) 5,276,349 Series B+ preferred shares to Fountain Sight Limited for an aggregate consideration of US$5 million.

On June 4, 2018, Shanghai Fengxian Information and Technology Development Partnership (LLP), or Shanghai Fengxian, entered into a share purchase agreement for the purchase of 15,829,046 Series B+ preferred shares of our company and a shareholders’ agreement with our company and certain other parties thereto. Shanghai Fengxian became subject to the shareholders’ rights and obligations in such agreements on the same date. On November 19, 2018, we issued 15,829,046 Series B+ preferred shares to Shanghai Fengxian, for an aggregate consideration of US$15 million.

Grants of Options and Restricted Share Units

We have granted options to purchase our ordinary shares and restricted share units to certain of our directors, executive officers and employees. See “Management—2019 Share Incentive Plan.”

Shareholders Agreement

We entered into our amended and restated shareholders agreement on June 4, 2018 with our shareholders, which consist of holders of ordinary shares and preferred shares. The shareholders agreement provides for certain

 

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shareholders’ rights, including information and inspection rights, right of participation, right of first refusal and co-sale rights, and contains provisions governing our board of directors and other corporate governance matters. The special rights, as well as the corporate governance provisions, will automatically terminate upon the completion of this offering.

Registration Rights

We have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the shareholders agreement.

Demand Registration Rights . At any time after the earlier of (i) June 4, 2021 or (ii) six months after the completion of this offering, holders of at least twenty percent (20%) of the registrable securities (including preferred shares and ordinary shares issued upon conversion of preferred shares) then issued and outstanding have the right to demand that we file a registration statement of all registrable securities that the holders request to be registered and included in such registration by written notice. Other than required by the underwriter(s) in connection with our initial public offering, at least twenty-five percent (25%) of the registrable securities requested by the holders to be included in the underwriting and registration shall be so included. We have the right to defer filing of a registration statement for a period of not more than 90 days after the receipt of the request of the initiating holders if we furnish to the holders requesting registration a certificate signed by our president or chief executive officer stating that in the good faith judgment of our board of directors, it would be materially detrimental to us and our shareholders for such registration statement to be filed at such time. However, we cannot exercise the deferral right more than once in any twelve-month period. We are obligated to effect no more than three demand registrations, other than demand registration to be effected pursuant to registration statement on Form F-3, for which an unlimited number of demand registrations shall be permitted.

Piggyback Registration Rights . If we propose to file a registration statement for a public offering of our securities, we must offer shareholders an opportunity to include in the registration all or any part of the registrable securities held by such holders. If the managing underwriters of any underwritten offering determine in good faith that marketing factors require a limitation of the number of shares to be underwritten, and the number of shares that may be included in the registration and the underwriting shall be allocated (i) first, to us, (ii) second, to each holder requesting inclusion of its 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 that at least twenty-five percent (25%) of the registrable securities requested by the holders to be included in the underwriting and registration shall be so included and all shares that are not registrable securities shall first be excluded from such registration and underwriting before any registrable securities are so excluded.

Form F-3 Registration Rights . Our shareholders may request us in writing to file an unlimited number of registration statements on Form F-3. We shall effect the registration of the securities on Form F-3 as soon as practicable, except in certain circumstances.

Expenses of Registration . We will bear all registration expenses, other than underwriting discounts and commissions.

Termination of Registration Rights . Our shareholders’ registration rights will terminate (i) after two years of the completion of this offering, or (ii) all such registrable securities proposed to be sold by a shareholder may then be sold under Rule 144 promulgated under the Securities Act.

 

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

Deutsche Bank Trust Company Americas, as depositary, will register and deliver the ADSs. Each ADS will represent ownership of                  Class A ordinary shares, deposited with Deutsche Bank AG, Hong Kong Branch, as custodian for the depositary. Each ADS will also represent ownership of any other securities, cash or other property which may be held by the depositary. The depositary’s corporate trust office at which the ADSs will be administered is located at 60 Wall Street, New York, NY 10005, USA. The principal executive office of the depositary is located at 60 Wall Street, New York, NY 10005, USA.

The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, or DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto.

We will not treat ADS holders as our shareholders and accordingly, you, as an ADS holder, will not have shareholder rights. Cayman Islands law governs shareholder rights. The depositary will be the holder of the ordinary shares underlying your ADSs. As a holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary and you, as an ADS holder, and the beneficial owners of ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. The laws of the State of New York govern the deposit agreement and the ADSs. See “—Jurisdiction and Arbitration.”

The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of American Depositary Receipt. For directions on how to obtain copies of those documents, see “Where You Can Find Additional Information.”

Holding the ADSs

How will you hold your ADSs?

You may hold ADSs either (1) directly (a) by having an American Depositary Receipt, or ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (b) by holding ADSs in DRS, or (2) indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADS holder. This description assumes you hold your ADSs directly. ADSs will be issued through DRS, unless you specifically request certificated ADRs. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

Dividends and Other Distributions

How will you receive dividends and other distributions on the shares?

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent as of the record date (which will be as close as practicable to the record date for our ordinary shares) set by the depositary with respect to the ADSs.

 

   

Cash. The depositary will convert or cause to be converted any cash dividend or other cash distribution we pay on the ordinary shares or any net proceeds from the sale of any ordinary shares, rights, securities or other entitlements under the terms of the deposit agreement into U.S. dollars if it can do so on a practicable basis, and can transfer the U.S. dollars to the United States and will distribute promptly

 

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the amount thus received. If the depositary shall determine in its judgment that such conversions or transfers are not practical or lawful or if any government approval or license is needed and cannot be obtained at a reasonable cost within a reasonable period or otherwise sought, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold or cause the custodian to hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid and such funds will be held for the respective accounts of the ADS holders. It will not invest the foreign currency and it will not be liable for any interest for the respective accounts of the ADS holders.

 

   

Before making a distribution, any taxes or other governmental charges, together with fees and expenses of the depositary, that must be paid, will be deducted. See “Taxation.” It will distribute only whole U.S. dollars and cents and will round down fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.

 

   

Shares. For any ordinary shares we distribute as a dividend or free distribution, either (1) the depositary will distribute additional ADSs representing such ordinary shares or (2) existing ADSs as of the applicable record date will represent rights and interests in the additional ordinary shares distributed, to the extent reasonably practicable and permissible under law, in either case, net of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. The depositary will only distribute whole ADSs. It will try to sell ordinary shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. The depositary may sell a portion of the distributed ordinary shares sufficient to pay its fees and expenses, and any taxes and governmental charges, in connection with that distribution.

 

   

Elective Distributions in Cash or Shares. If we offer holders of our ordinary shares the option to receive dividends in either cash or shares, the depositary, after consultation with us and having received timely notice as described in the deposit agreement of such elective distribution by us, has discretion to determine to what extent such elective distribution will be made available to you as a holder of the ADSs. We must timely first instruct the depositary to make such elective distribution available to you and furnish it with satisfactory evidence that it is legal to do so. The depositary could decide it is not legal or reasonably practicable to make such elective distribution available to you. In such case, the depositary shall, on the basis of the same determination as is made in respect of the ordinary shares for which no election is made, distribute either cash in the same way as it does in a cash distribution, or additional ADSs representing ordinary shares in the same way as it does in a share distribution. The depositary is not obligated to make available to you a method to receive the elective dividend in shares rather than in ADSs. There can be no assurance that you will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of ordinary shares.

 

   

Rights to Purchase Additional Shares. If we offer holders of our ordinary shares any rights to subscribe for additional shares, the depositary shall having received timely notice as described in the deposit agreement of such distribution by us, consult with us, and we must determine whether it is lawful and reasonably practicable to make these rights available to you. We must first instruct the depositary to make such rights available to you and furnish the depositary with satisfactory evidence that it is legal to do so. If the depositary decides it is not legal or reasonably practicable to make the rights available but that it is lawful and reasonably practicable to sell the rights, the depositary will endeavor to sell the rights and in a riskless principal capacity or otherwise, at such place and upon such terms (including public or private sale) as it may deem proper distribute the net proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

If the depositary makes rights available to you, it will establish procedures to distribute such rights and enable you to exercise the rights upon your payment of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. The Depositary shall not be obliged to

 

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make available to you a method to exercise such rights to subscribe for ordinary shares (rather than ADSs).

U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.

There can be no assurance that you will be given the opportunity to exercise rights on the same terms and conditions as the holders of ordinary shares or be able to exercise such rights.

 

   

Other Distributions. Subject to receipt of timely notice, as described in the deposit agreement, from us with the request to make any such distribution available to you, and provided the depositary has determined such distribution is lawful and reasonably practicable and feasible and in accordance with the terms of the deposit agreement, the depositary will distribute to you anything else we distribute on deposited securities by any means it may deem practicable, upon your payment of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. If any of the conditions above are not met, the depositary will endeavor to sell, or cause to be sold, what we distributed and distribute the net proceeds in the same way as it does with cash; or, if it is unable to sell such property, the depositary may dispose of such property in any way it deems reasonably practicable under the circumstances for nominal or no consideration, such that you may have no rights to or arising from such property.

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any value for them if we and/or the depositary determines that it is illegal or not practicable for us or the depositary to make them available to you.

Deposit, Withdrawal and Cancellation

How are ADSs issued?

The depositary will deliver ADSs if you or your broker deposit ordinary shares or evidence of rights to receive ordinary shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons entitled thereto.

[Except for ordinary shares deposited by us in connection with this offering, no shares will be accepted for deposit during a period of 180 days after the date of this prospectus. The 180-day lock-up period is subject to adjustment under certain circumstances as described in the section entitled “Shares Eligible for Future Sales—Lock-up Agreements.”]

How do ADS holders cancel an American Depositary Share?

You may turn in your ADSs at the depositary’s corporate trust office or by providing appropriate instructions to your broker. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the ordinary shares and any other deposited securities underlying the ADSs to you or a person you designate at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, to the extent permitted by law.

 

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How do ADS holders interchange between Certificated ADSs and Uncertificated ADSs?

You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send you a statement confirming that you are the owner of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to you an ADR evidencing those ADSs.

Voting Rights

How do you vote?

You may instruct the depositary to vote the ordinary shares or other deposited securities underlying your ADSs at any meeting at which you are entitled to vote pursuant to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities. Otherwise, you could exercise your right to vote directly if you withdraw the ordinary shares. However, you may not know about the meeting sufficiently enough in advance to withdraw the ordinary shares.

If we ask for your instructions and upon timely notice from us by regular, ordinary mail delivery, or by electronic transmission, as described in the deposit agreement, the depositary will notify you of the upcoming meeting at which you are entitled to vote pursuant to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities, and arrange to deliver our voting materials to you. The materials will include or reproduce (a) such notice of meeting or solicitation of consents or proxies; (b) a statement that the ADS holders at the close of business on the ADS record date will be entitled, subject to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities, to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the ordinary shares or other deposited securities represented by such holder’s ADSs; and (c) a brief statement as to the manner in which such instructions may be given to the depositary. Voting instructions may be given only in respect of a number of ADSs representing an integral number of ordinary shares or other deposited securities. For instructions to be valid, the depositary must receive them in writing on or before the date specified. The depositary will try, as far as practical, subject to applicable law and the provisions of our memorandum and articles of association, to vote or to have its agents vote the ordinary shares or other deposited securities (in person or by proxy) as you instruct. The depositary will only vote or attempt to vote as you instruct.

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. In addition, there can be no assurance that ADS holders and beneficial owners generally, or any holder or beneficial owner in particular, will be given the opportunity to vote or cause the custodian to vote on the same terms and conditions as the holders of our ordinary shares.

The depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and you may have no recourse if the ordinary shares underlying your ADSs are not voted as you requested.

In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we will give the depositary notice of any such meeting and details concerning the matters to be voted at least                  business days in advance of the meeting date.

 

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Compliance with Regulations

Information Requests

Each ADS holder and beneficial owner shall (a) provide such information as we or the depositary may request pursuant to law, including, without limitation, relevant Cayman Islands law, any applicable law of the United States of America, our memorandum and articles of association, any resolutions of our Board of Directors adopted pursuant to such memorandum and articles of association, the requirements of any markets or exchanges upon which the ordinary shares, ADSs or ADRs are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or ADRs may be transferred, regarding the capacity in which they own or owned ADRs, the identity of any other persons then or previously interested in such ADRs and the nature of such interest, and any other applicable matters, and (b) be bound by and subject to applicable provisions of the laws of the Cayman Islands, our memorandum and articles of association, and the requirements of any markets or exchanges upon which the ADSs, ADRs or ordinary shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs, ADRs or ordinary shares may be transferred, to the same extent as if such ADS holder or beneficial owner held ordinary shares directly, in each case irrespective of whether or not they are ADS holders or beneficial owners at the time such request is made.

Disclosure of Interests

Each ADS holder and beneficial owner shall comply with our requests pursuant to Cayman Islands law, the rules and requirements of the Nasdaq Stock Market and any other stock exchange on which the ordinary shares are, or will be, registered, traded or listed or our memorandum and articles of association, which requests are made to provide information, inter alia, as to the capacity in which such ADS holder or beneficial owner owns ADS and regarding the identity of any other person interested in such ADS and the nature of such interest and various other matters, whether or not they are ADS holders or beneficial owners at the time of such requests.

Fees and Expenses

As an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs):

 

Service

   Fees

•   To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)

   Up to US$0.05 per ADS issued

•   Cancellation of ADSs, including the case of termination of the deposit agreement

   Up to US$0.05 per ADS cancelled

•   Distribution of cash dividends

   Up to US$0.05 per ADS held

•   Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements

   Up to US$0.05 per ADS held

•   Distribution of ADSs pursuant to exercise of rights.

   Up to US$0.05 per ADS held

•   Distribution of securities other than ADSs or rights to purchase additional ADSs

   Up to US$0.05 per ADS held

•   Depositary services

   Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank

 

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As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as:

 

   

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.

 

   

Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., when ordinary shares are deposited or withdrawn from deposit).

 

   

Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.

 

   

Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable to ordinary shares, deposited securities, ADSs and ADRs.

 

   

Any applicable fees and penalties thereon.

The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.

In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.

The depositary may make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS fees collected in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time.

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable, or which become payable, on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register or transfer your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited

 

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securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any net proceeds, or send to you any property, remaining after it has paid the taxes. You agree to indemnify us, the depositary, the custodian and each of our and their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for you. Your obligations under this paragraph shall survive any transfer of ADRs, any surrender of ADRs and withdrawal of deposited securities or the termination of the deposit agreement.

Reclassifications, Recapitalizations and Mergers

 

If we:    Then:
Change the nominal or par value of our ordinary shares    The cash, shares or other securities received by the depositary will become deposited securities.
Reclassify, split up or consolidate any of the deposited securities    Each ADS will automatically represent its equal share of the new deposited securities.

Distribute securities on the ordinary shares that are not distributed to you, or

Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action

   The depositary may distribute some or all of the cash, shares or other securities it received. It may also deliver new ADSs or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

Amendment and Termination

How may the deposit agreement be amended?

We may agree with the depositary to amend the deposit agreement and the form of ADR without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, including expenses incurred in connection with foreign exchange control regulations and other charges specifically payable by ADS holders under the deposit agreement, or materially prejudices a substantial existing right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended . If any new laws are adopted which would require the deposit agreement to be amended in order to comply therewith, we and the depositary may amend the deposit agreement in accordance with such laws and such amendment may become effective before notice thereof is given to ADS holders.

How may the deposit agreement be terminated?

The depositary will terminate the deposit agreement if we ask it to do so, in which case the depositary will give notice to you at least 90 days prior to termination. The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign, or if we have removed the depositary, and in either case we have not appointed a new depositary within 90 days. In either such case, the depositary must notify you at least 30 days before termination.

After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property and deliver ordinary shares and other deposited securities upon cancellation of ADSs after payment of any fees, charges, taxes or other governmental charges. Six months or more after the date of termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, for the pro rata benefit of the

 

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ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. After such sale, the depositary’s only obligations will be to account for the money and other cash. After termination, we shall be discharged from all obligations under the deposit agreement except for our obligations to the depositary thereunder.

Books of Depositary

The depositary will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the Company, the ADRs and the deposit agreement.

The depositary will maintain facilities in the Borough of Manhattan, The City of New York to record and process the issuance, cancellation, combination, split-up and transfer of ADRs.

These facilities may be closed at any time or from time to time when such action is deemed necessary or advisable by the depositary in connection with the performance of its duties under the deposit agreement or at our reasonable written request.

Limitations on Obligations and Liability

Limits on our Obligations and the Obligations of the Depositary and the Custodian; Limits on Liability to Holders of ADSs

The deposit agreement expressly limits our obligations and the obligations of the depositary and the custodian. It also limits our liability and the liability of the depositary. The depositary and the custodian:

 

   

are only obligated to take the actions specifically set forth in the deposit agreement without gross negligence or willful misconduct;

 

   

are not liable if any of us or our respective controlling persons or agents are prevented or forbidden from, or subjected to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement and any ADR, by reason of any provision of any present or future law or regulation of the United States or any state thereof, the Cayman Islands or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of the possible criminal or civil penalties or restraint, or by reason of any provision, present or future, of our memorandum and articles of association or any provision of or governing any deposited securities, or by reason of any act of God or war or other circumstances beyond its control (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, revolutions, rebellions, explosions and computer failure);

 

   

are not liable by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in our memorandum and articles of association or provisions of or governing deposited securities;

 

   

are not liable for any action or inaction of the depositary, the custodian or us or their or our respective controlling persons or agents in reliance upon the advice of or information from legal counsel, any person presenting ordinary shares for deposit or any other person believed by it in good faith to be competent to give such advice or information;

   

are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement;

 

   

are not liable for any special, consequential, indirect or punitive damages for any breach of the terms of the deposit agreement, or otherwise;

 

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may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party;

 

   

disclaim any liability for any action or inaction or inaction of any of us or our respective controlling persons or agents in reliance upon the advice of or information from legal counsel, accountants, any person presenting ordinary shares for deposit, holders and beneficial owners (or authorized representatives) of ADSs, or any person believed in good faith to be competent to give such advice or information; and

 

   

disclaim any liability for inability of any holder to benefit from any distribution, offering, right or other benefit made available to holders of deposited securities but not made available to holders of ADS.

The depositary and any of its agents also disclaim any liability (i) for any failure to carry out any instructions to vote, the manner in which any vote is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or for allowing any rights to lapse in accordance with the provisions of the deposit agreement, (ii) the failure or timeliness of any notice from us, the content of any information submitted to it by us for distribution to you or for any inaccuracy of any translation thereof, (iii) any investment risk associated with the acquisition of an interest in the deposited securities, the validity or worth of the deposited securities, the credit-worthiness of any third party, (iv) for any tax consequences that may result from ownership of ADSs, ordinary shares or deposited securities, or (v) for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary, provided that in connection with the issue out of which such potential liability arises the depositary performed its obligations without gross negligence or willful misconduct while it acted as depositary.

In the deposit agreement, we agree to indemnify the depositary under certain circumstances.

Jurisdiction and Arbitration

The laws of the State of New York govern the deposit agreement and the ADSs and we have agreed with the depositary that the federal or state courts in the City of New York shall have exclusive jurisdiction to hear and determine any dispute arising from or in connection with the deposit agreement and that the depositary will have the right to refer any claim or dispute arising from the relationship created by the deposit agreement to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, which may include claims arising under the federal securities laws, although the arbitration provisions of the deposit agreement do not preclude you from pursuing claims under the Securities Act or the Exchange Act in federal courts.

Jury Trial Waiver

The deposit agreement provides that each party to the deposit agreement (including each holder, beneficial owner and holder of interests in the ADRs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any lawsuit or proceeding against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable law.

 

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Requirements for Depositary Actions

Before the depositary will issue, deliver or register a transfer of an ADS, split-up, subdivide or combine ADSs, make a distribution on an ADS, or permit withdrawal of ordinary shares, the depositary may require:

 

   

payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any ordinary shares or other deposited securities and payment of the applicable fees, expenses and charges of the depositary;

 

   

satisfactory proof of the identity and genuineness of any signature or any other matters contemplated in the deposit agreement; and

 

   

compliance with (A) any laws or governmental regulations relating to the execution and delivery of ADRs or ADSs or to the withdrawal or delivery of deposited securities and (B) such reasonable regulations and procedures as the depositary may establish, from time to time, consistent with the deposit agreement and applicable laws, including presentation of transfer documents.

The depositary may refuse to issue and deliver ADSs or register transfers of ADSs generally when the register of the depositary or our transfer books are closed or at any time if the depositary or we determine that it is necessary or advisable to do so.

Your Right to Receive the Shares Underlying Your ADSs

You have the right to cancel your ADSs and withdraw the underlying ordinary shares at any time except:

 

   

when temporary delays arise because: (1) the depositary has closed its transfer books or we have closed our transfer books; (2) the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on our ordinary shares;

 

   

when you owe money to pay fees, taxes and similar charges;

 

   

when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities, or

 

   

other circumstances specifically contemplated by Section I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time); or

 

   

for any other reason if the depositary or we determine, in good faith, that it is necessary or advisable to prohibit withdrawals.

The depositary shall not knowingly accept for deposit under the deposit agreement any ordinary shares or other deposited securities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such ordinary shares.

This right of withdrawal may not be limited by any other provision of the deposit agreement.

Direct Registration System

In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an ADS holder, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register such transfer.

 

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SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have                ADSs outstanding, representing approximately        % of our outstanding ordinary shares, assuming the underwriters do not exercise their over-allotment option to purchase additional ADSs. All of the ADSs sold in this offering will be freely transferable by persons other than by our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amounts of the ADSs in the public market could adversely affect prevailing market prices of the ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs. We intend to apply to list the ADSs on the Nasdaq Global Market, but we cannot assure you that a regular trading market will develop in the ADSs. We do not expect that a trading market will develop for our ordinary shares not represented by the ADSs.

Lock-up Agreements

We have agreed, for a period of 180 days after the date of this prospectus, [not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale, lend or otherwise dispose of, except in this offering, any of our ordinary shares or the ADSs or securities that are substantially similar to our ordinary shares or the ADSs, including but not limited to any options or warrants to purchase our ordinary shares, the ADSs or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ordinary shares, the ADSs or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreement was executed),] without the prior written consent of the representatives of the underwriters.

Furthermore, [each of our directors, executive officers and existing shareholders] has also entered into a similar lock-up agreement for a period of 180 days from the date of this prospectus, subject to certain exceptions, with respect to our ordinary shares, the ADSs and securities that are substantially similar to our ordinary shares or the ADSs. These parties collectively own [all] of our issued and outstanding ordinary shares, without giving effect to this offering.

The restrictions described in the preceding paragraphs will be automatically extended under certain circumstances. See “Underwriting.”

Other than this offering, we are not aware of any plans by any significant shareholders to dispose of significant numbers of the ADSs or ordinary shares. However, one or more existing shareholders or owners of securities convertible or exchangeable into or exercisable for the ADSs or ordinary shares may dispose of significant numbers of the ADSs or ordinary shares in the future. We cannot predict what effect, if any, future sales of the ADSs or ordinary shares, or the availability of ADSs or ordinary shares for future sale, will have on the trading price of the ADSs from time to time. Sales of substantial amounts of the ADSs or ordinary shares in the public market, or the perception that these sales could occur, could adversely affect the trading price of the ADSs.

Rule 144

All of our ordinary shares that will be issued and outstanding upon the completion of this offering, other than those ordinary shares sold in this offering, are “restricted securities” as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as those provided by Rule 144 and Rule 701 promulgated under the Securities Act. In general, beginning 90 days after the date of this prospectus, a person (or persons whose shares are aggregated) who at the time of a sale is not, and has not been during the three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months will be entitled to sell the restricted securities without registration under the Securities Act, subject only to the availability of current public information about us, and

 

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will be entitled to sell restricted securities beneficially owned for at least one year without restriction. Persons who are our affiliates and have beneficially owned our restricted securities for at least six months may sell a number of restricted securities within any three-month period that does not exceed the greater of the following:

 

   

1% of the then issued and outstanding ordinary shares of the same class, including Class A ordinary shares represented by ADSs, which immediately after the completion of this offering will equal                Class A ordinary shares, assuming the underwriters do not exercise their over-allotment option; or

 

   

the average weekly trading volume of our ordinary shares of the same class, in the form of ADSs or otherwise, during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.

Sales by our affiliates under Rule 144 are also subject to certain requirements relating to manner of sale, notice and the availability of current public information about us.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our ordinary shares from us in connection with a compensatory stock plan or other written agreement executed prior to the completion of this offering is eligible to resell those ordinary shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. [However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.]

 

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TAXATION

The following summary of the Cayman Islands, PRC and U.S. federal income tax considerations of an investment in the ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this registration statement, all of which are subject to change. This summary does not deal with all possible tax considerations relating to an investment in the ADSs or ordinary shares, such as the tax considerations under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel; to the extent it relates to PRC tax law, it is the opinion of Han Kun Law Offices, our PRC counsel.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

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

People’s Republic of China Taxation

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, production, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe that Yunji Inc. is not a PRC resident enterprise for PRC tax purposes. Yunji Inc. is not controlled by a PRC enterprise or PRC enterprise group and we do not believe that Yunji Inc. meets all of the conditions above. Yunji Inc. is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For

 

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the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us.

If the PRC tax authorities determine that Yunji Inc. is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including the ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. It is also unclear whether non-PRC shareholders of Yunji Inc. would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that Yunji Inc. is treated as a PRC resident enterprise.

Provided that our Cayman Islands holding company, Yunji Inc., is not deemed to be a PRC resident enterprise, holders of the ADSs and ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares or ADSs. However, under SAT Public Notice 7 and SAT Public Notice 37, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, 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 owns such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. 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 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Public Notice 7 and SAT Public Notice 37, and we may be required to expend valuable resources to comply with SAT Public Notice 7 and SAT Public Notice 37, or to establish that we should not be taxed under these circulars. See “Risk Factors—Risks Related to Doing Business in China—We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.”

United States Federal Income Tax Considerations

The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of the ADSs or ordinary shares by a U.S. Holder (as defined below) that acquires the ADSs in this offering and holds the ADSs or ordinary shares as “capital assets”(generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax considerations described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, and alternative minimum tax considerations, the Medicare tax on certain net investment income or any state, local and non-U.S. tax considerations relating to the ownership or disposition of the ADSs or ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:

 

   

banks and other financial institutions;

 

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insurance companies;

 

   

pension plans;

 

   

cooperatives;

 

   

regulated investment companies;

 

   

real estate investment trusts;

 

   

broker-dealers;

 

   

traders that elect to use a mark-to-market method of accounting;

 

   

certain former U.S. citizens or long-term residents;

 

   

tax-exempt entities (including private foundations);

 

   

holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;

 

   

investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes;

 

   

investors that have a functional currency other than the U.S. dollar;

 

   

persons that actually or constructively own 10% or more of our stock (by vote or value);

 

   

persons required to accelerate the recognition of any item of gross income with respect to their ADSs or ordinary shares as a result of such income being recognized on an applicable financial statement; or

 

   

partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding the ADSs or ordinary shares through such entities.

all of whom may be subject to tax rules that differ significantly from those discussed below.

Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of the ADSs or ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in or organized under the law of the United States or any state thereof or the District of Columbia;

 

   

an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

 

   

a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S. person under the Code.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding the ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding an investment in the ADSs or ordinary shares.

 

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The discussion below assumes that the representations contained in the deposit agreement are and will continue to be true, and that the obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with the terms. For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to U.S. federal income tax.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. 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 is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s goodwill and other unbooked intangibles are taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.

Although the law in this regard is not entirely clear, we treat our VIEs and their subsidiaries as being owned by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. 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 our VIEs for U.S. federal income tax purposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year.

Assuming that we are the owner of our VIEs and their subsidiaries for U.S. federal income tax purposes, and based upon our current and projected income and assets, including the expected proceeds from this offering, and projections as to the market price of the ADSs immediately following this offering, we do not expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of the ADSs may cause us to be or become a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price of the ADSs from time to time (which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our anticipated market capitalization immediately following the close of this offering. Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may be or become a PFIC for the current or future taxable years. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. Under circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue 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 are a PFIC for any year during which a U.S. Holder holds the ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds the ADSs or ordinary shares.

The discussion below under “—Dividends” and “—Sale or Other Disposition” is written on the basis that we will not be or become classified as a PFIC for U.S. federal income tax purposes. If, however, we are or become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the ADSs and common shares and on certain distributions, plus an interest charge on certain taxes

 

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treated as having been deferred under the PFIC rules. The U.S. federal income tax rules that apply generally if we are treated as a PFIC are discussed below under “—Passive Foreign Investment Company Rules.”

Dividends

Any cash distributions paid on the ADSs or ordinary shares (including the amount of any PRC tax withheld) out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on the ADSs or ordinary shares will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from U.S. corporations.

Individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income”; provided that certain conditions are satisfied, including 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 PRC 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 neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year, and (3) certain holding period requirements are met. We intend to list the ADSs on the Nasdaq Global Market. Provided that this listing is approved, we believe that the ADSs should generally be considered to be readily tradable on an established securities market in the United States. There can be no assurance that the ADSs will continue to be considered readily tradable on an established securities market in later years. Because the ordinary shares will not be listed on a U.S. exchange, we do not believe that dividends received with respect to ordinary shares that are not represented by ADSs will be treated as qualified dividends. U.S. Holders are urged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or ordinary shares.

In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Taxation—People’s Republic of China Taxation”), 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 the ADSs are readily tradable on an established securities market in the United States, should be eligible for the reduced rates of taxation described in the preceding paragraph.

For U.S. foreign tax credit purposes, dividends paid on the ADSs or ordinary shares will generally be treated as income from foreign sources and will generally 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 on the ADSs or ordinary shares (see “Taxation—People’s Republic of China Taxation”). Depending on the U.S. Holder’s particular facts and circumstances and subject to a number of complex conditions and limitations, PRC withholding taxes on dividends that are non-refundable under the Treaty may be treated as foreign taxes eligible for credit against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and 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

A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s

 

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adjusted tax basis in such ADSs or ordinary shares. The gain or loss will generally be capital gain or loss and will be long term if the ADSs or ordinary shares have been held for more than one year. 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 could limit the availability of foreign tax credits. Nevertheless, 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 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 ordinary shares unless such credit can be applied (subject to applicable limitations) against United States federal income tax due on other income derived from foreign sources in the same income category (generally, the passive category). Each U.S. Holder is advised to consult its tax advisor regarding the tax consequences if a foreign tax is imposed on a disposition of the ADSs or ordinary shares, including the availability of the foreign tax credit under its particular circumstances.

Passive Foreign Investment Company Rules

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:

 

   

the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or 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 classified as a PFIC (each, a “pre-PFIC year”) will be taxable as ordinary income; and

 

   

the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year.

If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and any of our subsidiaries, our VIEs or any of their subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries, our VIEs or their subsidiaries.

As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election with respect to such stock. If a U.S. Holder makes this election with respect to the ADSs, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of the ADSs and we cease to be classified

 

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as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the 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.

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 (“regularly traded”) on a qualified exchange or other market, as defined in applicable United States Treasury regulations. The ADSs, but not our ordinary shares, will be treated as marketable stock upon their listing on the Nasdaq Global Market. We anticipate that the ADSs should qualify as being regularly traded, but no assurances may be given in this regard.

Because a mark-to-market election cannot technically 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 U.S. 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 (and generally less adverse than) the general tax treatment for PFICs described above.

If a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. You should consult your tax advisor regarding the U.S. federal income tax consequences of owning and disposing of the ADSs or ordinary shares if we are or become a PFIC.

 

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UNDERWRITING

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and China International Capital Corporation Hong Kong Securities Limited are acting as representatives, have severally agreed to purchase, and we [and the selling shareholders] have agreed to sell to them, severally, the number of ADSs indicated below:

 

Name

   Number of ADSs  

Morgan Stanley & Co. LLC

                       

Credit Suisse Securities (USA) LLC

  

J.P. Morgan Securities LLC

  

China International Capital Corporation Hong Kong Securities Limited

  
  

 

 

 

Total

  
  

 

 

 

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the ADSs subject to their acceptance of the ADSs from us [and the selling shareholders] and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the ADSs offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated, severally and not jointly, to take and pay for all of the ADSs offered by this prospectus if any such ADSs are taken. However, the underwriters are not required to take or pay for the ADSs covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the ADSs directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the ADSs, the offering price and other selling terms may from time to time be varied by the representatives.

We [and the selling shareholders] have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to                 additional ADSs at the public offering price listed on the cover page of this prospectus less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the ADSs offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional ADSs as the number listed next to the underwriter’s name in the preceding table bears to the total number of ADSs listed next to the names of all underwriters in the preceding table.

The following table shows the per ADS and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us [and the selling shareholders]. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional                 ADSs.

 

            Total  
     Per
ADS
     No
Exercise
     Full
Exercise
 

Public offering price

   US$                    US$                    US$                

Underwriting discounts and commissions to be paid by:

        

Us

   US$        US$        US$    

[The selling shareholders]

   US$        US$        US$    

Proceeds, before expenses, to us

   US$        US$        US$    

[Proceeds, before expenses, to selling shareholders]

   US$        US$        US$    

The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately US$                . [We have agreed to reimburse the underwriters for expense relating to clearance of this offering with the Financial Industry Regulatory Authority up to US$                .]

 

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The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of ADSs offered by them.

Some of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers or sales in the United States will be conducted by broker-dealers registered with the SEC. China International Capital Corporation Hong Kong Securities Limited, one of the underwriters of this offering, is not a broker-dealer registered with the SEC. Therefore, to the extent China International Capital Corporation Hong Kong Securities Limited intends to make any offers or sales of ADSs in the United States, it will do so only through one or more SEC-registered broker-dealers in compliance with applicable securities laws and regulations.

The address of Morgan Stanley & Co. LLC is 1585 Broadway, New York, New York 10036, United States of America. The address of Credit Suisse Securities (USA) LLC is Eleven Madison Avenue, New York, New York 10010, United States of America. The address of J.P. Morgan Securities LLC is 383 Madison Avenue, New York, New York 10179, U.S.A.

The ADSs [have been] approved for listing on the Nasdaq Global Market under the trading symbol “YJ.”

We and [all directors and officers and the holders of all of our outstanding shares and share options] have agreed that, without the prior written consent of the representatives, we and they will not, during the period ending [180] days after the date of this prospectus, or the restricted period:

 

   

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or ADSs or any securities convertible into or exercisable or exchangeable for ordinary shares or ADSs;

 

   

file any registration statement with the SEC relating to the offering of any ordinary shares, ADSs or any securities convertible into or exercisable or exchangeable for ordinary shares or ADSs (other than a registration statement on Form S-8); or

 

   

enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the ordinary shares or ADSs,

whether any such transaction described above is to be settled by issue of ordinary shares, ADSs, or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of the representatives on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any ordinary shares, ADSs, or any security convertible into or exercisable or exchangeable for ordinary shares or ADSs.

The restrictions described in the immediately preceding paragraph do not apply to:

 

   

the sale of shares to the underwriters;

 

   

the issuance by the Company of ordinary shares upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing;

 

   

transactions by any person other than us relating to ordinary shares, ADSs or other securities acquired in open market transactions after the completion of the offering of the ADSs; provided that no filing under Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, is required or voluntarily made in connection with subsequent sales of the ordinary shares, ADSs or other securities acquired in such open market transactions; or

 

   

the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of ordinary shares or ADSs, provided that (i) such plan does not provide for the transfer of ordinary shares

 

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or ADSs during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of ordinary shares or ADSs may be made under such plan during the restricted period.

The representatives, in their sole discretion, may release the ordinary shares, ADSs and other securities subject to the lock-up agreements described above in whole or in part at any time. Subject to compliance with the notification requirements under FINRA Rule 5131 applicable to lock-up agreements with our directors or officers, if the representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up agreement for an officer or director of us and provides us with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, we agree to announce the impending release or waiver by issuing a press release through a major news service at least two business days before the effective date of the release or waiver. Currently, there are no agreements, understandings or intentions, tacit or explicit, to release any of the securities from the lock-up agreements prior to the expiration of the corresponding period.

In order to facilitate the offering of the ADSs, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the ADSs. Specifically, the underwriters may sell more ADSs than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of ADSs available for purchase by the underwriters under the over- allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing ADSs in the open market. In determining the source of ADSs to close out a covered short sale, the underwriters will consider, among other things, the open market price of ADSs compared to the price available under the over-allotment option. The underwriters may also sell ADSs in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, ADSs in the open market to stabilize the price of the ADSs. These activities may raise or maintain the market price of the ADSs above independent market levels or prevent or retard a decline in the market price of the ADSs. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

We[, the selling shareholders] and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of ADSs to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.

In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts

 

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of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.

Pricing of the Offering

Prior to this offering, there has been no public market for our ordinary shares or ADSs. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours, the general condition of the securities markets at the time of this offering, the recent market prices of, and demand for, publicly traded ordinary share of generally comparable companies, and other factors deemed relevant by the representatives and us. Neither we nor the underwriters can assure investors that an active trading market will develop for the ADSs, or that the ADSs will trade in the public market at or above the initial public offering price.

[Directed Share Program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to                 ADSs offered by this prospectus for sale, at the initial public offering price, to our directors, officers, employees, business associates and related persons. If purchased by these persons, these ADSs will be subject to a 180-day lock-up restriction. The number of ADSs available for sale to the general public will be reduced to the extent such persons purchase such reserved ADSs. Any reserved ADSs that are not so purchased will be offered by the underwriters to the general public on the same basis as the other ADSs offered by this prospectus].

Electronic Offer, Sale and Distribution of ADSs

A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of ADSs to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations. In addition, ADSs may be sold by the underwriters to securities dealers who resell ADSs to online brokerage account holders. Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s website and any information contained in any other website maintained by any underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Selling Restrictions

No action may be taken in any jurisdiction other than the United States that would permit a public offering of the ADSs or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither the prospectus nor any other offering material or advertisements in connection with the ADSs may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.

 

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Australia . This document has not been lodged with the Australian Securities & Investments Commission and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:

 

  (a)   you confirm and warrant that you are either:

 

  (i)

“sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act 2001 (Cth) of Australia, or the Corporations Act;

 

  (ii)

“sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to the company which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made;

 

  (iii)

person associated with the company under section 708(12) of the Corporations Act; or

 

  (iv)

“professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act;

and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act, any offer made to you under this document is void and incapable of acceptance;

 

  (b)   you warrant and agree that you will not offer any of the ADSs issued to you pursuant to this document for resale in Australia within 12 months of those ADSs being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.

Canada . The ADSs may be sold in Canada only to purchasers resident or located in the Provinces of Ontario, Québec, Alberta and British Columbia, purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the ADSs must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

Cayman Islands . This prospectus does not constitute an invitation or offer to the public in the Cayman Islands of the ADSs, whether by way of sale or subscription. The underwriters have not offered or sold, and will not offer or sell, directly or indirectly, any ADSs in the Cayman Islands.

Dubai International Financial Centre (“DIFC”) . This prospectus relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority (the “DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken

 

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steps to verify the information set forth herein and has no responsibility for this prospectus. The securities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

In relation to its use in the DIFC, this prospectus is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.

European Economic Area . In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any shares which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State unless the prospectus has been approved by the competent authority in such Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

   

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

   

to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

 

   

by the underwriters to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or

 

   

in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of shares shall result in a requirement for the publication by us or any representative of a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Any person making or intending to make any offer of shares within the EEA should only do so in circumstances in which no obligation arises for us or any of the underwriters to produce a prospectus for such offer. Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of shares through any financial intermediary, other than offers made by the underwriters which constitute the final offering of shares contemplated in this prospectus.

For the purposes of this provision, and your representation below, the expression an “offer to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

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Each person in a Relevant Member State who receives any communication in respect of, or who acquires any shares under, the offer of shares contemplated by this prospectus will be deemed to have represented, warranted and agreed to and with us and each underwriter that:

 

   

it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and

 

   

in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (1) the shares acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than “qualified investors” (as defined in the Prospectus Directive), or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or (2) where shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Directive as having been made to such persons.

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.

France . Neither this prospectus nor any other offering material relating to the ADSs described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The ADSs have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the ADSs has been or will be:

 

   

to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

   

to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer;

 

   

in any other circumstances falling within Article 3(2) of the Prospectus Directive;

 

   

released, issued, distributed or caused to be released, issued or distributed to the public in France; or

 

   

used in connection with any offer for subscription or sale of the ADSs to the public in France.

Such offers, sales and distributions will be made in France only:

 

   

to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier;

 

   

to investment services providers authorized to engage in portfolio management on behalf of third parties; or

 

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in a transaction that, in accordance with article L.411-2-II-1° -or-2° -or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne).

The ADSs may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.

Germany . This prospectus does not constitute a Prospectus Directive-compliant prospectus in accordance with the German Securities Prospectus Act (Wertpapierprospektgesetz) and does therefore not allow any public offering in the Federal Republic of Germany (“Germany”) or any other Relevant Member State pursuant to § 17 and § 18 of the German Securities Prospectus Act. No action has been or will be taken in Germany that would permit a public offering of the ADSs, or distribution of a prospectus or any other offering material relating to the ADSs. In particular, no securities prospectus (Wertpapierprospekt) within the meaning of the German Securities Prospectus Act or any other applicable laws of Germany, has been or will be published within Germany, nor has this prospectus been filed with or approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) for publication within Germany.

Each underwriter will represent, agree and undertake, (i) that it has not offered, sold or delivered and will not offer, sell or deliver the ADSs within Germany other than in accordance with the German Securities Prospectus Act (Wertpapierprospektgesetz) and any other applicable laws in Germany governing the issue, sale and offering of ADSs, and (ii) that it will distribute in Germany any offering material relating to the ADSs only under circumstances that will result in compliance with the applicable rules and regulations of Germany.

This prospectus is strictly for use of the person who has received it. It may not be forwarded to other persons or published in Germany.

Hong Kong . The ADSs may not be offered or sold in Hong Kong by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong), or (2) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the ADSs may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.

Israel . The ADSs offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), nor has it been registered for sale in Israel. The ADSs may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the ADSs being offered. Any resale in Israel, directly or indirectly, to the public of the ADSs offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.

Italy . The offering of ADSs has not been registered with the Commissione Nazionale per le Società e la Borsa (“CONSOB”) pursuant to Italian securities legislation and, accordingly, no ADSs may be offered, sold or

 

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delivered, nor copies of this prospectus or any other documents relating to the ADSs may not be distributed in Italy except:

 

   

to “qualified investors,” as referred to in Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the “Decree No. 58”) and defined in Article 26, paragraph 1, letter d) of CONSOB Regulation No. 16190 of 29 October 2007, as amended (“Regulation No. 16190”) pursuant to Article 34-ter, paragraph 1, letter. b) of CONSOB Regulation No. 11971 of 14 May 1999, as amended (“Regulation No. 11971”); or

 

   

in any other circumstances where an express exemption from compliance with the offer restrictions applies, as provided under Decree No. 58 or Regulation No. 11971.

 

   

Any offer, sale or delivery of the ADSs or distribution of copies of this prospectus or any other documents relating to the ADSs in the Republic of Italy must be:

 

   

made by investment firms, banks or financial intermediaries permitted to conduct such activities in the Republic of Italy in accordance with Legislative Decree No. 385 of 1 September 1993, as amended (the “Banking Law”), Decree No. 58 and Regulation No. 16190 and any other applicable laws and regulations;

 

   

in compliance with Article 129 of the Banking Law, and the implementing guidelines of the Bank of Italy, as amended; and

 

   

in compliance with any other applicable notification requirement or limitation which may be imposed, from time to time, by CONSOB or the Bank of Italy or other competent authority.

Please note that, in accordance with Article 100-bis of Decree No. 58, where no exemption from the rules on public offerings applies, the subsequent distribution of the ADSs on the secondary market in Italy must be made in compliance with the public offer and the prospectus requirement rules provided under Decree No. 58 and Regulation No. 11971.

Furthermore, ADSs which are initially offered and placed in Italy or abroad to qualified investors only but in the following year are regularly (“sistematicamente”) distributed on the secondary market in Italy to non-qualified investors become subject to the public offer and the prospectus requirement rules provided under Decree No. 58 and Regulation No. 11971. Failure to comply with such rules may result in the sale of the ADSs being declared null and void and in the liability of the intermediary transferring the ADSs for any damages suffered by such non-qualified investors.

Japan . The ADSs have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, and ADSs will not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to any exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

Korea. The ADSs have not been and will not be registered under the Financial Investments Services and Capital Markets Act of Korea and the decrees and regulations thereunder (the “FSCMA”), and the ADSs have been and will be offered in Korea as a private placement under the FSCMA. None of the ADSs may be offered, sold or delivered directly or indirectly, or offered or sold to any person for re-offering or resale, directly or indirectly, in Korea or to any resident of Korea except pursuant to the applicable laws and regulations of Korea, including the FSCMA and the Foreign Exchange Transaction Law of Korea and the decrees and regulations thereunder (the “FETL”). The ADSs have not been listed on any of securities exchanges in the world including, without limitation, the Korea Exchange in Korea. Furthermore, the purchaser of the ADSs shall comply with all

 

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applicable regulatory requirements (including but not limited to requirements under the FETL) in connection with the purchase of the ADSs. By the purchase of the ADSs, the relevant holder thereof will be deemed to represent and warrant that if it is in Korea or is a resident of Korea, it purchased the ADSs pursuant to the applicable laws and regulations of Korea.

Kuwait . Unless all necessary approvals from the Kuwait Ministry of Commerce and Industry required by Law No. 31/1990 “Regulating the Negotiation of Securities and Establishment of Investment Funds,” its Executive Regulations and the various Ministerial Orders issued pursuant thereto or in connection therewith, have been given in relation to the marketing and sale of the ADSs, these may not be marketed, offered for sale, nor sold in the State of Kuwait. Neither this prospectus (including any related document), nor any of the information contained therein is intended to lead to the conclusion of any contract of whatsoever nature within Kuwait.

Malaysia. No prospectus or other offering material or document in connection with the offer and sale of the ADSs has been or will be registered with the Securities Commission of Malaysia, or the Commission, for the Commission’s approval pursuant to the Capital Markets and Services Act 2007. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs may not be circulated or distributed, nor may the ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Malaysia other than (i) a closed end fund approved by the Commission; (ii) a holder of a Capital Markets Services Licence; (iii) a person who acquires the ADSs, as principal, if the offer is on terms that the ADSs may only be acquired at a consideration of not less than RM250,000 (or its equivalent in foreign currencies) for each transaction; (iv) an individual whose total net personal assets or total net joint assets with his or her spouse exceeds RM3 million (or its equivalent in foreign currencies), excluding the value of the primary residence of the individual; (v) an individual who has a gross annual income exceeding RM300,000 (or its equivalent in foreign currencies) per annum in the preceding twelve months; (vi) an individual who, jointly with his or her spouse, has a gross annual income of RM400,000 (or its equivalent in foreign currencies), per annum in the preceding twelve months; (vii) a corporation with total net assets exceeding RM10 million (or its equivalent in a foreign currencies) based on the last audited accounts; (viii) a partnership with total net assets exceeding RM10 million (or its equivalent in foreign currencies); (ix) a bank licensee or insurance licensee as defined in the Labuan Financial Services and Securities Act 2010; (x) an Islamic bank licensee or takaful licensee as defined in the Labuan Financial Services and Securities Act 2010; and (xi) any other person as may be specified by the Commission; provided that, in the each of the preceding categories (i) to (xi), the distribution of the ADSs is made by a holder of a Capital Markets Services Licence who carries on the business of dealing in securities. The distribution in Malaysia of this prospectus is subject to Malaysian laws. This prospectus does not constitute and may not be used for the purpose of public offering or an issue, offer for subscription or purchase, invitation to subscribe for or purchase any securities requiring the registration of a prospectus with the Commission under the Capital Markets and Services Act 2007.

People’s Republic of China . This prospectus has not been and will not be circulated or distributed in the PRC, and ADSs may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws and regulations of the PRC.

Qatar . In the State of Qatar, the offer contained herein is made on an exclusive basis to the specifically intended recipient thereof, upon that person’s request and initiative, for personal use only and shall in no way be construed as a general offer for the sale of securities to the public or an attempt to do business as a bank, an investment company or otherwise in the State of Qatar. This prospectus and the underlying securities have not been approved or licensed by the Qatar Central Bank or the Qatar Financial Centre Regulatory Authority or any other regulator in the State of Qatar. The information contained in this prospectus shall only be shared with any third parties in Qatar on a need to know basis for the purpose of evaluating the contained offer. Any distribution of this prospectus by the recipient to third parties in Qatar beyond the terms hereof is not permitted and shall be at the liability of such recipient.

 

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Singapore . This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our ADSs may not be circulated or distributed, nor may our ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or SFA, (2) to a relevant person or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

Where our ADSs are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor; shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the ADSs under Section 275 of the SFA, except: (1) to an institutional investor (for corporations under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is or will be given for the transfer; or (3) where the transfer is by operation of law.

Switzerland . The ADSs will not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to our company or the ADSs have been or will be filed with or approved by any Swiss regulatory authority. In particular, this prospectus will not be filed with, and the offer of the ADSs will not be supervised by, the Swiss Financial Market Supervisory Authority, and the offer of the ADSs has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (the “CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the ADSs.

Taiwan . The ADSs have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be sold, issued or offered within Taiwan through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan that requires a registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer, sell, give advice regarding or otherwise intermediate the offering and sale of the ADSs in Taiwan.

United Arab Emirates . This prospectus is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates, or the UAE. The ADSs and the underlying shares have not been and will not be registered under Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and the Emirates Security and Commodity Exchange, or with the UAE Central Bank, the Dubai Financial Market, the Abu Dhabi Securities Market or with any other UAE exchange.

 

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The offering, the ADSs, the underlying shares and interests therein have not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities in the UAE, and do not constitute a public offer of securities in the UAE in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise.

In relation to its use in the UAE, this prospectus is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the ADSs and the underlying shares may not be offered or sold directly or indirectly to the public in the UAE.

United Kingdom . Each underwriter has represented and agreed that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of the ADSs in circumstances in which Section 21(1) of the FSMA does not apply to us; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the ADSs in, from or otherwise involving the United Kingdom.

 

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EXPENSES RELATED TO THIS OFFERING

Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee, and the stock exchange market entry and listing fee, all amounts are estimates.

 

SEC Registration Fee

   US$                

FINRA Fee

  

Stock Exchange Market Entry and Listing Fee

  

Printing and Engraving Expenses

  

Legal Fees and Expenses

  

Accounting Fees and Expenses

  

Miscellaneous

  
  

 

 

 

Total

   US$                
  

 

 

 

 

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LEGAL MATTERS

We are being represented by Skadden, Arps, Slate, Meagher & Flom LLP with respect to certain legal matters as to United States federal securities and New York State law. The underwriters are being represented by Simpson Thacher & Bartlett LLP with respect to certain legal matters as to United States federal securities and New York State law. The validity of the Class A ordinary shares represented by the ADSs offered in this offering will be passed upon for us by Maples and Calder (Hong Kong) LLP. Certain legal matters as to PRC law will be passed upon for us by Han Kun Law Offices and for the underwriters by Zhong Lun Law Firm. Skadden, Arps, Slate, Meagher & Flom LLP may rely upon Maples and Calder (Hong Kong) LLP with respect to matters governed by Cayman Islands law and Han Kun Law Offices with respect to matters governed by PRC law. Simpson Thacher & Bartlett LLP may rely upon Zhong Lun Law Firm with respect to matters governed by PRC law.

 

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EXPERTS

The consolidated financial statements as of December 31, 2016, 2017 and 2018 and for each of the three years in the period ended December 31, 2018 included in this registration statement have been so included in reliance on the report of PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The office of PricewaterhouseCoopers Zhong Tian LLP is located at 11 th Floor, PricewaterhouseCoopers Center, Link Square 2, 202 Hu Bin Road, Shanghai, the People’s Republic of China.

 

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed a registration statement, including relevant exhibits, with the SEC on Form F-1 under the Securities Act with respect to the underlying Class A ordinary shares represented by the ADSs to be sold in this offering. We have also filed a related registration statement on Form F-6 with the SEC to register the ADSs. This prospectus, which constitutes a part of the registration statement on Form F-1, does not contain all of the information contained in the registration statement. You should read our registration statements and their exhibits and schedules for further information with respect to us and the ADSs.

Immediately upon the effectiveness of the registration statement on Form F-1 of which this prospectus forms a part, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov or inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of documents, upon payment of a duplicating fee, by writing to the SEC.

 

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YUNJI INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

     F-2  

Consolidated Balance Sheets as of December 31, 2016, 2017 and 2018

     F-3  

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, 2017 and 2018

     F-8  

Consolidated Statements of Changes in Shareholders’ Deficit for the years ended December 31, 2016, 2017 and 2018

     F-9  

Consolidated Statements of Cash Flows for the years ended December  31, 2016, 2017 and 2018

     F-11  

Notes to the Consolidated Financial Statements

     F-13  

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Yunji Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Yunji Inc. and its subsidiaries (the “Company”) as of December 31, 2018, 2017 and 2016, and the related consolidated statements of comprehensive loss, of changes in shareholders’ deficit and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the 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 of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits 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. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers Zhong Tian LLP

Shanghai, the People’s Republic of China

March 21, 2019

We have served as the Company’s auditor since 2018.

 

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YUNJI INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

     Notes      As of
December 31,
2016
     As of
December 31,
2017
     As of
December 31,
2018
     Pro forma as of
December 31,
2018
 
            RMB      RMB      RMB      US$      RMB      US$  
                                 (Unaudited)  

ASSETS

                    

Current assets:

                    

Cash and cash equivalents

     2.8        287,107        328,741        1,519,146        220,951        1,519,146        220,951  

Restricted cash

     2.9        700        29,000        46,100        6,705        46,100        6,705  

Short-term investments

     2.10, 4        33,000        663,780        1,099,394        159,900        1,099,394        159,900  

Accounts receivable, net

     2.11               778        7,436        1,082        7,436        1,082  

Advance to suppliers

        11,340        23,231        48,516        7,055        48,516        7,055  

Inventories, net

     2.12, 6        97,443        332,778        675,543        98,254        675,543        98,254  

Amounts due from related parties

     23        1,010        1,150        377        55        377       
55
 

Prepaid expenses and other current assets

     5        80,724        226,098        410,439        59,696        410,439        59,696  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

        511,324        1,605,556        3,806,951        553,698        3,806,951        553,698  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets:

                    

Property, equipment and software, net

     2.13, 7        8,561        18,558        36,954        5,375        36,954        5,375  

Long-term investments

     2.14, 8               507        16,999        2,472        16,999        2,472  

Deferred tax assets

     17        20,641        48,540        56,640        8,238        56,640        8,238  

Other non-current assets

                      1,255        182        1,255        182  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current assets

        29,202        67,605        111,848        16,267        111,848        16,267  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

        540,526        1,673,161        3,918,799        569,965        3,918,799        569,965  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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YUNJI INC.

CONSOLIDATED BALANCE SHEETS  (CONTINUED)

AS OF DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Notes   As of
December 31,
2016
    As of
December 31,
2017
    As of
December 31,
2018
    Pro forma as of
December 31,
2018
 
        RMB     RMB     RMB     US$     RMB     US$  
                          (Unaudited)  

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY/(DEFICIT)

             

Current liabilities (including amounts of the consolidated VIEs and VIEs’ subsidiaries without recourse to the primary beneficiary of RMB 450,247, RMB 1,469,893 and RMB 2,892,823 as of December 31, 2016, 2017 and 2018, respectively)

             

Accounts payable

  9     158,790       770,025       1,432,274       208,316       1,432,274       208,316  

Deferred revenue

  10     112,295       323,551       546,975       79,554       546,975       79,554  

Incentive payables to members

  11     81,270       239,840       421,945       61,369       421,945       61,369  

Refund payable to members

  2.17, 12     77,652       147,943       396,024       57,599       396,024       57,599  

Member management fees payable

  13           99,967       108,384       15,764       108,384       15,764  

Other payable and accrued liabilities

  14     35,899       81,377       197,962       28,792       197,962       28,792  

Amounts due to related parties

  23     3,005       3,197       11,445       1,665       11,445       1,665  

Warrant liabilities

  19     1,906                                
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

      470,817       1,665,900       3,115,009       453,059       3,115,009       453,059  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-current liabilities

             

Deferred tax liabilities

  17           5,164       197       29       197       29  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current liabilities

            5,164       197       29       197       29  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

      470,817       1,671,064       3,115,206       453,088       3,115,206       453,088  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

  24            

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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YUNJI INC.

CONSOLIDATED BALANCE SHEETS  (CONTINUED)

AS OF DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Notes     As of
December 31,
2016
    As of
December 31,
2017
    As of
December 31,
2018
    Pro forma as of
December 31,
2018
 
          RMB     RMB     RMB     US$     RMB     US$  
                            (Unaudited)  

Mezzanine equity

    1, 19              

Series Seed convertible redeemable preferred shares (US$0.000005 par value, 373,000,000 shares authorized, issued and outstanding as of December 31, 2016, 2017 and 2018, respectively; and nil outstanding on a pro-forma basis as of December 31, 2018 (unaudited))

      118,202       1,088,920       1,977,336       287,592              

Series A convertible redeemable preferred shares (US$0.000005 par value, 218,650,000, 272,600,000 and 389,200,000 shares authorized as of December 31, 2016, 2017 and 2018, respectively; 218,650,000, 272,600,000 and 389,200,000 shares issued as of December 31, 2016, 2017 and 2018, respectively; 218,650,000, 272,600,000 and 389,200,000 shares outstanding as of December 31, 2016, 2017 and 2018, respectively; and nil outstanding on a pro-forma basis as of December 31, 2018 (unaudited))

      137,736       831,778       2,090,722       304,083              

Series B convertible redeemable preferred shares (US$0.000005 par value, nil, nil and 111,911,357 shares authorized as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 111,911,357 shares issued as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 111,911,357 shares outstanding as of December 31, 2016, 2017 and 2018, respectively; and nil outstanding on a pro-forma basis as of December 31, 2018 (unaudited))

                  708,609       103,063              

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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YUNJI INC.

CONSOLIDATED BALANCE SHEETS  (CONTINUED)

AS OF DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Notes     As of
December 31,
2016
    As of
December 31,
2017
    As of
December 31,
2018
    Pro forma as of
December 31,
2018
 
          RMB     RMB     RMB     US$     RMB     US$  
                            (Unaudited)  

Series B+ convertible redeemable preferred shares (US$0.000005 par value, nil, nil and 21,105,395 shares authorized as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 21,105,395 shares issued as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 21,105,395 shares outstanding as of December 31, 2016, 2017 and 2018, respectively; and nil outstanding on a pro-forma basis as of December 31, 2018 (unaudited))

                  137,381       19,981              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mezzanine equity

      255,938       1,920,698       4,914,048       714,719              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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YUNJI INC.

CONSOLIDATED BALANCE SHEETS  (CONTINUED)

AS OF DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

 

    Notes     As of
December 31,
2016
    As of
December 31,
2017
    As of
December 31,

2018
    Pro forma as
of December 31,

2018
 
          RMB     RMB     RMB     US$     RMB     US$  
                           

(Unaudited)

 

Shareholders’ (deficit)/equity

             

Ordinary shares (US$0.000005 par value 9,408,350,000, 9,354,400,000 and 9,104,783,248 shares authorized as of December 31, 2016, 2017 and 2018, respectively; 1,268,000,000, 1,268,000,000 and 1,151,400,000 shares issued as of December 31, 2016, 2017 and 2018, respectively; 1,268,000,000, 1,268,000,000 and 1,151,400,000 shares outstanding as of December 31, 2016, 2017 and 2018, respectively; and 2,046,616,752 outstanding on a pro-forma basis as of December 31, 2018 (unaudited))

    1, 18                   36       5       64       9  

Paid in Capital of Yunji Sharing Technology Co., Ltd.

    1       1,000                                

Additional paid-in capital

                              4,914,020       714,715  

Statutory reserve

    2.29             4,227       8,504       1,237       8,504       1,237  

Accumulated other comprehensive income

                  55,565       8,082       55,565       8,082  

Accumulated deficit

      (187,229     (1,922,828     (4,180,922     (608,091     (4,180,922     (608,091
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Yunji Inc. shareholders’ (deficit)/equity

      (186,229     (1,918,601     (4,116,817     (598,767     797,231       115,952  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-controlling interests

                  6,362       925       6,362       925  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ (deficit)/equity

      (186,229     (1,918,601     (4,110,455     (597,842     803,593       116,877  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, mezzanine equity and shareholders’ (deficit)/equity

      540,526       1,673,161       3,918,799       569,965       3,918,799       569,965  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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YUNJI INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

     Notes      Year Ended
December 31,
2016
    Year Ended
December 31,
2017
    Year Ended
December 31, 2018
 
            RMB     RMB     RMB     US$  

Revenues:

           

Sales of merchandise, net

     2.16        1,129,053       5,912,109       11,388,425       1,656,378  

Membership program revenue

     2.16        155,391       510,818       1,552,437       225,793  

Other revenues

     2.16              21,144       74,363       10,816  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

        1,284,444       6,444,071       13,015,225       1,892,987  

Operating cost and expenses:

           

Cost of revenues

     2.19        (978,688     (5,172,842     (10,706,596     (1,557,210

Fulfilment

     2.20        (184,407     (569,410     (1,162,051     (169,013

Sales and marketing

     2.21        (138,046     (707,735     (955,128     (138,918

Technology and content

     2.22        (18,207     (58,159     (143,645     (20,892

General and administrative

     2.23        (12,153     (50,153     (147,208     (21,410
     

 

 

   

 

 

   

 

 

   

 

 

 

Total operating cost and expenses

        (1,331,501     (6,558,299     (13,114,628     (1,907,443
     

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

        (47,057     (114,228     (99,403     (14,456
     

 

 

   

 

 

   

 

 

   

 

 

 

Financial income, net

     16        154       11,564       46,068       6,700  

Foreign exchange gain/(loss), net

        1,525       (7,444     (685     (100

Change in fair value of warrant liabilities

     19        160       152              

Other income, net

     15              894       7,048       1,025  
     

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense, and equity in income of affiliates, net of tax

        (45,218     (109,062     (46,972     (6,831

Income tax benefit /(expense)

     17        20,550       3,331       (12,346     (1,796

Equity in income of affiliates, net of tax

     8              7       2,992       435  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

        (24,668     (105,724     (56,326     (8,192
     

 

 

   

 

 

   

 

 

   

 

 

 

Less: net income attributable to non-controlling interests shareholders

                    (3,362     (489
     

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to YUNJI INC.

        (24,668     (105,724     (59,688     (8,681
     

 

 

   

 

 

   

 

 

   

 

 

 

Accretion on convertible redeemable preferred shares to redemption value

     19        (77,179     (1,628,656     (2,187,633     (318,178

Re-designation to Series A convertible redeemable preferred shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature

     19                    (60,796     (8,842

Deemed dividend from preferred shareholders

     19        132             107       16  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

        (101,715     (1,734,380     (2,308,010     (335,685
     

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

        (24,668     (105,724     (56,326     (8,192

Other comprehensive income

           

Foreign currency translation adjustment

                    55,565       8,082  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

        (24,668     (105,724     (761     (110

Less: total comprehensive income attributable to non-controlling interests shareholders

                    (3,362     (489
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to YUNJI INC.

        (24,668     (105,724     (4,123     (599
     

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

     22        (101,715     (1,734,380     (2,308,010     (335,685

Weighted average number of ordinary shares used in computing net loss per share, basic and diluted

        1,268,000,000       1,268,000,000       1,165,136,438       1,165,136,438  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders

           

—Basic

        (0.08     (1.37     (1.98     (0.29

—Diluted

        (0.08     (1.37     (1.98     (0.29

The accompanying notes are an integral part of these consolidated financial statements.

 

F-8


Table of Contents

YUNJI INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Ordinary share
(US$0.000005
par value)
    Paid in
Capital of
Yunji
Sharing
Technology
Co., Ltd.
    Additional
paid-in
capital
    Statutory
reserve
    Accumulated
other
comprehensive
income
    Accumulated
deficit
    Total Yunji
Inc.
shareholders’
deficit
    Non-
controlling
interest
    Total
shareholders’
deficit
 
  Number of
Shares
    Amount  
          RMB     RMB     RMB     RMB     RMB     RMB     RMB     RMB     RMB  

Balance as of December 31, 2015

    1,268,000,000             1,000                         (85,382     (84,382           (84,382

Net loss

                                        (24,668     (24,668           (24,668

Accretion on convertible redeemable preferred shares to redemption value

                                        (77,179     (77,179           (77,179

Deemed dividend from Preferred Shareholders (Note 19)

                                                           
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2016

    1,268,000,000             1,000                         (187,229     (186,229           (186,229
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2016

    1,268,000,000             1,000                         (187,229     (186,229           (186,229

Transfer of paid in capital of Yunji Sharing to Yunji Inc. when Yunji Inc. was incorporated

                (1,000     1,000                                      

Net loss

                                        (105,724     (105,724           (105,724

Appropriation to statutory reserves

                            4,227             (4,227                  

Accretion on convertible redeemable preferred shares to redemption value

                      (3,008                 (1,625,648     (1,628,656           (1,628,656

Share based compensation

                      2,008                         2,008             2,008  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2017

    1,268,000,000                         4,227             (1,922,828     (1,918,601           (1,918,601
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-9


Table of Contents

YUNJI INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT  (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Ordinary share
(US$0.000005
par value)
    Paid in
Capital of
Yunji
Sharing
Technology
Co., Ltd.
    Additional
paid-in
capital
    Statutory
reserve
    Accumulated
other
comprehensive
income
    Accumulated
deficit
    Total Yunji
Inc.
shareholders’
deficit
    Non-
controlling
interest
    Total
shareholders’
deficit
 
  Number of
Shares
    Amount  
          RMB     RMB     RMB     RMB     RMB     RMB     RMB     RMB     RMB  

Balance as of December 31, 2017

    1,268,000,000                         4,227             (1,922,828     (1,918,601           (1,918,601

Net loss

                                        (59,688     (59,688     3,362       (56,326

Foreign currency translation adjustments

                                  55,565             55,565             55,565  

Accretion on convertible redeemable preferred shares to redemption value

                      (54,193                 (2,133,440     (2,187,633           (2,187,633

Appropriation to statutory reserves

                            4,277             (4,277                  

Issuance of ordinary shares at par value

          36                                     36             36  

Deemed dividend from Preferred Shareholders (Note 19)

                      (107                 107                    

Capital injection from non-controlling interests

                                                    3,000       3,000  

Re-designation to Series A convertible redeemable preferred shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature (Note 19)

    (116,600,000                                   (60,796     (60,796           (60,796

Share based compensation

                      54,300                         54,300             54,300  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2018

    1,151,400,000       36                   8,504       55,565       (4,180,922     (4,116,817     6,362       (4,110,455
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-10


Table of Contents

YUNJI INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Notes     Year Ended
December 31,
2016
    Year Ended
December 31,
2017
    Year Ended
December 31,
2018
 
  RMB     RMB     RMB     US$  

Cash flows from operating activities:

         

Net loss

      (24,668     (105,724     (56,326     (8,192

Adjustments to reconcile net loss to net cash generated from operating activities:

         

Depreciation

      801       3,808       9,306       1,354  

Shared-based compensation

            2,008       54,300       7,898  

Loss from disposal of property, equipment and software

            2       871       127  

Equity in income of affiliates

            (7     (2,992     (435

Inventory write-downs

      124       7,445       2,540       369  

Foreign exchange (gain)/loss

      (6,367     10,911       190       28  

Change in fair value of warrant liabilities

      (160     (152            

Deferred income tax

      (20,641     (22,735     (13,067     (1,900

Changes in operating assets and liabilities:

         

Accounts receivable

            (778     (6,658     (968

Inventories

      (59,220     (242,780     (345,305     (50,222

Advance to suppliers

      6,507       (11,891     (25,285     (3,678

Prepaid expenses and other current assets

      (78,963     (145,374     (184,341     (26,811

Amount due from related parties

      6,817       (140     773       112  

Accounts payable

      130,234       611,235       662,249       96,321  

Refund payable to members

      65,171       70,291       248,081       36,082  

Incentive payables to members

      43,744       158,570       182,105       26,486  

Member management fees payable

            99,967       8,417       1,224  

Deferred revenue

      64,119       211,256       223,424       32,496  

Amount due to related parties

      (16,827     192       8,248       1,199  

Other payable and accrued liabilities

      8,867       53,478       116,507       16,944  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash generated from operating activities

      119,538       699,582       883,037       128,434  
   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

         

Purchase of property, equipment and software

      (8,998     (13,720     (28,731     (4,179

Proceeds from disposal of property, equipment and software

            8       17       2  

Purchase of short term investments

      (33,000     (2,195,322     (11,539,398     (1,678,335

Maturity of short term investments

      45,000       1,564,542       11,124,565       1,618,001  

Payment for investments in equity investees

            (500     (14,500     (2,109
   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash generated from/(used in) investing activities

      3,002       (644,992     (458,047     (66,620
   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

         

Proceeds from issuance of convertible redeemable preferred shares, net of issuance costs

      137,342       26,255       744,921       108,344  

Capital injection from non-controlling shareholders

                  3,000       436  

Repayment of borrowing

      (13,427                  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash generated from financing activities

      123,915       26,255       747,921       108,780  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-11


Table of Contents

YUNJI INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS  (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Notes     Year Ended
December 31,
2016
    Year Ended
December 31,
2017
    Year Ended
December 31,
2018
 
  RMB     RMB     RMB     US$  

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

      6,367       (10,911     34,594       5,031  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

      252,822       69,934       1,207,505       175,625  
   

 

 

   

 

 

   

 

 

   

 

 

 

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

      34,985       287,807       357,741       52,031  
   

 

 

   

 

 

   

 

 

   

 

 

 

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

      287,807       357,741       1,565,246       227,656  
   

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information

         

Cash paid for income tax

            10,161       18,978       2,760  

Cash paid for interest expenses

      98                    

Supplemental schedule of non-cash investing and financing activities

         

Accretion on convertible redeemable preferred shares to redemption value

      77,179       1,628,656       2,187,633       318,178  

Re-designation to Series A convertible redeemable preferred shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature

                  60,796       8,842  

Deemed dividend from convertible redeemable preferred shareholders

      (132           (107     (16

Issuance of Series B convertible redeemable preferred shares to the finder with no consideration

    19                

 

6,421

 

    934  

Payable for capital expenditure

            95       209       30  

Payable for issuance costs related to convertible redeemable preferred shares

      8,093                    

 

     As of
December 31,
2016
     As of
December 31,
2017
     As of
December 31,
2018
 
     RMB      RMB      RMB      US$  

Cash and cash equivalents

     287,107        328,741        1,519,146        220,951  

Restricted cash (Note 2.9)

     700        29,000        46,100        6,705  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

     287,807        357,741        1,565,246        227,656  
  

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-12


Table of Contents

YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

1. PRINCIPAL ACTIVITIES AND ORGANIZATION

(a) Principal activities

Yunji Inc. (“Yunji”, or “the Company”) was incorporated under the laws of the Cayman Islands in November 2017, as an exempted company with limited liability.

The Company, through its subsidiaries, consolidated variable interest entities (“VIEs”) and VIE’s subsidiaries (collectively, the “Group”), offers a selection of high-quality products covering a broad range of categories at attractive prices through its e-commerce platform, Yunji VIP App and Yunji flagship App (“Yunji Apps”). Yunji flagship App is exclusive to the members of the Group’s membership program. The Group’s principal operation and geographic market is in the People’s Republic of China (“PRC”).

(b) History of the Group and Basis of Presentation for the Reorganization

Prior to the incorporation of the Company and starting in May 2015, the Group’s business was carried out under subsidiaries (“Operating Entities”) of Yunji Sharing Technology Co., Ltd. (“Yunji Sharing”), previously known as Hangzhou Bolue Biology Technology Co., Ltd. (“Bolue”). Mr. Xiao Shanglue is the co-founder of Bolue (the “Co-Founder”). The Co-Founder, Mr. Wang Peng, and the other two institutional investors were initial ordinary shareholders of Yunji Sharing (the four parties were collectively named as the “Initial Ordinary Shareholders”). In July 2015 and in November 2016, Yunji Sharing attracted new investors through series seed round financing (“Former Series Seed Capital Contribution”) and series A round of financing (“Former Series A Capital Contribution”), respectively (Note 19). The investors of the Former Series Seed and Series A Capital Contribution are namely as “Former Series Seed Beneficiary Owners” and “Former Series A Beneficiary Owners”, respectively. Given the fact Yunji Sharing was incorporated as a limited corporation in China with no shares issued, the paid in capital contributed by the Initial Ordinary Shareholders, the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary Owners determined their equity interests percentage at Yunji Sharing level. In addition, the capital contributions from the Initial Ordinary Shareholders were recorded in the “Paid in capital of Yunji Sharing Technology Co., Ltd.” at the respective periods. Also, the capital contributions with preference and redemption rights from the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary Owners were recorded in the “Mezzanine equity” at the respective periods (Note 19). After Yunji Inc. was established in Cayman Island in November 2017, Yunji Holdings Limited (“Yunji Holding”) was incorporated in Hong Kong as a wholly owned subsidiary of the Company, and Hangzhou Yunchuang Sharing Network Technology Co., Ltd. (“Yunchuang Sharing” or “WFOE”) was established as a wholly owned subsidiary of Yunji Holding in the PRC. Thereafter, the new PRC subsidiaries and Zhejiang Yunji Preferred E-commerce Co., Ltd., (“Yunji Preferred”), which is a VIE to hold Internet Content Provider (“ICP”) license, were established. Consequently, a series of contractual agreements were entered into among Yunchuang Sharing, Yunji Sharing, Yunji Preferred and its existing shareholders, including loan agreement, exclusive service agreement, equity interest pledge agreement, exclusive option agreement, proxy agreement and power of attorney, spousal consent letters that irrevocably authorized the existing shareholders designated by Yunchuang to exercise the equity owner’s rights over Yunji Sharing and Yunji Preferred.

In preparation of its initial public offering, the Group underwent a reorganization (the “Reorganization”) starting from December 2017. Under the Reorganization, the aforementioned Initial Ordinary Shareholders, the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary Owners of Yunji Sharing, effectively swapped Yunji Sharing’s equity with Yunji Inc.’s shares. In doing so, Yunji Sharing returned the initial capital back to both of the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary

 

F-13


Table of Contents

YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Owners to repurchase their equity interests of Yunji Sharing. These shareholders contributed the full amount of the returned capital into Yunji Inc. to complete the Reorganization. After the Reorganization, the prior shareholding interests at Yunji Sharing were mirrored to the shareholding interests of the Group.

As the shareholdings in the Company and Yunji Sharing were with a high degree of common ownership immediately before and after the Reorganization, even though no single investor controlled Yunji Sharing or Yunji Inc., the transaction of the Reorganization was determined as recapitalization with lack of economic substance, and was accounted for in a manner similar to a common control transaction. Consequently, the financial information of the Group is presented on a carryover basis for all periods presented. The number of outstanding shares in the consolidated balance sheets, the consolidated statements of changes in shareholders’ deficit, and per share information including the net loss per share have been presented retrospectively as of the beginning of the earliest period presented on the consolidated financial statements to reflect the final shares issued in the Reorganization.

The Group’s consolidated financial statements include the financial statements of the Company, its subsidiaries, consolidated VIEs and VIE’s subsidiaries.

As of December 31, 2018, the Company’s principal subsidiaries are as follows:

 

Subsidiaries

   Place of
incorporation
    

Date of incorporation
or acquisition

   Percentage
of direct
or indirect
   

Principal activities

Yunji Holding Limited

     Hong Kong      December 20, 2017      100   Investment holding

Chuangke Information Technology (Shenzhen) Co., Ltd.

     Shenzhen      August 28, 2018      100   Technology development

Zhejiang Youji Supply Chain Management Co., Ltd.

     Huzhou      November 30, 2016      100   Procurement

Anhui Delue Network Technology Co., Ltd.

     Hefei      January 15, 2017      100   Customer service

Zhejiang Jiyuan Network Technology Co., Ltd.

     Hangzhou      August 14, 2018      100   Procurement

Zhejiang Zhelue Network Technology Co., Ltd.

     Hangzhou      May 23, 2016      100   Sales of merchandise

Hangzhou Jichuang Network Technology Co., Ltd.

     Hangzhou      May 23, 2016      100   Investment holding

Wuhan Yunteng Logistics Co., Ltd.

     Wuhan      May 22, 2016      90   Procurement and logistics

Yunji Hongkong Limited

     Hong Kong      August 25, 2015      100   Procurement

Ningbo Yunchu Trading Co., Ltd.

     Ningbo      May 10, 2018      100   Custom clearance

Hangzhou Yunchuang Sharing Network Technology Co., Ltd.

     Hangzhou      June 13, 2018      100   Investment holding

Jironghuishang Commercial Factoring (Tianjin) Co., Ltd

     Tianjin      October 16, 2018      100   Financing solution

 

F-14


Table of Contents

YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

As of December 31, 2018, the Company’s principal consolidated VIEs are as follows:

 

     Place of
incorporation
    

Date of incorporation
or acquisition

   Percentage
of direct
or indirect
   

Principal activities

VIEs and VIE subsidiaries

          

Yunji Sharing Technology Co., Ltd

     Hangzhou      March 5,2018      100   Investment holding

Zhejiang Jishang Network Technology Co., Ltd.

     Hangzhou      April 29, 2015      100   E-Commerce and procurement

Zhejiang Yunji Preferred E-Commerce Co., Ltd.

     Hangzhou      June 13, 2018      100   Investment holding

Zhejiang Jishang Preferred E-Commerce Co., Ltd.

     Hangzhou      April 22, 2016      100   E-Commerce

(c) Consolidated variable interest entities

In order to comply with the PRC laws and regulations which prohibit or restrict foreign investments into companies involved in restricted businesses, the Group operates its Apps and other restricted businesses in the PRC through certain PRC domestic companies, whose equity interests are held by certain management members of the Company or onshore nominees of certain investors of the Company (“Nominee Shareholders”). The Company obtained control over these PRC domestic companies by entering into a series of Contractual Arrangements with these PRC domestic companies and their respective Nominee Shareholders. These contractual agreements cannot be unilaterally terminated by the Nominee Shareholders or the PRC domestic companies. As a result, the Company maintains the ability to control these PRC domestic companies and is entitled to substantially all of the economic benefits from these PRC domestic companies. Management concluded that these PRC domestic companies are VIEs of the Company, of which the Company is the ultimate primary beneficiary. As such, the Group consolidated financial results of these PRC domestic companies and their subsidiaries in the Group’s consolidated financial statements. The principal terms of the agreements entered into amongst the VIEs, their respective shareholders and the WFOE are further described below.

Loan Agreements

Pursuant to the relevant loan agreements, the WFOE has granted interest-free loans to the relevant Nominee Shareholders of the relevant VIEs with the sole purpose of providing funds necessary for the capital injection to the relevant VIEs. Only the WFOE can require the Nominee Shareholders to settle the loan amount with the equity interests of relevant VIEs, subject to any applicable PRC laws, rules and regulations. The relevant Nominee Shareholder has agreed that any proceeds from sale of the Nominee Shareholder’s equity interest in the relevant VIE should be used to repay the loan amount to the WFOE. The term of the loan agreements is ten years and can be extended with the written consent of both parties before expiration.

Exclusive Option Agreements

Pursuant to the exclusive option agreement, the Nominee Shareholders of the VIEs have granted the WFOE the exclusive and irrevocable right to purchase or to designate one or more person(s) at its discretion to purchase part or all of the equity interests in the VIEs (the “Target Equity”) from the Nominee Shareholders at any time, and the VIEs have granted the WFOE the exclusive and irrevocable right to purchase or to designate one or more person(s) at its discretion to purchase part or all of the assets of the VIEs (the “Target Assets”) at any time. The

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

total transfer price for the Target Equity and/or the Target Assets shall be equal to the loan provided by the WFOE to the Nominee Shareholders under the Loan Agreements. The VIEs and their Nominee Shareholders have agreed that without prior written consent of the WFOE, the Nominee Shareholders shall not sell, transfer, pledge or dispose of their equity interests, and the VIEs shall not sell, transfer, pledge or dispose of their assets, including but not limit to significant assets, significant revenue and significant business. In addition, the VIEs covenant that they shall not declare any dividend or change capitalization structure of the VIEs or enter into any loan or investment agreements.

Proxy Agreement and Power of Attorney

Pursuant to the Proxy Agreement and Power of Attorney, each of the Nominee Shareholders appointed the WFOE as their attorney-in-fact to exercise all shareholder rights under PRC law and the relevant articles of association, including but not limited to, calling and attending shareholders meetings, voting on their behalf on all matters requiring shareholder approval, including but not limited to the appointment and removal of directors, as well as the sale, transfer and disposal of all or part of the equity interests owned by such shareholders. The powers of attorney will remain effective for a given Nominee Shareholders until such shareholder ceases to be a shareholder of the relevant VIE or otherwise instructed by the WFOE.

Exclusive Service Agreement

Pursuant to the exclusive service agreement, the WFOE has agreed to provide to the VIEs services, including, but not limited to, development, maintenance and update of technology, design, installation, daily management, maintenance and updating of the network system, hardware design, and marketing. The VIEs shall pay to the WFOE service fees determined by the WFOE in its sole discretion. The agreement has a term of 10 years and shall automatically renew at the end of each term for a further term of ten years, unless otherwise terminated by the WFOE in its sole discretion with 30 days’ prior written notice.

Equity Interest Pledge Agreements

Pursuant to the relevant equity interest pledge agreements, the Nominee Shareholders of the VIEs have pledged 100% equity interests in relevant VIEs to the WFOE to guarantee performance by the Nominee Shareholders of their obligations under the exclusive option agreements, the proxy agreement and power of attorney and the loan agreements, as well as the performance by the VIEs of their obligations under the exclusive option agreements and the exclusive service agreements. All of the equity interest pledge agreements shall remain valid until the pledges are released. In the event of a breach by the VIEs or any of their Nominee Shareholders of contractual obligations under the exclusive option agreements, the proxy agreement and power of attorney, the exclusive service agreements, the loan agreements and the equity interest pledge agreements, as the case may be, the WFOE, as pledgee, will have the right to dispose of the pledged equity interests in the relevant VIE and will have priority in receiving the proceeds from such disposal. The Nominee Shareholders of the VIEs also covenant that, without the prior written consent of the WFOE, they will not dispose of, create or allow any encumbrance on the pledged equity interests. In October and December 2018, the Group registered the equity pledge with the relevant office of the Administration for Industry, respectively.

Spousal Consent Letters

Pursuant to the Spousal Consent Letters, each Nominee Shareholder, who is a natural person, and his or her spouse unconditionally and irrevocably agreed that the equity interests in the VIEs held by such Nominee

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Shareholder will be disposed of pursuant to the equity interest pledge agreements, the exclusive option agreements, the loan agreement and the proxy agreement and power of attorney. Each of their spouses agreed not to assert any rights over the equity interests in the VIEs held by their respective spouses. In addition, in the event that any spouse obtains any equity interests in any VIE held by his or her spouse for any reason, he or she agreed to be bound by the contractual arrangements.

(d) Risks in relations to the VIE structure

The following table set forth the assets, liabilities, results of operations and changes in cash, cash equivalents and restricted cash of the consolidated VIEs and their subsidiaries taken as a whole, which were included in the Group’s consolidated financial statements with intercompany transactions eliminated (It should be noted that the VIEs were not established until 2018 as the Reorganization occurred. The following disclosures present the operations and financial positions of the businesses that currently constitute the VIE entities as of and for the respective periods.):

 

     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Cash and cash equivalents

     242,209        227,036        772,466  

Restricted cash

     700        29,000        26,000  

Short-term investments

     33,000        465,000        463,191  

Accounts receivable, net

            778         

Advance to suppliers

     9,836               13,823  

Inventories, net

     79,150                

Amounts due from the Group companies (2)

     54,098        457,946        888,991  

Amounts due from related parties (Note 23)

     1,010        1,150        355  

Prepaid expense and other current assets

     74,262        161,863        371,661  

Property, equipment and software, net

     8,561        18,555        35,306  

Deferred tax assets

     20,641        48,540        53,494  
  

 

 

    

 

 

    

 

 

 

Total assets

     523,467        1,409,868        2,625,287  
  

 

 

    

 

 

    

 

 

 

Accounts payable

     134,617        169,326        93,864  

Deferred revenue

     101,973        227,787        541,677  

Incentive payables to members

     81,270        239,840        421,945  

Refund payable to members

     77,652        147,943        396,024  

Members management fee payable

            99,967        108,384  

Other payable and accrued liabilities

     28,485        66,944        137,490  

Amounts due to the Group companies (3)

     23,298        515,207        1,193,439  

Amounts due to related parties (1)

     2,952        2,879         
  

 

 

    

 

 

    

 

 

 

Total liabilities

     450,247        1,469,893        2,892,823  
  

 

 

    

 

 

    

 

 

 

 

(1)

Information related to VIEs’ transactions with related parties is included in Note 23.

(2)

Amounts due from the Group companies consisted of inter-company receivables for the rendering of services made by the VIEs and their subsidiaries on behalf of other Group companies.

(3)

Amounts due to the Group companies consisted of inter-company payables for the purchase of goods made by other Group companies on behalf of the VIEs and their subsidiaries.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

     Year Ended
December 31,

2016
    Year Ended
December 31,

2017
    Year Ended
December 31,
2018
 
     RMB     RMB     RMB  

Total revenues

     1,107,729       1,639,501       2,551,221  

Cost of revenues

     (822,461     (429,376     (593,605

Net loss

     (31,017     (138,510     (364
  

 

 

   

 

 

   

 

 

 

Net cash generated by operating activities

     85,265       425,422       778,728  

Net cash generated/(used in) investing activities

     3,002       (445,710     (25,014

Net cash generated/(used in) financing activities

     127,342       26,255       (208,982

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

     (4,493     7,160       (2,302
  

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

     211,116       13,127       542,430  

Cash, cash equivalents and restricted cash at beginning of year

     31,793       242,909       256,036  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of year

     242,909       256,036       798,466  
  

 

 

   

 

 

   

 

 

 

Under the Contractual Arrangements with the consolidated VIEs, the Company has the power to direct activities of the consolidated VIEs and VIEs’ subsidiaries through the Group’s relevant PRC subsidiaries, and can have assets transferred freely out of the consolidated VIEs and VIEs’ subsidiaries without restrictions. Therefore, the Company considers that there is no asset of the consolidated VIEs and VIEs’ subsidiaries that can only be used to settle obligations of the respective VIEs and VIEs’ subsidiaries except for registered capital of VIEs and VIEs’ subsidiaries amounting to RMB 1,535, RMB 49,932 and RMB 33,797 as of December 31, 2016, 2017 and 2018, respectively. Since the consolidated VIEs and VIEs’ subsidiaries are incorporated as limited liability companies under the PRC Law, the creditors of the consolidated VIEs and VIEs’ subsidiaries do not have recourse to the general credit of the Company.

The Group believes that the Group’s relevant PRC subsidiaries’ Contractual Arrangements with the consolidated WFOEs, VIEs and VIEs’ subsidiaries and the Nominee Shareholders are in compliance with PRC laws and regulations, as applicable, and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these Contractual Arrangements.

In addition, if the current structure of any of the Contractual Arrangements were found to be in violation of any existing PRC laws, the Company may be subject to penalties, which may include but not be limited to, the cancellation or revocation of the Company’s business and operating licenses, being required to restructure the Company’s operations or terminate the Company’s operating activities. The imposition of any of these or other penalties may result in a material and adverse effect on the Company’s ability to conduct its operations. In such case, the Company may not be able to operate or control the VIEs and VIEs’ subsidiaries, which may result in deconsolidation of the VIEs and VIEs’ subsidiaries.

In January 2015, the Ministry of Commerce (“MOFCOM”), released for public comment a proposed PRC law, the Draft Foreign Investment Enterprises (“FIE”) Law, that appears to include VIEs within the scope of entities that could be considered to be FIEs, that would be subject to restrictions under existing PRC law on foreign investment in certain categories of industry. 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 goes into effect in its current form, these provisions regarding control through contractual arrangements could be

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

construed to include the Group’s contractual arrangements with its VIEs, and as a result, the Group’s VIEs could become explicitly subject to the current restrictions on foreign investment in certain categories of industry. The Draft FIE Law includes provisions that would exempt from the definition of FIEs where the ultimate controlling shareholders are either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement action might be taken against existing VIE, that operates in restricted or prohibited industries and is not controlled by entities organized under PRC law or individuals who are PRC citizens. If the restrictions and prohibitions on FIEs included in the Draft FIE Law are enacted and enforced in their current form, the Group’s ability to use the contractual arrangements with its VIEs and the Group’s ability to conduct business through the VIEs could be severely limited.

2. PRINCIPAL ACCOUNTING POLICIES

2.1 Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Significant accounting policies followed by the Group in the preparation of its accompanying consolidated financial statements are summarized below.

2.2 Basis of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries, the consolidated VIEs and VIEs’ subsidiaries for which the Company is the ultimate primary beneficiary.

A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power, has the power to appoint or remove the majority of the members of the board of directors, to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

A consolidated 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 transactions and balances between the Company, its subsidiaries, VIEs and VIEs’ subsidiaries have been eliminated upon consolidation.

2.3 Non-controlling interests

For the Company’s consolidated subsidiaries, VIEs and VIEs’ subsidiaries, non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. Non-controlling interests are classified as a separate line item in the equity section of the Group’s Consolidated Balance Sheets and have been separately disclosed in the Group’s Consolidated Statements of Comprehensive Loss to distinguish the interests from that of the Company.

2.4 Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reporting periods in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include, but are not limited to sales returns, the valuation and recognition of share-based compensation arrangements, inventory reserve for excess and obsolete inventories, depreciable lives of property, equipment and software, refund payable to members and redemption value of the redeemable preferred shares. Actual results could differ from those estimates.

2.5 Foreign currencies

The Group’s reporting currency is Renminbi (“RMB”). The functional currency of the Group’s holding entities incorporated in Cayman Islands and Hong Kong, China (“HK”) is the United States dollars (“US$”). The Group’s PRC subsidiaries, consolidated VIEs and VIEs’ subsidiaries and the other HK subsidiary determined their functional currency to be RMB. The determination of the respective functional currency is based on the criteria of ASC 830, Foreign Currency Matters and is based primarily on the currency the entity conducts its business in.

Transactions denominated in other than the functional currencies are translated into the functional currency of the entity at the exchange rates quoted by authoritative banks prevailing on the transaction dates. Exchange gains and losses resulting from those foreign currency transactions denominated in a currency other than the functional currency are recorded in the Consolidated Statements of Comprehensive Loss. Total exchange gain/ (loss) were a gain of RMB 1,525, a loss of RMB 7,444 and a loss of RMB 685 for the years ended December 31, 2016, 2017 and 2018, respectively.

The financial statements of the Group are translated from the functional currency into RMB. Assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are translated into RMB at the appropriate historical rates. Revenues, expenses, gain and loss are translated into RMB using the periodic average exchange rates. The resulting foreign currency translation adjustments are recorded in Accumulated other comprehensive income as a component of shareholders’ equity. Total foreign currency translation adjustments to the Group’s other comprehensive income were a gain of RMB 55,565 for the year ended December 31, 2018. There were no foreign currency translation adjustments to the Group’s other comprehensive income for the years ended December 31, 2016 and 2017.

2.6 Convenience translation

Translations of the Consolidated Balance Sheets, the Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Cash Flows from RMB into US$ as of and for the year ended December 31, 2018 are solely for the convenience of the readers and were calculated at the rate of US$1.00=RMB 6.8755, representing the index rates stipulated by the federal reserve board. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2018, or at any other rate.

2.7 Fair value measurements

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 measurement for assets and liabilities required or permitted to be recorded at fair

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

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.

Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach, (2) income approach and (3) cost 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 cost approach is based on the amount that would currently be required to replace an asset.

Financial assets and liabilities of the Group mainly consist of cash and cash equivalents, restricted cash, short-term investments, trade receivables, amounts due from related parties, prepayments and other current assets, trade payables, amounts due to related parties, accruals and other liabilities. As of December 31, 2016, 2017 and 2018, except for short term investments, the carrying values of cash and cash equivalents, restricted cash, trade receivables, amounts due from related parties, prepayments and other current assets, trade payables, amounts due to related parties, accruals and other liabilities are approximated to their fair values due to the short-term maturity of these instruments. The Group reports short-term investments at fair value and discloses the fair value of these investments based on level 2 in Note 21.

2.8 Cash and cash equivalents

Cash includes currency on hand and deposits held by financial institutions that can be added to or withdrawn without limitation. Cash equivalents represent short-term, highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase of three months or less.

2.9 Restricted cash

Cash that is restricted as to withdrawal or for use or pledged as security is reported separately on the face of the Consolidated Balance Sheets. The Group’s restricted cash mainly represents security deposits held in designated bank accounts for issuance of bank acceptance and letter of guarantee. Restricted cash includes the deposits held in the Group’s own bank accounts designated by the customs authorities that the Group makes for cross-border comprehensive tax for imported merchandise. Restricted cash with the restriction period lapsing within one year are classified as current assets in the Consolidated Balance Sheets.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

2.10 Short-term investment

Short-term investments are comprised of i) time deposits placed with banks with original maturities longer than three months but less than one year, and ii) wealth management products issued by PRC banks or other financial institutions, which contains fixed or variable interest with original maturities within one year. Such investment are generally not permitted to be redeemed early or are subject to penalties for redemption prior to maturities. These investments are stated at fair value. Changes in the fair value are reflected in Financial income in the Consolidation Statements of Comprehensive Loss.

2.11 Accounts receivable, net

Accounts receivable, net mainly represent amounts due from customers and are recorded net of allowance for doubtful accounts.

The Group considers many factors in assessing the collectability of its accounts receivable, such as the age of the amounts due, the payment history, creditworthiness and financial conditions of the customers and industry trend, to determine the allowance percentage for the overdue balances by age. The Group adjusts the allowance percentage periodically when there are significant differences between estimated bad debts and actual bad debts. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. The Group also makes specific allowance if there is strong evidence indicating that the accounts receivable are likely to be unrecoverable. Accounts receivable balances are written off after all collection efforts have been exhausted. The allowance for doubtful accounts receivable was nil at December 31, 2016, 2017 and 2018.

2.12 Inventories, net

Inventories, consisting of products available for sale, are stated at the lower of cost and net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. Write downs of RMB 124, RMB 7,445 and RMB 2,540 are recorded in Cost of revenues in the Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, 2017 and 2018, respectively.

2.13 Property, equipment and software, net

Property, equipment and software are stated at cost less accumulated depreciation. Property, equipment and software are depreciated at rates sufficient to write off their costs less impairment and residual value, if any, over the estimated useful lives on a straight-line basis. The estimated useful lives are as follow:

 

Category

   Estimated useful lives

Leasehold improvement

   Shorter of the term of the lease or the estimated useful lives of the assets

Electronic equipment

   3 years

Furniture

   3 years

Software

   3 years

Vehicles

   3 years

Repairs and maintenance costs are charged to expenses as incurred, whereas the costs of renewals and betterment that extend the useful lives of property, equipment and software are capitalized as additions to the

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

related assets. The Group recognized the gain or loss on the disposal of property, equipment and software in the Consolidated Statements of Comprehensive Loss.

Construction in progress represents direct costs that are related to the construction of property, equipment and software and incurred in connection with bringing the assets to their intended use. Construction in progress is transferred to specific property, equipment and software items and the depreciation of these assets commences when the assets are ready for their intended use.

2.14 Long-term investments

Investment in equity investees represents the Group’s investments in privately held companies. The Group applies the equity method of accounting to account for an equity investment, in common stock or in-substance common stock, according to ASC 323 “Investment—Equity Method and Joint Ventures”, over which it has significant influence but does not own a majority equity interest or otherwise control.

An investment in in-substance common stock is an investment in an entity 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 an investment in that entity’s common stock.

Under the equity method, the Group’s share of the post-acquisition profits or losses of the equity investees are recorded in Equity in income of affiliates, net of tax in the Consolidated Statements of Comprehensive Loss. The excess of the carrying amount of the investment over the underlying equity in net assets of the equity investee, if any, represents goodwill and intangible assets acquired. When the Group’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Group does not recognize further losses, unless the Group has incurred obligations or made payments or guarantees on behalf of the equity investee.

For other equity investments that are not considered as debt securities or equity securities that have readily determinable fair values and over which the Group has neither significant influence nor control through investments in common stock or in-substance common stock, the Group makes the election for these investments whereby investment is carried at cost and adjusted in subsequent periods for any impairment or changes in observable prices of identical or similar investments.

2.15 Impairment of long-lived assets

Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment for the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets.

2.16 Revenue recognition

The Group adopted ASC Topic 606, “Revenue from Contracts with Customers,” for all periods presented. Consistent with the criteria of Topic 606, the Group recognizes revenue to depict the transfer of promised goods

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

or services to customers in an amount that reflects the consideration to which the Group expects to receive in exchange for those goods or services.

To achieve that core principle, the Group applies the five steps defined under Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate distinct goods or services. The Group allocates the transaction price to each performance obligation based on the relative standalone selling price of the goods or services provided. Revenue is recognized upon the transfer of control of promised goods or services to a customer.

Revenue is recorded net of value-added tax.

Revenue recognition policies for each type of revenue steam are as follows:

Sales of merchandise

The Group primarily sells merchandise through its Yunji Apps. The Group presents the revenue generated from its sales of merchandise on a gross basis as the Group has control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits. In making this determination, the Group also assesses whether it is primarily obligated in these transactions, is subject to inventory risk, has latitude in establishing prices, or has met several but not all of these indicators. The cash collected from the sales of merchandise is initially recorded in Deferred revenue in the Consolidated Balance Sheets and subsequently recognized as revenue when the receipt of merchandise is confirmed by the customers, which is the point that the title of the merchandise is transferred to the customer. The revenue is recorded net of value-added tax, discounts, coupons, incentives and return allowances. Return allowances are estimated based on historical experiences and updated at the end of each reporting period.

Membership program

The Group earns membership fees from its members, who pay a fixed fee in exchange for (1) a merchandise gift package, (2) the right to receive member exclusive discounts for merchandise sold on the Yunji flagship App, (3) access rights to the Yunji flagship App and its member-exclusive features, (4) the right to receive units of Yunbi (meaning Yun coin) upon a successful new member referral (“Referral Yunbi”), (5) member exclusive training, and (6) units of Yunbi (“New member Yunbi”). Each of these items represents a separate performance obligation. Yunbi can be used as coupons for the member’s future purchases on Yunji Apps and therefore reflect material rights. In order to promote its membership program, the Group, at its discretion, allows its users to join the membership program by purchasing any merchandise of equivalent value of the membership fee via Yunji flagship App within a defined period as an alternative way of paying the upfront fixed membership fee. When users become members in this manner, they are not entitled to the merchandise gift package and member exclusive training. The Group allocates the transaction price to each performance obligation, after taking into consideration expected refunds payable to members (Note 2.17), based on their relative standalone selling price. When the standalone selling price of a performance obligation is not directly observable, it is estimated by the Group by using an expected cost plus a margin approach. For the merchandise gift package, revenue is recognized when the receipt of the gift package is confirmed by the members, which were RMB 107,921,

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

RMB 334,595 and RMB 1,197,890 for the years ended December 31, 2016, 2017 and 2018, respectively. For the right to receive Referral Yunbi, revenue is recognized when Referral Yunbi is used and redeemed, or upon expiration if not redeemed. For New member Yunbi, revenue is recognized when the New member Yunbi is used and redeemed, or upon expiration if not redeemed. For member exclusive training, revenue is recognized when the training courses are delivered over the service period by the third party vendors engaged by the Group. For the remaining performance obligations, revenue is recognized over the period of the active life cycle of the Group’s members on a straight-line basis. The active life cycle of the Group’s members is estimated based on historical behavior of these members, which is approximately one year.

In addition, when members subsequently purchase merchandise, the members initially pay for their purchases at non-member regular prices, and then are issued refunds equal to the member-exclusive discounts from the Group as a credit upon the members confirming receipt of the merchandise. The Group records such anticipated refunds as a reduction of revenue and discounts payables to the members.

Remaining performance obligations

The remaining performance obligations associated with the Group’s sale of merchandise represents the cash collected upfront from the customers for their purchase of merchandise on Yunji Apps, but the underlying merchandise has not yet been received by the customers, which is included in the presentation of Deferred revenue (Note 10). As of December 31, 2016, 2017 and 2018, the remaining performance obligation for sales of merchandise were RMB 67,996, RMB 201,453 and RMB 337,166, respectively, which were expected to be recognized as revenue when the receipt of merchandise is confirmed by the customers.

Revenue allocated to remaining performance obligations of the Group’s membership program represents that portion of the overall transaction price that has been received (or for which the Group has an unconditional right to payment) allocated to obligations under the membership program that the Group has not yet fulfilled, which is included in the presentation of Deferred revenue (Note 10). As of December 31, 2016 and 2017 and 2018, the aggregate amount of the transaction price allocated to remaining performance obligations were RMB 44,299, RMB 122,098 and RMB 209,809, respectively, which were expected to be recognized as revenue within 12 months.

Other goods and services

The Group offers products such as mobile phones, tourist attractions tickets, cruise, group tour, hotel reservation and car insurance through Yunji Apps. The Group presents the revenue generated from such sales on a net basis as the Group does not have control of the goods or services or have the ability to direct the use of the goods or services and obtain substantially all of their benefits. Revenue is recognized when the Group has fulfilled its selling performance obligations on behalf of the principal in the transaction, which is either when the products are accepted by the customer, or once the order of the products become non-cancellable on Yunji Apps, depending on the terms of the particular agreement.

2.17 Refund payable to members

After joining the Group’s membership program, members are able to make referrals to other users through their social networks. The Group provides incentives to those referring members by paying a cash refund upon a successful merchandise referral.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Since customers are only able to receive referral incentives after they become members by paying the membership fees, the referral incentives related to merchandise referral are considered payments to customers (and are not payment for a distinct good or service) and accounted for as a refund payable to members. Such refunds are estimated at the time the membership fee is received and recorded as Refund payable to members, and reduce the transaction price (that the Group expects to be entitled to keep) for the membership fee revenue recognition calculation described above accordingly. Any amount of referral incentives expected to be paid in excess of the initial membership fee received is recorded as Refund payable to members (and reduces merchandise revenue subsequently generated from those members) at the time they make subsequent merchandise purchases, up to the amount of the expected future referral incentives.

The estimation of refunds payable to members is based upon the historical data of referral incentives earned by referring members within their active life cycle. Once the referral incentives are earned by the referring members, the amounts are transferred to the members’ individual Yunji flagship App accounts and reclassified from Refund payable to members to Incentive payables to members.

2.18 Users incentive programs

The Group grants certain units of Yunbi (meaning ‘Yun-coin’) and other coupons (collectively referred to as coupons), from time to time, to its customers at its discretion in different situations. Yunbi are not redeemable for cash and can be used as a coupon for the customer’s future purchase on the Yunji Apps. The value of one unit of Yunbi is equivalent to one RMB yuan. The coupons granted can be categorized into 1) coupons granted concurrent with a revenue transaction and 2) coupons granted not concurrent with a revenue transaction. When the coupon is granted concurrent with a revenue transaction, the Group determine whether the coupon represents a material right of the current transaction. If the coupon represents a material right, the transaction price is allocated between merchandise sale and the coupon based on the estimated standalone selling price taking into consideration the coupon’s forfeiture rate. If the coupon does not represent a material right, it is recognized as a reduction of revenue when they are applied in the future sales. When the coupon is not granted concurrent with a revenue transaction, the Company assesses whether the coupons were granted in exchange for a distinct service at fair value. When the coupons are granted in exchange for a distinct service at fair value, they are recorded as expense upon grant. In this case, the person granted coupons in return for their service activities does not need to be a member. When the coupons are not granted in exchange for a distinct service, they can only be applied to the future purchase of certain specified merchandise. These coupons are not accounted for when they are granted and are recognized as a reduction of revenue when they are applied in future sales.

2.19 Cost of revenues

Cost of revenues consists of purchase price of merchandise, inbound shipping charges, write-downs of inventory and member training costs. Inbound shipping charges to receive merchandise from suppliers are included in the inventories, and recognized as cost of revenues upon sale of the merchandise to the customers.

2.20 Fulfilment

Fulfilment expenses represent packaging material costs and those costs incurred in outbound shipping, operating and staffing the Group’s fulfilment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, processing payment and related transaction costs and responding to inquiries from customers, depreciation expenses, payroll costs including share-based compensation expenses, and other daily expenses

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

which are related to the purchasing functions. Fulfilment costs also contain third party payment transaction fees, such as bank card processing and debit card processing fees.

2.21 Sales and marketing

Sales and marketing expenses comprise primarily of member management fees, promotion expenses, payroll costs including share-based compensation expenses, depreciation expenses and other daily expenses which are related to the sales and marketing functions.

The Group engages third party vendors to provide member management services, which are ultimately performed by service managers who enter into employment contract with the third party vendors. Certain of the Group’s members (customers) have been engaged by third party vendors to serve as service managers. The Group has concluded that the member management services provided by the service managers, including those who are also members, are for distinct services at fair value, and records the member management fees paid to the third party vendors as Sales and marketing expenses.

2.22 Technology and content

Technology and content expenses are expensed as incurred and primarily consist of payroll costs including share-based compensation expenses, rental expenses, costs associated with the computing, storage and telecommunications infrastructure for internal use that support the Group’s system and Yunji Apps services and other expenses which are related to the technology and content functions, which are responsible for technology research and development and content editing in the Group. The Group accounts for internal use software development costs in accordance with guidance on intangible assets and internal use software. This requires capitalization of qualifying costs incurred during the software’s application development stage and to expense costs as they are incurred during the preliminary project and post implementation/operation stages. Costs capitalized for developing such software application were not material for the periods presented.

2.23 General and administrative

General and administrative expenses consist of payroll costs including share-based compensation expenses and other expenses which are related to the general corporate functions, including accounting, finance, tax, legal and human relations, costs associated with use by these functions of facilities and equipment, such as depreciation expenses, rental and other general corporate related expenses.

2.24 Share-based compensation

The Company grants restricted share units (“RSUs”) and share options of the Company to eligible employees and accounts for these share-based awards in accordance with ASC 718 Compensation—Stock Compensation.

Employees’ share-based awards are measured at the grant date fair value of the awards and recognized as expenses a) immediately at grant date if no vesting conditions are required, or b) using a straight-line method over the requisite service period, which is the vesting period.

All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

The fair value of RSUs were assessed using the income approach/discounted cash flow method, with a discount for lack of marketability given that the shares underlying the awards were not publicly traded at the time of grant. This assessment required complex and subjective judgments regarding the Company’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants were made.

In addition, the binomial option-pricing model is used to measure the value of share options. The determination of the fair value is affected by the fair value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables, including the expected share price volatility, actual and projected employee and nonemployee share option exercise behavior, risk-free interest rates and expected dividend yield. Binomial option-pricing model incorporates the assumptions about grantees’ future exercise patterns. The fair value of these awards was determined by management with the assistance from an independent valuation firm using management’s estimates and assumptions.

The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involve inherent uncertainties and application of management judgment. If factors change or different assumptions are used, the share-based compensation expenses could be materially different for any period. Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive share-based awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company for accounting purposes.

In accordance with ASU 2016-09, the Group makes an entity-wide accounting policy election to account for forfeitures when they occur.

2.25 Employee benefits

Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require that the PRC subsidiaries and VIE of the Group make contributions to the government for these benefits based on certain percentages 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 contributions made. Total amounts of such employee benefit expenses, which were expensed as incurred, were RMB 43,800, RMB 154,221, RMB 299,341 for the years ended December 31, 2016, 2017 and 2018, respectively.

2.26 Operating leases

Each lease is classified at the inception date as either a capital lease or an operating lease. For the lessee, a lease is a capital lease if any of the following conditions exist: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property’s estimated remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the leaser at the inception date. The Group has no capital leases for any of the periods presented.

All other leases are accounted for as operating leases. Payments made under operating lease are charged to the Consolidated Statements of Comprehensive Loss on a straight-line basis over the terms of underlying lease.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

2.27 Government grant

Government grants are recognized as income in Other income, net or as a reduction of specific costs and expenses for which the grants are intended to compensate. Such amounts are recognized in the Consolidated Statements of Comprehensive Loss upon receipts and all conditions attached to the grants are fulfilled.

2.28 Income tax

Current income taxes are recorded in accordance with the regulations of the relevant tax jurisdiction. The Group accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Tax. Under this method, deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between carrying amounts of existing assets and liabilities in the financial statements and their respective tax basis, and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the Consolidated Statements of Comprehensive Loss in the period of change. Valuation allowances are established when necessary to reduce the amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized.

The Group recognizes in its consolidated financial statements the benefit of a tax position if the tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Group estimates its liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Group’s estimates. As each audit is concluded, adjustments, if any, are recorded in the Group’s consolidated financial statements in the period in which the audit is concluded. Additionally, in future periods, changes in facts, circumstances and new information may require the Group to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. As of December 31, 2016, 2017 and 2018, the Group did not have any significant unrecognized uncertain tax positions.

2.29 Statutory reserves

The Company’s subsidiaries, consolidated VIEs and VIEs’ subsidiaries established in the PRC are required to make appropriations to certain non-distributable reserve funds.

In accordance with the laws applicable to the Foreign Investment Enterprises established in the PRC, the Group’s subsidiaries registered as wholly-owned foreign enterprise have to make appropriations from their after-tax profits (as determined under generally accepted accounting principles in the PRC (“PRC GAAP”)) to reserve funds including general reserve fund, enterprise expansion fund and 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 general reserve fund has reached 50% of the registered capital of the company. Appropriations to the enterprise expansion fund and staff bonus and welfare fund are made at the respective company’s discretion.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

In addition, in accordance with the PRC Company Laws, the Group’s consolidated VIEs and VIEs’ subsidiaries, registered as Chinese domestic companies, must make appropriations from their after-tax profits as determined under the PRC GAAP to non-distributable reserve funds including statutory surplus fund and discretionary surplus fund on an annual basis. The appropriation to the statutory surplus fund must be 10% of the after-tax profits as determined under PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.

The use of the statutory surplus fund and discretionary surplus fund are restricted to the offsetting of losses or increasing of the registered capital of the respective company. The staff bonus and welfare fund is a liability in nature and is restricted to fund payments of special bonus to employees and for the collective welfare of employees. None of these reserves are allowed to be transferred to the company in terms of cash dividends, loans or advances, nor can they be distributed except under liquidation.

For the years ended December 31, 2016, 2017 and 2018, profit appropriation to statutory surplus fund for the Group’s entities incorporated in the PRC was approximately nil, RMB 4,227 and RMB 4,277, respectively.

2.30 Comprehensive loss

Comprehensive loss is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments from shareholders and distributions to shareholders. Comprehensive loss for the periods presented includes net loss and foreign currency translation adjustments.

2.31 Net loss per share

Basic net loss per share is computed by dividing net loss attributable to holders of ordinary shares, considering the accretions to redemption value of the preferred shares, deemed dividend from/to preferred shareholders, including beneficial conversion feature, by the weighted average number of ordinary shares outstanding during the period.

Diluted net loss per share is calculated by dividing net loss attributable to ordinary shareholders, as adjusted for the accretion and deemed dividend and allocation of net income related to the preferred 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 preferred shares using the if-converted method, restricted share units and ordinary shares issuable upon the exercise of outstanding 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.

2.32 Segment reporting

ASC 280, Segment Reporting, establishes standards for companies to report in their financial statements information about operating segments, products, services, geographic areas, and major customers.

Based on the criteria established by ASC 280, the Group’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. As a whole and hence, the Group has only one

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

reportable segment. The Group does not distinguish between markets or segments for the purpose of internal reporting. As the Group’s long-lived assets are substantially located in the PRC and substantially all the Group’s revenue are derived from within the PRC, no geographical segments are presented.

2.33 Recent accounting pronouncements

In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments—Overall (Subtopic 825-10) “Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through non-operating income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this accounting standard update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this accounting standard update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group elected to early adopt this ASU in 2016 and applied retrospectively to the periods presented. The impact of this ASU to the consolidated financial statements is immaterial.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires that a lessee should recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expenses for such lease generally on a straight-line basis over the lease term. The new leases standard also provides lessees with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component. If a lessee makes that accounting policy election, it is required to account for the non-lease components together with the associated lease component as a single lease component and to provide certain disclosures. Lessors are not afforded a similar practical expedient. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public entities. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application of the amendments in this Update is permitted for all entities. Entities are required to adopt the new leases standard using a modified retrospective transition method. Under that transition method, an entity initially applies the new leases standard (subject to specific transition requirements and optional practical expedients) at the beginning of the earliest period presented in the financial statements. The Company will adopt this new guidance for the year ended December 31, 2019 and interim periods in the year ended December 31, 2019. In July 2018, the FASB issued ASU 2018-11, which provides another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption consistent with preparers’ requests. This ASU also addresses stakeholders’ concerns about the requirement for lessors to separate components of a contract by providing lessors with a practical expedient, by class of underlying asset, to not

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

separate non-lease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the non-lease component or components otherwise would be accounted for under the new revenue guidance and both (1) the timing and pattern of transfer are the same for the non-lease component(s) and associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease. The Company will adopt this new guidance for the year ended December 31, 2019 and interim periods in the year ended December 31, 2019. The Group is currently evaluating the impact of both ASU 2016-02 and ASU 2018-11 will have on its consolidated financial statements, and expects that most existing operating lease commitments will be recognized as operating lease obligations and right-of-use assets as a result of adoption.

In June 2016, the FASB amended guidance related to the impairment of financial instruments as part of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For public business entities that are U.S. SEC filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt this new guidance for the year ended December 31, 2019 and interim periods in the year ended December 31, 2019. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which the Group is required to recognize an allowance based on its estimate of expected credit loss. The Group is currently evaluating the impact of this new guidance on its consolidated financial statements, and does not expect such impact to be material over the periods presented.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company elected to early adopt this ASU and applied this guidance retrospectively to all periods presented. The impact of this ASU to the consolidated financial statements is immaterial.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). This ASU affects all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update was required to be adopted for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, and early adoption is permitted in any interim or annual period. The Group elected to early adopt this ASU and applied this guidance retrospectively to all periods presented.

In May 2017, the FASB issued ASU No. 2017-09 Compensation—Stock Compensation (Topic 718). The Board is issuing this Update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

terms or conditions of a share-based payment award. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The Company elected to early adopt this ASU when the company’s Stock Incentive Plan became effective in 2017. The impact of this ASU to the consolidated financial statements is immaterial.

3. CONCENTRATION AND RISKS

3.1 Concentration of credit risk

Financial instruments that potentially subject the Group to the concentration of credit risks consist of cash and cash equivalents, restricted cash, and short-term investments. The maximum exposures of such assets to credit risk is their carrying amounts as of the balance sheet dates. The Group deposits its cash and cash equivalents, restricted cash and short-term investments with financial institutions located in jurisdictions where the subsidiaries are located. The Company believes that no significant credit risk exists as these financial institutions have high credit quality.

3.2 Concentration of customers and suppliers

Substantially all revenue was derived from customers located in China. There are no customers or suppliers from whom revenues or purchases individually represent greater than 10% of the total revenues or the total purchases of the Group in any of the periods presented.

3.3 Foreign currency exchange rate risk

In July 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the US$, and the RMB appreciated more than 20% against the US$ over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the US$ remained within a narrow band. Since June 2010, the RMB has fluctuated against the US$, at times significantly and unpredictably. The depreciation of the RMB against the US$ was approximately 6.8% in 2016. The appreciation of the RMB against the US$ was approximately 5.8% in 2017. The depreciation of the RMB against the US$ was approximately 5.0% in 2018. 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. SHORT TERM INVESTMENT

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Time deposits

                   549,056  

Wealth management products

     33,000        663,780        550,338  
  

 

 

    

 

 

    

 

 

 
     33,000        663,780        1,099,394  
  

 

 

    

 

 

    

 

 

 

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

As of December 31, 2016, 2017 and 2018, the Group’s wealth management products mainly consisted of financial products issued by commercial bank in China with a variable interest rate indexed to the performance of underlying assets and a maturity date within one year when purchased or revolving terms. For the years ended December 31, 2016, 2017 and 2018, the expected return per annum ranged from 2.3% to 3.8%, 2.2% to 3.9% and 2.1% to 4.8%, respectively and the weighted average return of the wealth management products were 2.8%, 3.3% and 4.1%, respectively.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET

Prepaid expenses and other current assets consist of the following:

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Prepaid member training costs (1)

     24,520        83,760        172,869  

Receivables from third-party payment settlement platform (2)

     44,743        109,711        92,639  

Deposits (3)

     6,990        4,559        63,943  

Prepaid rental expenses

     1,412        2,140        3,839  

Prepaid marketing expenses

     645        4,235         

VAT-input deductible

     66        13,546        68,917  

Staff advance

     730        156        808  

Others

     1,618        7,991        7,424  
  

 

 

    

 

 

    

 

 

 
     80,724        226,098        410,439  
  

 

 

    

 

 

    

 

 

 

 

(1)

The Group engages third party vendors to provide sales and marketing related training to its members, including on-line training courses to facilitate product sales, updated features on Yunji flagship App, etc. According to the member’s agreement, all members of the Group are eligible to attend the training courses provided by these third party vendors. In case when the Group should make prepayments for the training costs to these third party vendors, the prepaid amounts are amortized over relevant period of the training courses provided by the third party vendors. For the years ended December 31, 2016, 2017 and 2018, member training costs were RMB 40,117, RMB 230,168 and RMB 423,586, presented in Cost of revenues in the Consolidation Statements of Comprehensive Loss.

(2)

Receivables from third-party payment settlement platform represent cash due from the third party on-line payment service providers in relation to their processing of payments to the Group. No allowance for doubtful accounts was provided for these receivables.

(3)

Deposits mainly represent the customs deposits held in customs bank accounts, which were RMB 5,300, RMB 2,000 and RMB 58,000 as of December 31, 2016, 2017 and 2018, respectively.

6. INVENTORIES, NET

 

     As of  
     December 31,
2016
    December 31,
2017
    December 31,
2018
 
     RMB     RMB     RMB  

Merchandise and packing materials

     97,567       340,347       678,083  

Less: inventory write-downs

     (124     (7,569     (2,540
  

 

 

   

 

 

   

 

 

 

Inventories, net

     97,443       332,778       675,543  
  

 

 

   

 

 

   

 

 

 

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

7. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment and software, net, consist of the following:

 

     As of  
     December 31,
2016
    December 31,
2017
    December 31,
2018
 
     RMB     RMB     RMB  

Leasehold improvement

     2,709       10,354       22,758  

Electronic equipment

     2,616       9,719       18,994  

Furniture

     790       2,446       5,751  

Software

                 1,808  

Vehicles

           690       1,101  

Construction in progress

     3,293              
  

 

 

   

 

 

   

 

 

 

Subtotal

     9,408       23,209       50,412  

Less: accumulated depreciation

     (847     (4,651     (13,458
  

 

 

   

 

 

   

 

 

 

Property, equipment and software, net

     8,561       18,558       36,954  
  

 

 

   

 

 

   

 

 

 

Depreciation expenses were RMB 801, RMB 3,808, and RMB 9,306 for the years ended December 31, 2016, 2017 and 2018, respectively. No impairment charges were recorded for the years ended December 31, 2016, 2017 and 2018.

As of December 31, 2016 the balances of construction in progress were RMB 3,293 which were primarily relating to the leasehold improvements of office buildings. There was no construction in progress balances as of December 31, 2017 and 2018.

8. LONG-TERM INVESTMENTS

The Group’s long-term investments consist of the following:

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Equity method investments

        

Guangdong Weixin Technology Co., Ltd (“Weixin”)

                   5,017  

Beijing Siwei Technology and Culture Co., Ltd(“Siwei”)

                   3,182  

Hangzhou Zhangtaihe Health Technology Co., Ltd(“Zhangtaihe”)

                   2,960  

Ningbo Hongshi Investment Management Partnership Fund (“Hongshi Fund”)

                   2,000  

Hangzhou Tianshi Technology Co., Ltd (“Tianshi”)

            307        363  

Hangzhou Adopt A Cow Biological Technology Co., Ltd (“Zhaomu”)

                   3,277  

Cost minus impairments and plus or minus observable changes in prices

        

Hangzhou Jipin Technology Co., Ltd (“Jipin”)

            200        200  
  

 

 

    

 

 

    

 

 

 

Total long-term investments

            507        16,999  
  

 

 

    

 

 

    

 

 

 

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Major investments made by the Company during the years ended December 31, 2016, 2017 and 2018 are summarized as follows:

Investments accounted for using equity method

Investment in Weixin

In January 2018, the Group acquired 30% shareholding of Weixin with a cash consideration of RMB 3,000. As the Group is able to exercise significant influence in the form of ordinary shares of the investee, the Group therefore started to account for this investment under equity methods from January 2018 and share the results of Weixin accordingly.

Investment in Siwei

In August 2018, the Group acquired 20% ordinary equity interest of Siwei with a cash consideration of RMB 3,000. As the Group is able to exercise significant influence in the form of ordinary shares of the investee, the Group therefore started to account for this investment under equity methods from August 2018 and share the results of Siwei accordingly.

Investment in Zhangtaihe

In January 2018, the Group acquired 20% ordinary equity interest of Zhangtaihe with cash consideration of RMB 2,000. As the Group is able to exercise significant influence in the form of ordinary shares of the investee, the Group therefore started to account for this investment under equity methods from January 2018 and share the results of Zhangtaihe accordingly.

Investment in Hongshi Fund

Hongshi Fund is a third party investment fund. In September 2018, the Group became a limited partner of Hongshi Fund with cash investment contribution of RMB 2,000, which consists of over 3% of all investors’ interest in Hongshi Fund. As the Group is able to exercise significant influence in the form of investing interests of the investee, the Group therefore started to account for this investment under equity methods from September 2018 and share the results of Hongshi Fund accordingly.

Investment in Tianshi

In September 2017, the Group acquired 30% ordinary equity interest of Tianshi with cash consideration of RMB 300. As the Group is able to exercise significant influence in the form of ordinary shares of the investee, the Group therefore started to account for this investment under equity methods from September 2017 and share the results of Tianshi accordingly.

Investment in Zhaomu

In December 2018, the Group acquired 10% ordinary equity interest of Zhaomu with cash consideration of RMB 3,500. By virtue of the Group’s one seat out of five on the Board of the investee, the Group is able to exercise significant influence over the investee company. The Group’s investment is in the form of ordinary shares of the investee and the Group accounts for this investment under the equity methods from December 2018.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

The carry amount and unrealized securities holding gain/ (loss) for the investments under equity method as of December 31, 2018 was as follows,

 

     Weixin      Siwei      Zhangtaihe      Hongshi Fund      Tianshi      Zhaomu  

Total value booked under equity method as of December 31, 2016

                                 300         

Share of cumulative gain for the year ended December 31, 2017

                                 7         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total value booked under equity method as of December 31, 2017

     3,000        3,000        2,000        2,000        307        3,500  

Share of cumulative gain/(loss) for the year ended December 31, 2018

     2,017        182        960               56        (223
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total value booked under equity method as of December 31, 2018

     5,017        3,182        2,960        2,000        363        3,277  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investments accounted for at cost minus impairments and plus or minus observable changes in prices

Investment in Jipin

In September 2017, the Group acquired common share interests of Jipin with cash consideration of RMB 200. The Group does not have significant influence nor control over Jipin through its equity investment, which do not have readily determinable market value, and therefore accounted for the investment of Jipin at cost minus impairments and plus or minus observable changes in prices.

9. ACCOUNTS PAYABLE

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Merchandise purchase payables

     112,448        595,880        1,247,181  

Warehouse and logistic fees payables

     46,342        142,017        70,968  

Payable to merchants (1)

            32,128        114,125  
  

 

 

    

 

 

    

 

 

 
     158,790        770,025        1,432,274  
  

 

 

    

 

 

    

 

 

 

 

(1)

Payable to merchants represents the unpaid balances to the merchants of cash collected by the Group on behalf of the merchants for products sold on Yunji Apps when the Group is viewed as the agent in the sales arrangement.

10. DEFERRED REVENUE

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Deferred merchandise revenue

     67,996        201,453        337,166  

Deferred membership program revenue

     44,299        122,098        209,809  
  

 

 

    

 

 

    

 

 

 
     112,295        323,551        546,975  
  

 

 

    

 

 

    

 

 

 

 

F-37


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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

The revenue recognized in the years ended December 31, 2016, 2017 and 2018 that was included in deferred revenue as of the beginning of each respective period were RMB 48,176, RMB 112,295 and RMB 323,551, respectively.

11. INCENTIVE PAYABLES TO MEMBERS

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Accruals of Yunbi granted under member incentive program (1)

     6,882        17,932        9,030  

Discounts and referral incentive payable (2)

     74,388        221,908        412,915  
  

 

 

    

 

 

    

 

 

 

Total incentive payables to members

     81,270        239,840        421,945  
  

 

 

    

 

 

    

 

 

 

 

(1)

Accruals of Yunbi granted under member incentive program represents the value of unredeemed units of Yunbi granted to the members under the Group’s member incentive program as of December 31, 2016, 2017 and 2018. Forfeiture rate is considered to determine their value when granted, which is estimated based on historical data.

(2)

Discounts and referral incentive payable represents unpaid balances of discounts granted to members for their self-purchase and referral incentives earned by the members for their referral efforts and is transferred to the members’ individual Yunji flagship App accounts. These unpaid balances are maintained collectively in the members’ Yunji flagship App accounts and can be withdraw as cash upon the members’ requests.

12. REFUND PAYABLE TO MEMBERS

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Refund payable to members

     77,652        147,943        396,024  
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Refund payable to members represents the estimated referral incentives expected to be refunded to referring members from the upfront membership fees paid and the merchandise purchases for their own accounts (Note 2.17). The movement of refund payable to members during the periods presented are as follows:

 

     Refund payable
to members
 

Balance as of December 31, 2015

     12,481  

Estimated referral incentives to be refunded

     131,667  

Referral incentives earned (1)

     (66,496
  

 

 

 

Balance as of December 31, 2016

     77,652  
  

 

 

 

Balance as of December 31, 2016

     77,652  

Estimated referral incentives to be refunded

     430,918  

Referral incentives earned (1)

     (360,627
  

 

 

 

Balance as of December 31, 2017

     147,943  
  

 

 

 

Balance as of December 31, 2017

     147,943  

Estimated referral incentives to be refunded

     626,853  

Referral incentives earned (1)

     (378,772
  

 

 

 

Balance as of December 31, 2018

     396,024  
  

 

 

 

 

(1)

Once the referral incentives are earned by the referring members, the amounts are transferred to the members’ individual Yunji flagship App accounts and recorded as Incentive payables to members (Note 11).

13. MEMBER MANAGEMENT FEES PAYABLE

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Member management fees payable

            99,967        108,384  
  

 

 

    

 

 

    

 

 

 

The Group engages third party vendors to provide management service in the member’s community, including organizing product launch events, collecting members or Yunji App users’ feedbacks, etc. Member management fees payable represents the Group’s unpaid balance of such service fees to the third party vendors. For the years ended December 31, 2016, 2017 and 2018, member management fees were RMB 102,206, RMB 631,151 and RMB 834,576, presented in Sales and marketing expenses in the Consolidation Statements of Comprehensive Loss.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

14. OTHER PAYABLE AND ACCRUED LIABILITIES

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Supplier deposits (1)

     420        736        63,826  

Rental fee payables

     1,019        1,028        5,383  

Accrued professional fees

     8,652        4,054        8,229  

Salaries and welfare payable

     4,501        33,345        35,363  

Taxes payable

     6,739        34,129        74,807  

Penalty (2)

     9,584                

Others

     4,984        8,085        10,354  
  

 

 

    

 

 

    

 

 

 
     35,899        81,377        197,962  
  

 

 

    

 

 

    

 

 

 

 

(1)

The deposit is obtained from the suppliers to ensure inventory level ready for the Company to purchase and good product quality.

(2)

In 2015, the Group’s then-existing business model was investigated by the PRC local government regarding potential violation of the Regulations on the Prohibition of Pyramid Selling. As of December 31, 2015, the estimated penalty payment was approximately RMB 9.6 million and recorded as Other payable and accrued liabilities on Consolidated Balance Sheets. Subsequently in 2017, the Group received a formal notice from the local government, and agreed to pay the fine of RMB 9.6 million as a final settlement. During the period of the investigation conducted by the local government, the Group adjusted its business model starting the beginning of 2016 to comply with the Regulation on the Prohibition of Pyramid Selling and other applicable PRC regulations. Based on the discussion with the competent government authorities and the advice of its PRC legal counsel, the Group believes that its current business model is not in violation of applicable PRC laws and regulations, including the Regulations on the Prohibition of Pyramid Selling.

15. OTHER INCOME, NET

 

     Year Ended
December 31,
2016
     Year Ended
December 31,
2017
     Year Ended
December 31,
2018
 
     RMB      RMB      RMB  

Government grants

            894        7,048  
  

 

 

    

 

 

    

 

 

 

Government grants mainly represent cash subsidies received from PRC local governments for operating a business in their jurisdictions and compliance with specific policies promoted by the local governments.

16. FINANCIAL INCOME, NET

 

     Year Ended
December 31,

2016
    Year Ended
December 31,

2017
    Year Ended
December 31,
2018
 
     RMB     RMB     RMB  

Interest income

     727       11,802       46,919  

Interest expenses

     (98            

Bank charges

     (475     (238     (851
  

 

 

   

 

 

   

 

 

 
     154       11,564       46,068  
  

 

 

   

 

 

   

 

 

 

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

17. TAXATION

(a) Value added tax (“VAT”) and surcharges

The Group is subject to statutory VAT rate of 13% prior to July 1, 2017, 11% between July 1, 2017 and May 1, 2018 and 10% since May 1, 2018 for revenues from sales of agricultural products, and 17% prior to May 1, 2018 and 16% since May 1, 2018 for sales of other products, respectively, in the PRC. The Group is exempted from VAT for revenues from sales of vegetables and contraceptives.

The Group is subject to VAT at the rate of 11% prior to May 1, 2018 and 10% since May 1, 2018 for the logistics services.

(b) Income tax

Cayman Islands

Under the current laws of the Cayman Islands, the Company and its subsidiaries incorporated in the Cayman Islands are not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, the Group’s subsidiaries in Hong Kong are subject to 16.5% Hong Kong profit tax on its taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax.

China

On March 16, 2007, the National People’s Congress of PRC enacted a new Corporate Income Tax Law (“new CIT law”), under which Foreign Investment Enterprises (“FIEs”) and domestic companies would be subject to corporate income tax at a uniform rate of 25%. The new CIT law became effective on January 1, 2008. In accordance with the implementation rules of EIT Law, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15% . The HNTE certificate is effective for a period of three years. An entity could re-apply for the HNTE certificate when the prior certificate expires.

Zhejiang Jishang Preferred E-Commerce Co., Ltd. (“Jishang Preferred”) obtained its HNTE certificate on November 30, 2018. Therefore, Jishang Preferred is eligible to enjoy a preferential tax rate of 15% from 2018 to 2020 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures with the relevant tax authority.

The Group’s other PRC subsidiaries, VIEs and VIEs’ subsidiaries are subject to the statutory income tax rate of 25%.

According to relevant laws and regulations promulgated by the State Administration of Tax of the PRC effective from 2008 onwards, enterprises engaging in research and development activities are entitled to claim 150% of their qualified research and development expenses so incurred as tax deductible expenses when

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

determining their assessable profits for the year (‘Super Deduction’). The additional deduction of 50% of qualified research and development expenses can only be claimed directly in the annual EIT filing and subject to the approval from the relevant tax authorities. Effective from 2018 onwards, enterprises engaging in research and development activities are entitled to claim 175% of their qualified research and development expenses so incurred as tax deductible expenses. The additional deduction of 75% of qualified research and development expenses can be directly claimed in the annual EIT filing.

Withholding tax on undistributed dividends

The new CIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “actual 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 “actual management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, property, etc., of a non-PRC company is located.” Based on a review of surrounding facts and circumstances, the Group does not believe that it is likely that its operations outside of the PRC should be considered a resident enterprise for PRC tax purposes. However, due to limited guidance and implementation history of the EIT Law, there is uncertainty as to the application of the EIT Law. Should the Company be treated as a resident enterprise for PRC tax purposes, the Company will be subject to PRC income tax on worldwide income at a uniform tax rate of 25%.

The new CIT 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. 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 and if Hong Kong company is a beneficial owner of the dividend. The SAT Administration of Taxation (“SAT”) further promulgated Circular [2009] 601 and SAT Public Notice [2018] No.9 regarding the assessment criteria on beneficial owner status.

As of December 31, 2016, 2017 and 2018, the Group does not have any plan to require its PRC subsidiaries to distribute their retained earnings and intends to retain them to operate and expand its business in the PRC. Accordingly, no deferred income tax liabilities on withholding tax were provided as of December 31, 2016, 2017 and 2018.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Composition of income tax

The components of loss before tax are as follow:

 

     Year Ended
December 31,

2016
    Year Ended
December 31,

2017
    Year Ended
December 31,
2018
 
     RMB     RMB     RMB  

Loss before tax

      

Loss from PRC entities

     (52,023     (112,583     (61,767

Income from overseas entities

     6,805       3,521       14,795  
  

 

 

   

 

 

   

 

 

 

Total loss before tax

     (45,218     (109,062     (46,972
  

 

 

   

 

 

   

 

 

 

 

     Year Ended
December 31,

2016
    Year Ended
December 31,

2017
    Year Ended
December 31,

2018
 
     RMB     RMB     RMB  

Current income tax expense

     91       19,404       25,413  

Deferred income tax

     (20,641     (22,735     (13,067
  

 

 

   

 

 

   

 

 

 
     (20,550     (3,331     12,346  
  

 

 

   

 

 

   

 

 

 

Reconciliation of the differences between statutory tax rate and the effective tax rate

Reconciliation of the differences between the statutory EIT rate applicable to losses of the consolidated entities and the income tax expenses of the Group:

 

     Year Ended
December 31,

2016
    Year Ended
December 31,

2017
    Year Ended
December 31,

2018
 

PRC Statutory income tax rate

     25     25     25

Effect on tax rates in different tax jurisdiction

     1     0     3

The effect of change in the tax rate of Jishang Preferred

     0     0     -76

Difference in EIT rates of PRC entities

     0     0     9

Non-deductible expenses(1)

     -1     -24     -4

Additional deduction for research and development expenditures

     0     5     25

Share-based compensation

     0     0     -17

Non-taxable income

     0     0     7

Change in valuation allowance

     20     -3     2
  

 

 

   

 

 

   

 

 

 

Effective tax rates

     45     3     -26
  

 

 

   

 

 

   

 

 

 

 

(1)

During the year ended December 31, 2017, the Group incurred sales and marking expenses without VAT invoices in the amount of RMB92,603, which was not deductible from taxable income.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

(c) Deferred tax assets and deferred tax liabilities

The following table sets forth the significant components of the deferred tax assets:

 

     As of  
     December 31,
2016
    December 31,
2017
    December 31,
2018
 
     RMB     RMB     RMB  

Deferred tax assets

      

Net accumulated losses-carry forward

     6,249       9,203       8,810  

Deferred membership program revenue

     11,075       30,525       31,471  

Refund payable to members

     19,413       36,986       59,404  

Deferred revenue related to in transit merchandise sales

     10,792       18,531        

Inventory write—downs

     31       1,892       635  

Others

     4,617       5,654       6,548  

Less: valuation allowance

     (8,357     (11,153     (10,004
  

 

 

   

 

 

   

 

 

 

Total deferred tax assets

     43,820       91,638       96,864  
  

 

 

   

 

 

   

 

 

 

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Deferred tax liabilities

        

Prepaid member training costs

     14,504        17,459        34,514  

Temporary difference related to deferred costs on in transit merchandise sales

     5,197        16,760         

Others

     3,478        14,043        5,907  
  

 

 

    

 

 

    

 

 

 

Total deferred tax liabilities

     23,179        48,262        40,421  
  

 

 

    

 

 

    

 

 

 

Movement of valuation allowance    

 

     Year Ended
December 31,
2016
    Year Ended
December 31,
2017
    Year Ended
December 31,
2018
 
     RMB     RMB     RMB  

Balance at beginning of the year

     (17,567     (8,357     (11,153

Changes of valuation allowance (1)

     9,210       (2,796     1,149  
  

 

 

   

 

 

   

 

 

 

Balance at end of the year

     (8,357     (11,153     (10,004
  

 

 

   

 

 

   

 

 

 

Valuation allowances have been provided against deferred tax assets when the Group determines that it is more likely than not that 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 entities’ operating history, accumulated deficit, existence of taxable temporary differences and reversal periods.

 

(1)

As of December 31, 2016, 2017 and 2018, valuation allowances on a large part of deferred tax assets were provided because it was more likely than not that the Group will not be able to utilize tax loss carry forwards generated by certain unprofitable subsidiaries. As of December 31, 2016 and 2018, as some of the

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

  unprofitable subsidiaries made one time profit, valuation allowances of RMB 9,210 and RMB 1,149 were released. As of December 31 2017, valuation allowances of RMB 2,796 were provided against deferred tax assets because it was more likely than not that such portion of deferred tax will not be realized based on the Company’s estimate of future taxable incomes of all its subsidiaries.

As of December 31, 2018, net operating loss carry forwards from PRC entities will expire as follows:

 

At December 31,

   RMB  

2019

      

2020

     10,973  

2021

     204  

2022

     15,131  

2023

     9,357  
  

 

 

 
     35,665  
  

 

 

 

As of December 31, 2018, the Group had tax losses carry forwards of approximately RMB 30,077 which mainly arose from its subsidiaries, consolidated VIEs and VIEs’ subsidiaries established in the PRC. The tax losses carry forwards from PRC entities will expire during the period from 2020 to 2023.

18. ORDINARY SHARES

In November 2017, the Company was incorporated as limited liability company with authorized share capital of US$50 divided into 500,000,000 shares with par value US$0.0001 each. As of December 31, 2017, 1 ordinary share was issued and outstanding.

In January 2018, the shares were subdivided into 10,000,000,000 shares with par value US$0.000005 each. 1 ordinary share was subdivided into 20 ordinary shares (the “Share Split”) and was therefore after issued and outstanding. In addition, 1,151,399,980 ordinary shares were issued to the Initial Ordinary Shareholders in January 2018 as part of the Reorganization to swap the Initial Ordinary Shareholders’ equity interests in Yunji Sharing with the shareholding interests in the Company.

In February 2018, in connection with the Reorganization and issuance of Series B convertible redeemable preferred shares (“Series B Preferred Shares”), 373,000,000 authorized shares were designated as Series Seed convertible redeemable preferred shares (“Series Seed Preferred Shares”), 389,200,000 authorized shares were designated as Series A convertible redeemable preferred shares (“Series A Preferred Shares”) and 110,803,324 authorized shares were designated as Series B Preferred Shares.

The effect of the ordinary shares issued in the Reorganization has been treated similarly to a share split and have been presented retrospectively as of the beginning of the earliest period presented on the consolidated financial statements.

In June 2018, in connection with the Series B+ convertible redeemable preferred shares (“Series B+ Preferred Shares”) investment, 1,108,033 authorized ordinary shares were re-designated Series B Preferred Shares”, and 21,105,395 ordinary shares were re-designated as Series B+ Preferred Shares. The designation/re-designation to preferred shares reduced the number of authorized ordinary shares proportionately, and as such, as of December 31, 2018, total authorized ordinary shares were 9,104,783,248.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

19. CONVERTIBLE REDEEMABLE PREFERRED SHARES

Before the Reorganization, given the fact Yunji Sharing was incorporated as a limited corporation in China with no shares issued, the paid in capital contributed by the Initial Ordinary Shareholders, the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary Owners determined their equity interests percentage. The capital contributions with preference and redemption rights from the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary Owners were recorded in the “Mezzanine equity” at the respective periods.

In July 2015, pursuant to an investment agreement, the Former Series Seed Beneficiary Owners injected to Yunji Sharing with total cash of RMB50,000 (namely, the Former Series Seed Capital Contribution), and incurred issuance cost of RMB1,000. Consequently, beneficial interest of Yunji Sharing was then 77.27% held by the Initial Ordinary Shareholders and 22.73% held by the Former Series Seed Beneficiary Owners. In connection with issuance of the Former Series Seed Capital Contribution, Yunji Sharing granted a warrant option to one of the Former Series Seed Beneficiary Owners, the warrant offered a 5% discount of purchase price in next round financing (the “Series Seed Warrant”). The warrant was determined to be a freestanding financial instrument and recorded at fair value of RMB382 upon initial recognition after being bifurcated from the Former Series Seed Capital Contribution host, and was marked to the market value in the applicable subsequent reporting period.

In November 2016, pursuant to an investment agreement, the Former Series A Beneficiary Owners injected to Yunji Sharing with total consideration of RMB 33,160 and US$15,000 (RMB 104,182 equivalent) as well as the full exercise of the Series Seed Warrant at fair value of RMB644. Consequently, beneficial interest of Yunji Sharing was then 69.59% held by the Initial Ordinary Shareholders, 19.17% held by the Former Series Seed Beneficiary Owners and 11.24% held by the Former Series A Beneficiary Owners. In addition, Yunji Sharing also issued a warrant option to one of the Former Series A Beneficiary Owners who has the right to choose to increase the capital injection to Yunji Sharing by no more than US$5,000 with the same preference and redemption rights as the existing the Former Series A Beneficiary Owners (the “Series A Warrant”). The warrant is a determined to be a freestanding financial instrument and was recorded at fair value of RMB2,182 upon initial recognition after being bifurcated from the Former Series A Capital Contribution host, and was marked to the market value in the applicable subsequent reporting period. In January 2017, upon the exercise in full of the Series A Warrant, the Former Series A Beneficiary Owners further injected to Yunji Sharing with total consideration of US$5,000(RMB 34,350 equivalent) as well as the full exercise of Series A Warrant at fair value of RMB1,754 (collectively, namely, the “Former Series A Capital Contribution”). Total issuance cost in the amount of RMB 8,095 was incurred for the Former Series A Capital Contribution, including a finder’s commission of RMB 6,509. Consequently, beneficial interest of Yunji Sharing was then 67.72% held by the Initial Ordinary Shareholders, 18.65% held by the Former Series Seed Beneficiary Owners and 13.64% held by the Former Series A Beneficiary Owners.

During the Reorganization, in February 2018, the Company issued 373,000,000 Series Seed convertible redeemable preferred shares (“Series Seed Preferred Shares”) for US$0.022 per share, 56,800,000 Series A convertible redeemable preferred shares (“Series A Preferred Shares”) for US$0.088 per share (considering the exercise of the aforementioned Series Seed Warrant option), and 215,800,000 Series A Preferred Shares for US$0.093 per share to the same group of the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary Owners of Yunji Sharing, in exchange for their equity beneficial ownerships in Yunji Sharing as abovementioned. Thereafter, the Former Series Seed Capital Contribution and the Former Series A Capital Contribution were legally converted into Series Seed Preferred Shares and Series A Preferred Shares. The share price stated above was defined as original issuance price of relating preferred shares to be used in Liquidation

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Preference and Redemption Rights. Likewise, the Former Series Seed Beneficiary Owners and the Former Series A Beneficiary Owners became the Series Seed Preferred Shareholders and Series A Preferred Shareholders.

Furthermore, the Company issued 116,600,000 Series A Preferred Shares with the subscription price at US$0.000005 per share to two of the institutional investors of the Initial Ordinary Shareholders, which was accounted for as a modification/extinguishment to Series A Preferred Shares from the Initial Ordinary Shareholders’ contributions (discussed in the last paragraph of the Note 19).

In February 2018, pursuant to a share purchase agreement, the Company issued 110,803,324 shares of Series B Preferred Shares for US$0.902 per share for cash of US$100,000 (RMB 630,010 equivalent). Total issuance cost in the amount of RMB 14,062 was incurred for the Series B Preferred Shares, including a finder’s commission of US$2,000 (RMB 12,600 equivalent). The Company paid 50% of the commission in cash amounted US$1,000 and the remaining 50% by issuance of 1,108,033 shares of Series B Preferred Shares for no consideration to the finder, a financial advisor in June 2018. The total of the finder’s commission was also recorded as an issuance cost as a deduction of the preferred shares.

In June 2018, pursuant to a share purchase agreement, the Company authorized 21,105,395 shares of Series B+ Preferred Shares at US$0.948 per share for cash of US$20,000 (RMB 128,416 equivalent) and 5,276,349 shares of Series B+ Preferred Shares were issued, with issuance cost in the amount of RMB 5,867 was incurred for the Series B+ Preferred shares, including a finder’s commission of RMB 5,867. As one of the investors still being in the process of completing its administrative procedures for remitting the capital overseas with the local government in order to inject the capital into Yunji Inc., the investor became subject to the shareholders’ rights and obligations of the Series B+ Preferred Shares in such agreements on the same date, due to the Series B+ Preferred Shareholder injected the investment of RMB 96,312 into Yunji Sharing. In November 2018, Yunji Sharing returned RMB 96,312 to the Series B+ Preferred Shareholder and Yunji Inc. received capital injection of US$15,000 (RMB 96,312 equivalent) from Series B+ Preferred Shareholder. When the administrative procedures was completed, 15,829,046 shares of Series B+ Preferred Shares were issued.

The Series Seed, Series A, Series B and Series B+ Preferred Shares are collectively referred to as the “Preferred Shares”. All series of Preferred Shares have the same par value of US0.000005 per share.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

The Group’s Preferred Shares activities for the years ended December 31, 2016, 2017 and 2018 are summarized as below:

 

    Series Seed Shares     Series A Shares     Series B Shares     Series B+ Shares     Total  
    Number of
shares
    Amount
(RMB)
    Number of
shares
    Amount
(RMB)
    Number of
shares
    Amount
(RMB)
    Number of
shares
    Amount
(RMB)
    Number of
shares
    Amount
(RMB)
 

Balance as of January 1, 2016

    373,000,000       51,050                                           373,000,000       51,050  

Former Series A Capital Contribution including exercise of Series Seed Warrant, net of issuance cost

                218,650,000       127,709                               218,650,000       127,709  

Accretion on convertible redeemable preferred shares to redemption value

          67,152             10,027                                     77,179  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2016

    373,000,000       118,202       218,650,000       137,736                               591,650,000       255,938  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Former Series A Capital Contribution with exercise of Series A Warrant

                53,950,000       36,104                               53,950,000       36,104  

Accretion on convertible redeemable preferred shares to redemption value

          970,718             657,938                                     1,628,656  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2017

    373,000,000       1,088,920       272,600,000       831,778                               645,600,000       1,920,698  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Re-designation to Series A Preferred Shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature

                116,600,000       60,799                               116,600,000       60,799  

Issuance of Series B Preferred Shares, net of issuance cost

                            111,911,357       622,369                   111,911,357       622,369  

Issuance of Series B+ Preferred Shares, net of issuance cost

                                        21,105,395       122,549       21,105,395       122,549  

Accretion on convertible redeemable preferred shares to redemption value

          888,416             1,198,145             86,240             14,832             2,187,633  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2018

    373,000,000       1,977,336       389,200,000       2,090,722       111,911,357       708,609       21,105,395       137,381       895,216,752       4,914,048  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

The major rights, preferences and privileges of the Preferred Shares are as follows:

Conversion rights

Each Preferred Share shall be convertible, at the option of the holder, into one ordinary share of the Company. Such conversion ratio is subject to certain anti-dilutive adjustments in case of share splits, share dividends, combinations, recapitalization and similar events, or issuance of ordinary shares (excluding certain events such as issuance of ordinary shares pursuant to a public offering) at a price per share less than the conversion price in effect on the date of or immediately prior to such issuance. In addition, each series of Preferred Shares would automatically be converted into ordinary shares of the Company upon the closing of a Qualified Initial Public Offering (“Qualified IPO”) as defined in the Memorandum and Articles of Association.

Upon the Former Series Seed Capital Contribution, Qualified IPO means a public offering of ordinary shares of the Company registered on a reputable stock exchange before December 31, 2020.

Upon the Former Series A Capital Contribution, Qualified IPO was modified to a public offering of ordinary shares of the Company registered under the PRC and overseas stock exchange with an implied pre-money valuation of US$500,000 (or equivalent RMB) or more before November 4, 2020, and is approved by the Former Series A Beneficiary Owners.

Upon the issuance of Series B Preferred Shares, Qualified IPO was modified to a public offering of ordinary shares of the Company registered under the Securities Act or on an internationally recognized securities exchange or inter-dealer quotation system, including the Stock Exchange of Hong Kong Limited, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, with an implied pre-money valuation of US$4,000,000(or equivalent RMB) or more before February 12, 2021, and is approved by the majority of the preferred shareholders.

Dividend rights

The holder of each Preferred Share shall have the right to receive non-cumulative dividends, pari passu with the ordinary shares, on an as-converted basis, when, as and if declared by the Board.

Voting rights

Each Preferred Share shall carry a number of votes equal to the number he would be entitled on an as-converted basis.

Liquidation preference

In the event of any liquidation, dissolution or winding up or deemed liquidation of the Company, whether voluntary or involuntary, all assets and funds of the Company legally available for distribution to the shareholders shall be distributed to the shareholders according to the following sequence:

 

  (1)   Each holder of Series B Preferred Shares and/or Series B+ Preferred Shares shall be entitled to receive, on parity with each other, an amount equal to one hundred percent (100%) of the original issue price of Series B and Series B+ Preferred Shares, plus all dividends declared and unpaid (the “Series B Preferred Shares Liquidation Preference”).

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

  (2)   After distribution or payment in full of the Series B Preferred Shares Liquidation Preference, each holder of Series A Preferred Shares shall be entitled to receive, on parity with each other, an amount equal to one hundred percent (100%) of the original issue price of Series A Preferred Shares, plus all dividends declared and unpaid (the “Series A Preferred Shares Liquidation Preference”).

 

  (3)   After distribution or payment in full of the Series B Preferred Shares Liquidation Preference and the Series A Preferred Shares Liquidation Preference, each holder of Series Seed Preferred Shares shall be entitled to receive, on parity with each other, an amount equal to one hundred percent (100%) of the original issue price of Series Seed Preferred Shares, plus all dividends declared and unpaid (the “Series Seed Preferred Shares Liquidation Preference”).

 

  (4)   After distribution or payment in full of the amount distributable or payable on the Preferred Shares pursuant to the above sequence, the remaining assets of the Company available for distribution to Members shall be distributed ratably among the holders of outstanding Ordinary Shares and the holders of outstanding Preferred Shares in proportion to the number of outstanding Ordinary Shares held by them (with outstanding Preferred Shares treated on an as-converted basis).

The deemed liquidation events include (i) any consolidation, amalgamation or merger of the Company and/or any subsidiaries with or into any other third party, in which the Members of the Company or shareholders of such subsidiaries immediately prior to such consolidation, amalgamation, merger or reorganization, own less than fifty percent (50%) of the voting power of Company or any other subsidiaries immediately after such consolidation, merger, amalgamation or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s or any other subsidiaries’ voting power is transferred, but excluding any transaction effected solely for tax purposes or to change the Company’s domicile or any other subsidiaries’ domicile (ii) the sale, exchange, transfer or other disposition, in one or a series of related transactions, of a majority of the outstanding share capital of any subsidiaries of Group to third party acting in concert, under circumstances in which the holders of a majority in voting power of the outstanding share capital of any subsidiaries immediately prior to such transaction beneficially own less than a majority in voting power of the outstanding share capital of the surviving entity or the acquiring third party immediately following such transaction (iii) a sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by any subsidiaries of all or substantially all of the assets of any subsidiaries, (iv) the exclusive licensing of all or substantially all of the subsidiaries intellectual property to a third party.

The liquidation amounts of Series Seed Preferred Shares, Series A Preferred Shares, Series B Preferred Shares and Series B+ Preferred Shares on December 31, 2018 were RMB50,000, RMB220,910, RMB636,431 and RMB128,416, respectively.

Redemption right

Prior to the Former Series A Capital Contribution, the Former Series Seed Capital Contribution were redeemable if Yunji Sharing fails to consummate a Qualified IPO as at December 31, 2020. The redemption price shall be one hundred percent (100%) of the original Former Series Seed Capital Contribution amount and plus a ten percent (10%) annual simple interest. (the “Series Seed Preference Amount”).

Upon the Former Series A Capital Contribution, the Former Series A Capital Contribution were to be redeemable and the Former Series Seed Capital Contribution were modified to be redeemable, at the holder’s discretion, at any time (i) after the forty-eight (48) months following the Former Series A Capital Contribution

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

were issued, (ii) there is a material breach by any group company or any founding shareholder, and (iii) the Group Companies cannot carry out the ordinary business operation for twelve (12) consecutive months or more due to penalty from Governmental Authorities (including frozen of funds). The redemption price of the Former Series A Capital Contribution would be the higher of (i) the original investment amount of the Former Series A Capital Contribution, plus a ten percent (10%) annual simple interest and all accrued or declared but unpaid dividends, and (ii) the fair market value of the Former Series A Capital Contribution to be redeemed determined by a third party independent valuer. The redemption price of Former Series Seed Capital Contribution was modified to be the higher of (i) the original investment amount of the Former Series Seed Capital Contribution, plus a ten percent (10%) annual simple interest and all accrued or declared but unpaid dividends, and (ii) the fair market value of the Former Series Seed Capital Contribution to be redeemed determined by a third party independent valuer.

Upon the issuance of Series B Preferred Shares, Series B Preferred Shares were to be redeemable, Series A Preferred Shares and Series Seed Preferred Shares were modified to be redeemable, at the holder’s discretion, at any time (i) after the thirty-six (36) months following Series B Preferred Shares were issued, (ii) there is a material breach by any group company or any Founding Shareholder, and (iii) the Group Companies cannot carry out the ordinary business operation for twelve (12) consecutive months or more due to penalty from Governmental Authorities (including frozen of funds).

The redemption price of Series B Preferred Shares would be the higher of (i) the original issue price of Series B Preferred Shares, plus a ten percent (10%) annual compound interest and all accrued or declared but unpaid dividends, and (ii) the fair market value of the Series B Preferred Shares to be redeemed determined by a third party independent valuer.

The redemption price of Series A Preferred Shares was modified to be the higher of (i) the original issue price of Series A Preferred Shares, plus a ten percent (10%) annual compound interest and all accrued or declared but unpaid dividends, and (ii) the fair market value of the Series Seed Preferred Shares to be redeemed determined by a third party independent valuer.

The redemption price of Series Seed Preferred Shares was modified to be the higher of (i) the original issue price of Series Seed Preferred Shares, plus a ten percent (10%) annual compound interest and all accrued or declared but unpaid dividends, and (ii) the fair market value of the Series Seed Preferred Shares to be redeemed determined by a third party independent valuer.

Upon the issuance of Series B+ Preferred Shares, there was no change to the redemption condition or redemption price.

In case of insufficient funds and distribution of redemption payments

If the Company’s assets or funds which are legally available on the date of redemption payment are insufficient, the holders of Preferred Shares in the following sequence: (i) first, pay the Series B and Series B+ redemption price to the holders of Series B Preferred Shares and Series B+ Preferred Shares, pari passu as amongst themselves, (ii) second, after the full payment of the Series B and Series B+ redemption price, pay the Series A redemption price to the holders of Series A Preferred Shares, pari passu as amongst themselves, and (iii) third, after the full payment of the Series B and B+ redemption price and the Series A redemption price, pay the Series Seed redemption price to the holders of Series Seed Prefer Shares, pari passu as amongst themselves.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Accounting for Preferred Shares

The Company has classified the Preferred Shares in the mezzanine equity of the Consolidated Balance Sheets as they are redeemable at the holders’ option any time after a certain date and were contingently redeemable upon the occurrence of deemed liquidation events outside of the Company’s control. In addition, the Company records accretions on the Preferred Shares to the redemption value from the issuance dates to the earliest redemption dates. The accretions are recorded against retained earnings, or in the absence of retained earnings, by charges against additional paid-in capital. Once additional paid-in capital has been exhausted, additional charges are recorded by increasing the accumulated deficit. Each issuance of the Preferred Shares was recognized at the respective issue price at the date of issuance net of issuance costs. The issuance costs for Series Seed, Series A, Series B and Series B+ Preferred Shares were RMB1, 000, RMB8, 095, RMB14, 062 and RMB 5,867, respectively.

The Company determined that there were no embedded derivatives requiring bifurcation as the economic characteristics and risks of the embedded conversion and redemption features are clearly and closely related to that of the equity host of the Preferred Shares. The Preferred Shares are not readily convertible into cash as there is not a market mechanism in place for trading of the Company’s shares.

The Company has determined that there was no beneficial conversion feature attributable to any of the Preferred Shares except for the modification to the Series A Preferred Shares (discussed in the last paragraph of the Note 19) because the initial effective conversion price of these preferred shares were higher than the fair value of the Company’s ordinary shares determined by the Company with the assistance from an independent valuation firm.

Modification or extinguishment of Preferred Shares

The Company assesses whether an amendment to the terms of its Preferred Shares is an extinguishment or a modification using the fair value model. When Preferred Shares are extinguished, the difference between the fair value of the consideration transferred to the convertible preferred shareholders and the carrying amount of the convertible preferred shares (net of issuance costs) is treated as deemed dividends to preferred shareholders. The Company considers that a significant change in fair value after the change of the terms to be substantive and thus triggers extinguishment. A change in fair value, which is not significant immediately after the change of the terms is considered non-substantive and thus is subject to modification accounting. When the Preferred Shares are modified, the Company evaluates whether there is a transfer of value between ordinary shareholders and preferred shareholders as a result of the modification and therefore, should record a reduction of, or increase to, accumulated deficit as a deemed dividend. When the value is transferred from preferred shareholders to ordinary shareholders, the value was recorded as an increase to accumulated deficit while charges against additional paid-in capital. In the absence of additional paid-in capital for the year ended December 31, 2016, the deemed dividend of RMB 132 was recorded as an increase to accumulated deficit while such amount charges against the accumulated deficit, which resulted in a net RMB 0 impact to accumulated deficit.

In connection with the Former Series A Capital Contribution in 2016, the optional redemption date of the Former Series Seed Capital Contribution was changed from December 31, 2020 to November 4, 2020, to be in line with the optional redemption date of the Former Series A Preferred Shares. Meanwhile, the redemption price was changed to the Former Series Seed Beneficiary Owners in connection with the issuance of Former Series A Capital Contribution.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

In addition, in connection with the issuance of the Series B Preferred Shares in 2018, the optional redemption date the Series Seed Preferred Shares and Series A Preferred Shares was extended from November 4, 2020 to February 8, 2021, to be in line with the optional redemption date of Series B Preferred Shares. Meanwhile, the redemption price was changed to Series A Preferred Shareholders and Series Seed Preferred Shareholders in connection with the issuance of the Series B Preferred Shares.

From both quantitative and qualitative perspectives, the Company assessed the impact of the above modifications and concluded that these amendments represent modifications rather than extinguishment of the Preferred Shares. The Company evaluated and concluded the impact of above modifications as immaterial and recorded a reduction of, or increase to, accumulated deficit as a deemed dividend, representing value transferred from the Preferred Shareholders to the Ordinary Shareholder for the years ended December 31, 2016 and 2018, respectively.

For the modification that the Series A Preferred Shares that were issued to the two institutional investors of the Initial Ordinary Shareholders to replace the beneficial interest in Yunji Sharing during the Reorganization, the Company determined that the modification should be treated as extinguishment given its qualitative significance which provided these two investors with the Series A Preferred Shares’ rights, preferences and privileges, and resulted in its reclassification from the permanent equity to the Mezzanine equity. Upon the reclassification, the shares to these two investors were recorded at the new cost, which was the fair value of the Series A Preferred Shares of RMB 406,791 on the issuance date of the Series A Preferred Shares. Meanwhile, given that the issuance date fair value of the common shares was higher than the effective conversion price of re-designated Series A Preferred Shares, the Group recognized the beneficial conversion feature of RMB 345,992 as an adjustment to the carrying value of the re-designated Series A Preferred Shares, calculated as the excess of the fair value of its common shares of US$0.54 over the effective conversion price of US$0.067, multiplied by the number of common shares into which re-designated Series A Preferred Shares converts. The beneficial conversion feature is to be amortized using the effective interest method through the redemption date of February 12, 2021. The difference of the par value of Series A Preferred Shares and the fair value of the Series A Preferred Shares with the aforementioned adjustment of beneficial conversion feature of RMB60,796, is accounted for as deemed dividend and allocated to accumulated deficit.

20. SHARE-BASED COMPENSATION

On December 19, 2017, the Company adopted the Stock Incentive Plan (“the Plan”), which allows the compensation committee to grant options and restricted share units (“RSU”) of the Company to its directors, employees, and etc. (collectively, the “Grantees”) to acquire ordinary shares of the Company at an exercise price as determined by the Compensation Committee at the time of grant. According to the latest amended and restated Global Share Plan, 191,663,158 ordinary shares were authorized and reserved for the issuance.

Since adoption of the Plan, the Company granted options and RSUs to employees. All options and RSUs granted have a contractual term of six years from the grant date, and the vest over a period of four years of continuous service, half (1/2) of which vest upon the second anniversary of the stated vesting commencement date and one-fourth (1/4) of the remaining will vest upon the third and four anniversaries of the stated vesting commencement date. Under the option plan, options are exercisable subject to the grantee’s continuous service.

The Company accounted for the share based compensation costs on a straight-line bases over the requisite service period for the award based on the fair value on their respectively grant date.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

On December 19, 2017, June 30, 2018 and November 28, 2018, the Company granted 73,225,200, 12,021,500 and 5,540,000 stock options to its directors and employees, respectively. In addition, on December 19, 2017 and November 28, 2018, the Company granted 5,000,000 and 19,800,000 RSUs to its directors and employees, respectively.

(a) Options

The following table sets forth the stock options activity for the years ended December 31, 2016, 2017 and 2018:

 

     Number of
shares
    Weighted-
average
exercise price
     Weighted
average
remaining
contractual term
     Aggregate
intrinsic
value
 
           US$             000’US$  

Outstanding as of January 1, 2016 and 2017

                          

Granted

     73,225,200       0.09        
  

 

 

   

 

 

       

Outstanding as of December 31, 2017

     73,225,200       0.09        5.96        25,623  
  

 

 

   

 

 

    

 

 

    

 

 

 

Granted

     17,561,500       0.22        

Forfeited

     (3,674,300     0.10        
  

 

 

   

 

 

       

Outstanding as of December 31, 2018

     87,112,400       0.12        5.09        60,399  
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest as of December 31, 2018

     87,112,400       0.12        5.09        60,399  
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable as of December 31, 2018

                          
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the underlying stock at each reporting date (December 31, 2017: US$0.44, December 31, 2018: US$0.81).

The Group uses the Binominal option pricing model to estimate the fair value of stock options. The assumptions used to value the Company’s options grants were as follow:

 

     2017      2018  

Exercise price (USD)

     0.0925        0.1~0.4  

Exercise multiple

     2.2~2.8        2.2~2.8  

Risk-free interest rate

     2.35      2.53%~2.60

Expected term (in years)

     6        6  

Expected dividend yield

             

Expected volatility

     43.34      40.87%~41.81

Expected forfeiture rate (post-vesting)

     5      5

Fair value of the underlying shares on the date of options grants (US$)

     0.44        0.81  

Fair value of share option (US$)

     0.37        0.40  

Risk-free interest rate is estimated based on the yield curve of US Sovereign Bond as of the option valuation date. The expected volatility at the grant date and each option valuation date is estimated based on annualized standard deviation of daily stock price return of comparable companies with a time horizon close to the expected expiry of the term of the options. The Company has never declared or paid any cash dividends on its capital

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

stock, and the Group does not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the options.

Share-based compensation expense is recorded on a straight-line basis over the requisite service period, which is generally four years from the date of grant. The Company recognized share-based compensation expenses of nil, RMB1, 856 and RMB 48,298 for share options granted under the Global Share Plan in the Consolidated Statements of Comprehensive Loss for the years ended 2016, 2017 and 2018, respectively.

As of December 31, 2016, 2017 and 2018, there was nil, RMB174,298 and RMB 181,059, respectively, in total unrecognized compensation expense, related to unvested share options, which is expected to be recognized over a weighted average period of nil, 3.96 and 3.07 years, respectively. The unrecognized compensation expense may be adjusted for future changes in actual forfeitures.

(b) Restricted share units

A summary of activities of the service-based RSUs for the years ended December 31, 2016, 2017 and 2018 is presented below:

 

     Number of
RSUs
     Weighted-Average
Grant-Date Fair Value
 
            US$  

Unvested at January 1, 2016 and 2017

             

Granted

     5,000,000        0.44  
  

 

 

    

 

 

 

Unvested at December 31, 2017

     5,000,000        0.44  
  

 

 

    

 

 

 

Granted

     19,800,000        0.81  
  

 

 

    

 

 

 

Unvested at December 31, 2018

     24,800,000        0.74  
  

 

 

    

 

 

 

The fair value of each restricted share units granted with service conditions is estimated based on the fair market value of the underlying ordinary shares of the Company on the date of grant.

As of December 31, 2016, 2017 and 2018, no RSUs were vested.

For the years ended December 31, 2016, 2017 and 2018, total share-based compensation expenses recognized by the Group for the RSUs granted were nil, RMB 152 and RMB 6,002, respectively.

As of December 31, 2016, 2017 and 2018, there was nil, RMB14,303 and RMB 114,686 in total unrecognized compensation expense, related to unvested RSUs, which is expected to be recognized over a weighted average period of nil, 3.96 and 3.72 years, respectively.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

21. FAIR VALUE MEASUREMENTS

As of December 31, 2016, 2017 and 2018, information about inputs into the fair value measurement of the Group’s assets and liabilities that are measured or disclosed at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:

 

            Fair value measurement at reporting date using  

Description

   Fair value
as of
December 31,
2016
     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     RMB      RMB      RMB      RMB  

Assets:

           

Short-term investments

           

Wealth management products

     33,000               33,000         
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     33,000               33,000         
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Fair value measurement at reporting date using  

Description

   Fair value
as of
December 31,
2017
     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     RMB      RMB      RMB      RMB  

Assets:

           

Short-term investments

           

Wealth management products

     663,780               663,780         
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     663,780               663,780         
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Fair value measurement at reporting date using  

Description

   Fair value
as of
December 31,
2018
     Quoted Prices in Active
Markets for Identical
Assets (Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     RMB      RMB      RMB      RMB  

Assets:

           

Short-term investments

           

Time deposits

     549,056               549,056         

Wealth management products

     550,338               550,338         
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     1,099,394               1,099,394         
  

 

 

    

 

 

    

 

 

    

 

 

 

When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates. Following is a description of the valuation techniques that the Group uses to measure the fair value of assets that the Group reports in its Consolidated Balance Sheets at fair value on a recurring basis.

Short-term investments

Short-term investment consists of wealth management products and time deposits, which are valued by the Group on a recurring basis. The Group values its short-term wealth management products investments held in

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

certain banks using model-derived valuations based upon discounted cash flow, in which significant inputs, mainly including expected return, are observable or can be derived principally from, or corroborated by, observable market data, and accordingly, the Group classifies the valuation techniques that use these inputs as Level 2. The expected return of the financial products were determined based on the prevailing interest rates in the market.

22. NET LOSS PER SHARE

Basic and diluted net loss per share for each of the years/periods presented are calculated as follows:

 

    Year Ended
December 31,
2016
    Year Ended
December 31,
2017
    Year Ended
December 31,
2018
 
    RMB     RMB     RMB  

Numerator:

     

Net loss attributable to YUNJI INC.

    (24,668     (105,724     (59,688
 

 

 

   

 

 

   

 

 

 

Accretion on convertible redeemable Preferred Shares to redemption value

    (77,179     (1,628,656     (2,187,633

Re-designation to Series A Preferred Shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature

                (60,796

Deemed dividend from convertible redeemable preferred shares holders

    132             107  
 

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (101,715     (1,734,380     (2,308,010
 

 

 

   

 

 

   

 

 

 

Denominator:

     

Weighted average number of ordinary shares used in computing net loss per share, basic and diluted

    1,268,000,000       1,268,000,000       1,165,136,438  
 

 

 

   

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders:

     

—Basic

    (0.08     (1.37     (1.98

—Diluted

    (0.08     (1.37     (1.98

Basic net loss per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding during the period.

For the years ended December 31, 2016, 2017 and 2018, assumed conversion of the Preferred Shares have not been reflected in the dilutive calculations pursuant to ASC 260, “Earnings Per Share,” due to the anti-dilutive effect. The effects of all outstanding share options and RSUs have also been excluded from the computation of diluted loss per share for the years ended December 31, 2016, 2017 and 2018 as their effects would be anti-dilutive.

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

23. RELATED PARTY BALANCES AND TRANSACTIONS

The table below sets forth the major related parties and their relationships with the Group as of December 31, 2018:

 

Name of related parties

  

Relationship with the Group

Xiao Shanglue

   Founder and CEO of the Group

Hangzhou Yuepeng Trading Co., Ltd.

   Ordinary shareholder of the Company, controlled by Mr. Xiao Shanglue, Founder and CEO of the Group

Lanlan Ltd

   Ordinary shareholder of the Company, controlled by Mr. Xiao Shanglue, Founder and CEO of the Group

Small Ye Group

   Controlled by Mr. Xiao Shanglue, Founder and CEO of the Group

Hongkong Smallye Int’l Investment Limited

   Controlled by Mr. Xiao Shanglue, Founder and CEO of the Group

Tianshi

   An associate of the Group

Zhangtaihe

   An associate of the Group

Weixin

   An associate of the Group

Siwei

   An associate of the Group

Zhaomu

   An associate of the Group

Wuhan Dahong enterprise management partnership(LP)

   Non-controlling interest

Details of related party balances and transactions as of December 31, 2016, 2017 and 2018 are as follows:

Amounts due from related parties

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Hangzhou Yuepeng Trading Co., Ltd.

     813        913         

Hongkong Smallye Int’l Investment Limited

     197        197         

Small Ye Group

            40         

Wuhan Dahong enterprise management partnership(LP)

                   14  

Xiao Shanglue

                   355  

Lanlan Ltd

                   8  
  

 

 

    

 

 

    

 

 

 
     1,010        1,150        377  
  

 

 

    

 

 

    

 

 

 

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Amounts due to related parties

 

     As of  
     December 31,
2016
     December 31,
2017
     December 31,
2018
 
     RMB      RMB      RMB  

Xiao Shanglue

     1,500        1,766         

Hongkong Smallye Int’l Investment Limited

     1,505        1,431         

Tianshi

                   5,557  

Zhangtaihe

                   5,034  

Weixin

                   70  

Siwei

                   187  

Zhaomu

                   597  
  

 

 

    

 

 

    

 

 

 
     3,005        3,197        11,445  
  

 

 

    

 

 

    

 

 

 

The Group believes that the terms of the agreements with the related parties are comparable to the terms in arm’s-length transactions with third-party customers and vendors.

Transactions with related parties

 

     Year Ended
December 31,

2016
     Year Ended
December 31,

2017
     Year Ended
December 31,
2018
 
     RMB      RMB      RMB  

Payment on behalf of the related parties

        

Hangzhou Yuepeng Trading Co., Ltd.

     827        100         

Xiao Shanglue

                   588  
  

 

 

    

 

 

    

 

 

 
     827        100        588  
  

 

 

    

 

 

    

 

 

 

 

     Year Ended
December 31,

2016
     Year Ended
December 31,

2017
     Year Ended
December 31,
2018
 
   RMB      RMB      RMB  

Reimbursement for employee’s business related expenses

        

Xiao Shanglue

            2,478         
  

 

 

    

 

 

    

 

 

 

 

     Year Ended
December 31,
2016
     Year Ended
December 31,
2017
     Year Ended
December 31,
2018
 
     RMB      RMB      RMB  

Purchase of merchandise

        

Tianshi

                   39,776  

Zhangtaihe

                   32,110  

Weixin

                   36,958  

Siwei

                   307  

Zhaomu

                   469  
  

 

 

    

 

 

    

 

 

 
                   109,620  
  

 

 

    

 

 

    

 

 

 

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

24. COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

The Group leases office under non-cancelable operating lease agreements. Future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more consist of the following:

 

     As of  
     December 31,
2018
 
     RMB  

2019

     13,126  

2020

     10,382  

2021

     5,946  

2022

     3,597  

2023

     1,679  
  

 

 

 
     34,730  
  

 

 

 

The total amounts charged to the Consolidated Statements of Comprehensive Loss for rental expense amounted to approximately RMB 2,211, RMB 9,133 and RMB 17,522 for the years ended December 31, 2016, 2017 and 2018, respectively.

(b) Capital and other commitments

The Group’s capital commitments primarily relate to commitments on purchase of equipment. Total capital commitments contracted but not yet reflected in the consolidated financial statements amounted to RMB 601 as of December 31, 2018. All of these capital commitments will be fulfilled in the following year.

(c) Contingencies

In the ordinary course of business, the Group is from time to time involved in legal proceedings and litigations. During 2018, two third parties have filed lawsuits against the Group relating to disputes with respect to infringement, unfair competitions, etc. The cases are still at the preliminary stage, but the Group believes the claims are without merit and will defend these actions vigorously. The Group is unable, however, to predict the outcome of these cases, or reasonably estimate a range of possible loss, if any, given the current status of the litigation. No accrual has been recorded by the Group as of December 31, 2018 in respect of these cases.

25. SUBSEQUENT EVENTS

On March 19, 2019, the Company’s board of directors and shareholders have approved that, immediately prior to completion of the IPO of the Company, i) all of the issued and outstanding ordinary shares are re-classified and re-designated into Class A ordinary shares on a one to one basis, except that all of the issued and outstanding ordinary shares held by Xiao Shanglue are re-classified and re-designated into Class B ordinary shares on a one to one basis; and (ii) all of the issued and outstanding options granted by the Company pursuant to the 2017 Plan and Amended and Restated Plan shall entitle the option holders to such number of Class A ordinary shares equivalent to the number of ordinary shares that the option holders would be entitled to as originally set out in the relevant award agreements and the Company shall issue such number of Class A ordinary

 

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YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

shares to the holders of such options granted upon vesting and exercise of such options by the holders. In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share.

26. UNAUDITED PRO FORMA BALANCE SHEET AND LOSS PER SHARE

Immediately prior to the completion of a planned qualified public offering of the Company, the convertible redeemable preferred shares of the Company shall be converted automatically into ordinary shares on a one-for-one basis.

The unaudited pro-forma balance sheet as of December 31, 2018 presents an adjusted financial position as if the convertible redeemable preferred shares had been converted into ordinary shares as of December 31, 2018 at the conversion ratio of one for one.

Unaudited pro-forma basic and diluted net loss per share was computed to give effect to the automatic conversion of the Series Seed, Series A, Series B and Series B+ Preferred Shares using the “if converted” method as though the conversion and reclassification had occurred as of the beginning of the year or the original date of issuance, if later.

 

     For the year ended
December 31, 2018
 
     RMB     US$  
     (Unaudited)     (Unaudited)  

Numerator:

    

Net loss attributable to ordinary shareholders

     (2,308,010     (335,685

Elimination of accretion on the Preferred Shares

     2,187,633       318,178  

Deemed dividend from preferred shareholders

     (107     (16

Elimination of impact of modification to preferred shares, including beneficial conversion feature

     60,796       8,842  
  

 

 

   

 

 

 

Pro-forma net loss attributable to the Company’s ordinary shareholders—Basic and diluted

     (59,688     (8,681
  

 

 

   

 

 

 

Denominator:

    

Weighted-average number of ordinary shares

     1,165,136,438       1,165,136,438  

Pro-forma effect of the conversion of Preferred Shares

     858,993,672       858,993,672  
  

 

 

   

 

 

 

Denominator for pro-forma basic calculation

     2,024,130,110       2,024,130,110  
  

 

 

   

 

 

 

Pro forma net loss per share:

    

—Basic

     (0.029     (0.004
  

 

 

   

 

 

 

—Diluted

     (0.029     (0.004
  

 

 

   

 

 

 

27. STATUTORY RESERVES AND RESTRICTED NET ASSETS

Pursuant to laws applicable to entities incorporated in the PRC, the Group’s subsidiaries in the PRC must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires an annual appropriation of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end) until the accumulative

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

amount of such reserve fund reaches 50% of a company’s registered capital, the other fund appropriations are at the subsidiaries’ discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. During the years ended December 31, 2016, 2017 and 2018, appropriations to the statutory reserve have been made by the Group, which was nil, RMB 4,227 and RMB 4,277, respectively.

In addition, due to restrictions on the distribution of share capital from the Group’s PRC subsidiaries and also as a result of these entities’ unreserved accumulated losses, total restrictions placed on the distribution of the Group’s PRC subsidiaries’ net assets was RMB 432,467, or 54% of the Group’s total consolidated net assets as of December 31, 2018.

The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable for the Company to disclose the financial statements for the parent company.

The subsidiaries did not pay any dividend to the Company for the periods presented. For the purpose of presenting parent only financial information, the Company records its investments in its subsidiaries under the equity method of accounting. Such investments are presented on the separate condensed balance sheets of the Company as “Investment in subsidiaries and VIEs” and the loss of the subsidiaries is presented as “share of loss of subsidiaries and VIEs”. Certain information and footnote disclosures generally included in financial statements prepared in accordance with US GAAP have been condensed and omitted.

The Company did not have significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2016, 2017 and 2018.

Balance sheets of the parent company

 

    As of
December 31,
2016
     As of
December 31,
2017
     As of
December 31,
2018
 
    RMB      RMB      RMB  

ASSETS

       

Current assets:

       

Cash and cash equivalents

                  19,518  

Amounts due from related parties

                  8  

Prepaid expenses and other current assets

                  991  

Investment in subsidiaries and VIEs

    71,615        2,097        776,714  
 

 

 

    

 

 

    

 

 

 

Total assets

    71,615        2,097        797,231  
 

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

       

Current liabilities

       

Warrant liabilities

    1,906                
 

 

 

    

 

 

    

 

 

 

Total liabilities

    1,906                
 

 

 

    

 

 

    

 

 

 

 

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Table of Contents

YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

     As of
December 31,
2016
    As of
December 31,
2017
    As of
December 31,
2018
 
     RMB     RMB     RMB  

Mezzanine equity

      

Series Seed convertible redeemable preferred shares (US$0.000005 par value, 373,000,000 shares authorized, issued and outstanding as of December 31, 2016, 2017 and 2018, respectively)

     118,202       1,088,920       1,977,336  

Series A convertible redeemable preferred shares (US$0.000005 par value, 218,650,000, 272,600,000 and 389,200,000 shares authorized as of December 31, 2016, 2017 and 2018, respectively; 218,650,000, 272,600,000 and 389,200,000 shares issued as of December 31, 2016, 2017 and 2018, respectively; 218,650,000, 272,600,000 and 389,200,000 shares outstanding as of December 31, 2016, 2017 and 2018, respectively)

     137,736       831,778       2,090,722  

Series B convertible redeemable preferred shares (US$0.000005 par value, nil, nil and 111,911,357 shares authorized as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 111,911,357 shares issued as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 111,911,357 shares outstanding as of December 31, 2016, 2017 and 2018, respectively)

                 708,609  

Series B+ convertible redeemable preferred shares (US$0.000005 par value, nil, nil and 21,105,395 shares authorized as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 21,105,395 shares issued as of December 31, 2016, 2017 and 2018, respectively; nil, nil and 21,105,395 shares outstanding as of December 31, 2016, 2017 and 2018, respectively)

                 137,381  
  

 

 

   

 

 

   

 

 

 

Total mezzanine equity

     255,938       1,920,698       4,914,048  
  

 

 

   

 

 

   

 

 

 

Shareholders’ deficit

      

Ordinary shares (US$0.000005 par value, 9,408,350,000, 9,354,400,000 and 9,104,783,248 shares authorized as of December 31, 2016, 2017 and 2018, respectively; 1,268,000,000, 1,268,000,000 and 1,151,400,000 shares issued as of December 31, 2016, 2017 and 2018, respectively; 1,268,000,000, 1,268,000,000 and 1,151,400,000 shares outstanding as of December 31, 2016, 2017 and 2018, respectively)

                 36  

Accumulated other comprehensive income

                 55,565  

Accumulated deficit

     (186,229     (1,918,601     (4,172,418
  

 

 

   

 

 

   

 

 

 

Total shareholders’ deficit

     (186,229     (1,918,601     (4,116,817
  

 

 

   

 

 

   

 

 

 

Total liabilities, mezzanine equity and shareholders’ deficit

     71,615       2,097       797,231  
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

YUNJI INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

Statements of comprehensive loss of the parent company

 

    Year Ended
December 31,
2016
    Year Ended
December 31,
2017
    Year Ended
December 31,
2018
 
  RMB     RMB     RMB  
Operating expenses                  

General and administrative

                (326
 

 

 

   

 

 

   

 

 

 

Total operating expenses

                 

Share of loss of subsidiaries and VIEs

    (24,828     (105,876     (59,340

Other expenses

                (20

Foreign exchange loss, net

                (2

Change in fair value of warrant liabilities

    160       152        
 

 

 

   

 

 

   

 

 

 

Loss before income tax expenses

    (24,668     (105,724     (59,688
 

 

 

   

 

 

   

 

 

 

Net loss

    (24,668     (105,724     (59,688
 

 

 

   

 

 

   

 

 

 

Accretion on redeemable preferred shares to redemption value

    (77,179     (1,628,656     (2,187,633

Re-designation to Series A convertible redeemable preferred shares from Initial Ordinary Shareholders’ contribution, including beneficial conversion feature

                (60,796

Deemed dividend from Preferred Shareholders

    132             107  
 

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (101,715     (1,734,380     (2,308,010

Net loss

    (24,668     (105,724     (59,688

Other comprehensive income

     

Foreign currency translation adjustment

                55,565  
 

 

 

   

 

 

   

 

 

 

Total comprehensive loss

    (24,668     (105,724     (4,123
 

 

 

   

 

 

   

 

 

 

Statements of cash flows of the parent company

 

     Year Ended
December 31,

2016
     Year Ended
December 31,
2017
     Year Ended
December 31,
2018
 
   RMB      RMB      RMB  

Net cash used in operating activities

                   (305
  

 

 

    

 

 

    

 

 

 

Net cash used in investing activities

                   (942,571
  

 

 

    

 

 

    

 

 

 

Net cash generated from financing activities

                   961,232  
  

 

 

    

 

 

    

 

 

 

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

                   1,162  
  

 

 

    

 

 

    

 

 

 

Net increase in cash, cash equivalents and restricted cash

                   19,518  
  

 

 

    

 

 

    

 

 

 

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

                    

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

                   19,518  
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

 

 

 

LOGO

 

 

 

 


Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 6.

INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

The post-offering memorandum and articles of association that we expect to adopt and to become effective immediately prior to the completion of this offering provide that we shall indemnify our directors and officers (each an indemnified person) against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such indemnified person, other than by reason of such person’s own dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including, without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such indemnified person in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere.

Pursuant to the indemnification agreements, the form of which is filed as Exhibit 10.2 to this registration statement, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or officer.

The underwriting agreement, the form of which will be filed as Exhibit 1.1 to this registration statement, will also provide indemnification for us and our officers and directors for certain liabilities.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

ITEM 7.

RECENT SALES OF UNREGISTERED SECURITIES.

In the past three years, we have issued the following securities (including options to acquire our ordinary shares and restricted share units). We believe that each of the following issuances was exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act regarding transactions not involving a public offering or in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions. No underwriters were involved in these issuances of securities.

 

Securities/Purchaser

  

Date of
Issuance

  

Number of
Securities

  

Consideration

Ordinary shares

        

Lanlan Ltd.

   January 18, 2018    1,112,799,980    US$5,564

Kingwangpeng Holdings Limited

   January 18, 2018    38,600,000    US$193

Qiuqiu Inc.

   November 19, 2018    50,720,000    US$254

Skyxiaolaba Inc.

   November 19, 2018    50,720,000    US$254

Series Seed preferred shares

        

Eastern Bell XIX Investment Limited

  

February 12, 2018

  

223,800,000

  

Execution and delivery of a promissory note in the principal amount of USD in equivalent to RMB30 million

 

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Table of Contents

Securities/Purchaser

  

Date of
Issuance

  

Number of
Securities

  

Consideration

Fasturn Overseas Limited

   February 12, 2018    149,200,000    Execution and delivery of a promissory note in the principal amount of USD in equivalent to RMB20 million

Series A preferred shares

        

CPYD Singapore Pte. Ltd.

   February 12, 2018    215,800,000    Execution and delivery of a promissory note in the principal amount of US$20 million

Eastern Bell XII Investment Limited

  

February 12, 2018

  

56,800,000

  

Execution and delivery of a promissory note in the principal amount of USD in equivalent to approximately RMB33.2 million

Trustbridge Partners IV, L.P.

   February 12, 2018    111,000,000    US$555

China Renaissance Corporation

   February 12, 2018    5,600,000    US$28

Series B preferred shares

        

Acceleration S Limited

   February 12, 2018    110,803,324    US$100 million

China TH Capital Limited

   June 4, 2018    1,108,033    US$1 million

Series B+ preferred shares

        

Fountain Sight Limited

   June 4, 2018    5,276,349    US$5million

Shanghai Fengxian Information and Technology Development Partnership (LLP) (1)

   November 19, 2018    15,829,046    US$15 million

Options and Restricted Share Units

        

Certain directors, officers, employees

  

Between December 19, 2017 and January 31, 2019

  

Outstanding options to purchase 91,379,200 ordinary shares and 39,613,000 outstanding restricted share units

  

Past and future services provided by these individuals to us

 

Note:

(1)

Shanghai Fengxian Information and Technology Development Partnership (LLP), or Shanghai Fengxian, entered into a share purchase agreement and a shareholders’ agreement with our company and certain other parties thereto, on June 4, 2018. Shanghai Fengxian became subject to the shareholders’ rights and obligations in such agreements on the same date.

 

ITEM 8.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

See Exhibit Index beginning on page II-5 of this registration statement.

The agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be

 

II-2


Table of Contents

inaccurate; (ii) may have been qualified in such agreement by disclosure that was made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosure of material information regarding material contractual provisions is required to make the statements in this registration statement not misleading.

(b) Financial Statement Schedules

Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.

 

ITEM 9.

UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided , however , that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

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Table of Contents

(4) For the purpose of determining any liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

  (i)   Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

  (ii)   Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

  (iii)   The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

  (iv)   Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

II-4


Table of Contents

Yunji Inc.

Exhibit Index

 

Exhibit
Number

  

Description of Document

1.1*    Form of Underwriting Agreement
3.1    Second Amended and Restated Memorandum and Articles of Association of the Registrant, as currently in effect
3.2    Form of Third Amended and Restated Memorandum and Articles of Association of the Registrant, effective immediately prior to the closing of this offering
4.1*    Registrant’s Specimen American Depositary Receipt (included in Exhibit 4.3)
4.2    Registrant’s Specimen Certificate for Class A Ordinary Shares
4.3*    Form of Deposit Agreement, among the Registrant, the depositary and the holders and beneficial owners of American Depositary Shares issued thereunder
4.4    Amended and Restated Shareholders Agreement between the Registrant and other parties thereto dated June 4, 2018
5.1    Opinion of Maples and Calder (Hong Kong) LLP regarding the validity of the Class A ordinary shares being registered and certain Cayman Islands tax matters
8.1    Opinion of Maples and Calder (Hong Kong) LLP regarding certain Cayman Islands tax matters (included in Exhibit 5.1)
8.2    Opinion of Han Kun Law Offices regarding certain PRC tax matters (included in Exhibit 99.2)
10.1    2019 Share Incentive Plan
10.2    Form of Indemnification Agreement between the Registrant and its directors and executive officers
10.3    Form of Employment Agreement between the Registrant and its executive officers
10.4    English translation of the amended and restated Voting Trust Agreement and Power of Attorney among the WFOE of the Registrant, Yunji Preferred and the shareholders of Yunji Preferred dated December 14, 2018
10.5    English translation of the amended and restated Voting Trust Agreement and Power of Attorney among the WFOE of the Registrant, Yunji Sharing and the shareholders of Yunji Sharing dated December 17, 2018
10.6    English translation of the amended and restated Equity Interest Pledge Agreement among the WFOE of the Registrant, Yunji Preferred and the shareholders of Yunji Preferred dated December 14, 2018
10.7    English translation of the amended and restated Equity Interest Pledge Agreement among the WFOE of the Registrant, Yunji Sharing and the shareholders of Yunji Sharing dated December 17, 2018
10.8    English translation of the amended and restated Exclusive Service Agreement between the WFOE of the Registrant and Yunji Preferred dated December 14, 2018
10.9    English translation of the amended and restated Exclusive Service Agreement between the WFOE of the Registrant and Yunji Sharing dated December 17, 2018
10.10    English translation of the amended and restated Exclusive Option Agreement among the WFOE of the Registrant, Yunji Preferred and the shareholders of Yunji Preferred dated December 14, 2018

 

II-5


Table of Contents

Exhibit
Number

  

Description of Document

10.11    English translation of the amended and restated Exclusive Option Agreement among the WFOE of the Registrant, Yunji Sharing and the shareholders of Yunji Sharing dated December 17, 2018
10.12    English translation of Loan Agreement among Mr. Shanglue Xiao, Mr. Huan Hao and the WFOE of the Registrant, dated December 14, 2018
10.13    Preferred Share Purchase Agreement among the Registrant, Yunji Sharing and certain other parties thereto dated February 12, 2018
10.14    Preferred Share Purchase Agreement among the Registrant, the WFOE of the Registrant, Yunji Sharing and certain other parties thereto dated June 4, 2018
21.1    Principal Subsidiaries of the Registrant
23.1    Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm
23.2    Consent of Maples and Calder (Hong Kong) LLP (included in Exhibit 5.1)
23.3    Consent of Han Kun Law Offices (included in Exhibit 99.2)
23.4    Consent of Li-Lan Cheng
23.5    Consent of Gao Wang
24.1    Powers of Attorney (included on signature page)
99.1    Code of Business Conduct and Ethics of the Registrant
99.2    Opinion of Han Kun Law Offices regarding certain PRC law matters
99.3    Consent of China Insights Consultancy

 

*

To be filed by amendment.

 

II-6


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Hangzhou, China, on March 21, 2019.

 

Yunji Inc.
By:  

/s/  Shanglue Xiao

  Name:   Shanglue Xiao
  Title:   Chairman of the Board of Directors and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints each of Shanglue Xiao and Chen Chen as attorney-in-fact with full power of substitution for him or her in any and all capacities to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended (the “Securities Act”), and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the “Shares”), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the “Registration Statement”) to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on March 21, 2019.

 

Signature

  

Title

/s/ Shanglue Xiao

   Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
Shanglue Xiao

/s/ Huan Hao

   Director
Huan Hao   

/s/ Qingrong Kong

   Director
Qingrong Kong   

/s/ Yanhua Sun

   Director
Yanhua Sun   

/s/ Wei Ying

   Director
Wei Ying   

/s/ Chen Chen

   Chief Financial Officer (Principal Financial and Accounting Officer)
Chen Chen

 

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Table of Contents

SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of Yunji Inc., has signed this registration statement or amendment thereto in Newark, Delaware, United States on March 21, 2019.

 

Authorized U.S. Representative
By:  

/s/  Donald J. Puglisi

  Name: Donald J. Puglisi
  Title: Managing Director

 

II-8

Exhibit 3.1

THE COMPANIES LAW (AS REVISED)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

SECOND AMENDED AND RESTATED

MEMORANDUM AND ARTICLES OF ASSOCIATION

OF

YUNJI INC.

 

 

June 4, 2018

 

 

CAYMAN ISLANDS


THE COMPANIES LAW (AS REVISED)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

SECOND AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION

OF

Yunji Inc.

(adopted by Special Resolution passed on June 4, 2018)

 

  1.

The name of the Company is Yunji Inc.

 

  2.

The Registered Office of the Company shall be at the Office of Sertus Incorporations (Cayman) Limited, Sertus Chambers, Governors Square, Suite # 5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands or at such other place as the Directors may from time to time decide.

 

  3.

The objects for which the Company is established are unrestricted and shall include the following:

 

  (a)

To act and to perform all the functions of a holding company in all of its branches and to co-ordinate the policy and administration of any subsidiary company or companies wherever incorporated or carrying on business or of any group of companies of which the Company or any subsidiary company is a member or which are in any manner controlled directly or indirectly by the Company.

 

  (b)        (i)

To carry on the business of an investment company and to act as promoters and entrepreneurs and to carry on business as financiers, capitalists, concessionaires, merchants, brokers, traders, dealers, agents, importers and exporters and to undertake and carry on and execute all kinds of investment, financial, commercial, mercantile, trading and other operations.

 

  (ii)

To carry on whether as principals, agents or otherwise howsoever the business of realtors, developers, consultants, estate agents or managers, builders, contractors, engineers, manufacturers, dealers in or vendors of all types of property including services.

 

  (c)

To exercise and enforce all rights and powers conferred by or incidental to the ownership of any shares, stock, obligations or other securities including all such powers of veto or control as may be conferred by virtue of the holding by the Company of some special proportion of the issued or nominal amount thereof, to provide managerial and other executive, supervisory and consultant services for or in relation to any company in which the Company is interested upon such terms as may be thought fit.

 

1


  (d)

To purchase or otherwise acquire, sell, exchange, surrender, lease, mortgage, charge, convert, turn to account, dispose of and deal with real and personal property and rights of all kinds and, in particular, mortgages, debentures, produce, concessions, options, contracts, patents, annuities, licenses, stocks, shares, bonds, policies, book debts, business concerns, undertakings, claims, privileges and causes in action of all kinds.

 

  (e)

To subscribe for, conditionally or unconditionally, to underwrite, issue on commission or otherwise, take, hold, deal in and convert stocks, shares and securities of all kinds and to enter into partnership or into any arrangement for sharing profits, reciprocal concessions or cooperation with any person or company and to promote and aid in promoting, to constitute, form or organize any company, syndicate or partnership of any kind, for the purpose of acquiring and undertaking any property and liabilities of the Company or of advancing, directly or indirectly, the objects of the Company or for any other purpose which the Company may think expedient.

 

  (f)

To stand surety for or to guarantee, support or secure the performance of all or any of the obligations of any person, firm or company whether or not related or affiliated to the Company in any manner and whether by personal covenant or by mortgage, charge or lien upon the whole or any part of the undertaking, property and assets of the Company, both present and future, including its uncalled capital or by any such method and whether or not the Company shall receive valuable consideration therefor.

 

  (g)

To engage in or carry on any other lawful trade, business or enterprise which may at any time appear to the Directors of the Company capable of being conveniently carried on in conjunction with any of the aforementioned businesses or activities or which may appear to the Directors of the Company likely to be profitable to the Company.

In the interpretation of this Memorandum of Association in general and of this Clause 3 in particular, no object, business or power specified or mentioned shall be limited or restricted by reference to or inference from any other object, business or power, or the name of the Company, or by the juxtaposition of two or more objects, businesses or powers and that, in the event of any ambiguity in this clause or elsewhere in this Memorandum of Association, the same shall be resolved by such interpretation and construction as will widen and enlarge and not restrict the objects, businesses and powers of and exercisable by the Company.

 

2


  4.

Except as prohibited or limited by the Companies Law (As Revised), as amended, supplemented, reissued or restated from time to time, the Company shall have full power and authority to carry out any object and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects and whatever else may be considered by it as incidental or conducive thereto or consequential thereon, including the power to make any alterations or amendments to this Memorandum of Association and the Articles of Association of the Company considered necessary or convenient in the manner set out in the Articles of Association of the Company, and the power to do any of the following acts or things, viz:

to pay all expenses of and incidental to the promotion, formation and incorporation of the Company; to register the Company to do business in any other jurisdiction; to sell, lease or dispose of any property of the Company; to draw, make, accept, endorse, discount, execute and issue promissory notes, debentures, bills of exchange, bills of lading, warrants, options and other negotiable or transferable instruments; to lend money or other assets and to act as guarantors; to borrow or raise money on the security of the undertaking or on all or any of the assets of the Company including uncalled capital or without security; to invest monies of the Company in such manner as the Directors determine; to promote other companies; to sell the undertaking of the Company for cash or any other consideration; to distribute assets in specie to Members of the Company; to make charitable or benevolent donations; to pay pensions or gratuities or provide other benefits in cash or kind to Directors, officers, employees, past or present, and their families; to purchase Directors and officers liability insurance and to carry on any trade or business and generally to do all acts and things which, in the opinion of the Company or the Directors, may be conveniently, profitably or usefully acquired and dealt with, carried on, executed or done by the Company in connection with the business aforesaid PROVIDED THAT the Company shall only carry on the businesses for which a license is required under the laws of the Cayman Islands when so licensed under the terms of such laws.

 

  5.

The liability of each Member is limited to the amount from time to time unpaid on such Member’s shares.

 

  6.

The share capital of the Company is US$50,000 divided into 9,104,783,248 Ordinary Shares of a nominal or par value of US$0.000005 each and 895,216,752 Preferred Shares of a nominal or par value of US$0.000005 each, 373,000,000 of which are designated as Series Seed Preferred Shares, 389,200,000 of which are designated as Series A Preferred Shares, 111,911,357 of which are designated as Series B Preferred Shares, and 21,105,395 of which are designated as Series B+ Preferred Shares, each with power for the Company insofar as is permitted by law, to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the Companies Law (As Revised) and the Articles of Association and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained.

 

3


  7.

If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section 174 of the Companies Law (As Revised) and, subject to the provisions of the Companies Law (As Revised) and the Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.

[ The remainder of this page has been left intentionally blank ]

 

4


THE COMPANIES LAW (AS REVISED)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

SECOND AMENDED AND RESTATED ARTICLES OF ASSOCIATION

OF

Yunji Inc.

(adopted by Special Resolution passed on June 4, 2018)

 

Title

   Article No.  

General Matters

     1 – 3  

Certificates of Shares

     4 – 5  

Issue of Shares

     6 – 7  

Transfer of Shares

     8 – 10  

Restrictions on Transfers of Ordinary Shares

     11A  

Drag-Along

     11B  

Redeemable Shares

     12  

Variation of Rights of Shares

     13 – 14  

Commission on Sale of Shares

     15  

Conversion of Preferred Shares

     16  

Adjustments to Conversion Price

     17  

Notices of Record Date

     18  

Redemption

     19  

Protective Provisions

     20  

Non-Recognition of Trusts

     21  

Lien on Shares

     22 25  

Call on Shares

     26 30  

Forfeiture of Shares

     31 34  

Registration of Empowering Instruments

     35  

Transmission of Shares

     36 38  

Amendment of Memorandum of Association, Alteration of Capital & Change of Location of Registered Office

     39  

Closing Register of Members or Fixing Record Date

     40 42  

General Meeting

     43 44  

Notice of General Meetings

     45 46  

Proceedings at General Meetings

     47 55  

Votes of Members

     56 61  

Proxies

     62 68  

Directors

     69 77  

Alternate Directors

     78  

Powers and Duties of Directors

     79 83  

Management

     84  

Managing Directors

     85 86  

Proceedings of Directors

     87 96  

 

1


Title

   Article No.  

Vacation of Office of Director

     97  

Appointment and Removal of Directors

     98  –  99  

Presumption of Assent

     100  

Seal

     101  

Officers

     102  

Dividends, Distributions and Reserve

     103  –  110  

Capitalization

     111  

Books of Account

     112 114  

Audit

     115 120  

Notices

     121 125  

Winding Up

     126  

Liquidation Preference

     127  

Indemnity

     128  

Financial Year

     129  

Amendments of Articles

     130  

Transfer by Way of Continuation

     131  

No Public Document

     132  

 

2


GENERAL MATTERS

 

  1

In these Articles, Table A in the Schedule to the Statute does not apply and, unless there is something in the subject or context inconsistent therewith,

 

“Affiliate”    shall mean, 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, (a) in the case of a natural Person, shall include, without limitation, such Person’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law, (b) in the case of a holder of Preferred Shares, shall include (i) any Person who holds Shares as a nominee for such holder of Preferred Shares, (ii) any shareholder of such holder of Preferred Shares, (iii) any entity or individual which has a direct and indirect interest in such holder of Preferred Shares (including, if applicable, any general partner or limited partner) or any fund manager thereof; (iv) any Person that directly or indirectly Controls, is Controlled by, under common Control with, or is managed by such holder of Preferred Shares, its shareholder, the general partner or the fund manager of such holder of Preferred Shares or its shareholder, (v) the relatives of any individual referred to in (ii) above, and (vi) any trust Controlled by or held for the benefit of such individuals. For the avoidance of doubt, any of the holders of Preferred Shares shall not be deemed to be an Affiliate of any Group Company.
“Articles”    shall mean these Articles as originally framed or as from time to time altered by a Special Resolution and in accordance with Article 20.
“Auditors”    shall mean the persons for the time being performing the duties of auditors of the Company.
“Domestic Co.”    shall mean Yunji Sharing Technology Co., Ltd. ( 云集共享科技有限公司 ), a limited liability company existing under the PRC laws.
“Board of Directors”    shall mean the board of directors of the Company.
“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 Cayman Islands, the U.S., the Hong Kong Special Administrative Region or the PRC.

 

3


“CDH”    shall mean Acceleration S Limited.
“CEO”    shall mean the chief executive officer of the Company.
“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.
“Company”    shall mean Yunji Inc.
“Control”    with respect to any third-party, shall have the meaning ascribed to it in Rule 405 under the Securities Act, and shall be deemed to exist for any Person (a) when such Person holds at least fifty percent (50%) of the outstanding voting securities of such third party and no other party owns a greater number of outstanding voting securities of such third party or (b) over other members of such party’s immediate family. Immediate family members include, without limitation, a person’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law. The terms “ Controlling ” and “ Controlled ” have meanings correlative to the foregoing.
“Conversion Price”    shall mean Series B+ Conversion Price with respect to Series B+ Preferred Shares, and/or Series B Conversion Price with respect to Series B Preferred Shares, and/or Series A Conversion Price with respect to Series A Preferred Shares, and/or Series Seed Conversion Price with respect to Series Seed Preferred Shares.
“Crescent”    shall mean CPYD Singapore Pte. Ltd.
“debenture”    shall mean debenture stock, mortgages, bonds and any other such securities of the Company whether constituting a charge on the assets of the Company or not.
“Deemed Liquidation Event”    has the meaning ascribed to it in Article 127(f).

 

4


“Directors”    shall mean the members of the Board of Directors of the Company for the time being.
“Drag-Along Sale”    has the meaning ascribed to it in Article 11B(a).
“Eastern Bell”    means, collectively, Eastern Bell XII Investment Limited and Eastern Bell XIX Investment Limited.
“ESOP”    has the meaning ascribed to it in the Shareholders Agreement.
“Founders”    shall mean collectively, XIAO Shanglue ( 肖尚略 ) and WANG Peng ( 王鹏 ).
“Founder Holdcos”    shall mean collectively, Lanlan Ltd. and Kingwangpeng Holdings Limited, each a limited liability company existing under the laws of the British Virgin Islands.
“Governmental Authority”    shall mean any nation or government or any province or state or any other political subdivision thereof, and any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission or instrumentality or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
“Group Companies”    shall mean the Company, the HK Co., the WFOE, Domestic Co., the PRC Subsidiaries, the HK Subsidiary, and any Person that is Controlled by the Company.
“HK Co.”    shall mean Yunji Holding Limited ( 雲集控股有限公司 ).
“HK Subsidiary”    shall mean Yunji HongKong Limited.
“Huaxing”    shall mean, collectively, China Renaissance Corporation, Huaxing RMB and Huaxing US.
“Huaxing RMB”    shall mean Shanghai Fengxian Information and Technology Development Partnership (LLP) ( 上海丰羡信息科技发展合伙企业 ( 有限合伙 )), a limited partnership established in the PRC.

 

5


“Huaxing US”    shall mean Fountain Sight Limited, a limited liability company incorporated in the British Virgin Islands.
“IAS”    shall mean the applicable International Accounting Standards published by the International Accounting Standards Board from time to time.
“Intellectual Property”    shall mean any and all (a) patents, patent rights, patent applications, and all reissues, re-examinations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (b) inventions (whether patentable or not), improvements, concepts, innovations and industrial models, (c) registered and unregistered copyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), (d) URLs, domain names, web sites, web pages and any part thereof, (e) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (f) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (g) trade names, trade dress, trademarks, service marks, and registrations and applications therefor, and (h) the goodwill of the business symbolized or represented by the foregoing, customer lists and other confidential and proprietary information and common-law rights.
“Investors”    shall mean Eastern Bell, Trustbridge, Huaxing, Crescent, CDH and TH Capital.
“Investor Directors”    has the meaning ascribed to it in Article 69.
“Junior Shares”    shall mean all classes and series of shares that are junior in rights and preferences to applicable Preferred Shares, including the Ordinary Shares.
“law”    shall mean all national, state, provincial, local, municipal, and other laws, statutes, constitutions, ordinances, codes, edicts, decrees, injunctions, stipulations, judgments, orders, rulings, rules, regulations, assessments, writs, and requirements, whether temporary, preliminary or permanent, issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Authority.

 

6


“Liquidation Event”    has the meaning ascribed to it in Article 127.
“Loss”    shall mean with respect to any Person, with respect to any Person, any action, claim, cost, damage, deficiency, diminution in value, disbursement, expense, Liability, loss, obligation, penalty, settlement, suit, or tax of any kind or nature, together with all interest, penalties, legal, accounting and other professional fees and expenses reasonably incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Person, whether directly or indirectly.
“Member”    shall mean a duly registered holder from time to time of the shares in the capital of the Company.
“Memorandum of Association”    shall mean the Second Amended and Restated Memorandum of Association of the Company, as amended and restated from time to time in accordance with Article 20.
“month”    shall mean a calendar month.
“Ordinary Majority”    shall mean the holders representing more than fifty percent (50%) of the Ordinary Shares then outstanding, voting as a single class on an as-converted basis.
“ordinary resolution”    shall mean a Members resolution passed either (i) as a written resolution signed by all Members entitled to vote, or (ii) at a meeting by Members holding not less than fifty percent (50%) of all the outstanding shares of the Company, calculated on a fully converted basis (which Members, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as an ordinary resolution has been duly given), subject to Article 20.

 

7


“Ordinary Share Equivalents”    shall mean any rights, options, or warrants to purchase or exercisable for Ordinary Shares, or securities of any type whatsoever that are, or may become, convertible into, exchangeable for or exercisable for said equity securities, including, without limitation, the Preferred Shares.
“Ordinary Shares”    shall mean the ordinary shares in the capital of the Company, par value of US$0.000005 per share.
“Ordinary Shareholders”    shall mean the holders of the Ordinary Shares of the Company.
“Original Issue Price”    shall mean Series B+ Original Issue Price with respect to Series B+ Preferred Shares, and/or Series B Original Issue Price with respect to Series B Preferred Shares, and/or Series A Original Issue Price with respect to Series A Preferred Shares, and/or Series Seed Original Issue Price with respect to Series Seed Preferred Shares.
“paid-up”    shall mean paid-up and/or credited as paid-up.
“Person”    shall mean 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 Subsidiaries”    shall mean, collectively, Hangzhou Jixi Enterprise Management and Consulting Co., Ltd. ( 杭州集喜企业管理咨询有限公司 ), Zhejiang Youji Supply Chain Management Co., Ltd. ( 浙江优集供应链管理有限公司 ), Huzhou Delue Network Technology Co., Ltd. ( 湖州德略网络科技有限公司 ), Zhejiang Zhelue Network Technology Co., Ltd. ( 浙江哲略网络科技有限公司 ), Hangzhou Jichuang Network Technology Co., Ltd. ( 杭州集创网络科技有限公司 ), Zhejiang Jishang Youxuan E-Commerce Co., Ltd. ( 浙江集商优选电子商务有限公司 ), Zhejiang Jishang Network Technology Co., Ltd. ( 浙江集商网络科技有限公司 ), Zhejiang Jiyuan Network Technology Co., Ltd. ( 浙江集远网络科技有限公司 ), and Anhui Delue Network Technology Co., Ltd. ( 安徽德略网络科技有限公司 ).

 

8


“Preferred Majority”

   shall mean collectively, the Series Seed Majority, the Series A Majority and the Series B Majority.
“Preferred Shares”    shall mean, collectively, the Series Seed Preferred Shares, Series A Preferred Shares, Series B Preferred Shares, Series B+ Preferred Shares and/or other preferred shares of the company that may be issued from time to time.
“Preferred Shareholders”    shall mean the holders of the Preferred Shares of the Company.
“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 an implied pre-money valuation of US$4,000,000,000 (or equivalent RMB) or more, or in a similar public offering of Ordinary Shares in a jurisdiction and on an internationally recognized securities exchange or inter-dealer quotation system outside of the United States, including the Stock Exchange of Hong Kong Limited, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, provided such public offering is equivalent to the aforementioned in terms of offering proceeds and regulatory approval, and is approved by the Preferred Majority.
“Redemption Date”    has the meaning ascribed to it in Article 19(a).
“Redemption Event”    has the meaning ascribed to it in Article 19(a).
“Redemption Notice”    has the meaning ascribed to it in Article 19(a).
“Redemption Price”    has the meaning ascribed to it in Article 19(a).
“registered office”    shall mean the registered office for the time being of the Company.
“Seal”    shall mean the common seal of the Company and includes every duplicate seal.
“Secretary”    includes an Assistant Secretary and any person appointed to perform the duties of Secretary of the Company.

 

9


“Securities Act”    shall mean the United States Securities Act of 1933, as amended.
“Series A Conversion Price”    shall mean the price at which Ordinary Shares shall be allotted upon conversion of the Series A Preferred Shares as stipulated in Article 16.
“Series A Majority”    shall mean the holders holding more than fifty percent (50%) of the then outstanding Series A Preferred Shares, voting as a single class on an as-converted basis.
“Series A Original Issue Date”    shall mean November 4, 2016.
“Series A Original Issue Price”    shall mean ( i ) US$0.088 in respect of Eastern Bell IV, ( ii ) US$0.093 in respect of Crescent, ( iii ) US$0.067 in respect of TRUSTBRIDGE PARTNERS IV, L.P. and China Renaissance Corporation, each subject to adjustments made for share splits, share subdivision, share combination and the like.
“Series A Preferred Shareholders”    shall mean the Members who hold any Series A Preferred Shares. A “ Series A Preferred Shareholder ” shall mean any of them.
“Series A Preferred Shares”    shall mean the series A preferred shares in the capital of the Company with a nominal or par value of US$0.000005 per share having the rights set forth in these Articles.
“Series A Preferred Shares Liquidation Preference”    has the meaning ascribed to it in Article 127(b).
“Series B Conversion Price”    shall mean the price at which Ordinary Shares shall be allotted upon conversion of the Series B Preferred Shares as stipulated in Article 16.
“Series B+ Conversion Price”    shall mean the price at which Ordinary Shares shall be allotted upon conversion of the Series B+ Preferred Shares as stipulated in Article 16.
“Series B Majority”    shall mean the holders holding more than fifty percent (50%) of the then outstanding Series B Preferred Shares and the then outstanding Series B+ Preferred Shares, voting as a single class on an as-converted basis.
“Series B Original Issue Date”    in respect of each Member who holds any Series B Preferred Share, shall mean the date of the first sale and issuance of the Series B Preferred Shares to such Member.

 

10


“Series B+ Original Issue Date”    in respect of each Member who holds any Series B+ Preferred Share, shall mean the date of the first sale and issuance of the Series B+ Preferred Shares to such Member.
“Series B Original Issue Price”    shall mean the price per share of US$0.902 at which the Series B Preferred Shares were issued on the Series B Original Issue Date, subject to adjustments made for share splits, share subdivision, share combination and the like.
“Series B+ Original Issue Price”    shall mean the price per share of US$0.948 at which the Series B+ Preferred Shares were issued on the Series B+ Original Issue Date, subject to adjustments made for share splits, share subdivision, share combination and the like.
“Series B Preferred Shareholders”    shall mean the Members who hold any Series B Preferred Shares or any Series B+ Preferred Shares. A “ Series B Preferred Shareholder ” shall mean any of them.
“Series B Preferred Shares”    shall mean the series B preferred shares in the capital of the Company with a nominal or par value of US$0.000005 per share having the rights set forth in these Articles.
“Series B+ Preferred Shares”    shall mean the series B+ preferred shares in the capital of the Company with a nominal or par value of US$0.000005 per share having the rights set forth in these Articles.
“Series B Preferred Shares Liquidation Preference”    has the meaning ascribed to it in Article 127(a).
“Series Seed Conversion Price”    shall mean the price at which Ordinary Shares shall be allotted upon conversion of the Series Seed Preferred Shares as stipulated in Article 16.
“Series Seed Majority”    shall mean the holders holding more than two-thirds (2/3) of the then outstanding Series Seed Preferred Shares, voting as a single class on an as-converted basis.
“Series Seed Original Issue Date”    shall mean July 15, 2015.
“Series Seed Original Issue Price”    shall mean the price per share of US$0.022 at which the Series Seed Preferred Shares were issued on the Series Seed Original Issue Date, subject to adjustments made for share splits, share subdivision, share combination and the like.

 

11


“Series Seed Preferred Shareholders”    shall mean the Members who hold any Series Seed Preferred Shares. A “ Series Seed Preferred Shareholder ” shall mean any of them.
“Series Seed Preferred Shares”    shall mean the series Seed preferred shares in the capital of the Company with a nominal or par value of US$0.000005 per share having the rights set forth in these Articles.
“Shares”    mean all Preferred Shares and all Ordinary Shares now owned or subsequently acquired by any Member.
“Share Premium Account”    shall mean the account of the Company which the Company is required by the Statute to maintain, to which all premiums over nominal or par value received by the Company in respect of issues of shares from time to time are credited.
“Share Purchase Agreement”    shall mean the Preferred Share Purchase Agreement entered into on June 4, 2018 by and among the Company and certain other parties named therein.
“Shareholders Agreement”    shall mean that certain Amended and Restated Shareholders Agreement by and among the Founders, the Founder Holdcos, the Group Companies and the Investors dated as of June 4, 2018.
“Special Resolution”    shall mean a Members resolution expressed to be a special resolution and passed either (i) as a written resolution signed by all Members entitled to vote, or (ii) at a meeting by Members holding not less than two thirds (2/3) of all the outstanding shares of the Company, calculated on a fully converted basis (which Members, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given), subject to Article 20.
“Statute”    shall mean the Companies Law (As Revised) of the Cayman Islands, as amended, and every statutory modification or re-enactment thereof for the time being in force.

 

12


“Subsidiary”    shall mean, with respect to any subject entity (the “subject entity”), (i) any company, partnership or other entity (x) more than fifty percent (50%) of whose shares or other interests entitled to vote in the election of directors or (y) more than a fifty percent (50%) interest in the profits or capital of such entity are owned or controlled directly or indirectly by the subject entity or through one 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 the IAS or U.S. GAAP, 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. Notwithstanding the above, as applied to the Company, the term “Subsidiary” or “subsidiary” includes the the HK Co., the WFOE, Domestic Co, the PRC Subsidiaries and the HK Subsidiary.
“TH Capital”    shall mean China TH Capital Limited.
“Trade Sale”    shall mean any of the following events:
   (i)    the acquisition of any Group Company (whether by a sale of equity, merger or consolidation) in which in excess of fifty percent (50%) of such Group Company’s voting power outstanding before such transaction is transferred;
   (ii)    the sale, transfer or other disposition of all or substantially all of the assets, or Intellectual Property of any Group Company; or
   (iii)    the exclusive licensing of all or substantially all of any Group Company’s Intellectual Property rights.
“Transaction Documents”    has the meaning ascribed to it in the Share Purchase Agreement.
“Trustbridge”    shall mean, collectively, FASTURN OVERSEAS LIMITED and TRUSTBRIDGE PARTNERS IV, L.P.
“U.S. GAAP”    shall mean the generally accepted accounting principles generally accepted in the United States.

 

13


“Warrantors”    has the meaning ascribed to it in the Share Purchase Agreement.
“WFOE”    shall mean Hangzhou Yunchuang Sharing Network Technology Co., Ltd. ( 杭州云创共享网络科技有限公司 ).
“written” and “in writing”    include all modes of representing or reproducing words in permanent legible visible form.

In the Articles:

 

(i)

words importing the singular number include the plural number and vice-versa.

 

(ii)

words importing the masculine gender include the feminine gender.

 

(iii)

words importing persons include corporations.

 

(iv)

“written” and “in writing” include all modes of representing or reproducing words in visible form, including in the form of an electronic record;

 

(v)

references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced from time to time.

 

(vi)

any phrase introduced by the terms “including”, “include”, “in particular” or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms;

 

(vii)

headings are inserted for reference only and shall be ignored in construing these Articles;

 

(viii)

any reference to any Person shall be construed so as to include its successors in title, permitted assigns and transferees; and

 

(ix)

in these Articles Section 8 of the Electronic Transactions Law (2003 Revision) shall not apply.

 

2

The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that only part of the shares may have been allotted.

 

3

The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company, including the expenses of registration.

 

14


CERTIFICATES FOR SHARES

 

4

Share Certificates representing shares of the Company shall be in such form as shall be determined by the Directors. Such Share Certificates may be under Seal. All certificates for shares shall be consecutively numbered or otherwise identified and shall specify the shares to which they relate. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the register of Members of the Company. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled. The Directors may authorize certificates to be issued with the seal and authorized signature(s) affixed by some method or system of mechanical process.

 

5

Notwithstanding Article 4 of these Articles, if a share certificate be defaced, lost or destroyed, it may be renewed on payment of a fee of one dollar (US$l.00) or such lesser sum and on such terms (if any) as to evidence and indemnity and the payment of the expenses incurred by the Company in investigating evidence, as the Directors may prescribe.

ISSUE OF SHARES

 

6

Subject to the relevant provisions, if any, in the Memorandum of Association and these Articles and to any direction that may be given by the Company in general meeting and without prejudice to any special rights previously conferred on the holders of existing shares, the Directors may allot, issue, grant options over or otherwise dispose of shares of the Company (including fractions of a share) with or without preferred, deferred or other special rights or restrictions, whether with regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper. The Company shall not issue shares in bearer form.

 

7

The Company shall maintain a register of its Members and every person whose name is entered as a Member in the register of Members shall be entitled without payment to receive within two (2) months after allotment or lodgment of transfer (or within such other period as the conditions of issue shall provide) one (1) certificate for all his shares or several certificates each for one or more of his shares upon payment of fifty cents (US$0.50) for every certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of the several joint holders shall be sufficient delivery to all such holders.

TRANSFER OF SHARES

 

8

The instrument of transfer of any share shall be in writing and shall be executed by or on behalf of the transferor and the transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register in respect thereof.

 

9

The Directors may in their absolute discretion decline to register any transfer of Shares with reasonable cause. The Directors shall register any transfer of Shares except where holders proposing or effecting the transfers of the Shares are subject to binding written agreements with the Company which restrict the transfer of the Shares held by such holders and such holders have not complied with the terms of such agreements or the restrictions have not been waived in accordance with their terms. If the Directors refuse to register a transfer they shall notify the transferee within five (5) Business Days of such refusal, providing a detailed explanation of the reason therefor. Notwithstanding the foregoing, if a transfer complies with the holder’s transfer obligations and restrictions set forth in agreements with the Company, the Directors shall register such transfer.

 

15


10

The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than thirty (30) days in any year.

RESTRICTIONS ON TRANSFERS OF ORDINARY SHARES

 

11

A.

 

  (1)

Right Holders’ Right of First Refusal :

 

  (a)

Restriction on Transfers . Subject to Article 11C, each Founder, Founder Holdco or each Ordinary Shareholder may not sell, transfer, pledge, hypothecate, encumber or otherwise dispose of his/its Shares to any Person, whether directly or indirectly, except with the prior written consent of the Preferred Majority and in compliance with Article 11A(1) and Article 11A(2).

 

  (b)

Notice of Sale . If any Founder, Founder Holdco or Ordinary Shareholder (each a “ Selling Shareholder ”) proposes to sell or transfer, directly or indirectly, any of its Shares (the “ Transfer Shares ”), except for any transfer carried out pursuant to Article 11B, then the Selling Shareholder shall promptly give a written notice (the “ Transfer Notice ”) to the Company and to each holder of the Preferred Shares (each, a “ Right Holder ”), 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. The Transfer Notice shall certify that the Selling Shareholder has received a firm offer from the prospective transferee(s) and in good faith believes a binding agreement for the sale or transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed transfer.

 

  (c)

Notice of Purchase . Each Right Holder shall be entitled to purchase all or any part of such Right Holder’s pro rata share of the Transfer Shares at the price and upon the terms and conditions specified in the Transfer Notice by giving a written notice to the Selling Shareholder within ten (10) Business Days after the date of the Transfer Notice (the “ First Refusal Period ”) stating therein the number of Transfer Shares to be purchased. If a Right Holder exercises such right and notifies the Selling Shareholder of the number of Transfer Shares to be purchased, then such Right Holder 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 Right Holder to respond within the First Refusal Period shall constitute a decision by such Right Holder not to exercise its right to purchase such Transfer Shares. For purposes of this clause (c), each Right Holder’s 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 an as-converted basis) held by such Right Holder on the date of the Transfer Notice and the denominator of which shall be the total number of all the issued Ordinary Shares of the Company then outstanding on such date (on an as-converted basis) held on the date of the Transfer Notice by all Right Holders which may exercise their right of first refusal under this clause (c) on the date of the Transfer Notice..

 

16


  (d)

Second Transfer Notice; Over-Allotment . To the extent that any Right Holder does not exercise its right of first refusal to the full extent to purchase such Right Holder’s pro rata share of the Transfer Shares, the Selling Shareholder shall deliver written notice thereof (the “ Second Transfer Notic e”), within two (2) days after the expiration of the First Refusal Period, to each Right Holder that elected to the full extent to purchase such Right Holder’s pro rata share of the Transfer Shares (the “ Exercising Holder ”). Each Exercising Holder shall have five (5) days from the date of the Second Transfer Notice (the “ Second Refusal Period ”) to notify the Selling Shareholder of its desire to purchase more than its pro rata share of the Transfer Shares, stating the number of the additional Transfer Shares 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 over-allotment exceeds the total number of the remaining Transfer Shares available for purchase, the overpurchasing Exercising Holders will be cut back or limited by the Selling Shareholder with respect to their over-allotment to that number of remaining Transfer Shares equal to the lesser of (a) the number of the additional Transfer Shares it proposes to purchase; (b) the product obtained by multiplying (i) the number of the remaining Transfer Shares available for purchase by (ii) a fraction the numerator of which is the number of Ordinary Shares (on an as-converted basis) held by each overpurchasing Exercising Holder and the denominator of which is the total number of Ordinary Shares (on an as-converted basis) held by all the overpurchasing Exercising Holders. Each overpurchasing Exercising Holder shall be obligated to purchase such number of additional Transfer Shares as determined by the Selling Shareholder pursuant to this subsection (d) and the Selling Shareholder shall so notify such Exercising Holders within ten (10) ays from the date of the Second Transfer Notice.

 

17


  (e)

Notice of Expiry . Within three (3) days after the expiry of the Second Refusal Period, the Selling Shareholder shall issue a written notice (the “ ROFR Expiry Notice ”) to each Right Holder, certifying either ( i ) all the Transfer Shares have been agreed to be purchased by the Right Holders pursuant to Article 11A(1), or ( ii ) the Right Holders do not exercise their rights of first refusal as to all the Transfer Shares pursuant to Article 11A(1), in which circumstance, the ROFR Expiry Notice shall further specify the “ Pro Rata Co-Sale Share ” of each Right Holder who does not exercise its respective rights of first refusal as to any Transfer Share pursuant to Article 11A(1) (each a “ Co-Sale Right Holder ”). The transfer of any remaining Transfer Shares shall be subject to Article 11A(2) below.

 

  (2)

Right Holders’ Right of Co-Sale : To the extent any Right Holder does not exercise its respective rights of first refusal as to any Transfer Share pursuant to Article 11A(1), each Co-Sale Right Holder shall have the right, exercisable upon delivery of a written notice to the Selling Shareholder, with a copy to the Company, within ten (10) days after the date of the ROFR Expiry Notice, 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. To the extent one (1) or more of the Co-Sale Right Holders exercise such right of co-sale in accordance with the terms and conditions set forth below, the number of Transfer Shares that the Selling Shareholder may sell in the transaction shall be correspondingly reduced. 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 remaining Transfer Shares. A Co-Sale Right Holder’s “ Pro Rata Co-Sale Share ” of the remaining Transfer Shares 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 remaining Transfer Shares multiplied by a fraction equal to (i) the total number of Ordinary Shares (on an as-converted basis) then held by such Co-Sale Right Holder on the date of the ROFR Expiry Notice, divided by (ii) the total number of Ordinary Shares held by the Selling Shareholder plus the total number of Ordinary Shares then held by all the Co-Sale Right Holders on the date of the ROFR Expiry Notice, on an as-converted basis. As used in this definition, the phrase “on an as-converted basis” shall mean assuming conversion of all Preferred Shares but not assuming exercise or conversion of any other outstanding option, warrants, or other Convertible Securities.

 

  (b)

each Co-Sale Right Holder shall effect its participation in the sale by promptly delivering to the Selling 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 Co-Sale Right Holder 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;

 

  (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

 

18


  (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.

 

  (c)

Procedure at Closing . The share certificate or certificates that such Co-Sale Right Holder delivers to the Selling Shareholder pursuant to Article 11A(2)(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 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 Shareholder shall not sell any Transfer Shares to such prospective purchaser or purchasers unless and until, simultaneously with such sales, the Selling Shareholder shall purchase such shares or other securities from such Co-Sale Right Holder. In selling their Shares pursuant to their co-sale right hereunder, the Co-Sale Right Holders shall not be required to give any representations or warranties with respect to their Shares to be sold except to confirm that they have not transferred or encumbered such Shares.

 

  (d)

Non-Exercise . To the extent that there are any Transfer Shares not purchased by the Right Holders in accordance with Article 11A(1), and subject to the right of the Co-Sale Right Holders to exercise their rights to participate in the sale of the relevant remaining Transfer Shares within the time periods specified in Article 11A(2), the Selling Shareholder may, not later than one hundred and twenty (120) days following delivery of the Transfer Notice to each Right Holder, effect a transfer of the remaining Transfer Shares covered by the Transfer Notice not elected to be purchased by the Right Holders subject to the participation of the Co-Sale Right Holders. Any proposed transfer on terms and conditions more favorable than those described in the Transfer Notice, as well as any subsequent proposed transfer of any Shares by the Selling Shareholder, shall be subject to the procedures described in Article 11A(1) and Article 11A(2).

 

 

19


B.

Drag Along :

 

  (a)

If the Ordinary Majority and the Preferred Majority (collectively, the “ Drag Holders ”) approve a Trade Sale with a pre-money valuation of the Company at no less than US$4,000,000,000 (or equivalent RMB) (such sale, transfer, conveyance or assignment pursuant to this Artcile 11B, a “ Drag-Along Sale ”) at any time after the Closing, at the request of the Drag Holders, then each remaining Shareholder (the “ Drag ged H olders ”) shall sell, transfer, convey or assign its Shares pursuant to, and so as to give effect to, such offer to purchase, merger or consolidation, sale or transfer, as the case may be, unless the rejecting Dragged Holder agrees to purchase the Shares proposed to be sold, transferred, conveyed or assigned by the Drag Holders under the proposed Drag-Along Sale. If the consideration offered is payable in securities or property other than cash (or evidence of cash indebtedness), the Board (including the affirmative votes of all the Investor Directors) shall in good faith determine the fair market value of any such securities or property in cash, provided that any holder of Preferred Shares shall have the right to challenge any determination by the Board of fair market value made pursuant hereto, in which case the determination of fair market value shall be made by a valuer selected jointly by the Board (including the affirmative votes of all the Investor Directors) and the challenging Parties. The valuer shall prepare a report setting forth the basis of its calculating such fair market value, and the determination of such fair market value by the valuer shall, in the absence of manifest error, be final and conclusive. The costs of the valuer shall be borne solely by the Company. The valuer shall act as expert and not as an arbitrator. If the acquiring party is a privately-held entity and the holders of Preferred Shares receive in whole or in part non-publicly traded securities of such acquirer, then such non-publicly traded securities shall have liquidation preference(s), protective provision(s), voting right(s), dividend right(s), registration rights and preemptive rights that are substantially similar to those of the Preferred Shares, as applicable, as set forth herein as of the date hereof, unless otherwise agreed by the Preferred Majority.

 

  (b)

The consideration to be received by a Dragged Holder shall be the same form and amount of consideration per share of Ordinary Share to be received by the Drag Holder (or, if the Drag Holders are given an option as to the form and amount of consideration to be received, the same option shall be given to the Dragged Holders) and the terms and conditions of such sale shall, except as otherwise provided in the immediately succeeding sentence, be the same as those upon which the Drag Holders sell their Ordinary Shares. Each Dragged Holder shall make or provide customary representations, warranties, covenants, indemnities and agreements in connection with the Drag-Along Sale; provided , that all representations, warranties, covenants and indemnities shall be made by each Drag Holder and each Dragged Holder severally but not jointly.

 

  (c)

The restrictions on Transfers of Shares set forth in Article 11A(1), Article 11A(2) and Article 11C, shall not apply in connection with a Drag-along Sale pursuant to this Article 11B, or anything in the Memorandum of Association to the contrary notwithstanding.

 

  (d)

Upon the approval of a Drag-Along Sale as described in this Article 11B, each Shareholder (other than Drag Holders) shall grant to the chief executive officer (“ CEO ”) or an authorized officer, a power of attorney to transfer their Shares and to do and carry out all other necessary or advisable acts to complete the Drag-Along Sale, including, without limitation, executing any and all documents (including instruments of transfer) on behalf of such Shareholder. The CEO or an authorized officer shall be authorized to transfer the Shares of each such Shareholder and to do and carry out all other necessary or advisable acts to complete the Drag-Along Sale, including, without limitation, executing any and all documents (including instruments of transfers) on behalf of each such Shareholder.

 

20


C.

Restrictions on Transfers :

Subject to Article 11A(1), Article 11A(2) and the provisions of any severance agreement that the Founders may enter into, each Founder agrees that, without the prior written consent of the Preferred Majority, he shall not, directly or indirectly, sell, transfer, pledge, encumber, hypothecate or otherwise dispose of any of his Shares in the Company or any of other Group Companies. In the case that any Share is held by its ultimate beneficial owner through one or more level of holding companies, any transfer, repurchase, or new issuance of the shares of such holding companies or similar transactions that have the effect of change the beneficial ownership of such Share shall be deemed as an indirect transfer of such Shares. The restrictions on the transfer of the Shares held by the Founders in these Articles shall apply to such indirect transfer and shall not be circumvented by means any indirect transfer of the Shares. Notwithstanding anything to the contrary contained herein, the transfer restriction shall not apply to transfer of Shares now or hereafter directly or indirectly held by the Founder, to the parents, children or spouse, or to trusts for the benefit of such Persons, of any holder of Shares for bona fide estate planning purposes (each transferee pursuant to the foregoing, a “ Permitted Transferee ”); provided that adequate documentation therefor is provided to the Preferred Shareholders to their satisfaction and that any such Permitted Transferee agrees in writing to be bound by the Shareholders Agreement, these Articles and the Memorandum of Association in place of the relevant transferor; provided , further , that such transferor shall remain liable for any breach by such Permitted Transferee of any provision hereunder. Each Preferred Shareholder is entitled to, 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 to any third party, except that none of the Preferred Shareholders may, without the prior written consent of the Ordinary Majority, transfer any Preferred Shares or Conversion Shares to any third party which is engaged in the business similar or competitive with the principal business of the Group Companies (the “ Competitor ”) or any Affiliate of any Competitor.

REDEEMABLE SHARES

 

12      (a)

Subject to the provisions of the Statute, these Articles, and the Memorandum of Association, shares may be issued on the terms that they are, or at the option of the Company or the holder are, to be redeemed on such terms and in such manner as the Company, before the issue of the shares, may by a Special Resolution determine.

 

  (b)

Subject to the provisions of the Statute, these Articles, and the Memorandum of Association, the Company may purchase its own shares (including fractions of a share), including any redeemable shares, provided that, except in the case of a purchase in accordance with Article 127(e), the manner of purchase has first been authorized by the Company in general meeting and may make payment therefor in any manner authorized by the Statute, including out of its capital.

 

21


VARIATION OF RIGHTS OF SHARES

 

13

Subject to Article 20, if at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up and except where these Articles or the Statute impose any stricter quorum, voting or procedural requirements in regard to the variation of rights attached to a specific class, be varied with the consent in writing of the holders representing at least two-thirds (2/3) of the issued shares of that class, or with the sanction of a Special Resolution passed at a general meeting of the holders of the shares of that class.

The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of shares except that the necessary quorum shall be one (1) person holding or representing by proxy at least one-third (1/3) of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll.

 

14

The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

COMMISSION ON SALE OF SHARES

 

15

The Company may in so far as the Statute from time to time permits, pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgment of fully or partly paid-up shares or a combination of any of the foregoing. The Company may also on any issue of shares pay such brokerage as may be lawful.

CONVERSION OF PREFERRED SHARES

 

16

The holders of the Preferred Shares have the following conversion rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares. The number of Ordinary Shares to which a holder shall be entitled upon conversion of any Preferred Share shall be the quotient of the Original Issue Price divided by the then-effective Conversion Price. The “ Series B + Conversion Price ” shall initially equal the Series B+ Original Issue Price, the “ Series B Conversion Price ” shall initially equal the Series B Original Issue Price, the “ Series A Conversion Price ” shall initially equal the Series A Original Issue Price, the “ Series Seed Conversion Price ” shall initially equal the Series Seed Original Issue Price, and each shall be adjusted from time to time as provided in Article 17 below. For the avoidance of doubt, the initial conversion ratio for any Preferred Shares to Ordinary Shares shall be 1:1.

 

22


  (a)

Optional Conversion . Subject to and in compliance with the provisions of this Article 16(a) and subject to complying with the requirements of the Statute, any Preferred Share may, at the option of the holder thereof, be converted at any time into fully-paid and nonassessable Ordinary Shares based on the then-effective Conversion Price.

 

  (b)

Automatic Conversion . Without any action being required by the holder of such share and whether or not the certificates representing such share are surrendered to the Company or its transfer agent, each Preferred Share, along with the aggregate declared but unpaid dividends thereon (if any), shall automatically be converted, based on the then-effective applicable Conversion Price, into Ordinary Shares upon the closing of a Qualified IPO. Any conversion pursuant to this Article 16(b) shall be referred to as an “ Automatic Conversion ”.

 

  (c)

Mechanics of Conversion . No fractional Ordinary Share shall be issued upon conversion of the Preferred Shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the then-effective applicable Conversion Price. Before any holder of Preferred Shares shall be entitled to convert the same into full Ordinary Shares and to receive certificates therefor, the holder shall surrender the certificate or certificates for the applicable Preferred Shares, duly endorsed, at the principal office of the Company or of any transfer agent for the Preferred Shares to be converted and shall give written notice to the Company at such office that the holder elects to convert the same. The Company shall promptly issue and deliver at such office to such holder of the Preferred Shares a certificate or certificates for, a copy of the Company’s register of Member showing such holder of the Preferred Shares as a holder of the number of Ordinary Shares to which the holder shall be entitled as aforesaid certified by the Company’s share registrar and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional Ordinary Shares. The Preferred Shares converted into Ordinary Shares shall be cancelled and shall not be reissued. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for the Preferred Shares to be converted, and the person or persons entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Ordinary Shares on such date. For the avoidance of doubt, no conversion shall prejudice the right of a holder of Preferred Shares to receive dividends and other distributions declared but not paid as at the date of conversion on the Preferred Shares being converted.

The Company may give effect to any conversion pursuant to the Articles by one or more of the following methods:

 

  (i)

If the total nominal par value of the Preferred Shares being converted is equal to the total nominal par value of the Ordinary Shares into which such Preferred Shares convert such that each Preferred Share is convertible into one (1) Ordinary Share and both the Preferred Share and the Ordinary Share have the same par value, the Company may, by resolution of the Board, redesignate the Preferred Shares to Ordinary Shares. On re-designation, each Preferred Share to be converted shall become an Ordinary Share with the rights, privileges, terms and obligations of the class of Ordinary Shares and the converted Ordinary Shares shall thenceforth form part of the class of the Ordinary Shares (and shall cease to form part of the class of Preferred Shares for all purposes).

 

23


  (ii)

The Board may by resolution resolve to redeem the Preferred Shares for the purpose of this Article (and, for accounting and other purposes, may determine the value therefor) and in consideration therefor issue fully-paid Ordinary Shares in relevant number.

 

  (iii)

The Board may by resolution adopt any other method permitted by Statute including capitalizing reserves to pay up new Ordinary Shares, or by making a fresh issue of Ordinary Shares, except that if conversion is capable of being effected in the manner described in paragraph (i) above, the conversion shall be effected in that manner in preference to any other method permitted by law or the Articles.

 

  (d)

Availability of Shares Issuable Upon Conversion . The Company shall at all times keep available out of its authorized but unissued Ordinary Shares, free of liens of any kind, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares, and if at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, in addition to such other remedies as shall be available to the holder of such Preferred Shares, the Company shall take such corporate action as may, in accordance with the Articles and the Statute, be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purposes.

 

  (e)

Cessation of Certain Rights on Conversion . Subject to Article 16(c), on the date of conversion of any Series of Preferred Shares to Ordinary Shares, the holder of the Preferred Shares to be converted shall cease to be entitled to any rights in respect of such Preferred Shares and accordingly its name shall be removed from the register of Members as the holder of such Preferred Shares and shall correspondingly be inserted onto the register of Members as the holder of the number of Ordinary Shares into which such Preferred Shares converts.

 

  (f)

Ordinary Shares Resulting from Conversion . The Ordinary Shares resulting from the conversion of the Preferred Shares:

 

  (i)

shall be credited as fully paid and non-assessable;

 

  (ii)

shall rank pari passu in all respects and form one class with the Ordinary Shares then issued; and

 

  (iii)

shall entitle the holder to all dividends payable on the Ordinary Shares by reference to a record date after the date of conversion.

 

24


ADJUSTMENTS TO CONVERSION PRICE

 

17      (a)

Special Definitions. For purposes of this Article 17, the following definitions shall apply:

 

  (i)

Options ” mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Ordinary Shares or Convertible Securities.

 

  (ii)

Convertible Securities ” shall mean any notes, debentures, preferred shares or other securities or rights which are ultimately convertible into or exchangeable for Ordinary Shares.

 

  (iii)

Additional Ordinary Shares ” (each an “ Additional Ordinary Share ”) shall mean all Ordinary Share Equivalents (including reissued shares) issued (or, pursuant to Article 17(c), deemed to be issued) by the Company, other than:

 

  (A)

Ordinary Shares issued upon conversion of Preferred Shares;

 

  (B)

Ordinary Shares (including any of such shares which are repurchased) issued or issuable to officers, directors, employees and consultants of the Group Companies pursuant to any equity plan or incentive arrangement approved or to be approved in accordance with the Shareholders Agreement and Article 20 hereof; and

 

  (C)

those issued as a dividend or distribution on Preferred Shares or any event for which adjustment is made pursuant to Article 17(f), 17(g) or 17(h) hereof.

 

 

  (b)

No Adjustment of Conversion Price . No adjustment in the relevant Conversion Price shall be made in respect of the issuance of Additional Ordinary Shares unless the consideration for any Additional Ordinary Share issued or deemed to be issued by the Company is less than the relevant Conversion Price in effect on the date of any immediately prior to such issue.

 

  (c)

Deemed Issue of Additional Ordinary Shares . In the event the Company issues any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number that would result in an adjustment pursuant to clause (ii) below) of Ordinary Shares issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Ordinary Shares issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided , that Additional Ordinary Shares shall not be deemed to have been issued unless the consideration per share (determined pursuant to Article 17(e) hereof) of such Additional Ordinary Shares would be less than the relevant Conversion Price in effect on the date of and immediately prior to such issue, or such record date, and provided , further that in any such case in which Additional Ordinary Shares are deemed to be issued:

 

  (i)

no further adjustment in the relevant Conversion Price shall be made upon the subsequent issue of Convertible Securities or Ordinary Shares upon the exercise of such Options or conversion or exchange of such Convertible Securities;

 

25


  (ii)

if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or increase or decrease in the number of Ordinary Shares issuable, upon the exercise, conversion or exchange thereof, the relevant Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;

 

  (iii)

upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the relevant Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

 

  (A)

in the case of Convertible Securities or Options for Ordinary Shares, the only Additional Ordinary Shares issued were Ordinary Shares, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange; and

 

  (B)

in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the Additional Ordinary Shares deemed to have been then issued was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

 

  (iv)

no re-adjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the relevant Conversion Price to an amount which exceeds the lower of (i) the relevant Conversion Price on the original adjustment date, or (ii) the relevant Conversion Price that would have resulted from any issuance of Additional Ordinary Shares between the original adjustment date and such re-adjustment date; and

 

26


  (v)

in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the relevant Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in clause (iii) above.

 

  (d)

Adjustment of Conversion Price Upon Issuance of Additional Ordinary Shares . In the event that the Company shall issue Additional Ordinary Shares without consideration or for a consideration per share received by the Company (net of any selling concessions, discounts or commissions) that is less than any Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such relevant Conversion Price shall be reduced, concurrently with such issue, to a price determined as set forth below. The mathematical formula for determining the adjusted Conversion Price is as follows and is subject to the more detailed textual description set forth thereafter:

AP =    OP * (OS + (NP/OP))/(OS + NS)

WHERE:

AP =    adjusted Conversion Price

OP =    old Conversion Price

 

  OS =

the number of outstanding Ordinary Shares immediately before the Additional Ordinary Shares are issued or sold, treating for this purpose as outstanding all Ordinary Shares issuable upon exercise, conversion or exchange of any outstanding Ordinary Share Equivalents immediately before the Additional Ordinary Shares are issued or sold

 

  NP =

the total consideration received for the issuance or sale of Additional Ordinary Shares

 

  NS =

the number of Additional Ordinary Shares issued or sold

 

  (e)

Determination of Consideration . For purposes of this Article 17, the consideration received by the Company for the issue of any Additional Ordinary Shares shall be computed as follows:

 

  (i)

Cash and Property. Except as provided in clause (ii) below, such consideration shall:

 

  (A)

insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company, excluding amounts paid or payable for accrued interest or accrued dividends;

 

27


  (B)

insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board (including the affirmative votes of the Investor Directors); provided , however , that no value shall be attributed to any services performed by any employee, officer or director of the Company; and

 

  (C)

in the event Additional Ordinary Shares are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received with respect to such Additional Ordinary Shares, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board (including the affirmative votes of the Investor Directors).

 

  (ii)

Options and Convertible Securities. The consideration per share received by the Company for Additional Ordinary Shares deemed to have been issued pursuant to Article 17(c), relating to Options and Convertible Securities, shall be determined by dividing

 

  (A)

the total amount, if any, received or receivable by the Company (net of any selling concessions, discounts or commissions) as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

 

  (B)

the maximum number of Ordinary Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

 

  (f)

Adjustments for Shares Dividends, Subdivisions, Combinations or Consolidations of Ordinary Share s. In the event the outstanding Ordinary Shares shall be subdivided (by share dividend, share split, or otherwise), into a greater number of Ordinary Shares, the relevant Conversion Price then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding Ordinary Shares shall be combined or consolidated, by reclassification or otherwise, into a lesser number of Ordinary Shares, the relevant Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.

 

28


  (g)

Adjustments for Other Distributions . In the event the Company makes, or files a record date for the determination of holders of Ordinary Shares entitled to receive any distribution payable in securities or assets of the Company other than Ordinary Shares, then and in each such event, provision shall be made so that the holders of Preferred Shares shall receive upon conversion thereof, in addition to the number of Ordinary Shares receivable thereupon, the amount of securities or assets of the Company which they would have received had their Preferred Shares been converted into Ordinary Shares on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities or assets receivable by them as aforesaid during such period, subject to all other adjustment called for during such period under this Article 17 with respect to the rights of the holders of the Preferred Shares.

 

  (h)

Adjustments for Reclassification, Exchange and Substitution . If the Ordinary Shares issuable upon conversion of the Preferred Shares shall be changed into the same or a different number of shares of any other class or classes of shares, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then and in each such event, the holder of each applicable Preferred Share shall have the right thereafter to convert such share into the kind and amount of shares and other securities and property receivable upon such reorganization or reclassification or other change by holders of the number of Ordinary Shares that would have been subject to receipt by the holders upon conversion of the applicable series of Preferred Shares immediately before that change, all subject to further adjustment as provided herein.

 

  (i)

No Impairment . The Company shall not, by amendment of these Articles or its Memorandum of Association or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but shall at all times in good faith assist in the carrying out of all the provisions of Article 17 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Preferred Shares hereunder against impairment.

 

  (j)

Certificate as to Adjustments . Upon the occurrence of each adjustment or re-adjustment of any applicable Conversion Price pursuant to this Article 17, the Company shall, at its expense, promptly compute such adjustment or re-adjustment in accordance with the terms hereof and furnish to each holder of Preferred Shares a certificate setting forth such adjustment or re-adjustment and showing in detail the facts upon which such adjustment or re-adjustment is based. The Company shall, upon the written request at any time of any holder of Preferred Shares, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and re-adjustments, (ii) the Conversion Prices at the time in effect, and (iii) the number of Ordinary Shares and the amount, if any, of other property which at the time would be received upon the conversion of each series of Preferred Shares.

 

  (k)

Miscellaneous .

 

  (i)

All calculations under this Article 17 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share. Upon conversion of such number of Preferred Shares, the resultant aggregate number of Ordinary Shares to be issued to each holder of Preferred Shares if not a whole number (but part or fraction of an Ordinary Share), shall be rounded up to the nearest multiple of one (1) Ordinary Share such that the resultant aggregate number of Ordinary Shares to be issued to such holder of Preferred Shares shall be a whole number.

 

29


  (ii)

The Preferred Majority shall have the right to challenge any determination by the Directors of fair value pursuant to this Article 17, in which case such determination of fair value shall be made by an independent appraiser selected jointly by the Directors and the challenging parties, the cost of such appraisal to be borne equally by the Company and the challenging parties.

 

  (iii)

No adjustment in any Conversion Price need be made if such adjustment would result in a change in such Conversion Price of less than US$0.0001. Any adjustment of less than US$0.0001 which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of US$0.0001 or more in the Conversion Price.

NOTICES OF RECORD DATE

 

18

In the event that the Company shall propose at any time:

 

  (a)

to declare any dividend or distribution upon its Ordinary Shares, whether in cash, property, shares or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus;

 

  (b)

to offer for subscription to the holders of any class or series of its shares on a pro-rata basis, any additional shares of shares of any class or series or other rights;

 

  (c)

to effect any reclassification or recapitalization of its Ordinary Shares outstanding involving a change in the Ordinary Shares; or

 

  (d)

to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up, then, in connection with each such event, the Company shall send to the holders of the Preferred Shares:

 

  (i)

at least twenty (20) days’ prior written notice specifying the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Ordinary Shares shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (c) and (d) above; and

 

  (ii)

in the case of the matters referred to in (c) and (d) above, at least twenty (20) days’ prior written notice specifying the date when the same shall take place (and specifying the date on which the holders of Ordinary Shares shall be entitled to exchange their Ordinary Shares for securities or other property deliverable upon the occurrence of such event).

 

30


Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of the Preferred Shares at the address for each such holder as shown on the books of the Company.

REDEMPTION

 

19      (a)

In the event (i) the Company fails to consummate a Qualified IPO or a Trade Sale within thirty-six (36) months following the Series B Original Issue Date, at any time and from time to time, or (ii) there is a material breach by any Group Company, the Founder or the Founder Holdco of any of its respective warranties and undertakings set forth in the Transaction Documents, resulting in any actual loss to the Investors, and the breach is not cured within thirty (30) days after receipt of request for rectification from the Investors, or (iii) the Group Companies cannot carry out the ordinary business operation for twelve (12) consecutive months or more due to penalty from Governmental Authorities (including frozen of funds) (each of the events described under (i), (ii) and (iii) shall be referred to hereinafter as “ Redemption Events ” collectively and a “ Redemption Event ” individually), each Preferred Share shall be redeemable at the option of each holder of such Preferred Shares, out of funds legally available therefor. Following receipt of the request for redemption from such holders, the Company shall within five (5) Business Days give written notice (the “ Redemption Notice ”) to each holder of record of a Preferred Share, at the address last shown on the records of the Company for such holder(s). Such notice shall indicate that the holders of a series of the Preferred Shares have elected redemption of all or a portion of such series of the Preferred Shares pursuant to the provisions of this Article 19(a), shall specify the redemption date which shall be not more than sixty (60) days from the date of the Redemption Notice (the “ Redemption Date ”), and shall direct the holders of such shares to submit their share certificates to the Company on or before the scheduled Redemption Date. Each other holder of Preferred Shares shall have ten (10) Business Days after receipt of the Redemption Notice to reply in writing whether to participate in the redemption or not. The redemption price for each Preferred Share redeemed pursuant to this Article 19(a) shall be the higher of ( i ) the price determined in accordance with the following formula (the “ Redemption Price ”):

Redemption Price = IP × (1 + 10%) ^ N + D, where

IP = Original Issue Price;

N = a fraction, the numerator of which is the number of calendar days between the applicable Original Issue Date of Preferred Shares to be repurchased and the relevant Redemption Date on which such Preferred Share is redeemed and the denominator of which is 365, and

D = all declared but unpaid dividends on each Preferred Share up to the Redemption Date, proportionally adjusted for share subdivisions, share dividends, reorganizations, reclassifications, consolidations or mergers.

 

31


or ( ii ) the fair market value of the Preferred Shares to be redeemed determined by a third party independent valuer jointly appointed by all the holders of Preferred Shares who participate in the redemption and the Company.

 

  (b)

Redemption Date . The closing (the “ Redemption Closing ”) of the redemption of any series of the Preferred Shares pursuant to this Article 19 will take place within sixty (60) days following the date of the relevant Redemption Notice at the offices of the Company, or such earlier date or other place as the Series Seed Majority, or the Series A Majority, or the Series B Majority (as the case may be) and the Company may mutually agree in writing. At the Redemption Closing, subject to applicable law, the Company will, from any source of assets or funds legally available therefore, redeem the Preferred Shares held by each relevant holder by paying in cash therefore the applicable Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such Share. From and after any applicable Redemption Closing, if the Company makes any Redemption Price available to a holder of a Preferred Share, all rights of the holder of such Preferred Share (except the right to receive the Redemption Price therefore) will cease with respect to such Preferred Share, and such Preferred Share will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.

 

  (c)

Insufficient Funds . If the Company’s assets or funds which are legally available on the date that any redemption payment under this Article 19 is due are insufficient to pay in full all redemption payments to be paid at any applicable Redemption Closing, those assets or funds which are legally available shall be (a) first in a pro-rata manner against each Series B Preferred Share and/or each Series B+ Preferred Share which is requested to be redeemded in proportion to the full amounts to which the holders to which such redemption payments are due would otherwise be respectively entitled thereon, and (b) after the completion of the redemption of the Series B Preferred Shares and the Series B+ Preferred Shares specified in this Article 19, then in a pro-rata manner against each Series A Preferred Share which is requested to be redeemded in proportion to the full amounts to which the holders to which such redemption payments are due would otherwise be respectively entitled thereon, and (c) after the completion of the redemption of the Series A Preferred Shares specified in this Article 19, then in a pro-rata manner against each Series Seed Preferred Share which is requested to be redeemded in proportion to the full amounts to which the holders to which such redemption payments are due would otherwise be respectively entitled thereon.

 

  (d)

Distribution of Profits of Subsidiaries. To the extent permitted by law, the Company shall procure that the profits of each Subsidiary of the Company for the time being available for distribution shall be paid to it by way of dividend if and to the extent that, but for such dividend upstream, the Company would not itself otherwise have sufficient profits available for distribution to make any redemption of applicable Preferred Shares required to be made pursuant to this Article 19.

 

32


  (e)

Other Limited Redemption . If the Company is otherwise prohibited by applicable law from redeeming all Preferred Shares to be redeemed at any applicable Redemption Closing, those assets or funds which are legally available shall be used to the extent permitted by applicable law to pay all redemption payments due on such date ratably in proportion to the full amounts to which the holders to which such redemption payments are due would otherwise be respectively entitled thereon. Thereafter, all assets or funds of the Company that become legally available for the redemption of shares shall immediately be used to pay the redemption payment which the Company did not pay on the date that such redemption payments were due.

 

  (f)

Un-redeemed Shares . Without limiting any rights of the holders of Preferred Shares which are set forth in these Articles, or are otherwise available under law, the balance of any shares subject to redemption hereunder with respect to which the Company has become obligated to pay the redemption payment but which it has not paid in full shall continue to have all the powers, designations, preferences and relative participating, optional, and other special rights (including, without limitation, rights to accrue dividends) which such shares had prior to such date, until the redemption payment has been paid in full with respect to such shares.

PROTECTIVE PROVISIONS

 

20      A.

Preferred Shareholder s Protective Provisions . In addition to such other restrictions or limitations as may be provided herein or in other Transaction Documents, for so long as any Preferred Share remains outstanding, each Group Company shall not, and each of the Warrantors shall procure each Group Company not to, directly or indirectly, and whether by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, take any of the actions listed in this Article 20A without the prior written consents of the Preferred Majority. Notwithstanding anything to the contrary contained herein, where any act listed below requires the approval of the Shareholders in accordance with the Statute, and if the Shareholders vote in favour of such act but the approval of the Preferred Majority has not yet been obtained, the Preferred Shareholders who vote against such act at a meeting of the Shareholders in aggregate shall have the voting rights equal to the aggregate voting power of all the Shareholders who voted in favor of such act plus one (1):

 

  (a)

any change to the Restated M&A or other Charter Documents of the Company or any of its Subsidiaries;

 

  (b)

any filing by or against any Group Company for the appointment of a receiver, administrator or other form of external manager, or the winding up, liquidation, bankruptcy or insolvency of any Group Company;

 

  (c)

increase, reduce or cancel the authorized or issued share capital of the Company and/or any of its Subsidiaries or issue, allot, purchase or redeem any shares or securities convertible into or carrying a right of subscription in respect of shares or any share warrants (but excluding any redemption provided under Article 19) or grant or issue any options rights or warrants of which may require the issue of shares in the future or do any act which has the effect of diluting or reducing the effective shareholding of the holders of the Preferred Shares in the Company;

 

33


  (d)

the consolidation or merger with or into any other business entity or change of control of any Group Company;

 

  (e)

take any action that reclassifies any outstanding shares into shares having preferences or priority as to dividends or assets senior to or on a parity with the preference of the holders of the Preferred Shares;

 

  (f)

any Deemed Liquidation Event (but excluding any Drag-Along Sale);

 

  (g)

the declaration or payment or change of policy of a dividend or other distributions on any securities of any Group Company; capitalization of the premiums of the Company and/or any of its Subsidiaries;

 

  (h)

any increase or decrease in the size of the Board;

 

  (i)

adopt the annual budget of the Group Companies or any substantial amendment to the business plan or annual budgets of the Group Companies previously adopted;

 

  (j)

substantial change to the principle business of the Group Companies;

 

  (k)

any financing plan by the Group Companies from other investors; and

 

  (l)

enter into or change arrangements for any public offering of the Company’s or any of its Subsidiaries’ securities, including the selection of any underwriter, accountant, counsel, and the exchange stock for such offering; approval on the offering or listing scheme, valuation and pre-listing restructuring plan of the Group Companies.

 

  B.

Investor Directors Protective Provisions . In addition to such other restrictions or limitations as may be provided herein or in other Transaction Documents, for so long as there is any Investor Director, each Group Company shall not, and each of the Warrantors shall procure each Group Company not to, directly or indirectly, and whether by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, take any of the actions listed in this Article 20B without the prior written consent of all the Investor Directors. Notwithstanding anything to the contrary contained herein, where any act listed below requires the approval of the Board in accordance with the Statute, and if the Board vote in favour of such act but the approval of all the Investor Directors have not yet been obtained, the Investor Directors shall have the voting rights equal to the aggregate voting power of all the Directors who voted in favor of such act plus one (1).

 

  (a)

any investment into other company, partnership, trust, joint venture or entity which is in excess of US$1,000,000 in respect of any one (1) transaction or in related transactions in any fiscal year by the Company and/or any of its Subsidiaries; or establishment of any joint venture with investment amount exceeding US$1,000,000;

 

  (b)

any borrowing beyond the annual budget in excess of US$2,000,000 in respect of any one (1) transaction or in related transactions in any fiscal year by the Company and/or any of its Subsidiaries other than any short-term financing obtained from banks or other financial institutions in the ordinary course of business;

 

34


  (c)

purchase or lease of any assets with value exceeding US$500,000 in a single transaction or series of related transactions by any Group Company beyond the annual budget of the Group Companies;

 

  (d)

any related party transaction between any Group Company and any shareholder, director, officer, employee, or any Affiliate of the foregoing, any Affiliate of any Group Company, or any shareholder, director, officer, employee of any Affiliate of any Group Company, or any other entity in which any Founderholds any euiqyt interest beyond the ordinary course of business (in respect of any transaction between any Group Company and any Smallyes Group Company, only applicable to any transaction the scope and amount of which substantially differ from those existing as of the date hereof);

 

  (e)

beyond the ordinary course of business, any loan provided by any Group Company to any third party in an amount exeeding US$1,000,000; or the provision of any guarantee or security for or in connection with any indebtedness of liabilities of any third party (excluding any loan or guarantee existing as of the date hereof);

 

  (f)

create or issue any debenture constituting a pledge, lien or charge on the material assets (the amount of which exceeding 5% of the total book value of the Group Companies) of any Group Company;

 

  (g)

sell, transfer or dispose of material assets (the amount of which exceeding 5% of the total book value of the Group Companies) or business of any Group Company;

 

  (h)

sell, transfer, license, charge, encumber or otherwise dispose of any material technology or material trademarks, patents, copyrights or other intellectual property owned by any Group Company (exluding any technology license necessary in the ordinary course of business);

 

  (i)

sale, transfer, dispose of or dilute the Company’s interest, directly or indirectly, in any of its Subsidiaries; or approval on the equity transfer of any Subsidary;

 

  (j)

any adoption, amendment or termination of any bonus or profit sharing scheme, including any employee share option or share participation scheme or any employee incentive scheme, but excluding the ESOP provided under Section 10.4 of the Shareholders Agreement in connection with 191,663,158 Ordinary Shares and corresponding options;

 

  (k)

appoint or dismissal of the chief executive officer and chief financial officer of the Company and/or any of its Subsidiaries;

 

  (l)

raise, withdraw, settler or reconcile any claim in relation to dispute involving more than US$1,000,000; and

 

35


  (m)

appoint or change the auditors of the Company and/or any of its Subsidiaries; or substantial change to the accounting policy of the Company and/or any of its Subsidiaries.

NON-RECOGNITION OF TRUSTS

 

21

No person shall be recognized by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future, or partial interest in any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.

LIEN ON SHARES

 

22

The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such share shall operate as a waiver of the Company’s lien (if any) thereon. The Company’s lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof.

 

23

The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen (14) days after a notice in writing stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder or holders for the time being of the share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy.

 

24

To give effect to any such sale, the Directors may authorize some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound by the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

 

25

The proceeds of such sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.

 

36


CALL ON SHARES

 

26      (a)

The Directors may from time to time make calls upon the Members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms, provided that no call shall be payable at less than one (1) month from the date fixed for the payment of the last preceding call, and each Member shall (subject to receiving at least fourteen (14) days’ notice specifying the time or times of payment) pay to the Company at the specified time or times the amount called on the shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by installments.

 

  (b)

A call shall be deemed to have been made at the time when the resolution of the Directors authorizing such call was passed.

 

  (c)

The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

 

27

If a sum called in respect of a share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part.

 

28

Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on which by the terms of issue the same becomes payable, and in the case of non-payment, all the relevant provisions of these Articles as to payment of interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

 

29

The Directors may, on the issue of shares, differentiate between the holders as to the amount of calls or interest to be paid and the time of payment.

 

30      (a)

The Directors may, if they think fit, receive from any Member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advances, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) seven percent (7%) per annum, as may be agreed upon between the Directors and the Member paying such sum in advance.

 

  (b)

No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable.

 

37


FORFEITURE OF SHARES

 

31      (a)

If a Member fails to pay any call or installment of a call or to make any payment required by the terms of issue on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call, installment or payment remains unpaid, give notice requiring payment of any part of the call, installment or payment that is unpaid, together with any interest which may have accrued and all expenses that have been incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen (14) days from the date of giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time appointed the shares in respect of which such notice was given will be liable to be forfeited.

 

  (b)

If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture.

 

  (c)

A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition, the forfeiture may be cancelled on such terms as the Directors see fit.

 

32

A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares together with interest thereon, but his liability shall cease if and when the Company shall have received payment in full of all monies whenever payable in respect of the shares.

 

33

A certificate in writing under the hand of one (1) Director or the Secretary of the Company that a share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the fact stated therein as against all persons claiming to be entitled to the share. The Company may receive the consideration given for the share on any sale or disposition thereof and may execute a transfer of the share in favor of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share and shall not be bound by the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.

 

34

The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium as if the same had been payable by virtue of a call duly made and notified.

 

38


REGISTRATION OF EMPOWERING INSTRUMENTS

 

35

The Company shall be entitled to charge a fee not exceeding US$l.00 on the registration of every probate, letter of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument.

TRANSMISSION OF SHARES

 

36

In case of the death of a Member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was the sole holder, shall be the only persons recognized by the Company as having any title to his interest in the shares, but nothing herein contained shall release the estate of any such deceased holder from any liability in respect of any shares which had been held by him solely or jointly with other persons.

 

37      (a)

Any person becoming entitled to a share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the share or to make such transfer of the share to such other person nominated by him as the deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that Member before his death or bankruptcy, as the case may be.

 

  (b)

If the person so becoming entitled shall elect to be registered himself as holder, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects.

 

38

A person becoming entitled to a share by reason of the death or bankruptcy or liquidation or dissolution of the holder (or in any other case than by transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled to exercise any right conferred by membership in relation to meetings of the Company; provided , however , that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within ninety (90) days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with.

AMENDMENT OF MEMORANDUM OF ASSOCIATION,

ALTERATION OF CAPITAL & CHANGE OF LOCATION OF REGISTERED OFFICE

 

39      (a)

Subject to and in so far as permitted by the provisions of the Statute and these Articles in particular Article 20, the Company may from time to time by a Special Resolution alter or amend its Memorandum of Association with respect to any objects, powers or other matters specified therein provided always that the Company may by an ordinary resolution:

 

  (i)

increase the share capital by such sum to be divided into shares of such amount or without nominal or par value as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine;

 

39


  (ii)

consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

 

  (iii)

by subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the Memorandum of Association or into shares without nominal or par value; and

 

  (iv)

cancel any shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any person.

 

  (b)

All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital.

 

  (c)

Without prejudice to Article 12 hereof and subject to the provisions of the Statute and Article 20, the Company may by a Special Resolution reduce its share capital and any capital redemption reserve fund.

 

  (d)

Subject to the provisions of the Statute, the Company may by a resolution of the Directors change the location of its registered office.

CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE

 

40

For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend, or in order to make a determination of Members for any other proper purpose, the Directors may provide that the register of Members shall be closed for transfers for a stated period but not exceeding ten (10) days in any case. If the register of Members shall be so closed for the purpose of determining Members entitled to notice of or to vote at a meeting of Members, such register shall be so closed for at least ten (10) days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of Members.

 

41

In lieu of or apart from closing the register of Members, the Directors may fix in advance a date as the record date for any such determination of Members entitled to notice of or to vote at a meeting of the Members and for the purpose of determining the Members entitled to receive payment of any dividend, the Directors may, at or within ninety (90) days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination.

 

40


42

If the register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof.

GENERAL MEETING

 

43      (a)

Subject to Article 43(c) hereof, the Company shall within one (1) year of its incorporation and in each year of its existence thereafter hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting of each year shall be held at such time and place as the Directors shall appoint.

 

  (b)

At these meetings, the report of the Directors (if any) shall be presented.

 

  (c)

If the Company is exempted as defined in the Statute, it may but shall not be obliged to hold an annual general meeting.

 

44      (a)

The Directors may whenever they think fit, and they shall on the requisition of Members of the Company holding at the date of the deposit of the requisition not less than one-tenth (1/10) of the paid-up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company, proceed to convene a general meeting of the Company.

 

  (b)

The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the Company and may consist of several documents in like form each signed by one or more requisitionists.

 

  (c)

If the Directors do not within twenty-one (21) days from the date of the deposit of the requisition duly proceed to convene a general meeting, the requisitionists, or any of them representing more than fifty percent (50%) of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three (3) months after the expiration of the said twenty-one (21) days.

 

  (d)

A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as the general meetings convened by Directors.

NOTICE OF GENERAL MEETINGS

 

45

At least twenty (20) days’ notice shall be given for an annual general meeting or any other general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner as may be prescribed by the Company PROVIDED that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of Article 44 have been complied with, be deemed to have been duly convened if it is so agreed:

 

  (a)

in the case of a general meeting called as an annual general meeting by all the Members entitled to attend and vote thereat or their proxies; and

 

41


  (b)

in the case of any other general meeting by a majority in number of the Members having a right to attend and vote at the meeting, being a majority together holding not less than eighty percent (80%) in nominal value or in the case of shares without nominal or par value eighty percent (80%) of the shares in issue, or their proxies.

 

46

The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting.

PROCEEDINGS AT GENERAL MEETINGS

 

47      (a)

No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business; subject to the Statute and these Articles (including Article 20) (i) Members holding at least a majority of the Ordinary Shares then outstanding (other than Ordinary Shares issued upon the conversion of any Preferred Shares), (ii) Members holding at least a majority of Preferred Shares, present in person or by proxy shall be a quorum provided always that if the Company has one (1) Member of record, the quorum shall be that one (1) Member present in person or by proxy.

 

  (b)

A person may participate at a general meeting by telephone conference or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting.

 

48

Subject to Article 20, a resolution in writing (in one or more counterparts) shall be as valid and effective as if the resolution had been passed at a duly convened and held general meeting of the Company if it is signed by all Members for the time being entitled to receive notice of and to attend and vote at general meetings (or, being companies, signed by their duly authorised representative).

 

49

If within thirty (30) minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved and in any other case, it shall stand adjourned to the same day in the next week at the same time and place or to such other time or such other place as the Directors may determine and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the Members present shall be a quorum.

 

50

The Chairman, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he shall not be present within fifteen (15) minutes after the time appointed for the holding of the meeting, or is unwilling to act, the Directors present shall elect one (1) of their member to be Chairman of the meeting.

 

42


51

If at any general meeting no Director is willing to act as Chairman or if no Director is present within fifteen (15) minutes after the time appointed for holding the meeting, the Members present shall choose one of their member to be Chairman of the meeting.

 

52

The Chairman may, with the consent of any general meeting duly constituted hereunder, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned general meeting.

 

53

At any general meeting, a resolution put to the vote of the meeting shall be decided on a poll.

 

54

Each poll shall be taken in such manner as the Chairman directs and the result of the poll shall be deemed to be the resolution of the general meeting.

 

55

The Chairman of the general meeting shall not be entitled to a second or casting vote under any circumstance.

VOTES OF MEMBERS

 

56

Except as otherwise required by law or as set forth herein, the holder of each Ordinary Share issued and outstanding shall have one (1) vote for each Ordinary Share held by such holder, and the holder of each series of Preferred Shares shall be entitled to the number of votes equal to the number of Ordinary Shares into which such series of Preferred Shares could be converted at the record date for determination of the Members entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of Members is solicited, such votes to be counted together with all other shares of the Company having general voting power and not counted separately as a class. Holders of the Ordinary Shares and Preferred Shares shall be entitled to notice of any Members’ meeting in accordance with these Articles, and except as otherwise set forth in these Articles, shall vote together and not as separate classes.

 

57

In the case of joint holders of record, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose, seniority shall be determined by the order in which the names stand in the register of Members.

 

58

A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that court, and any such committee, receiver, curator bonis or other persons may vote by proxy.

 

43


59

No Member shall be entitled to vote at any general meeting unless he is registered as a Member of the Company on the record date for such meeting nor unless all calls or other sums presently payable by him in respect of shares in the Company have been paid.

 

60

No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the general meeting whose decision shall be final and conclusive.

 

61

Votes may be given either personally or by proxy.

PROXIES

 

62

The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorized in writing, or, if the appointor is a corporation, under the hand of an officer or attorney duly authorized in its behalf. A proxy need not be a Member of the Company.

 

63

The instrument appointing a proxy shall be deposited at the registered office of the Company or at such other place as is specified for that purpose in the notice convening the meeting no later than the time for holding the meeting, or adjourned meeting, provided that the Chairman of the Meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of facsimile or electronic mail confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company.

 

64

The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll.

 

65

A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at the registered office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy.

 

66

Any corporation which is a Member of record of the Company may in accordance with its articles of association or in the absence of such provision by resolution of its Directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Member of record of the Company.

 

44


67

Shares of its own capital belonging to the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time.

 

68

Any Member may irrevocably appoint a proxy and in such case (i) such proxy shall be irrevocable in accordance with the terms of the instrument of appointment; (ii) the Member may not vote at any meeting at which the holder of such proxy votes; and (iii) the Company shall be obliged to recognize the holder of such proxy until such time as the Company is notified in writing that the proxy has been revoked in accordance with its terms.

DIRECTORS

 

69

There shall be a Board of Directors consisting of not more than nine (9) persons (exclusive of alternate Directors); provided , however , that, subject to the consent of Preferred Majority under Article 20, the Company may from time to time by an ordinary resolution increase or reduce the limit in the number of Directors. Eastern Bell shall have the right to designate one (1) Director (the “ Eastern Be ll Director ”), provided that Eastern Bell holds not less than 8% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. Trustbridge shall have the right to designate one (1) Director (the “ Trustbridge Director ”), provided that Trustbridge holds not less than 8% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. Crescent shall have the right to designate one (1) Director (the “ Crescent Director ”), provided that Crescent holds not less than 8% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. CDH shall have the right to designate one (1) Director (the “ CDH Director ”, together with the Eastern Bell Director, the Trustbridge Director and the Crescent Director, collectively, the “ Investor Directors ”), provided that CDH holds not less than 3.5% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. The Ordinary Majority shall have the right to appoint and remove five (5) Directors (collectively, the “ Ordnary Share Director s ”), one (1) of which shall be determined by the Ordinary Majority at any time, provided that if at any time the board seat of such last Ordinary Share Director is vacant, the voting power of the last Ordinary Share Director shall be casted on XIAO Shanglue ( 肖尚略 ), as long as XIAO Shanglue ( 肖尚略 ) then serves as a Director, subject to any applicable laws in the Cayman Islands. 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. Huaxing US and Huaxing RMB shall have the right to collectively appoint one (1) observer to the board of directors of the Company to attend the meetings of the Board or any committes under the Board in a non-voting observer capacity, provided that, if either Huaxing US or Huaxing RMB fails to close the investment contemplated under the Share Purchase Agreement, the right of Huaxing US and Huaxing RMB to appoint the observer shall be forfeited.

 

70

The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Company shall also reimburse Investor Directors for all reasonable out-of-pocket expenses incurred in connection with Board duties and meetings including their reasonable traveling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors (including the consents of the Investor Directors) from time to time, or a combination partly of one such method and partly the other.

 

45


71

Subject to the prior unanimous written approvals of the Members, the Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or undertaking any special mission on behalf of the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity, shall be in addition to his remuneration as a Director.

 

72

A Director or alternate Director may hold any other office or place of profit in the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine (including the affirmative votes of the Investor Directors).

 

73

A Director or alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or alternate Director.

 

74

A shareholding qualification for Directors may be fixed by the Company in general meeting, but unless and until so fixed, no shareholding qualification for Directors shall be required.

 

75

A Director or alternate Director of the Company may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as a shareholder or otherwise and no such Director or alternate Director shall be accountable to the Company for any remuneration or other benefits received by him as a director or officer of, or from his interest in, such other company.

 

76

No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid; provided , however , that the nature of the interest of any Director or alternate Director in any such contract or transaction shall be disclosed by him or the alternate Director appointed by him at or prior to its consideration and any vote thereon.

 

77

A general notice or disclosure to the Directors or otherwise contained in the minutes of a Meeting or a written resolution of the Directors or any committee thereof that a Director or alternate Director is a Member of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 76 and after such general notice it shall not be necessary to give special notice relating to any particular transaction.

 

46


ALTERNATE DIRECTORS

 

78

A Director who expects to be unable to attend Directors’ Meetings because of absence, illness or otherwise may appoint any person to be an alternate Director to act in his stead and such appointee whilst he holds office as an alternate Director shall, in the event of absence therefrom of his appointor, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointor, any other act or thing which his appointor is permitted or required to do by virtue of his being a Director as if the alternate Director were the appointor, other than appointment of an alternate to himself, and he shall ipso facto vacate office if and when his appointor ceases to be a Director or removes the appointee from office. Any appointment or removal under this Article shall be effected by notice in writing under the hand of the Director making the same.

POWERS AND DUTIES OF DIRECTORS

 

79

The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed). The Directors may pay all expenses incurred in promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not, from time to time by the Statute, or by these Articles, or such regulations, as may be prescribed by the Company in a general meeting required to be exercised by the Company in general meetings PROVIDED, HOWEVER, that no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made.

 

80

Subject to Article 20, all cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall from time to time by resolution determine.

 

81

The Directors shall cause minutes to be made in books provided for the purpose:

 

  (a)

of all appointments of officers made by the Directors;

 

  (b)

of the names of the Directors (including those represented thereat by an alternate or by proxy) present at each meeting of the Directors and of any committee of the Directors;

 

  (c)

of all resolutions and proceedings at all meetings of the Company and of the Directors and of committees of Directors.

The Company shall cause copies of all such minutes to be delivered to the holders of the Preferred Shares within thirty (30) days after the relevant meeting.

 

82

The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

 

47


83

Subject to Article 20, the Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party.

MANAGEMENT

 

84      (a)

The Directors may from time to time and at any time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the next three (3) paragraphs shall be without prejudice to the general powers conferred by this paragraph.

 

  (b)

The Directors may from time to time and at any time establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards or any managers or agents with each Investor Director being one of the members, and may fix their remuneration (which shall be subject to the approval of the Board, including the affirmative votes of the Investor Directors).

 

  (c)

The Directors may from time to time and at any time delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorize the members for the time being of any such local board, or any of them to fill any vacancy therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

 

  (d)

With the affirmative votes of the Investor Directors, any such delegate as aforesaid may be authorized by the Directors to sub-delegate all or any of the powers, authorities, and discretions for the time being vested in them.

MANAGING DIRECTORS

 

85

Subject to Article 20, the Directors may, from time to time, appoint one or more of their body (but not an alternate Director) to the office of a Managing Director for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or a combination of any of the foregoing) as they may think fit but his appointment shall be subject to determination ipso facto if he ceases for any cause to be a Director and no alternate Director appointed by him can act in his stead as a Director or a Managing Director.

 

48


86

The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers.

PROCEEDINGS OF DIRECTORS

 

87

Except as otherwise provided by these Articles, the Directors shall meet together for the despatch of business, convening, adjourning and otherwise regulating their meetings as they think fit, but no less frequent than once every quarter. Questions arising at any meeting shall be decided by a majority of votes of the Directors and alternate Directors present at a meeting at which there is a quorum, the vote of an alternate Director not being counted if his appointor be present at such meeting.

 

88

A Director or alternate Director may, and the Secretary on the requisition of a Director or alternate Director shall, at any time summon a meeting of the Directors by at least fourteen (14) days’ notice in writing to every Director and alternate Director, which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held and PROVIDED, FURTHER, if notice is given in person, by facsimile or electronic mail the same shall be deemed to have been given on the day it is delivered to the Directors or transmitting organization, as the case may be. The provisions of Article 45 shall apply mutatis mutandis with respect to notices of meetings of Directors.

 

89

The quorum necessary for the transaction of the business shall be five (5) Directors, inclusive of at least all the Investor Directors, provided , however , that if such quorum cannot be obtained for a Board meeting after the notice of such Board meeting has been sent by the Company not less than fourteen (14) days’ prior to the scheduled meeting, the meeting shall be adjourned to the same day of the next week at which the attendance of any Directors shall constitute a quorum, provided further that matters discussed in such adjourned meeting shall be limited to those stated in the written notices and agendas of the Board meeting. A Director and his appointed alternate Director shall be considered only one (1) person for the purpose of quorum, PROVIDED, ALWAYS, that if there shall at any time be only a sole Director, the quorum shall be one. For the purposes of this Article, an alternate Director or proxy appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present.

 

90

The continuing Directors may act notwithstanding any vacancy in the Board of Directors, but if and so long as their number is reduced below the minimum number fixed by or pursuant to these Articles, the continuing Directors, notwithstanding that the number of Directors is reduced below the number fixed by or in accordance with these Articles as the quorum or that there is only one continuing Director, may act for the purpose of filling vacancies in the Board or of summoning a general meeting of the Company, but not for any other purpose.

 

91

The Directors may elect a Chairman of the Board of Directors and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting, the Chairman is not present within five (5) minutes after the time appointed for holding the same, the Directors present may choose one of their member to be the Chairman of the meeting.

 

49


92

The Directors may delegate any of their powers to committees consisting of such member or members of the Board of Directors (including Alternate Directors in the absence of their appointors) as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors.

 

93

A committee may meet and adjourn as it thinks proper. Subject to Article 20, questions arising at any meeting shall be determined by a majority of votes of the members present. Subject to this provision, if and when the Board deems necessary, the Company shall establish and maintain a compensation committee (the “ Compensation Committee ”), and the Investor Directors shall be members of such Compensation Committee and shall be required to establish a quorum for any meeting or action to be taken by such committee. Subject to Article 20, the Compensation Committee shall propose the terms of the Company’s share incentive plans to the Board for approval and adoption and shall have the power and authority to (a) administer the Company’s share incentive plans (including the ESOP), and (b) approve all management compensation levels and arrangements unless such rights are vested on the holders of the Preferred Shares under Article 20, and shall have such other powers and authorities as the Board shall delegate to it.

 

94

All acts done by any meeting of the Directors or of a committee of Directors (including any person acting as an alternate Director) shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or alternate Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or alternate Director, as the case may be.

 

95

Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. Subject to Article 20, a resolution in writing (in one or more counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (an alternate Director being entitled to sign such resolution on behalf of his appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee, as the case may be duly convened and held.

 

96      (a)

A Director may be represented at any meetings of the Board of Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director.

 

  (b)

The provisions of Articles 62-65 shall mutatis mutandis apply to the appointment of proxies by Directors.

 

50


VACATION OF OFFICE OF DIRECTOR

 

97

The office of a Director shall be vacated:

 

  (a)

if he gives notice in writing to the Company that he resigns the office of Director;

 

  (b)

if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three (3) consecutive meetings of the Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office;

 

  (c)

if he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally;

 

  (d)

if he is found a lunatic or becomes of unsound mind; or

 

  (e)

if he is removed by a Member vote by the holders of the class of shares that originally appointed him, as set forth in Article 69.

APPOINTMENT AND REMOVAL OF DIRECTORS

 

98

The Directors of the Company may only be appointed as provided in Article 69. No Director designated or appointed pursuant to this Article may be removed from office unless (A) such removal is directed or approved of the Member which originally designated or appointed such Director, or (B) the Member(s) originally entitled to designate or appoint such Director pursuant to this Article is no longer so entitled to designate or appoint such Director. Any vacancy on the Board of Directors occurring because of the death, resignation or removal of a director shall be filled by the vote or written consent of the same Member or Members who nominated and elected such Director.

 

99

In the absence of reasonable cause, a Director of the Company shall only be removed by the Members who nominated and elected him as provided in Article 69.

PRESUMPTION OF ASSENT

 

100

A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action.

SEAL

 

101  (a)

The Company may, if the Directors so determine, have a Seal which shall, subject to Article 101(c) below, only be used by the authority of the Directors or of a committee of the Directors authorized by the Directors in that behalf and every instrument to which the Seal has been affixed shall be signed by one (1) person who shall be either a Director or the Secretary or Secretary-Treasurer or some person appointed by the Directors for such purpose.

 

51


  (b)

The Company may have a duplicate Seal or Seals each of which shall be a facsimile of the Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used.

 

  (c)

A Director, Secretary or other officer or representative or attorney may without further authority of the Directors affix the Seal of the Company over his signature alone to any document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever.

OFFICERS

 

102

Subject to Article 20, the Company may have a chief executive officer, a president, a chief financial officer, a secretary or a secretary-treasurer appointed by the Directors who may also from time to time appoint such other officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time prescribe.

DIVIDENDS, DISTRIBUTIONS AND RESERVE

 

103

Subject to the Statute and these Articles, in particular Article 20, the Directors may from time to time declare dividends (including interim dividends) and distributions on shares of the Company outstanding and authorize payment of the same out of the funds of the Company lawfully available therefor ratably among the holders of outstanding Ordinary Shares and the holders of outstanding Preferred Shares in proportion to the number of outstanding Ordinary Shares held by them (with outstanding Preferred Shares treated on an as-if-converted basis).

 

104

The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company.

 

105

No dividend or distribution shall be payable except out of the profits of the Company, realized or unrealized, or out of the Share Premium Account or as otherwise permitted by the Statute.

 

106

Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share.

 

52


107

The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

 

108

The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid-up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular, may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors.

 

109

Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two (2) or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders.

 

110

No dividend or distribution shall bear interest against the Company.

CAPITALIZATION

 

111

Subject to Article 20, the Company may upon the recommendation of the Directors by an ordinary resolution authorize the Directors to capitalize any sum standing to the credit of any of the Company’s reserve accounts (including Share Premium Account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares for allotment and distribution credited as fully paid-up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalization, with full power to the Directors to make such provisions as they think fit for the case of shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorize any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalization and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.

 

53


BOOKS OF ACCOUNT

 

112

The Directors shall cause proper books of account to be kept with respect to:

 

  (a)

all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place;

 

  (b)

all sales and purchases of goods by the Company; and

 

  (c)

the assets and liabilities of the Company.

Proper books shall not be deemed to be kept if such books of account are not kept as necessary to give a true and fair view of the state of the Company’s affairs and to explain its transactions.

 

113

The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorized by the Directors or by the Company in general meeting.

 

114

The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law.

AUDIT

 

115

The Directors shall deliver to the holders of the Preferred Shares (i) annual audited consolidated financial statements within ninety (90) days after the end of each fiscal year; (ii) quarterly unaudited consolidated financial statements within forty-five (45) days after the end of each quarter; and (iii) an annual consolidated budget for the following fiscal year within forty-five (45) days prior to the end of each fiscal year. All audits shall be performed in accordance with U.S. GAAP or other accounting principle as approved by the Preferred Majority by a reputable accounting firm acceptable to the Preferred Majority.

 

116

Any holder of the Preferred Shares representing not less than three point five percent (3.5%) of Shares of the Company or its appointee shall have the right of inspection (including the right of access, examine and copy all books of account of the Company and/or any of its Subsidiaries).

 

117

Subject to Article 20, the Company may at any annual general meeting appoint an Auditor or Auditors of the Company who shall hold office until the next annual general meeting and may fix his or their remuneration.

 

118

Subject to Article 20, the Directors may before the first annual general meeting appoint an Auditor or Auditors of the Company who shall hold office until the first annual general meeting unless previously removed by an ordinary resolution of the Members in general meeting in which case the Members at that meeting may appoint Auditors. The Directors may fill any casual vacancy in the office of Auditor but while any such vacancy continues, the surviving or continuing Auditor or Auditors, if any, may act. The remuneration of any Auditor appointed by the Directors under this Article may be fixed by the Directors.

 

54


119

Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.

 

120

Auditors shall at the next annual general meeting following their appointment and at any other time during their term of office, upon request of the Directors or any general meeting of the Members, make a report on the accounts of the Company in general meeting during their tenure of office.

NOTICES

 

121

Notices shall be in writing and may be given by the Company to any Member either personally or by sending it by overnight or international courier, facsimile or electronic mail to him or to his address as shown in the register of Members.

 

122  (a)

Where a notice is sent by overnight or international courier, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice, with a confirmation of delivery, and to have been effected at the expiration of three (3) Business Days after the letter containing the same is sent by overnight or international courier as aforesaid.

 

  (b)

Where a notice is sent by facsimile or electronic mail, service of the notice shall be deemed to be effected on the day the same is sent as aforesaid.

 

123

A notice may be given by the Company to the joint holders of record of a share by giving the notice to the joint holder first named on the register of Members in respect of the share.

 

124

A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a share or shares in consequence of the death or bankruptcy of a Member by sending it through overnight or international courier as aforesaid in a pre-paid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred.

 

125

Notice of every general meeting shall be given in any manner hereinbefore authorized to:

 

  (a)

every person shown as a Member in the register of Members as of the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the register of Members; and

 

  (b)

every person upon whom the ownership of a share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his death or bankruptcy would be entitled to receive notice of the meeting.

 

55


No other person shall be entitled to receive notices of general meetings.

WINDING UP

 

126

Subject to these Articles, if the Company shall be wound up, the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any shares or other securities whereon there is any liability.

LIQUIDATION PREFERENCE.

 

127

Upon any liquidation, dissolution or winding up of the Company and/or any Group Company, either voluntary or involuntary (each a “ Liquidation Event ”), distributions to the Members of the Company shall be made in the following manner:

 

  (a)

Before any distribution or payment shall be made to the holders of any Junior Shares (including but not limited to Series A Preferred Shares, Series Seed Preferred Shares and Ordinary Shares), each holder of Series B Preferred Shares and/or Series B+ Preferred Shares shall be entitled to receive, on parity with each other, an amount equal to one hundred percent (100%) of the Series B Original Issue Price or the Series B+ Original Issue Price (where applicable, in each case as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends declared and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series B Preferred Share or Series B+ Preferred Share (where applicable), then held by such holder (the “ Series B Preferred Shares Liquidation Preference ”). If, upon any such liquidation, dissolution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series B Preferred Shares and Series B+ Preferred Shares, then such assets shall be distributed among the holders of Series B Preferred Shares and Series B+ Preferred Shares ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

  (b)

After distribution or payment in full of the Series B Preferred Shares Liquidation Preference but before any distribution or payment shall be made to the holders of any Junior Shares (including but not limited to Series Seed Preferred Shares and Ordinary Shares), each holder of Series A Preferred Shares shall be entitled to receive, on parity with each other, an amount equal to one hundred percent (100%) of the Series A Original Issue Price (in each case as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends declared and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series A Preferred Share, then held by such holder (the “ Series A Preferred Shares Liquidation Preference ”). If, upon any such liquidation, dissolution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series A Preferred Shares, then such assets shall be distributed among the holders of Series A Preferred Shares ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

56


  (c)

After distribution or payment in full of the Series B Preferred Shares Liquidation Preference and the Series A Preferred Shares Liquidation Preference but before any distribution or payment shall be made to the holders of any Junior Shares (including but not limited to Ordinary Shares), each holder of Series Seed Preferred Shares shall be entitled to receive, on parity with each other, an amount equal to one hundred percent (100%) of the Series Seed Original Issue Price (in each case as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends declared and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series Seed Preferred Share, then held by such holder. If, upon any such liquidation, dissolution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series Seed Preferred Shares, then such assets shall be distributed among the holders of Series Seed Preferred Shares ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

  (d)

After distribution or payment in full of the amount distributable or payable on the Preferred Shares pursuant to paragraphs (a) to (c) of this Article 127, the remaining assets of the Company available for distribution to Members shall be distributed ratably among the holders of outstanding Ordinary Shares and the holders of outstanding Preferred Shares in proportion to the number of outstanding Ordinary Shares held by them (with outstanding Preferred Shares treated on an as-if-converted basis).

 

  (e)

Should the distribution made to the Preferred Shareholders pursuant to the Articles 127(a), 127(b), 127(c) and 127(d) become infeasible or unenforceable for whatever reasons, each holder of Ordinary Shares or any other class or series of shares hereby undertakes to, without payment, transfer all of its rights and interests in such distribution receivable by it under this Article 127 in proportion to the number of outstanding Ordinary Shares held by them (with outstanding Preferred Shares treated on an as-if-converted basis), to the Preferred Shareholders until each Preferred Shareholder receives the full amount that such Preferred Shareholder would have received pursuant to the Articles 127(a), 127(b), 127(c) and 127(d), provided that each Series B Preferred Shareholder shall receive payments, on a parity with each other, in preference to each Series A Preferred Shareholder, each Series A Preferred Shareholder shall receive payments, on a parity with each other, in preference to each Series Seed Preferred Shareholder, and each Series Seed Preferred Shareholder shall receive payments, on a parity with each other, in preference to each Ordinary Shareholder.

 

57


  (f)

Liquidation on Sale or Merger . The following events shall be treated as a liquidation under this Article 127 unless waived by Preferred Majority, voting together as a single group on an as-converted basis (each, a “ Deemed Liquidation Event ”):

 

  (1)

any consolidation, amalgamation or merger of the Company and/or any Group Company with or into any other Person or other corporate reorganization, in which the Members of the Company or shareholders of such Group Company immediately prior to such consolidation, amalgamation, merger or reorganization, own less than fifty percent (50%) of the voting power of Company or any other Group Company immediately after such consolidation, merger, amalgamation or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s or any other Group Company’s voting power is transferred, but excluding any transaction effected solely for tax purposes or to change the Company’s domicile or any other Group Company’s domicile;

 

  (2)

the sale, exchange, transfer or other disposition, in one or a series of related transactions, of a majority of the outstanding share capital of any Group Company to one Person or a group of Persons acting in concert, under circumstances in which the holders of a majority in voting power of the outstanding share capital of any Group Company immediately prior to such transaction beneficially own less than a majority in voting power of the outstanding share capital of the surviving entity or the acquiring Person immediately following such transaction;

 

  (3)

a sale, lease, transfer 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 any Group Company; or

 

  (4)

the exclusive licensing of all or substantially all of the Group Companies intellectual property to a third party,

and upon any such event, any proceeds resulting to the Members of the Company therefrom shall be distributed in accordance with the terms of paragraph (a) through (d) of this Article 127. For the avoidance of doubt, each of a Trade Sale or a Drag-Along Sale shall be a Deemed Liquidation Event.

 

58


  (g)

Subject to Article 20, in the event the Company proposes to distribute assets other than cash in connection with any liquidation, dissolution or winding up of the Company, the value of the assets to be distributed to the holder of the Preferred Shares and Ordinary Shares shall be determined in good faith by the Board of Directors (including the affirmative votes of the Investor Directors), or by a liquidator if one is appointed. Any securities not subject to investment letter or similar restrictions on free marketability shall be valued as follows:

 

  (i)

if traded on a securities exchange, the value shall be deemed to be the average of the security’s closing prices on such exchange over the thirty (30) day period ending one (1) day prior to the distribution;

 

  (ii)

if traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the thirty (30) day period ending three (3) days prior to the distribution; and

 

  (iii)

if there is no active public market, the value shall be the fair market value thereof as determined in good faith by the Board of Directors (including the affirmative votes of the Investor Directors).

 

  (h)

The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be adjusted to make an appropriate discount from the market value determined as above in clause (i), (ii) or (iii) to reflect the fair market value thereof as determined in good faith by the Board of Directors, (including the affirmative votes of the Investor Directors), or by a liquidator if one is appointed. The Preferred Majority shall have the right to challenge any determination by the Board of Directors (including the affirmative votes of the Investor Directors) of fair market value pursuant to this Article 127(h), in which case the determination of fair market value shall be made by an independent appraiser selected jointly by the Board of Directors (including the affirmative votes of the Investor Directors) and the challenging parties, the cost of such appraisal to be borne equally by the Company and the challenging parties.

INDEMNITY

 

128

To the maximum extent permitted by applicable law and any indemnification agreement, the Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their respective heirs, executors, administrators and personal representatives shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own willful neglect or default and no such Director, officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director, officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his office or trust unless the same shall happen through the willful neglect or default of such Director, officer or trustee.

 

59


FINANCIAL YEAR

 

129

Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31 in each year and, following the year of incorporation, shall begin on January 1 in each year.

AMENDMENTS OF ARTICLES

 

130

Subject to the Statute and to any quorum, voting or procedural requirements expressly imposed by these Articles in regard to the variation of rights attached to a specific class of shares of the Company, the Company may at any time and from time to time by a Special Resolution, change the name of the Company or alter or amend these Articles or the Memorandum of Association, in whole or in part.

TRANSFER BY WAY OF CONTINUATION

 

131

If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.

NO PUBLIC DOCUMENT

 

132

None of the documents of the Company, including its Memorandum of Association, these Articles, or any register of Members, Directors, transfers or changes, will be exhibited as a public document in the Cayman Islands.

 

60

Exhibit 3.2

THE COMPANIES LAW (2018 REVISION)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

THIRD AMENDED AND RESTATED

MEMORANDUM OF ASSOCIATION

OF

YUNJI INC.

(Adopted by Special Resolution passed on March 19, 2019 and effective immediately prior to the completion of the initial public offering of the Company’s American Depositary Shares representing its Class A Ordinary Shares)

 

1.

The name of the Company is Yunji Inc .

 

2.

The Registered Office of the Company will be situated at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other location within the Cayman Islands as the Directors may from time to time determine.

 

3.

The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law or any other law of the Cayman Islands.

 

4.

The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by the Companies Law.

 

5.

The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands.

 

6.

The liability of each Shareholder is limited to the amount, if any, unpaid on the Shares held by such Shareholder.

 

7.

The authorised share capital of the Company is US$100,000 divided into 20,000,000,000 shares comprising of (i) 17,000,000,000 Class A Ordinary Shares of a par value of US$0.000005 each, (ii) 2,000,000,000 Class B Ordinary Shares of a par value of US$0.000005 each and (iii) 1,000,000,000 shares of a par value of US$0.000005 each of such class or classes (however designated) as the board of directors may determine in accordance with Article 9 of the Articles. Subject to the Companies Law and the Articles, the Company shall have power to redeem or purchase any of its Shares and to increase or reduce its authorised share capital and to sub-divide or consolidate the said Shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be ordinary, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.

 

8.

The Company has the power contained in the Companies Law to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction.

 

9.

Capitalised terms that are not defined in this Memorandum of Association bear the same meanings as those given in the Articles of Association of the Company.


THE COMPANIES LAW (2018 REVISION)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

THIRD AMENDED AND RESTATED

ARTICLES OF ASSOCIATION

OF

YUNJI INC.

(Adopted by Special Resolution passed on March 19, 2019 and effective immediately prior to the completion of the initial public offering of the Company’s American Depositary Shares representing its Class A Ordinary Shares)

TABLE A

The regulations contained or incorporated in Table ‘A’ in the First Schedule of the Companies Law shall not apply to the Company and the following Articles shall comprise the Articles of Association of the Company.

INTERPRETATION

 

1.

In these Articles the following defined terms will have the meanings ascribed to them, if not inconsistent with the subject or context:

 

“ADS”    means an American Depositary Share representing Class A Ordinary Shares;
“Affiliate”    means in respect of a Person, any other Person that, directly or indirectly, through one (1) or more intermediaries, controls, is controlled by, or is under common control with, such Person, and (i) in the case of a natural person, shall include, without limitation, such person’s spouse, parents, children, siblings, mother-in-law, father-in-law, brothers-in-law and sisters-in-law, a trust for the benefit of any of the foregoing, and a corporation, partnership or any other entity wholly or jointly owned by any of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any other entity or any natural person which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity. The term “control” shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity;
“Articles”    means these articles of association of the Company, as amended or substituted from time to time;

 

2


“Board” and “Board of Directors” and “Directors”    means the directors of the Company for the time being, or as the case may be, the directors assembled as a board or as a committee thereof;
“Chairman”    means the chairman of the Board of Directors;
“Class” or “Classes”    means any class or classes of Shares as may from time to time be issued by the Company;
“Class A Ordinary Share”    means an Ordinary Share of a par value of US$0.000005 in the capital of the Company, designated as a Class A Ordinary Shares and having the rights provided for in these Articles;
“Class B Ordinary Share”    means an Ordinary Share of a par value of US$0.000005 in the capital of the Company, designated as a Class B Ordinary Share and having the rights provided for in these Articles;
“Commission”    means the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act;
“Company”    means Yunji Inc., a Cayman Islands exempted company;
“Companies Law”    means the Companies Law (2018 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof;
“Company’s Website”    means the main corporate/investor relations website of the Company, the address or domain name of which has been disclosed in any registration statement filed by the Company with the Commission in connection with its initial public offering of ADSs, or which has otherwise been notified to Shareholders;
“Designated Stock Exchange”    means the stock exchange in the United States on which any Shares or ADSs are listed for trading;
“Designated Stock Exchange Rules”    means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares or ADSs on the Designated Stock Exchange;
“electronic”    has the meaning given to it in the Electronic Transactions Law and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;
“electronic communication”    means electronic posting to the Company’s Website, transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of the vote of the Board;
“Electronic Transactions Law”    means the Electronic Transactions Law (2003 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof;

 

3


“electronic record”    has the meaning given to it in the Electronic Transactions Law and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;
“Memorandum of Association”    means the memorandum of association of the Company, as amended or substituted from time to time;
“Ordinary Resolution”   

means a resolution:

 

(a)   passed by a simple majority of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company held in accordance with these Articles; or

  

(b)   approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed;

“Ordinary Share”    means a Class A Ordinary Share or a Class B Ordinary Share;
“paid up”    means paid up as to the par value in respect of the issue of any Shares and includes credited as paid up;
“Person”    means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires;
“Register”    means the register of Members of the Company maintained in accordance with the Companies Law;
“Registered Office”    means the registered office of the Company as required by the Companies Law;
“Seal”    means the common seal of the Company (if adopted) including any facsimile thereof;
“Secretary”    means any Person appointed by the Directors to perform any of the duties of the secretary of the Company;
“Securities Act”    means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time;
“Share”    means a share in the capital of the Company. All references to “Shares” herein shall be deemed to be Shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression “Share” shall include a fraction of a Share;
“Shareholder” or “Member”    means a Person who is registered as the holder of one or more Shares in the Register;

 

4


“Share Premium Account”    means the share premium account established in accordance with these Articles and the Companies Law;
“signed”    means bearing a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a person with the intent to sign the electronic communication;
“Special Resolution”   

means a special resolution of the Company passed in accordance with the Companies Law, being a resolution:

 

(a)   passed by not less than two-thirds of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or

 

(b)   approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed;

“Treasury Share”    means a Share held in the name of the Company as a treasury share in accordance with the Companies Law; and
“United States”    means the United States of America, its territories, its possessions and all areas subject to its jurisdiction.

 

2.

In these Articles, save where the context requires otherwise:

 

  (a)

words importing the singular number shall include the plural number and vice versa;

 

  (b)

words importing the masculine gender only shall include the feminine gender and any Person as the context may require;

 

  (c)

the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative;

 

  (d)

reference to a dollar or dollars (or US$) and to a cent or cents is reference to dollars and cents of the United States of America;

 

  (e)

reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force;

 

  (f)

reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case;

 

  (g)

reference to “in writing” shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing including in the form of an electronic record or partly one and partly another;

 

5


  (h)

any requirements as to delivery under the Articles include delivery in the form of an electronic record or an electronic communication;

 

  (i)

any requirements as to execution or signature under the Articles, including the execution of the Articles themselves, can be satisfied in the form of an electronic signature as defined in the Electronic Transaction Law; and

 

  (j)

Sections 8 and 19(3) of the Electronic Transactions Law shall not apply.

 

3.

Subject to the last two preceding Articles, any words defined in the Companies Law shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.

PRELIMINARY

 

4.

The business of the Company may be conducted as the Directors see fit.

 

5.

The Registered Office shall be at such address in the Cayman Islands as the Directors may from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine.

 

6.

The expenses incurred in the formation of the Company and in connection with the offer for subscription and issue of Shares shall be paid by the Company. Such expenses may be amortised over such period as the Directors may determine and the amount so paid shall be charged against income and/or capital in the accounts of the Company as the Directors shall determine.

 

7.

The Directors shall keep, or cause to be kept, the Register at such place as the Directors may from time to time determine and, in the absence of any such determination, the Register shall be kept at the Registered Office.

SHARES

 

8.

Subject to these Articles, all Shares for the time being unissued shall be under the control of the Directors who may, in their absolute discretion and without the approval of the Members, cause the Company to:

 

  (a)

issue, allot and dispose of Shares (including, without limitation, preferred shares) (whether in certificated form or non-certificated form) to such Persons, in such manner, on such terms and having such rights and being subject to such restrictions as they may from time to time determine;

 

  (b)

grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued and outstanding Shares, at such times and on such other terms as they think proper; and

 

  (c)

grant options with respect to Shares and issue warrants or similar instruments with respect thereto.

 

6


9.

The Directors may authorise the division of Shares into any number of Classes and the different Classes shall be authorised, established and designated (or re-designated as the case may be) and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different Classes (if any) may be fixed and determined by the Directors or by an Ordinary Resolution. The Directors may issue Shares with such preferred or other rights, all or any of which may be greater than the rights of Ordinary Shares, at such time and on such terms as they may think appropriate. Notwithstanding Article 18, the Directors may issue from time to time, out of the authorised share capital of the Company (other than the authorised but unissued Ordinary Shares), series of preferred shares in their absolute discretion and without approval of the Members; provided, however, before any preferred shares of any such series are issued, the Directors shall by resolution of Directors determine, with respect to any series of preferred shares, the terms and rights of that series, including:

 

  (a)

the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof if different from the par value thereof;

 

  (b)

whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited;

 

  (c)

the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of shares;

 

  (d)

whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption;

 

  (e)

whether the preferred shares of such series shall have any rights to receive any part of the assets available for distribution amongst the Members upon the liquidation of the Company, and, if so, the terms of such liquidation preference, and the relation which such liquidation preference shall bear to the entitlements of the holders of shares of any other class or any other series of shares;

 

  (f)

whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

 

  (g)

whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;

 

  (h)

the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing shares or shares of any other class of shares or any other series of preferred shares;

 

7


  (i)

the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional shares, including additional shares of such series or of any other class of shares or any other series of preferred shares; and

 

  (j)

any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof;

and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued. The Company shall not issue Shares to bearer.

 

10.

The Company may insofar as may be permitted by law, pay a commission to any Person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also pay such brokerage as may be lawful on any issue of Shares.

 

11.

The Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason.

CLASS A ORDINARY SHARES AND CLASS B ORDINARY SHARES

 

12.

Holders of Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of the Company, and each Class B Ordinary Share shall entitle the holder thereof to ten (10) votes on all matters subject to vote at general meetings of the Company.

 

13.

Each Class B Ordinary Share is convertible into one (1) Class A Ordinary Share at any time by the holder thereof. The right to convert shall be exercisable by the holder of the Class B Ordinary Share delivering a written notice to the Company that such holder elects to convert a specified number of Class B Ordinary Shares into Class A Ordinary Shares.

 

14.

Any number of Class B Ordinary Shares held by a holder thereof will be automatically and immediately converted into an equal number of Class A Ordinary Shares upon the occurrence of any of the following:

 

  (a)

any direct or indirect sale, transfer, assignment or disposition of such number of Class B Ordinary Shares by the holder thereof or the direct or indirect transfer or assignment of the voting power attached to such number of Class B Ordinary Shares through voting proxy or otherwise to any person that is not an Affiliate of such holder;

for the avoidance of doubt, the creation of any pledge, charge, encumbrance or other third party right of whatever description on any of Class B Ordinary Shares to secure contractual or legal obligations shall not be deemed as a sale, transfer, assignment or disposition unless and until any such pledge, charge, encumbrance or other third party right is enforced and results in a third party that is not an Affiliate of the holder holding directly or indirectly beneficial ownership or voting power through voting proxy or otherwise to the related Class B Ordinary Shares, in which case all the related Class B Ordinary Shares shall be automatically converted into the same number of Class A Ordinary Shares; or

 

8


  (b)

the direct or indirect sale, transfer, assignment or disposition of a majority of the issued and outstanding voting securities of, or the direct or indirect transfer or assignment of the voting power attached to such voting securities through voting proxy or otherwise, or the direct or indirect sale, transfer, assignment or disposition of all or substantially all of the assets of, a holder of Class B Ordinary Shares that is an entity to any person that is not an Affiliate of such holder;

for the avoidance of doubt, the creation of any pledge, charge, encumbrance or other third party right of whatever description on the issued and outstanding voting securities or the assets of a holder of Class B Ordinary Shares that is an entity to secure contractual or legal obligations shall not be deemed as a sale, transfer, assignment or disposition under this clause (b) unless and until any such pledge, charge, encumbrance or other third party right is enforced and results in a third party that is not an Affiliate of the holder holding directly or indirectly beneficial ownership or voting power through voting proxy or otherwise to the related issued and outstanding voting securities or the assets;

 

15.

Any conversion of Class B Ordinary Shares into Class A Ordinary Shares pursuant to these Articles shall be effected by means of the re-designation of each relevant Class B Ordinary Share as a Class A Ordinary Share. Such conversion shall become effective forthwith upon entries being made in the Register to record the re-designation of the relevant Class B Ordinary Shares as Class A Ordinary Shares.

 

16.

Class A Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances.

 

17.

Save and except for voting rights and conversion rights as set out in Articles 12 to 16 (inclusive), the Class A Ordinary Shares and the Class B Ordinary Shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions.

MODIFICATION OF RIGHTS

 

18.

Whenever the capital of the Company is divided into different Classes the rights attached to any such Class may, subject to any rights or restrictions for the time being attached to any Class, only be materially adversely varied with the consent in writing of the holders of all of the issued Shares of that Class or with the sanction of an Ordinary Resolution passed at a separate meeting of the holders of the Shares of that Class. To every such separate meeting all the provisions of these Articles relating to general meetings of the Company or to the proceedings thereat shall, mutatis mutandis, apply, except that the necessary quorum shall be one or more Persons holding or representing by proxy at least one-third in nominal or par value amount of the issued Shares of the relevant Class (but so that if at any adjourned meeting of such holders a quorum as above defined is not present, those Shareholders who are present shall form a quorum) and that, subject to any rights or restrictions for the time being attached to the Shares of that Class, every Shareholder of the Class shall on a poll have one vote for each Share of the Class held by him. For the purposes of this Article the Directors may treat all the Classes or any two or more Classes as forming one Class if they consider that all such Classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate Classes.

 

19.

The rights conferred upon the holders of the Shares of any Class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the Shares of that Class, be deemed to be materially adversely varied by, inter alia, the creation, allotment or issue of further Shares ranking pari passu with or subsequent to them or the redemption or purchase of any Shares of any Class by the Company. The rights of the holders of Shares shall not be deemed to be materially adversely varied by the creation or issue of Shares with preferred or other rights including, without limitation, the creation of Shares with enhanced or weighted voting rights.

 

9


CERTIFICATES

 

20.

Every Person whose name is entered as a Member in the Register may, without payment and upon its written request, request a certificate within two calendar months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. All certificates shall specify the Share or Shares held by that Person, provided that in respect of a Share or Shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all. All certificates for Shares shall be delivered personally or sent through the post addressed to the Member entitled thereto at the Member’s registered address as appearing in the Register.

 

21.

Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act.

 

22.

Any two or more certificates representing Shares of any one Class held by any Member may at the Member’s request be cancelled and a single new certificate for such Shares issued in lieu on payment (if the Directors shall so require) of one dollar (US$1.00) or such smaller sum as the Directors shall determine.

 

23.

If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing the same Shares may be issued to the relevant Member upon request, subject to delivery up of the old certificate or (if alleged to have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-pocket expenses of the Company in connection with the request as the Directors may think fit.

 

24.

In the event that Shares are held jointly by several persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders.

FRACTIONAL SHARES

 

25.

The Directors may issue fractions of a Share and, if so issued, a fraction of a Share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contributions, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without prejudice to the generality of the foregoing, voting and participation rights) and other attributes of a whole Share. If more than one fraction of a Share of the same Class is issued to or acquired by the same Shareholder such fractions shall be accumulated.

LIEN

 

26.

The Company has a first and paramount lien on every Share (whether or not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that Share. The Company also has a first and paramount lien on every Share registered in the name of a Person indebted or under liability to the Company (whether he is the sole registered holder of a Share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). The Directors may at any time declare a Share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a Share extends to any amount payable in respect of it, including but not limited to dividends.

 

10


27.

The Company may sell, in such manner as the Directors in their absolute discretion think fit, any Share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen calendar days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the Share, or the Persons entitled thereto by reason of his death or bankruptcy.

 

28.

For giving effect to any such sale the Directors may authorise a Person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

 

29.

The proceeds of the sale after deduction of expenses, fees and commission incurred by the Company shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the Shares prior to the sale) be paid to the Person entitled to the Shares immediately prior to the sale.

CALLS ON SHARES

 

30.

Subject to the terms of the allotment, the Directors may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their Shares, and each Shareholder shall (subject to receiving at least fourteen calendar days’ notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such Shares. A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed.

 

31.

The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof.

 

32.

If a sum called in respect of a Share is not paid before or on the day appointed for payment thereof, the Person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part.

 

33.

The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified.

 

34.

The Directors may make arrangements with respect to the issue of partly paid Shares for a difference between the Shareholders, or the particular Shares, in the amount of calls to be paid and in the times of payment.

 

35.

The Directors may, if they think fit, receive from any Shareholder willing to advance the same all or any part of the moneys uncalled and unpaid upon any partly paid Shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight percent per annum) as may be agreed upon between the Shareholder paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable.

 

11


FORFEITURE OF SHARES

 

36.

If a Shareholder fails to pay any call or instalment of a call in respect of partly paid Shares on the day appointed for payment, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.

 

37.

The notice shall name a further day (not earlier than the expiration of fourteen calendar days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited.

 

38.

If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect.

 

39.

A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit.

 

40.

A Person whose Shares have been forfeited shall cease to be a Shareholder in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the Shares forfeited.

 

41.

A certificate in writing under the hand of a Director that a Share has been duly forfeited on a date stated in the certificate shall be conclusive evidence of the facts in the declaration as against all Persons claiming to be entitled to the Share.

 

42.

The Company may receive the consideration, if any, given for a Share on any sale or disposition thereof pursuant to the provisions of these Articles as to forfeiture and may execute a transfer of the Share in favour of the Person to whom the Share is sold or disposed of and that Person shall be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the disposition or sale.

 

43.

The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a Share becomes due and payable, whether on account of the amount of the Share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

TRANSFER OF SHARES

 

44.

The instrument of transfer of any Share shall be in writing and in any usual or common form or such other form as the Directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a Shareholder until the name of the transferee is entered in the Register in respect of the relevant Shares.

 

12


45.    (a)

The Directors may in their absolute discretion decline to register any transfer of Shares which is not fully paid up or on which the Company has a lien.

 

  (b)

The Directors may also decline to register any transfer of any Share unless:

 

  (i)

the instrument of transfer is lodged with the Company, accompanied by the certificate for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;

 

  (ii)

the instrument of transfer is in respect of only one Class of Shares;

 

  (iii)

the instrument of transfer is properly stamped, if required;

 

  (iv)

in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four; and

 

  (v)

a fee of such maximum sum as the Designated Stock Exchange may determine to be payable, or such lesser sum as the Board of Directors may from time to time require, is paid to the Company in respect thereof.

 

46.

The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers, by electronic means or by any other means in accordance with the Designated Stock Exchange Rules, be suspended and the Register closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the Register closed for more than thirty calendar days in any calendar year.

 

47.

All instruments of transfer that are registered shall be retained by the Company. If the Directors refuse to register a transfer of any Shares, they shall within three calendar months after the date on which the transfer was lodged with the Company send notice of the refusal to each of the transferor and the transferee.

TRANSMISSION OF SHARES

 

48.

The legal personal representative of a deceased sole holder of a Share shall be the only Person recognised by the Company as having any title to the Share. In the case of a Share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only Person recognised by the Company as having any title to the Share.

 

49.

Any Person becoming entitled to a Share in consequence of the death or bankruptcy of a Shareholder shall, upon such evidence being produced as may from time to time be required by the Directors, have the right either to be registered as a Shareholder in respect of the Share or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt Person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt Person before the death or bankruptcy.

 

13


50.

A Person becoming entitled to a Share by reason of the death or bankruptcy of a Shareholder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered Shareholder, except that he shall not, before being registered as a Shareholder in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety calendar days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.

REGISTRATION OF EMPOWERING INSTRUMENTS

 

51.

The Company shall be entitled to charge a fee not exceeding one dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument.

ALTERATION OF SHARE CAPITAL

 

52.

The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into Shares of such Classes and amount, as the resolution shall prescribe.

 

53.

The Company may by Ordinary Resolution:

 

(a)

increase its share capital by new Shares of such amount as it thinks expedient;

 

(b)

consolidate and divide all or any of its share capital into Shares of a larger amount than its existing Shares;

 

(c)

subdivide its Shares, or any of them, into Shares of an amount smaller than that fixed by the Memorandum, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived; and

 

(d)

cancel any Shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any Person and diminish the amount of its share capital by the amount of the Shares so cancelled.

 

54.

The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorised by law.

REDEMPTION, PURCHASE AND SURRENDER OF SHARES

 

55.

Subject to the provisions of the Companies Law and these Articles, the Company may:

 

  (a)

issue Shares that are to be redeemed or are liable to be redeemed at the option of the Shareholder or the Company. The redemption of Shares shall be effected in such manner and upon such terms as may be determined, before the issue of such Shares, by either the Board or by the Shareholders by Special Resolution;

 

  (b)

purchase its own Shares (including any redeemable Shares) on such terms and in such manner and terms as have been approved by the Board or by the Members by Ordinary Resolution, or are otherwise authorised by these Articles; and

 

  (c)

make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Companies Law, including out of capital.

 

14


56.

The purchase of any Share shall not oblige the Company to purchase any other Share other than as may be required pursuant to applicable law and any other contractual obligations of the Company.

 

57.

The holder of the Shares being purchased shall be bound to deliver up to the Company the certificate(s) (if any) thereof for cancellation and thereupon the Company shall pay to him the purchase or redemption monies or consideration in respect thereof.

 

58.

The Directors may accept the surrender for no consideration of any fully paid Share.

TREASURY SHARES

 

59.

The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share.

 

60.

The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration).

GENERAL MEETINGS

 

61.

All general meetings other than annual general meetings shall be called extraordinary general meetings.

 

62.    (a)

The Company may (but shall not be obliged to) in each calendar year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors.

 

  (b)

At these meetings the report of the Directors (if any) shall be presented.

 

63.    (a)

The Chairman or the Directors (acting by a resolution of the Board) may call general meetings, and they shall on a Shareholders’ requisition forthwith proceed to convene an extraordinary general meeting of the Company.

 

  (b)

A Shareholders’ requisition is a requisition of Members holding at the date of deposit of the requisition Shares which carry in aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the deposit carry the right to vote at general meetings of the Company.

 

  (c)

The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists.

 

  (d)

If there are no Directors as at the date of the deposit of the Shareholders’ requisition, or if the Directors do not within twenty-one (21) calendar days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one calendar days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three calendar months after the expiration of the said twenty-one calendar days.

 

  (e)

A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors.

 

15


NOTICE OF GENERAL MEETINGS

 

64.

At least seven (7) calendar days’ notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed:

 

  (a)

in the case of an annual general meeting, by all the Shareholders (or their proxies) entitled to attend and vote thereat; and

 

  (b)

in the case of an extraordinary general meeting, by a majority of the Shareholders having a right to attend and vote at the meeting, present in person or by proxy or, in the case of a corporation or other non-natural person, by its duly authorised representative or proxy.

 

65.

The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting.

PROCEEDINGS AT GENERAL MEETINGS

 

66.

No business except for the appointment of a chairman for the meeting shall be transacted at any general meeting unless a quorum of Shareholders is present at the time when the meeting proceeds to business. One or more Shareholders holding Shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to all Shares in issue and entitled to vote at such general meeting, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorised representative, shall be a quorum for all purposes.

 

67.

If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall be dissolved.

 

68.

If the Directors wish to make this facility available for a specific general meeting or all general meetings of the Company, participation in any general meeting of the Company may be by means of a telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.

 

69.

The Chairman, if any, shall preside as chairman at every general meeting of the Company.

 

70.

If there is no such Chairman, or if at any general meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman of the meeting, any Director or Person nominated by the Directors shall preside as chairman of that meeting, failing which the Shareholders present in person or by proxy shall choose any Person present to be chairman of that meeting.

 

71.

The chairman may with the consent of any general meeting at which a quorum is present (and shall if so directed by the meeting) adjourn a meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting, or adjourned meeting, is adjourned for fourteen calendar days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.

 

16


72.

The Directors may cancel or postpone any duly convened general meeting at any time prior to such meeting, except for general meetings requisitioned by the Shareholders in accordance with these Articles, for any reason or for no reason, upon notice in writing to Shareholders. A postponement may be for a stated period of any length or indefinitely as the Directors may determine.

 

73.

At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman of the meeting or any Shareholder holding not less than ten per cent (10%) of the votes attaching to the Shares present in person or by proxy, and unless a poll is so demanded, a declaration by the chairman of the meeting that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution.

 

74.

If a poll is duly demanded it shall be taken in such manner as the chairman of the meeting directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

 

75.

All questions submitted to a meeting shall be decided by an Ordinary Resolution except where a greater majority is required by these Articles or by the Companies Law. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote.

 

76.

A poll demanded on the election of a chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs.

VOTES OF SHAREHOLDERS

 

77.

Subject to any rights and restrictions for the time being attached to any Share, on a show of hands every Shareholder present in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall, at a general meeting of the Company, each have one vote and on a poll every Shareholder present in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall have one (1) vote for each Class A Ordinary Share and ten (10) votes for each Class B Ordinary Share of which he is the holder.

 

78.

In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register.

 

79.

Shares carrying the right to vote that are held by a Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may be voted, whether on a show of hands or on a poll, by his committee, or other Person in the nature of a committee appointed by that court, and any such committee or other Person may vote in respect of such Shares by proxy.

 

17


80.

No Shareholder shall be entitled to vote at any general meeting of the Company unless all calls, if any, or other sums presently payable by him in respect of Shares carrying the right to vote held by him have been paid.

 

81.

On a poll votes may be given either personally or by proxy.

 

82.

Each Shareholder, other than a recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)), may only appoint one proxy on a show of hand. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under Seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Shareholder.

 

83.

An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve.

 

84.

The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company:

 

  (a)

not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote; or

 

  (b)

in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll; or

 

  (c)

where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the meeting at which the poll was demanded to the chairman or to the secretary or to any director;

provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument appointing a proxy may be deposited at such other time (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The Chairman may in any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall be invalid.

 

85.

The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll.

 

86.

A resolution in writing signed by all the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings of the Company (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held.

CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS

 

87.

Any corporation which is a Shareholder or a Director may by resolution of its directors or other governing body authorise such Person as it thinks fit to act as its representative at any meeting of the Company or of any meeting of holders of a Class or of the Directors or of a committee of Directors, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director.

 

18


DEPOSITARY AND CLEARING HOUSES

 

88.

If a recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) is a Member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorise such Person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any Class of Shareholders provided that, if more than one Person is so authorised, the authorisation shall specify the number and Class of Shares in respect of which each such Person is so authorised. A Person so authorised pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) which he represents as that recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) could exercise if it were an individual Member holding the number and Class of Shares specified in such authorisation, including the right to vote individually on a show of hands.

DIRECTORS

 

89.    (a)

Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than three (3) Directors, the exact number of Directors to be determined from time to time by the Board of Directors.

 

  (b)

The Board of Directors shall have a Chairman elected and appointed by a majority of the Directors then in office. The period for which the Chairman will hold office will also be determined by a majority of all of the Directors then in office. The Chairman shall preside as chairman at every meeting of the Board of Directors. To the extent the Chairman is not present at a meeting of the Board of Directors within fifteen minutes after the time appointed for holding the same, the attending Directors may choose one of their number to be the chairman of the meeting.

 

  (c)

The Company may by Ordinary Resolution appoint any person to be a Director.

 

  (d)

The Board may, by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting, appoint any person as a Director, to fill a vacancy on the Board arising from the office of any Director being vacated in any of the circumstances described in Article 110, or as an addition to the existing Board.

 

  (e)

An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the Director, if any; but no such term shall be implied in the absence of express provision. Each Director whose term of office expires shall be eligible for re-election at a meeting of the Shareholders or re-appointment by the Board.

 

90.

A Director may be removed from office by Ordinary Resolution of the Company, notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement). A vacancy on the Board created by the removal of a Director under the previous sentence may be filled by Ordinary Resolution or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting.

 

91.

The Board may, from time to time, and except as required by applicable law or Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company and determine on various corporate governance related matters of the Company as the Board shall determine by resolution of Directors from time to time.

 

19


92.

A Director shall not be required to hold any Shares in the Company by way of qualification. A Director who is not a Member of the Company shall nevertheless be entitled to attend and speak at general meetings.

 

93.

The remuneration of the Directors may be determined by the Directors or by Ordinary Resolution.

 

94.

The Directors shall be entitled to be paid for their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive such fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other.

ALTERNATE DIRECTOR OR PROXY

 

95.

Any Director may in writing appoint another Person to be his alternate and, save to the extent provided otherwise in the form of appointment, such alternate shall have authority to sign written resolutions on behalf of the appointing Director, but shall not be required to sign such written resolutions where they have been signed by the appointing director, and to act in such Director’s place at any meeting of the Directors at which the appointing Director is unable to be present. Every such alternate shall be entitled to attend and vote at meetings of the Directors as a Director when the Director appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall be deemed for all purposes to be a Director and shall not be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them.

 

96.

Any Director may appoint any Person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting.

POWERS AND DUTIES OF DIRECTORS

 

97.

Subject to the Companies Law, these Articles and any resolutions passed in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution passed by the Company in general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been passed.

 

20


98.

Subject to these Articles, the Directors may from time to time appoint any natural person or corporation, whether or not a Director to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, chief executive officer, one or more other executive officers, president, one or more vice-presidents, treasurer, assistant treasurer, manager or controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. Any natural person or corporation so appointed by the Directors may be removed by the Directors. The Directors may also appoint one or more of their number to the office of managing director upon like terms, but any such appointment shall ipso facto terminate if any managing director ceases for any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated.

 

99.

The Directors may appoint any natural person or corporation to be a Secretary (and if need be an assistant Secretary or assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by the Company by Ordinary Resolution.

 

100.

The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors.

 

101.

The Directors may from time to time and at any time by power of attorney (whether under Seal or under hand) or otherwise appoint any company, firm or Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys or authorised signatory (any such person being an “Attorney” or “Authorised Signatory”, respectively) of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such Attorney or Authorised Signatory as the Directors may think fit, and may also authorise any such Attorney or Authorised Signatory to delegate all or any of the powers, authorities and discretion vested in him.

 

102.

The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following Articles shall not limit the general powers conferred by this Article.

 

103.

The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any natural person or corporation to be a member of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any such natural person or corporation.

 

104.

The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any natural person or corporation so appointed and may annul or vary any such delegation, but no Person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

 

105.

Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities, and discretion for the time being vested in them.

 

21


BORROWING POWERS OF DIRECTORS

 

106.

The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

THE SEAL

 

107.

The Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose and every Person as aforesaid shall sign every instrument to which the Seal is so affixed in their presence.

 

108.

The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such Person or Persons as the Directors shall for this purpose appoint and such Person or Persons as aforesaid shall sign every instrument to which the facsimile Seal is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Seal had been affixed in the presence of and the instrument signed by a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose.

 

109.

Notwithstanding the foregoing, a Secretary or any assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company.

DISQUALIFICATION OF DIRECTORS

 

110.

The office of Director shall be vacated, if the Director:

 

  (a)

becomes bankrupt or makes any arrangement or composition with his creditors;

 

  (b)

dies or is found to be or becomes of unsound mind;

 

  (c)

resigns his office by notice in writing to the Company;

 

  (d)

without special leave of absence from the Board, is absent from meetings of the Board for three consecutive meetings and the Board resolves that his office be vacated; or

 

  (e)

is removed from office pursuant to any other provision of these Articles.

 

22


PROCEEDINGS OF DIRECTORS

 

111.

The Directors may meet together (either within or without the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. At any meeting of the Directors, each Director present in person or represented by his proxy or alternate shall be entitled to one vote. In case of an equality of votes the Chairman shall have a second or casting vote. A Director may, and a Secretary or assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors.

 

112.

A Director may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director is a member, by means of telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.

 

113.

The quorum necessary for the transaction of the business of the Board may be fixed by the Directors, and unless so fixed, the quorum shall be a majority of Directors then in office, including the Chairman; provided, however, a quorum shall nevertheless exist at a meeting at which a quorum would exist but for the fact that the Chairman is voluntarily absent from the meeting and notifies the Board of his decision to be absent from that meeting, before or at the meeting. A Director represented by proxy or by an alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present.

 

114.

A Director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. Subject to the Designated Stock Exchange Rules and disqualification by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration.

 

115.

A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting of the Directors whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement.

 

23


116.

Any Director may act by himself or through his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company.

 

117.

The Directors shall cause minutes to be made for the purpose of recording:

 

  (a)

all appointments of officers made by the Directors;

 

  (b)

the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and

 

  (c)

all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors.

 

118.

When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings.

 

119.

A resolution in writing signed by all the Directors or all the members of a committee of Directors entitled to receive notice of a meeting of Directors or committee of Directors, as the case may be (an alternate Director, subject as provided otherwise in the terms of appointment of the alternate Director, being entitled to sign such a resolution on behalf of his appointer), shall be as valid and effectual as if it had been passed at a duly called and constituted meeting of Directors or committee of Directors, as the case may be. When signed a resolution may consist of several documents each signed by one or more of the Directors or his duly appointed alternate.

 

120.

The continuing Directors may act notwithstanding any vacancy in their body but if and for so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose.

 

121.

Subject to any regulations imposed on it by the Directors, a committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the meeting, the committee members present may choose one of their number to be chairman of the meeting.

 

122.

A committee appointed by the Directors may meet and adjourn as it thinks proper. Subject to any regulations imposed on it by the Directors, questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have a second or casting vote.

 

123.

All acts done by any meeting of the Directors or of a committee of Directors, or by any Person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or Person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and was qualified to be a Director.

PRESUMPTION OF ASSENT

 

124.

A Director who is present at a meeting of the Board of Directors at which an action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.

 

24


DIVIDENDS

 

125.

Subject to any rights and restrictions for the time being attached to any Shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on Shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor.

 

126.

Subject to any rights and restrictions for the time being attached to any Shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors.

 

127.

The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the Directors, be applicable for meeting contingencies or for equalising dividends or for any other purpose to which those funds may be properly applied, and pending such application may in the absolute discretion of the Directors, either be employed in the business of the Company or be invested in such investments (other than Shares of the Company) as the Directors may from time to time think fit.

 

128.

Any dividend payable in cash to the holder of Shares may be paid in any manner determined by the Directors. If paid by cheque it will be sent by mail addressed to the holder at his address in the Register, or addressed to such person and at such addresses as the holder may direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the Register in respect of such Shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company.

 

129.

The Directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution. Without limiting the generality of the foregoing, the Directors may fix the value of such specific assets, may determine that cash payment shall be made to some Shareholders in lieu of specific assets and may vest any such specific assets in trustees on such terms as the Directors think fit.

 

130.

Subject to any rights and restrictions for the time being attached to any Shares, all dividends shall be declared and paid according to the amounts paid up on the Shares, but if and for so long as nothing is paid up on any of the Shares dividends may be declared and paid according to the par value of the Shares. No amount paid on a Share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the Share.

 

131.

If several Persons are registered as joint holders of any Share, any of them may give effective receipts for any dividend or other moneys payable on or in respect of the Share.

 

132.

No dividend shall bear interest against the Company.

 

133.

Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the Board of Directors and, if so forfeited, shall revert to the Company.

 

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ACCOUNTS, AUDIT AND ANNUAL RETURN AND DECLARATION

 

134.

The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors.

 

135.

The books of account shall be kept at the Registered Office, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors.

 

136.

The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right to inspect any account or book or document of the Company except as conferred by law or authorised by the Directors or by Ordinary Resolution.

 

137.

The accounts relating to the Company’s affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Directors or failing any determination as aforesaid shall not be audited.

 

138.

The Directors may appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration.

 

139.

Every auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.

 

140.

The auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Members.

 

141.

The Directors in each calendar year shall prepare, or cause to be prepared, an annual return and declaration setting forth the particulars required by the Companies Law and deliver a copy thereof to the Registrar of Companies in the Cayman Islands.

CAPITALISATION OF RESERVES

 

142.

Subject to the Companies Law, the Directors may:

 

  (a)

resolve to capitalise an amount standing to the credit of reserves (including a Share Premium Account, capital redemption reserve and profit and loss account), which is available for distribution;

 

  (b)

appropriate the sum resolved to be capitalised to the Shareholders in proportion to the nominal amount of Shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards:

 

  (i)

paying up the amounts (if any) for the time being unpaid on Shares held by them respectively, or

 

  (ii)

paying up in full unissued Shares or debentures of a nominal amount equal to that sum,

 

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and allot the Shares or debentures, credited as fully paid, to the Shareholders (or as they may direct) in those proportions, or partly in one way and partly in the other, but the Share Premium Account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued Shares to be allotted to Shareholders credited as fully paid;

 

  (c)

make any arrangements they think fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where Shares or debentures become distributable in fractions the Directors may deal with the fractions as they think fit;

 

  (d)

authorise a Person to enter (on behalf of all the Shareholders concerned) into an agreement with the Company providing for either:

 

  (i)

the allotment to the Shareholders respectively, credited as fully paid, of Shares or debentures to which they may be entitled on the capitalisation, or

 

  (ii)

the payment by the Company on behalf of the Shareholders (by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing Shares,

and any such agreement made under this authority being effective and binding on all those Shareholders; and

 

  (e)

generally do all acts and things required to give effect to the resolution.

 

143.

Notwithstanding any provisions in these Articles, the Directors may resolve to capitalise an amount standing to the credit of reserves (including the share premium account, capital redemption reserve and profit and loss account) or otherwise available for distribution by applying such sum in paying up in full unissued Shares to be allotted and issued to:

 

  (a)

employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members;

 

  (b)

any trustee of any trust or administrator of any share incentive scheme or employee benefit scheme to whom shares are to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or Members; or

 

  (c)

any depositary of the Company for the purposes of the issue, allotment and delivery by the depositary of ADSs to employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members.

SHARE PREMIUM ACCOUNT

 

144.

The Directors shall in accordance with the Companies Law establish a Share Premium Account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any Share.

 

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145.

There shall be debited to any Share Premium Account on the redemption or purchase of a Share the difference between the nominal value of such Share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by the Companies Law, out of capital.

NOTICES

 

146.

Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the Person entitled to give notice to any Shareholder either personally, or by posting it by airmail or a recognised courier service in a prepaid letter addressed to such Shareholder at his address as appearing in the Register, or by electronic mail to any electronic mail address such Shareholder may have specified in writing for the purpose of such service of notices, or by facsimile to any facsimile number such Shareholder may have specified in writing for the purpose of such service of notices, or by placing it on the Company’s Website should the Directors deem it appropriate. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders.

 

147.

Notices sent from one country to another shall be sent or forwarded by prepaid airmail or a recognized courier service.

 

148.

Any Shareholder present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened.

 

149.

Any notice or other document, if served by:

 

  (a)

post, shall be deemed to have been served five calendar days after the time when the letter containing the same is posted;

 

  (b)

facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient;

 

  (c)

recognised courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service; or

 

  (d)

electronic mail, shall be deemed to have been served immediately (i) upon the time of the transmission to the electronic mail address supplied by the Shareholder to the Company or (ii) upon the time of its placement on the Company’s Website.

In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.

 

150.

Any notice or document delivered or sent by post to or left at the registered address of any Shareholder in accordance with the terms of these Articles shall notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document have been removed from the Register as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share.

 

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151.

Notice of every general meeting of the Company shall be given to:

 

  (a)

all Shareholders holding Shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and

 

  (b)

every Person entitled to a Share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting.

No other Person shall be entitled to receive notices of general meetings.

INFORMATION

 

152.

No Member shall be entitled to require discovery of any information in respect of any detail of the Company’s trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Members of the Company to communicate to the public.

 

153.

The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the Register and transfer books of the Company.

INDEMNITY

 

154.

Every Director (including for the purposes of this Article any alternate Director appointed pursuant to the provisions of these Articles), Secretary, assistant Secretary, or other officer for the time being and from time to time of the Company (but not including the Company’s auditors) and the personal representatives of the same (each an “Indemnified Person”) shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person’s own dishonesty, wilful default or fraud, in or about the conduct of the Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere.

 

155.

No Indemnified Person shall be liable:

 

  (a)

for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company; or

 

  (b)

for any loss on account of defect of title to any property of the Company; or

 

  (c)

on account of the insufficiency of any security in or upon which any money of the Company shall be invested; or

 

  (d)

for any loss incurred through any bank, broker or other similar Person; or

 

29


  (e)

for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Indemnified Person’s part; or

 

  (f)

for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or discretions of such Indemnified Person’s office or in relation thereto;

unless the same shall happen through such Indemnified Person’s own dishonesty, willful default or fraud.

FINANCIAL YEAR

 

156.

Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31 st in each calendar year and shall begin on January 1st in each calendar year.

NON-RECOGNITION OF TRUSTS

 

157.

No Person shall be recognised by the Company as holding any Share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or (except only as otherwise provided by these Articles or as the Companies Law requires) any other right in respect of any Share except an absolute right to the entirety thereof in each Shareholder registered in the Register.

WINDING UP

 

158.

If the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Companies Law, divide amongst the Members in species or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability.

 

159.

If the Company shall be wound up, and the assets available for distribution amongst the Members shall be insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of Shares issued upon special terms and conditions.

AMENDMENT OF ARTICLES OF ASSOCIATION

 

160.

Subject to the Companies Law, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part.

 

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CLOSING OF REGISTER OR FIXING RECORD DATE

 

161.

For the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at any meeting of Shareholders or any adjournment thereof, or those Shareholders that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Shareholder for any other purpose, the Directors may provide that the Register shall be closed for transfers for a stated period which shall not exceed in any case thirty calendar days in any calendar year.

 

162.

In lieu of or apart from closing the Register, the Directors may fix in advance a date as the record date for any such determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of the Shareholders and for the purpose of determining those Shareholders that are entitled to receive payment of any dividend the Directors may, at or within ninety calendar days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination.

 

163.

If the Register is not so closed and no record date is fixed for the determination of those Shareholders entitled to receive notice of, attend or vote at a meeting of Shareholders or those Shareholders that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof.

REGISTRATION BY WAY OF CONTINUATION

 

164.

The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.

DISCLOSURE

 

165.

The Directors, or any service providers (including the officers, the Secretary and the registered office agent of the Company) specifically authorised by the Directors, shall be entitled to disclose to any regulatory or judicial authority or to any stock exchange on which securities of the Company may from time to time be listed any information regarding the affairs of the Company including without limitation information contained in the Register and books of the Company.

 

31

Exhibit 4.2

Yunji Inc.

 

Number       Class A Ordinary Share(s)

Incorporated under the laws of the Cayman Islands

Share capital is US$100,000 divided into 20,000,000,000 shares comprising of

(i) 17,000,000,000 Class  A Ordinary Shares of a par value of US$0.000005 each,

(ii) 2,000,000,000 Class  B Ordinary Shares of a par value of US$0.000005 each and

(iii) 1,000,000,000 shares of a par value of US$0.000005 each

THIS IS TO CERTIFY THAT                                             is the registered holder of                              Class A Ordinary Share(s) in the above-named Company subject to the Memorandum and Articles of Association thereof.

EXECUTED on behalf of the said Company on the        day of            2019 by:

 

DIRECTOR  

 

Exhibit 4.4

 

 

AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

by and among

Yunji Inc.

Acceleration S Limited

TRUSTBRIDGE PARTNERS IV, L.P.

China Renaissance Corporation

Eastern Bell XII Investment Limited

CPYD Singapore Pte. Ltd.

FASTURN OVERSEAS LIMITED

Eastern Bell XIX Investment Limited

China TH Capital Limited

Fountain Sight Limited

Shanghai Fengxian Information and Technology Development Partnership

(LLP) ( 上海丰羡信息科技发展合伙企业 ( 有限合伙 ))

and

THE OTHER PARTIES NAMED HEREIN

June 4, 2018

 

 


AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

This AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (this “ Agreement ”) is entered into on June 4, 2018 by and among:

A.      Yunji Inc. , a Cayman Islands exempted company whose registered address is at the Office of Sertus Incorporations (Cayman) Limited, Sertus Chambers, Governors Square, Suite # 5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands (the “ Company ”);

B.      Y unji Holding Limited ( 雲集控股有限公司 ), a Hong Kong company whose registered address is at Room 1907, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong (the “ HK Co. ”);

C.      Hangzhou Yunchuang Sharing Network Technology Co., Ltd. ( 杭州云创共 网络科技有限公司 ), a company established under the laws of the PRC, whose registered address is at Suite 505, 99 Xiwen Street, Xiacheng District, Hangzhou, Zhejiang Province, PRC ( 浙江省杭州市下城区西文街 99 505 ) (the “ WFOE ”);

D.      Yunji Sharing Technology Co., Ltd. ( 云集共享科技有限公司 ), a company established under the laws of the PRC, whose registered address is at Suite 601, No. 14, Xintiandi Business Center, Xiacheng District, Hangzhou, Zhejiang Province, PRC ( 浙江省杭州市下城区新天地商务中心 14 601 ) (“ Domestic Co. ”);

E.      Zhejiang Jishang Youxuan E-Commerce Co., Ltd. ( 浙江集商优选电子商务有限公司 ), a company established under the laws of the PRC, whose registered address is at Suite 301, No. 14, Xintiandi Business Center, Xiacheng District, Hangzhou, Zhejiang Province, PRC ( 浙江省杭州市下城区新天地商务中心 14 301 ) (“ Operating Co. ”);

F.     The Persons as set forth on Schedule A-2 (each, a “ Founder ”, and collectively, the “ Founders ”);

G.     The entities as set forth on Schedule A-3 (each a “ Founder Holdco ”, and collectively, the “ Founder Holdcos ”);

H.     The entities as set forth on Schedule B-1 (each a “ Series Seed Investor ”, and collectively, the “ Series Seed Investors ”);

I.     The entities as set forth on Schedule B-2 (each a “ Series A Investor ”, and collectively, the “ Series A Investors ”);

J.     The entities as set forth on Schedule B-3 (each a “ Series B Investor ” and collectively, the “ Series B Investors ”); and

K.     The entities as set forth on Schedule B-4 (each a “ Series B+ Investor ” and collectively, the “ Series B+ Investors ”, together with the Series Seed Investors, the Series A Investors and the Series B Investors, collectively, the “ Investors ”).

Each of the foregoing parties is referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

 

1


RECITALS

WHEREAS, ( i ) TH Capital has agreed to purchase from the Company, and the Company has agreed to sell to TH Capital, in an aggregate of 1,108,033 Series B Preferred Shares of the Company, and ( ii ) the Series B+ Investors have agreed to purchase from the Company, and the Company has agreed to sell to the Series B+ Investors, in an aggregate of 21,105,395 Series B+ Preferred Shares of the Company, each on the terms and conditions set forth in the Preferred Share Purchase Agreement dated June 4, 2018 (the “ Share Purchase Agreement ”), by and among, the Company, the Founders, the Founder Holdcos, the New Investors and certain other parties thereto. This Agreement is the “ Shareholders Agreement ” as defined in the Share Purchase Agreement.

WHEREAS, the Company, the Founders, the Founder Holdcos, the Series Seed Investors, the Series A Investors, the Series B Investors (other than TH Capital) and certain other parties thereto entered into certain Shareholders Agreement on February 12, 2018 (the “ Prior Shareholders Agreement ”) to regulate the rights and obligations among them as well as the business and management of the Group Companies since the date thereof.

WHEREAS, the execution and delivery of this Agreement is a condition precedent to the purchase by the New Investors of the Series B Preferred Shares and the Series B+ Preferred Shares (where applicable) under the Share Purchase Agreement.

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.

 

2.

INFORMATION AND INSPECTION RIGHTS .

2.1     Information and Inspection Rights Prior to a Qualified IPO .

(a)     Information Rights . The Company covenants and agrees that, commencing on the date of this Agreement, and for so long as any Investor holds any Investment Securities, the Company will and will cause the Group Companies to, deliver to the Investor the following with respect to the Company and its Subsidiaries:

(i)    annual audited consolidated financial statements within ninety (90) days after the end of each fiscal year, audited in accordance with U.S. GAAP or other accounting principle as approved by the Preferred Majority by a reputable accounting firm approved by the Preferred Majority;

(ii)    monthly unaudited consolidated financial statements within fifteen (15) days after the end of each month;

 

2


(iii)    quarterly unaudited consolidated financial statements within forty-five (45) days after the end of each quarter;

(iv)    an annual consolidated budget for the following fiscal year within forty-five (45) days prior to the end of each fiscal year;

(v)    any information provided to other Investors; and

(vi)    upon the request by the Investor, such other information as the Investor shall reasonably request.

All financial statements to be provided to the Investors pursuant to this Section 2.1 and pursuant to any other Transaction Document, including the Restated M&A, shall include an income statement, a balance sheet and a cash flow statement for the relevant period, and be prepared in the English language in accordance with U.S. GAAP or other accounting principle as approved by the Preferred Majority and shall consolidate the results of operations of the Group Companies.

(b)     Inspection Rights . The Company covenants and agrees that, commencing on the date of this Agreement, and for so long as any Investor (together with its Affiliates) holds not less than three point five percent (3.5%) of Shares of the Company, such Investor or its appointee shall have the right of inspection, including the right to access, examine and copy all books or accounts of each Group Company and/or any of their respective Subsidiaries, and to discuss the business, operations and conditions of each Group Company and their respective Subsidiaries with their respective directors, officers, employees, accounts, legal counsel and investment bankers upon reasonable prior written notice and at its own cost, provided that none of the Group Companies or any of their respective Subsidiaries is obligated to provide any information which, based on the opinion of its counsel, is reasonably deemed as trade secret or proprietary information.

 

3.

REGISTRATION RIGHTS .

3.1     Applicability of Rights . The holders of the Investment 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.

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.

 

3


(b)     Registrable Securities . The term “ Registrable Securities ” means: (1) Ordinary Shares of the Company issued or to be issued upon conversion of the Preferred Shares issued (A) under the Share Purchase Agreement and (B) pursuant to the issuance of New Securities by the Company to the Investor 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; (3) any other Ordinary Share owned or hereafter acquired by the Investor, including Ordinary Shares issued in respect of the Ordinary Shares described in (1)-(2) above upon any share split, share dividend, recapitalization or a similar event; and (4) any depositary receipts issued by an institutional depositary upon deposit of any of the foregoing. Notwithstanding the foregoing, “ Registrable Securities ” shall cease to be Registrable Securities when (i) a Registration Statement covering such securities has been declared effective by the SEC and such securities have been disposed of pursuant to such effective Registration Statement, (ii) such securities are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met, (iii) such securities are otherwise transferred and such securities may be resold without subsequent registration under the Securities Act, or (iv) such securities shall have ceased to be outstanding.

(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 (i) the expiration of thirty-six (36) months after the date of the Closing, or (ii) six (6) months after a Qualified IPO, a written request from the Holders of at least twenty percent (20%) 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; provided , however , that the Company shall not be obligated to effect any such registration if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act pursuant to this Section 3.3 or Section 3.5, or in which the Holders had an opportunity to participate pursuant to the provisions of Section 3.4, 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 be included in such registration) pursuant to the provisions of Section 3.4(a).

 

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(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 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.

 

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(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 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.

 

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(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 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.

 

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(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;

(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 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.

 

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(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:

(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;

 

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(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 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.

 

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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 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.

 

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(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 indemnified party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 3.8.

(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 so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion; 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; 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.

 

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(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;

(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) two (2) 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.

 

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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 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 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.

3.14     Re-sale Rights . The Company shall use its best efforts to assist each Holder in the sale or disposition of its Registrable Securities after a Qualified IPO, including the prompt delivery of applicable instruction letters by the Company and legal opinions from the Company’s counsels in forms reasonably satisfactory to the Holder’s counsel. In the event the Company has depositary receipts listed or traded on any stock exchange or inter-dealer quotation system, the Company shall pay all costs and fees related to such depositary facility, including conversion fees and maintenance fees for Registrable Securities held by the Holders.

 

4.

RIGHT OF PARTICIPATION .

4.1     With Respect to Issuance of New Securities :

(a)     General . Each holder of Shares (the “ Participation Rights Holder s ”, and each a “ Participation Rights Holder ”) shall have a right of first refusal to purchase such a Pro Rata Share of all or any part of the New Securities that the Company may from time to time issue after the date of this Agreement (the “ Right of Participation ”). Each Participation Rights Holder shall be entitled to apportion its Right of Participation hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate.

(b)     Pro Rata Share . A Participation Rights Holder’s “ Pro Rata Share ” is the ratio of (a) the number of Ordinary Shares (assuming conversion of all convertible securities) then held by such Participation Rights Holder, to (b) the total number of Ordinary Shares (assuming conversion of all convertible securities) then outstanding immediately prior to the issuance of New Securities giving rise to the Right of Participation.

 

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(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 outstanding securities convertible into Preferred Shares as of the date hereof, or any Ordinary Shares issued upon conversion of the Preferred Shares authorized;

(ii)    any securities issued in connection with any share split, share dividend or any subdivision, combination, recapitalization or other similar event in which all Participation Rights Holders are entitled to participate on a pro rata basis;

(iii)    Ordinary Shares (and/or options or warrants therefor) issued or issuable to officers, directors, employees and consultants of the Group Companies pursuant to any equity plan or incentive arrangement approved or to be approved pursuant to the Restated M&A;

(iv)    any securities issued or issuable upon the exercise, conversion or exchange of any option, warrant or other right to acquire any security which is issued and outstanding as of the date hereof;

(v)    those issued as a dividend or distribution on Preferred Shares or any event for which adjustment is made;

(vi)    any securities issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, a majority of the assets, voting power or equity ownership of such other corporation or entity, as duly approved pursuant to the the Restated M&A;

(vii)    any securities offered in an underwritten registered public offering by the Company, as duly approved pursuant to the Restated M&A.

(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 thirty (30) Business Days from the date 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.

 

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(ii)     Second Participation Notice . If any Participation Rights Holder fails or declines to exercise fully 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 five (5) days from the date 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 Ordinary Shares (assuming conversion of all convertible securities) held by each oversubscribing Rights Participant and the denominator of which is the total number of Ordinary Shares (assuming conversion of all convertible securities) held by all the oversubscribing Rights Participants. Each oversubscribing Rights Participant shall be obligated to purchase such number of additional New Securities as determined by the Company pursuant to this subsection (d)(ii) and the Company shall so notify the Rights Participants within fifteen (15) days from the date of the Second Participation Notice.

(e)     Failure to Exercise . (i) In the event the Participation Rights Holders do not exercise the Right of Participation with respect to all New Securities described in the First Participation Notice, after thirty (30) Busienss Days following the date of the First Participation Notice, or (ii) upon the expiration of the Second Participation Period, the Company shall have a period of ninety (90) days thereafter 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. In the event that the Company has not issued and sold such New Securities within such prescribed period, then the Company shall not thereafter issue or sell any New Securities without first offering such New Securities to the Participation Rights Holders pursuant to this Section 4.

4.2    With Respect to Shares Owned by the Ordinary Shareholders:

(a)     Restriction on Transfers . Subject to Section 10.1, each Founder, Founder Holdco or Ordinary Shareholder may not sell, transfer, pledge, hypothecate, encumber or otherwise dispose of his/its Shares to any Person, whether directly or indirectly, except with the prior written consent of the Preferred Majority and in compliance with this Section 4.2 and Section 5.

(b)     Notice of Sale . If any Founder, Founder Holdco or Ordinary Shareholder (each a “ Selling Shareholder ”) proposes to sell or transfer, directly or indirectly, any of its Shares (the “ Transfer Shares ”), except for any transfer carried out pursuant to Section 9.1 hereof, 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 “ 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. The Transfer Notice shall certify that the Selling Shareholder has received a firm offer from the prospective transferee(s) and in good faith believes a binding agreement for the sale or transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed transfer.

 

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(c)     Notice of Purchase . Each Non-Selling Shareholder shall be entitled to purchase all or any part of such Non-Selling Shareholder’s pro rata share of the Transfer Shares at the price and upon the terms and conditions specified in the Transfer Notice by giving a written notice to the Selling Shareholder within ten (10) Business Days after the date of the Transfer Notice (the “ First 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 the First Refusal Period shall constitute a decision by such Non-Selling Shareholder not to exercise its right to purchase such Transfer Shares. For purposes of this clause (c), each Non-Selling Shareholder’s 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 an as-converted basis) held by such Non-Selling Shareholder on the date of the Transfer Notice and the denominator of which shall be the total number of Ordinary Shares (on an as-converted basis) held on the date of the Transfer Notice by all Non-Selling Shareholders which may exercise their right of first refusal under this clause (c) on the date of the Transfer Notice.

(d)     Second Transfer Notice; Over -Allotment . To the extent that any Non-Selling Shareholder does not exercise its right of first refusal to the full extent to purchase such Non-Selling Shareholder’s pro rata share of the Transfer Shares, the Selling Shareholder shall deliver written notice thereof (the “ Second Transfer Notic e”), within two (2) days after the expiration of the First Refusal Period, to each Non-Selling Shareholder that elected to the full extent to purchase such Non-Selling Shareholder’s pro rata share of the Transfer Shares (the “ Exercising Holder ”). Each Exercising Holder shall have five (5) days from the date of the Second Transfer Notice (the “ Second Refusal Period ”) to notify the Selling Shareholder of its desire to purchase more than its pro rata share of the Transfer Shares, stating the number of the additional Transfer Shares 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 over-allotment exceeds the total number of the remaining Transfer Shares available for purchase, the overpurchasing Exercising Holders will be cut back or limited by the Selling Shareholder with respect to their over-allotment to that number of remaining Transfer Shares equal to the lesser of (a) the number of the additional Transfer Shares it proposes to purchase; (b) the product obtained by multiplying (i) the number of the remaining Transfer Shares available for purchase by (ii) a fraction the numerator of which is the number of Ordinary Shares (on an as-converted basis) held by each overpurchasing Exercising Holder and the denominator of which is the total number of Ordinary Shares (on an as-converted basis) held by all the overpurchasing Exercising Holders. Each overpurchasing Exercising Holder shall be obligated to purchase such number of additional Transfer Shares as determined by the Selling Shareholder pursuant to this subsection (d) and the Selling Shareholder shall so notify such Exercising Holders within ten (10) days from the date of the Second Transfer Notice.

 

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(e)     Notice of Expiry . Within three (3) days after the expiry of the Second Refusal Period, the Selling Shareholder shall issue a written notice (the “ ROFR Expiry Notice ”) to each Non-Selling Shareholder, certifying either ( i ) all the Transfer Shares have been agreed to be purchased by the Non-Selling Shareholders pursuant to Section 4.2, or ( ii ) the Non-Selling Shareholders do not exercise their rights of first refusal as to all the Transfer Shares pursuant to Section 4.2, in which circumstance, the ROFR Expiry Notice shall further specify the “ Pro Rata Co-Sale Share ” of each Non-Selling Shareholder who does not exercise its respective rights of first refusal as to any Transfer Share pursuant to Section 4.2 (each a “ Co-Sale Right Holder ”). The transfer of any remaining Transfer Shares shall be subject to Section 5 below.

 

5.

INVESTOR S CO-SALE RIGHT .

5.1     Co-Sale Right . To the extent any Non-Selling Shareholder does not exercise its respective rights of first refusal as to any Transfer Share pursuant to Section 4.2, each Co-Sale Right Holder shall have the right, exercisable upon delivery of a written notice to the Selling Shareholder, with a copy to the Company, within ten (10) days after the date of the ROFR Expiry Notice, 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. To the extent one (1) or more of Co-Sale Right Holders exercise such right of co-sale in accordance with the terms and conditions set forth below, the number of Transfer Shares that the Selling Shareholder may sell in the transaction shall be correspondingly reduced. 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 remaining Transfer Shares. A Co-Sale Right Holder’s “ Pro Rata Co-Sale Share ” of the remaining Transfer Shares 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 remaining Transfer Shares multiplied by a fraction equal to (i) the total number of Ordinary Shares (on an as-converted basis) then held by such Co-Sale Right Holder on the date of the ROFR Expiry Notice , divided by (ii) the total number of Ordinary Shares held by the Selling Shareholder plus the total number of Ordinary Shares then held by all the Co-Sale Right Holders on the date of the ROFR Expiry Notice, on an as-converted basis. As used in this definition, the phrase “on an as-converted basis” shall mean assuming conversion of all Preferred Shares but not assuming exercise or conversion of any other outstanding option, warrants, or other convertible securities.

(b)    each Co-Sale Right Holder shall effect its participation in the sale by promptly delivering to the Selling 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 Co-Sale Right Holder 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;

(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

 

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(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 Shareholder pursuant to paragraph 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 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 Shareholder shall not sell any Transfer Shares to such prospective purchaser or purchasers unless and until, simultaneously with such sales, the Selling Shareholder shall purchase such shares or other securities from such Co-Sale Right Holder. In selling their Shares pursuant to their co-sale right hereunder, the Co-Sale Right Holder shall not be required to give any representations or warranties with respect to their Shares to be sold except to confirm that they have not transferred or encumbered such Shares.

5.3     Non-Exercise . To the extent that there are any Transfer Shares not purchased by the Non-Selling Shareholders in accordance with Section 4.2, and subject to the right of the Co-Sale Right Holders to exercise their rights to participate in the sale of the relevant remaining Transfer Shares within the time periods specified in Section 5.1, the Selling Shareholder may, not later one hundred and twenty (120) days following delivery of the Transfer Notice to each Non-Selling Shareholder, effect a transfer of the remaining Transfer Shares covered by the Transfer Notice not elected to be purchased by the Non-Selling Shareholders subject to the participation of the Co-Sale Right Holders. Any proposed transfer on terms and conditions more favorable than those described in the Transfer Notice, as well as any subsequent proposed transfer of any Shares by the Selling Shareholder, shall be subject to the procedures described in Section 4 and this Section 5.

5.4     Legend .

(a)    Each certificate representing the Ordinary Shares shall be endorsed with the following legend:

“THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN A SHAREHOLDERS AGREEMENT, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”

(b)    Each Party agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 5.4(a) above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed upon termination of the provisions of this Section 5.

 

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6.     ASSIGNMENT AND AMENDMENT .

6.1     Assignment . Notwithstanding anything herein to the contrary:

(a)     Information Rights . The rights of the Investor under Sections 2.1 and 2.2 are transferable prior to the Qualified IPO to any Person who holds or is acquiring Investment Securities in a permitted transfer; provided , however , that the Company is given a written notice at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further that any such assignee shall receive such assigned rights, subject to all the terms and conditions of this Agreement, including the provisions of this Section 6, and agree to abide by this Agreement by executing an Adherence Agreement as provided in Section 6.1(d).

(b)     Registration Rights . The registration rights of the Holders under Section 3 are fully assignable to any Person who holds or is acquiring Registrable Securities in a permitted transfer; provided , however , that the Company is given a written notice at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further that any such assignee shall receive such assigned rights, subject to all the terms and conditions of this Agreement, including the provisions of this Section 6, and agree to abide by this Agreement by executing an Adherence Agreement as provided in Section 6.1(d).

(c)     Right of Participation and Co-Sale Right . The Right of Participation and Co-Sale right of each holder of the Preferred Shares under Section 4 and Section 5 hereof are fully assignable to such holder’s Affiliates or to any Person who holds or is acquiring Preferred Shares in a permitted transfer; provided , however , that the transferee executes and delivers an Adherence Agreement as provided in Section 6.1(d).

(d)     Adherence Agreement . 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 substantially in the form attached hereto as Exhibit B (“ Adherence Agreement ”). Upon the execution and delivery of an Adherence Agreement by any transferee, such transferee shall be deemed to be an Ordinary Shareholder, Investor, or Holder hereunder, as appropriate. By their execution hereof, each of the 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(d).

6.2     Amendment . Subject to Section 6.1, this Agreement may only be amended with the written consent of (i) the Company; (ii) Preferred Majority; and (iii) Ordinary Majority. Any amendment effected in accordance with this Section 6.2 shall be binding upon each Party hereto and their respective successors; provided that Company shall promptly give written notice thereof to any Party hereto that has not consented to such amendment, provided that such amendment shall not adversely affect the rights, preferences or privilages of any Investor, otherwise such amendment shall only be binding on such Investor upon its written consent.

6.3     Waiver of Rights . To the extent that the 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 Ordinary Shareholder may waive any of its rights hereunder without obtaining the consent of any other Ordinary Shareholders; and any Group Company may waives 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.

 

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7.

PROTECTIVE PROVISIONS .

7.1     Shareholder s Protective Provision . So long as any Preferred Shares are outstanding, any action (whether by amendment of the Company’s Restated M&A or otherwise, and whether in a single transaction or a series of related transactions) that effects or approves any of the transactions listed in Part I of Exhibit A involving the Company or any of its Subsidiaries shall require the approval of Preferred Majority.

7.2     Director’s Protective Provision . So long as any Preferred Shares are outstanding, any action (whether by amendment of the Company’s Restated M&A or otherwise, and whether in a single transaction or a series of related transactions) that effects or approves any of the transactions listed in Part II of Exhibit A involving the Company or any of its Subsidiaries shall require the prior approval of all the Investor Directors.

7.3    For purposes of this Section 7 and the Exhibit A , all references to the “Company” shall refer to each Group Company and their respective Subsidiaries.

 

8.

BOARD REPRESENTATION; COMMITTEE AND SENIOR MANAGEMENT .

8.1     Designation Right . The Company’s Restated M&A shall provide that the Company’s Board shall consist of up to nine (9) members, which number of members shall not be changed except pursuant to an amendment to the Restated M&A. Eastern Bell shall have the right to designate one (1) Director (the “ Eastern Be ll Director ”), provided that Eastern Bell holds not less than 8% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. Trustbridge shall have the right to designate one (1) Director (the “ Trustbridge Director ”), provided that Trustbridge holds not less than 8% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. Crescent shall have the right to designate one (1) Director (the “ Crescent Director ”), provided that Crescent holds not less than 8% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. CDH shall have the right to designate one (1) Director (the “ CDH Director ”, together with the Eastern Bell Director, the Trustbridge Director and the Crescent Director, collectively, the “ Investor Directors ”), provided that CDH holds not less than 3.5% of the Ordinary Shares (assuming conversion of all convertible securities) then outstanding. The Ordinary Majority shall have the right to appoint and remove five (5) Directors (collectively, the “ Ordnary Share Director s ”), one (1) of which shall be determined by the Ordinary Majority at any time, provided that if at any time the board seat of such last Ordinary Share Director is vacant, the voting power of the last Ordinary Share Director shall be casted on XIAO Shanglue ( 肖尚略 ), as long as XIAO Shanglue ( 肖尚略 ) then serves as a Director, subject to any applicable laws in the Cayman Islands. 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 Series B+ Investor shall have the right to collectively appoint one (1) observer to the board of directors of the Company to attend the meetings of the Board or any committes under the Board in a non-voting observer capacity (such individual, the “ Series B+ Observer ”), provided that, if any Series B+ Investor fails to close the investment contemplated under the Share Purchase Agreement, the right of the Series B+ Investors to appoint the Series B+ Observer shall be forfeited.

 

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8.2     Compensation Committee . If and when the Board deems necessary, the Company shall establish and maintain a compensation committee (the “ Compensation Committee ”), and the Investor Directors shall be members of such Compensation Committee and shall be required to establish a quorum for any meeting or action to be taken by such committee. Subject to Section 7, the Compensation Committee shall propose the terms of the Company’s share incentive plans to the Board for approval and adoption pursuant to the Restated M&A and shall have the power and authority to (a) administer the Company’s share incentive plans (including the ESOP), and (b) approve all management compensation levels and arrangements, and shall have such other powers and authorities as the Board shall delegate to it.

8.3     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 all the Investor Directors, provided , however , that if such quorum cannot be obtained for a Board meeting after the notice of such Board meeting has been sent by the Company not less than fourteen (14) days’ prior to the scheduled meeting, the meeting shall be adjourned to the same day of the next week at which the attendance of any directors shall constitute a quorum provided further that matters discussed in such adjourned meeting shall be limited to those stated in the written notices and agendas of the Board meetings. Minutes of Board meetings shall be sent to Investors within thirty (30) days after the relevant meeting. The Company shall hold Board meetings at least once a quarter.

8.4     Assignment . The rights of the Investors set forth in this Section 8 are fully assignable to any Person who holds or is acquiring the Preferred Shares in a permitted transfer; provided , however , that the Company is given a written notice at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; provided further , that the transferee executes and delivers an Adherence Agreement.

8.5     Management of the Group Companies . The board of each Group Company other than the Company, including but not limited to the PRC Compnies, shall at all times consist of the same members of the Board of the Company, and each of the Parties hereto shall take all such necessary or advisable actions to ensure the appointment of such Persons designated by the Investors to the board of each Group Company. Each Group Company shall only take actions that have been previously approved by the board of directors of each Group Company as established pursuant to this Section 8.5.

8.6     Insurance and Indemnification . The Company shall procure customary directors and officers insurance for the directors. Notwithstanding anything to the contrary in this Agreement or in the Restated M&A, each Group Company shall, jointly and severally, indemnify and hold harmless each Investor Director and his/her alternate, to the fullest extent permissible by law, from and against all liabilities, damages, actions, suits, proceedings, claims, costs, charges and expenses suffered or incurred by or brought or made against such Investor Director or his/her alternate as a result of any act, matter or thing done or omitted to be done by him/her in good faith in the course of acting as a Director or alternate Director, as applicable, of the Company or any Group Company, by delivering to such Investor Director or his/her alternate, at the time of his/her appointment as a Director or an alternate Director, an indemnification agreement duly executed by the Company substantially in the form satisfactory to the Investor. In addition, the Company shall indemnify each Investor to the maximum extent permitted by applicable laws for any claims brought against such Investor by any third party (including any other Shareholder of the Company) as a result of such Investor’s investment in the Company.

 

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8.7     Director Expenses . The Company shall reimburse Investor Directors and the Series B+ Observer for all reasonable out-of-pocket expenses incurred in connection with Board duties and meetings.

 

9.

SALE OF THE COMPANY .

9.1     Drag-Along .

(a)    If the Ordinary Majority and the Preferred Majority (collectively, the “ Drag Holders ”) approve a Trade Sale with a pre-money valuation of the Company at no less than US$4,000,000,000 (or equivalent RMB) (such sale, transfer, conveyance or assignment pursuant to this Section 9.1, a “ Drag-Along Sale ”) at any time after the Closing, at the request of the Drag Holders, then each remaining Shareholder (the “ Drag ged H olders ”) shall sell, transfer, convey or assign its Shares pursuant to, and so as to give effect to, such offer to purchase, merger or consolidation, sale or transfer, as the case may be, unless the rejecting Dragged Holder agrees to purchase the Shares proposed to be sold, transferred, conveyed or assigned by the Drag Holders under the proposed Drag-Along Sale. If the consideration offered is payable in securities or property other than cash (or evidence of cash indebtedness), the Board (including the affirmative votes of all the Investor Directors) shall in good faith determine the fair market value of any such securities or property in cash, provided that any holder of Preferred Shares shall have the right to challenge any determination by the Board of fair market value made pursuant hereto, in which case the determination of fair market value shall be made by a valuer selected jointly by the Board (including the affirmative votes of all the Investor Directors) and the challenging Parties. The valuer shall prepare a report setting forth the basis of its calculating such fair market value, and the determination of such fair market value by the valuer shall, in the absence of manifest error, be final and conclusive. The costs of the valuer shall be borne solely by the Company. The valuer shall act as expert and not as an arbitrator. If the acquiring party is a privately-held entity and the holders of Preferred Shares receive in whole or in part non-publicly traded securities of such acquirer, then such non-publicly traded securities shall have liquidation preference(s), protective provision(s), voting right(s), dividend right(s), registration rights and preemptive rights that are substantially similar to those of the Preferred Shares, as applicable, as set forth herein as of the date hereof, unless otherwise agreed by the Preferred Majority.

(b)    Subject to the Charter Documents of the Company, the consideration to be received by a Dragged Holder shall be the same form and amount of consideration per share of Ordinary Share to be received by the Drag Holder (or, if the Drag Holders are given an option as to the form and amount of consideration to be received, the same option shall be given to the Dragged Holders) and the terms and conditions of such sale shall, except as otherwise provided in the immediately succeeding sentence, be the same as those upon which the Drag Holders sell their Ordinary Shares. Each Dragged Holder shall make or provide customary representations, warranties, covenants, indemnities and agreements in connection with the Drag-Along Sale; provided , that all representations, warranties, covenants and indemnities shall be made by each Drag Holder and each Dragged Holder severally but not jointly.

(c)    The restrictions on Transfers of Shares set forth in Sections 10.1, 4.2 and 5 shall not apply in connection with a sale pursuant to this Section 9.1, or anything in this Agreement to the contrary notwithstanding.

 

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(d)    Upon the approval of a Drag-Along Sale as described in this Section 9.1, each Shareholder (other than Drag Holders) shall grant to the chief executive officer (“ CEO ”) or an authorized officer, a power of attorney to transfer their Shares and to do and carry out all other necessary or advisable acts to complete the Drag-Along Sale, including, without limitation, executing any and all documents (including instruments of transfer) on behalf of such Shareholder. The CEO or an authorized officer shall be authorized to transfer the Shares of each such Shareholder and to do and carry out all other necessary or advisable acts to complete the Drag-Along Sale, including, without limitation, executing any and all documents (including instruments of transfers) on behalf of each such Shareholder.

 

10.

COVENANTS .

10.1     Restrictions on Transfers . Subject to Sections 4 and 5 and the provisions of any severance agreement that the Founders may enter into, each Founder agrees that, without the prior written consent of the Preferred Majority, he shall not, directly or indirectly, sell, transfer, pledge, encumber, hypothecate or otherwise dispose of any of his Shares in the Company or any of other Group Companies. In the case that any Share is held by its ultimate beneficial owner through one or more level of holding companies, any transfer, repurchase, or new issuance of the shares of such holding companies or similar transactions that have the effect of change the beneficial ownership of such Share shall be deemed as an indirect transfer of such Shares. The Parties agree that the restrictions on the transfer of the Shares held by the Founders contained in this Agreement shall apply to such indirect transfer and shall not be circumvented by means any indirect transfer of the Shares. Notwithstanding anything to the contrary contained herein, the transfer restriction shall not apply to transfer of Shares now or hereafter directly or indirectly held by any Founder, to the parents, children or spouse, or to trusts for the benefit of such Persons, of any holder of Shares for bona fide estate planning purposes (each transferee pursuant to the foregoing, a “ Permitted Transferee ”); provided that adequate documentation therefor is provided to the Preferred Shareholders to their satisfaction and that any such Permitted Transferee agrees in writing to be bound by this Agreement and the Restated M&A in place of the relevant transferor; provided , further , that such transferor shall remain liable for any breach by such Permitted Transferee of any provision hereunder. Each Preferred Shareholder is entitled to, 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 to any third party, except that none of the Preferred Shareholders may, without the prior written consent of the Ordinary Majority, transfer any Preferred Shares or Conversion Shares to any third party which is engaged in the business similar or competitive with the principal business of the Group Companies (the “ Competitor ”) or any Affiliate of any Competitor.

10.2     Full Time Commitment . The Actual Controller undertakes and covenants to the Investors that, unless otherwise agreed by the Preferred Majority, during his tenure at any Group Company, he shall serve the Group Company on a full time basis and commit all of his efforts to furthering the business and protecting the benefits of the Group Companies and shall not devote time to carry out the business operation of any other entity (except for his part-time position at the Smallyes Group Companies to the extent that the Actual Controller will not participate in the daily business operation of the Smallyes Group Companies and the part-time position will not adversely affect the business of any Group Company).

 

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10.3     Non-Competition. The Actual Controller hereby undertakes and covenants to the Investors that during the Relevant Period and Restriction Period, without the prior written consent of the Preferred Majority, except for the specific arrangement with the Smallyes Group Companies as follows, neither the Actual Controller nor any of his associates will directly or indirectly, either by himself or in conjunction with or through any other Person:

(a)    participate, assist, be concerned with, engaged or interested in, any business or entity (other than the Smallyes Group Companies) in any manner, directly or indirectly, which is in competition with the business carried on by any Group Company;

(b)    except for the existing investment in the Smallyes Group Companies, invest in any form (including without limitation, becoming the owner, shareholder, actual controller or owns any interests in other form) in any Competitor or establish any new company or other business entity;

(c)    except for the Smallyes Group Companeis, engage in any business, which is related to the principal business of the Group Companies or is detrimental to the benefit of the Group Companis, with any Competitor, including without limitation, becoming the agent, supplier or distributor of any Competitor;

(d)    execute any agreement or make any commitment or enter into any other similar arrangement which may limit or be detrimential to the exisiting business of the Group Companies;

(e)    during the Relevant Period and Restriction Period, solicit in any manner any Person who is or has been during the Restriction Period a customer, agent, supplier and/or contractor of any Group Company for the purpose of offering to such Person any goods or services similar to or competing with any of the businesses conducted by any Group Company or procuring such Person to terminate its business relationship with the Group Companies;

(f)    at any time disclose to any Person, or use for any purpose other than for the operation fo the Group Companies, any information concerning the business, accounts, finance, transactions or intellectual property rights of any Group Company or any trade secrets or confidential information of or relating to any of the Group Companies; or

(g)    solicit or entice away, or endeavour to solicit or entice away, any employee, officer, potential client, customer, supplier, licensee or licensor of any Group Company, or any Perso who has a business relationship with the Group Companies.

The Actual Controller further undertakes and covenants to the Investors that (i) the Group Companies shall be his exclusive entities and platform to develop business of “social retail service platform”, operate project of “Yunji Weidian”, and conduct relevant business activities, (ii) all the business opportunities which the Actual Controller may have from time to time and may cause potential competition with the principal business of the Group Companies shall be transferred to the Group Companies for free, and (iii) none of the Smallyes Group Companies will engage in “social retail service”, wechat store project and any other business similar or competitive with the principal business of the Group Companies.

10.4     ESOP.

(a)    As soon as practicable after the Closing, the Board shall establish and adopt an employee share option plan (the “ ESOP ”) and up to a total of 191,663,158 Ordinary Shares (proportionally adjusted to reflect any share dividends, share splits, or similar transactions) will be reserved for issuance of share options pursuant to the terms and conditions under the ESOP. To the extent practicable under PRC Laws, the Group Companies shall cause to be filed and registered with the competent local branch of the State Administration of Foreign Exchange of the PRC with respect to the establishment and adoption of the ESOP.

 

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(b)    Unless the Board determines otherwise (including the affirmative votes of all the Investor Directors), all options issued or granted under the ESOP shall be subject to a minimum four (4) year vesting schedule no faster than the following, counting from the applicable grant date with respect to the total issued options or shares: twenty-five percent (25%) each at the first anniversary of the grant date, the second anniversary of the grant date, the third anniversary of the grant date and the fourth anniversary of the grant date.

(c)    The power and authority to administer the ESOP shall be vested to the Board or the Compensation Committee (upon its establishment) and any decision of the Board or the Compensation Committee with respect to the administration of the ESOP shall be made by a majority of the members of the Board or the Compensation Committee, including the affirmative votes of all the Investor Directors.

(d)    Except as otherwise approved by a majority of the Board (including the affirmative votes of all the Investor Directors), the Company shall cause all future officers, directors, and employees of, and consultants to, the Company and its Subsidiaries who purchase, or receive options to purchase, shares of the Company’s Ordinary Shares, to execute and deliver agreements in forms approved by the Board (including the affirmative votes of all the Investor Directors) providing for a right of repurchase in favor of the Company on vested and unvested shares without cost upon termination of the employment with cause or unilateral termination of the employment by the optionees, a prohibition on the transfer of all shares prior to a Qualified IPO (unless otherwise permitted under such employee share option plan) and a lockup or market standoff commitment after the Qualified IPO in respect of vested shares subject to the requirements that the underwriters or sponsors may have at such time.

10.5     Lock up . Subject to the terms and conditions hereof, following the Qualified IPO of the Company, the Founders and the Founder Holdcos, as the principals and management holders of Ordinary Shares shall be subject to any customary lock-up period to the extent requested by the lead underwriter of securities of the Company in connection with the registration relating to such initial public offering.

10.6     Controlled Foreign Corporation . The Company will provide written notice to the Investors as soon as practicable if at any time the Company becomes aware that it or any Group Company has become a “controlled foreign corporation” (“ CFC ”) within the meaning of Section 957 of the United States Internal Revenue Code of 1986 (the “ Code ”). Upon written request of any Investor who is a United States shareholder within the meaning of Section 951(b) of the Code, the Company will (i) use best efforts to provide in writing such information as is in its possession and reasonably available concerning its shareholders to assist the Investor in determining whether the Company is a CFC and (ii) provide the Investor with reasonable access to such other Company information as is in the Company’s possession and reasonably available as may be required by the Investor (A) to determine the Company’s status as a CFC, (B) to determine whether the Investor is required to report its pro rata portion of the Company’s “Subpart F income” (as defined in Section 952 of the Code) on its United States federal income tax return, or (C) to allow the Investor to otherwise comply with applicable United States federal income tax laws.

 

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10.7     Passive Foreign Investment Company . The Company shall use its best efforts to avoid being a “passive foreign investment company” within the meaning of Section 1297 of the Code (“ PFIC ”) for the current and any future taxable year. The Company shall make due inquiry with its tax advisors on at least an annual basis regarding its status as a PFIC, and if the Company is informed by its tax advisors that it has become a PFIC, or that there is a likelihood of the Company being classified as a PFIC for any taxable year, the Company shall promptly notify the Investors of such status or risk, as the case may be, in each case no later than forty-five (45) days following the end of the Company’s taxable year. In connection with a “Qualified Electing Fund” election (a “ QEF Election ”) made by any Investor pursuant to Section 1295 of the Code or a “Protective Statement” filed by any Investor pursuant to Treasury Regulation Section 1.1295-3, as amended (or any successor thereto), the Company shall provide the Investor with annual financial information in the form to the satisfaction of the Investor as soon as reasonably practicable following the end of each taxable year of the Investor (but in no event later than forty-five (45) days following the end of each such taxable year), and shall, upon the request in writing by any Investor, provide the Investor with access to such other information, as is in the Company’s possession and reasonably available, as may be required for purposes of filing U.S. federal income tax returns in connection with such QEF Election or Protective Statement. In the event that it is determined by the Company’s or any Investor’s tax advisors that the control documents in place between one or more of the Company’s wholly owned Subsidiaries and/or the Company, on the one hand, and any of the Group Companies organized in the PRC that is not a wholly foreign owned enterprise, on the other hand, does not allow the Company to look through the Group Companies to their assets and income for purposes of the PFIC rules and regulations under the Code, the Company shall use its best efforts to take such actions as are reasonably necessary or advisable, including the amendment of such control documents, to qualify for such look-through treatment of the Group Companies under the PFIC rules and regulations under the Code.

10.8     Anti - Corruption . Each of the Group Companies covenants that it shall not, and shall not permit any of its Subsidiaries or Affiliates or any of its or their respective directors, administrators, officers, managers, board of directors (supervisory and management) members, employees, independent contractors, representatives or agents to, promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, any non-U.S. official, in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further covenants that it shall, and shall cause each of its Subsidiaries and Affiliates to, cease all of its or their respective activities, as well as remediate any actions taken by the Company, its Subsidiaries or Affiliates, or any of its or their respective directors, administrators, officers, managers, board of directors (supervisory and management) members, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further covenants that it shall, and shall cause each of its Subsidiaries and Affiliates to, maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law.

10.9     Internal Control System . The Group Companies shall maintain their books and records in accordance with sound business practices and implement and maintain an adequate system of procedures and controls with respect to finance, management, and accounting that meets national standards of good practice and is reasonably satisfactory to the Preferred Majority to provide reasonable assurance that (i) transactions by it are executed in accordance with management’s general or specific authorization, (ii) transactions by it are recorded as necessary to permit preparation of financial statements in conformity with, at the election of the Preferred Majority, the IAS, the U.S. GAAP or other international accounting standard and to maintain asset accountability, (iii) access to assets of it is permitted only in accordance with management’s general or specific authorization, (iv) if applicable, the recorded inventory of assets is compared with the existing tangible assets at reasonable intervals and appropriate action is taken with respect to any material differences, (v) segregating duties for cash deposits, cash reconciliation, cash payment, proper approval is established, and (vi) no personal assets or bank accounts of the employees, directors, officers are mingled with the corporate assets or corporate bank account, and no Group Company uses any personal bank accounts of any employees, directors, officers thereof during the operation of the business.

 

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10.10     Investors’ Right to Appoint Nominee Shareholders in Domestic Co. and New VIE Company . As soon as practical and upon request of any Investor (for so long as such Investor remains a Shareholder of the Company), the Group Companies and the Founders shall cause the equity structure of the Domestic Co. and/or the New VIE Company (as defined in the Share Purchase Agreement) to be restructured so that immediately after such restructuring, the nominee shareholder designated by such Investor shall hold such equity interest in the Domestic Co. and/or the New VIE Company at a nominal price that mirrors such Investor’s shareholding percentage in the Company (calculated on a fully diluted and as-converted basis); provided that (i) the shareholding percentage of such nominee shareholder in the the Domestic Co. and/or the New VIE Company shall be decreased along with any decrease of such Investor’s shareholding percentage in the Company (calculated on a fully diluted and as-converted basis), so that the shareholding percentage of such nominee shareholder in the the Domestic Co. and/or the New VIE Company shall in any event no more than such Investor’s shareholding percentage in the Company (calculated on a fully diluted and as-converted basis) and (ii) all the fees and taxes incurred during such restructuring shall be assumed by such Investor and its nominee shareholder.

 

11.

CONFIDENTIALITY AND NON-DISCLOSURE .

11.1     Disclosure of Terms . 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 Investor agrees with the Company that such Investor will keep confidential and will not disclose or divulge, any information which such Investor 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 Investor, 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 Investor, or unless the Company gives its written consent to such Investor’s release of the information.

11.2     Press Releases . Within sixty (60) days of the Closing, the Company may issue a press release related to the Closing, disclosing that any Investor has invested in the Company provided that (a) the release does not disclose any of the Terms, (b) the press release does not disclose the amount or other specific terms of the investment, and (c) the final form of the press release is approved in advance in writing by the Investor(s) mentioned therein. The Investor’s names and the fact that the Investors are shareholders in the Company can be included in a reusable press release boilerplate statement, so long as the relevant Investor has given the Company its initial approval of such boilerplate statement and the boilerplate statement is reproduced in exactly the form in which it was approved. No other announcement regarding any Investor in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the relevant Investor’s prior written consent, which consent may be withheld at such Investor’s sole discretion.

 

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11.3     Permitted Disclosures . Notwithstanding anything in the foregoing to the contrary,

(a)    the Company may disclose any of the Terms to its current or bona fide prospective investors, directors, officers, employees, shareholders, investment bankers, lenders, accountants, auditors, insurers, business or financial advisors, and attorneys, in each case only where such Persons or entities are under appropriate nondisclosure obligations imposed by professional ethics, law or otherwise;

(b)    any Investor (and its fund manager) may disclose the Investor’s investment in the Company to third parties or to the public at its sole discretion and in relation thereto may use the Company’s logo and trademark and may include links to the Company’s website (without requiring the Company’s further consent). If it does so, the other Parties shall have the right to disclose to third parties any such information disclosed in a press release or other public announcement by the Investor;

(c)    any Investor shall have the right to disclose:

(i)    any information to the Investor’s Affiliate or fund manager, the Investor’s and/or its fund manager’s and/or its Affiliate’s legal counsel, fund manager, auditor, insurer, accountant, consultant or to an officer, director, general partner, limited partner, fund manager, shareholder, investment counsel or advisor, or employee of the Investor, fund manager, or Affiliate or any of their respective investors or Affiliates, provided , however , that any counsel, auditor, insurer, accountant, consultant, officer, director, general partner, limited partner, fund manager, shareholder, investment counsel or advisor, or employee shall be advised of the confidential nature of the information or are under appropriate non-disclosure obligation imposed by professional ethics, law or otherwise;

(ii)    any information for fund and inter-fund reporting purposes;

(iii)    any information as required by law, government authorities, exchanges and/or regulatory bodies, including by the Securities and Futures Commission of the Hong Kong, the China Securities and Regulatory Commission of the PRC or the Securities and Exchange Commission of the United States (or equivalent for other venues);

(iv)    any information to bona fide prospective purchasers/investors of any share, security or other interests in the Company, and/or

(v)    any information contained in press releases or public announcements of the Company pursuant to Section 11.2 above.

(d)    the confidentiality obligations set out in this Section 11 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 any other 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 11 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; or

 

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(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 11.3.

11.4     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 11, 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 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.

11.5     Use of CDH’s Name or Logo . Without the prior written consent of CDH, and whether or not it or any Affiliate thereof is then a Shareholder of the Company, no Party hereto other than CDH itself shall or shall permit any Affiliate thereof to use, publish or reproduce the name or logo of CDH, or any similar name, trademark or logo in any manner, context or format (including references on or links to websites, in press releases, or in other public announcements).

 

12.

MISCELLANEOUS .

12.1     E ffectiveness . This Agreement shall come into effect as of execution by all the Parties hereto, provided that, in respect of each New Investor, it shall become a Party to this Agreement and enjoy the rights and undertake the obligations hereunder only upon its being registered as a Shareholder of the Company pursuant to the Share Purchase Agreement.

12.2     Governing Law . This Agreement shall be governed in all respects by the laws of the Hong Kong without regard to conflicts of law principles.

12.3     Successors and Assigns . 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. Except as expressly stated otherwise, the rights of any Investor set forth in this Agreement are fully assignable to any Person (other than any Competitor) who holds or is acquiring Shares from such Investor. Each transferee, successors, or assignee of an Investor shall become a party of this Agreement by executing and delivering to the Company an Adherence Agreement in the form attached hereto as Exhibit B .

12.4     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.

12.5     Entire Agreement . This Agreement, the Share Purchase Agreement and any other Transaction Document, 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 (including the Prior Shareholders Agreement); 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.

 

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12.6     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 email, upon the date of successful transmission, provided that the sending Party has received a system message indicating successful transmission or has not received a system message within 24 hours indicating failure of delivery or return of email; or (d) three (3) Business Days after deposit with an internationally-recognized overnight delivery service, postage prepaid, addressed to the Parties as set forth in Exhibit C 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 C , or designate additional addresses, for purposes of this Section 12.6, by giving the other Parties written notice of the new address in the manner set forth above.

12.7     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.

12.8     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.

12.9     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.

12.10     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.

 

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12.11     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.

12.12     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 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, schedules and annexes are to the exhibits, schedules and annexes 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.

12.13     Dispute Resolution .

(a)     Negotiation Between Parties . The Parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of the relevant Parties within thirty (30) days after the occurrence of the dispute, either Party to the dispute may begin formal arbitration proceedings to be conducted in accordance with subsection (b) below.

(b)     Arbitration . In the event the Parties are unable to settle a dispute between them regarding this Agreement in accordance with 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 Hong Kong International Arbitration Centre Administered Arbitration Rules (the “ HKIAC Rules ”) then in force, 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 HKIAC Rules; and (ii) the language of the arbitration shall be Chinese. 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 award of the arbitral tribunal shall be final and binding upon the Parties thereto, and the prevailing Party may apply to a court of competent jurisdiction for enforcement of such award.

12.14     Shareholders Agreement to Prevail . 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 except, as regards the Company the Restated M&A of the Company shall prevail. The Parties (other than the Company with respect to the Restated M&A of the Company) 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.

 

32


12.15     Termination . This Agreement and all rights and covenants contained herein, except for obligations set forth in Sections 1, 3, 6, 10, 11, and 12, shall terminate on the closing of a Qualified IPO or a Deemed Liquidation Event, whichever shall first occur. If for the purpose of a Qualified IPO and as approved by the Preferred Majority, the Group Companies are required or advised by their counsel to conduct a reorganization, the Preferred Majority 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, each of the Group Companies, the Founders and the Founder Holdcos shall take all such actions as necessary or desirable to restore all the rights and privileges of the Investors contained herein, including without limitation (i) causing the Company to amend the Restated M&A, (ii) causing the Company to issue to the Investors applicable class and number of shares of the Company, and (iii) entering into agreements containing substantially the same terms and conditions hereof.

12.16     Waiver from Existing Investors . Each of the Investors (other than the New Investors) hereby irrevocably and unconditionally waives and releases each of the Warrantors (as defined in the Share Purchase Agreement) from any claims such Investor may have for the failure of any Warrantor to comply with any obligations under the previous share purchase agreements, capital increase agreements and investment agreements entered into by and among the Warrantors, the Investor(s) and their respective Affiliates (to the extend applicable), and certain parties thereto before the date of the Share Purchase Agreement.

(The remainder of this page has been left blank intentionally.)

 

33


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE COMPANY:
Yunji Inc.
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue ( 肖尚略 )
Title:   Director
THE HK CO.:
Yunji Holding Limited ( 雲集控股有限公司 )
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue ( 肖尚略 )
Title:   Director
DOMESTIC CO. :

Yunji Sharing Technology Co., Ltd.

( 云集共享科技有限公司 )

(/s/ Seal of Yunji Sharing Technology Co., Ltd.)
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue ( 肖尚略 )
Title:   Legal Representative
THE OPERATING CO.:

Zhejiang Jishang Youxuan E-Commerce Co., Ltd.

( 浙江集商优选电子商务有限公司 )

(/s/ Seal of Zhejiang Jishang Youxuan E-Commerce

Co., Ltd.)

By:  

/s/ XIAO Shangce

Name:   XIAO Shangce ( 肖尚策 )
Title:   Legal Representative

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE WFOE:

Hangzhou Yunchuang Sharing Network Technology Co., Ltd.

( 杭州云创共享网络科技有限公司 )

(/s/ Seal of Hangzhou Yunchuang Sharing Network Technology Co., Ltd.)
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue ( 肖尚略 )
Title:   Legal Representative

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE FOUNDER HOLDCOS:
Lanlan Ltd.
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue ( 肖尚略 )
Title:   Director
THE FOUNDERS :
 

/s/ XIAO Shanglue

Name:   XIAO Shanglue ( 肖尚略 )

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE FOUNDER HOLDCOS:
Kingwangpeng Holdings Limited
By:  

/s/ WANG Peng

Name:   WANG Peng ( 王鹏 )
Title:   Director
THE FOUNDERS :
 

/s/ WANG Peng

Name:   WANG Peng ( 王鹏 )

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Eastern Bell XIX Investment Limited

By:

 

/s/ SUN Yanhua

Name:

 

SUN Yanhua

Title:

 

Director

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
FASTURN OVERSEAS LIMITED

By:

 

/s/ LIN NING DAVID

Name:

 

LIN NING DAVID

Title:

 

Authorized Representative

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
CPYD Singapore Pte. Ltd.
By:  

/s/ Lawrence Lim

Name:

 

Lawrence Lim

Title:

 

Director

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Eastern Bell XII Investment Limited
By:  

/s/ YIN Junping

Name:   YIN Junping
Title:   Director

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
TRUSTBRIDGE PARTNERS IV, L.P.
By:  

/s/ LIN NING DAVID

Name:   LIN NING DAVID
Title:   Authorized Representative

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
China Renaissance Corporation
By:  

/s/ BAO FAN

Name:   BAO FAN
Title:   Director

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Acceleration S Limited
By:  

/s/ William Hsu

Name:   William Hsu
Title:   Director

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
China TH Capital Limited
By:  

/s/ SONG Liangjing

Name:   SONG Liangjing
Title:   Director

 

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Fountain Sight Limited
By:  

/s/ Werkun Krzysztof

Name:   Werkun Krzysztof
Title:   Director

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Shanghai Fengxian Information and Technology Development Partnership (LLP) ( 上海丰羡信息科技发展合伙企业 ( 有限合伙 ))
(/s/ Seal of Shanghai Fengxian Information and Technology Development Partnership (LLP))
By:  

/s/ WANG Xinwei

Name:   WANG Xinwei
Title:   Authorized Representative

[Signature Page to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Schedule A-1

PRC Subsidiaries

 

1.

Hangzhou Jixi Enterprise Management and Consulting Co., Ltd. ( 杭州集喜企业管理咨询有限公司 );

 

2.

Zhejiang Youji Supply Chain Management Co., Ltd. ( 浙江优集供应链管理有限公司 );

 

3.

Huzhou Delue Network Technology Co., Ltd. ( 湖州德略网络科技有限公司 );

 

4.

Zhejiang Zhelue Network Technology Co., Ltd. ( 浙江哲略网络科技有限公司 );

 

5.

Hangzhou Jichuang Network Technology Co., Ltd. ( 杭州集创网络科技有限公司 );

 

6.

Zhejiang Jishang Youxuan E-Commerce Co., Ltd. ( 浙江集商优选电子商务有限公司 );

 

7.

Zhejiang Jishang Network Technology Co., Ltd. ( 浙江集商网络科技有限公司 );

 

8.

Zhejiang Jiyuan Network Technology Co., Ltd. ( 浙江集远网络科技有限公司 ); and

 

9.

Anhui Delue Network Technology Co., Ltd. ( 安徽德略网络科技有限公司 ).

 

[Schedule A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Schedule A-2

Founders

 

Name of Founder

   PRC ID

XIAO Shanglue ( 肖尚略 )

   ******

WANG Peng ( 王鹏 )

   ******

 

[Schedule A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Schedule A-3

Founder Holdcos

 

Name of the Company

   Place of Incorporation    Ownership

Lanlan Ltd.

   British Virgin Islands    100% owned by XIAO
Shanglue ( 肖尚略 )

Kingwangpeng Holdings Limited

   British Virgin Islands    100% owned by WANG
Peng ( 王鹏 )

 

[Schedule A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Schedule B-1

Series Seed Investors

 

Name

   No. of Series Seed
Preferred Shares
     Purchase Price

FASTURN OVERSEAS LIMITED

     149,200,000      USD in equivalent to
RMB20,000,000

Eastern Bell XIX Investment Limited

     223,800,000      USD in equivalent to
RMB30,000,000

 

[Schedule B to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Schedule B-2

Series A Investors

 

Name

   No. of Series A
Preferred Shares
     Purchase Price

CPYD Singapore Pte. Ltd.

     215,800,000      US$20,000,000

Eastern Bell XII Investment Limited

     56,800,000      USD in equivalent to
RMB33,160,000

TRUSTBRIDGE PARTNERS IV, L.P.

     111,000,000      US$555

China Renaissance Corporation

     5,600,000      US$28

 

[Schedule B to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Schedule B-3

Series B Investors

 

Name

   No. of Series B
Preferred Shares
     Purchase Price

Acceleration S Limited

     110,803,324      US$100,000,000

China TH Capital Limited

     1,108,033      US$1,000,000

 

[Schedule B to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Schedule B-4

Series B+ Investors

 

Name

   No. of Series B+
Preferred Shares
     Purchase Price

Fountain Sight Limited

     5,276,349      US$5,000,000

Shanghai Fengxian Information and Technology Development Partnership (LLP) ( 上海丰羡信息科技发展合伙企业 ( 有限合伙 ))

     15,829,046      US$15,000,000

 

[Schedule B to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Annex A

Definitions

Capitalized terms used but not otherwise defined in this Agreement shall have the meanings given to them in the Share Purchase Agreement.

Actual Controller ” shall mean XIAO Shanglue ( 肖尚略 ).

Affiliate ” shall mean, 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, (a) in the case of a natural Person, shall include, without limitation, such Person’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law, (b) in the case of any Investor, shall include (i) any Person who holds Shares as a nominee for the Investor, (ii) any shareholder of the Investor, (iii) any entity or individual which has a direct and indirect interest in the Investor (including, if applicable, any general partner or limited partner) or any fund manager thereof; (iv) any Person that directly or indirectly Controls, is Controlled by, under common Control with, or is managed by the Investor, its shareholder, the general partner or the fund manager of the Investor or its shareholder, (v) the relatives of any individual referred to in (ii), (iii) and (iv) above, and (vi) any trust Controlled by or held for the benefit of such individuals. For the avoidance of doubt, an Investor shall not be deemed to be an Affiliate of any Group Company.

Board ” shall mean the board of directors of the Company.

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 Cayman Islands, the Hong Kong or the PRC.

CDH ” shall mean Acceleration S Limited.

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.

Closing ” has the meaning ascribed to it in Section 2.3 of the Share Purchase Agreement.

Control ”, with respect to any third party, shall have the meaning ascribed to it in Rule 405 under the Securities Act, and shall be deemed to exist for any party (a) when such party holds at least fifty percent (50%) of the outstanding voting securities of such third party and no other party owns a greater number of outstanding voting securities of such third party or (b) over other members of such party’s immediate family. Immediate family members include, without limitation, a Person’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law. The terms “ Controlling ” and “ Controlled ” have meanings correlative to the foregoing.

 

[Annex A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Conversion Shares ” shall mean Ordinary Shares issuable or issued upon conversion of the Preferred Shares of the Company.

Crescent ” shall mean CPYD Singapore Pte. Ltd.

Deemed Liquidation Event ” has the meaning set forth in the Restated M&A.

Director ” shall mean a member of the board of directors of the Company.

Eastern Bell ” shall mean, collectively, Eastern Bell XIX Investment Limited and Eastern Bell XII Investment Limited.

Exchange Act ” shall mean the U.S. Securities and Exchange Act of 1934, as amended.

FCPA ” shall mean the Foreign Corrupt Practices Act of the United States (15 U.S.C. §§ 78dd-1, et seq.), as amended.

Group Companies ” shall mean Company, the HK Co., the WFOE, the Domestic Co., the PRC Subsidiaries, the HK Subsidiary, and each Person (except individuals) Controlled by the Company and their respective Subsidiaries from time to time (each a “ Group Company ”), unless the context specifically indicates otherwise.

HK Subsidiary ” shall mean Yunji HongKong Limited.

Hong Kong ” shall mean the Hong Kong Special Administrative Region of the People’s Republic of China.

Huaxing ” shall mean, collectively, China Renaissance Corporation, Huaxing RMB and Huaxing US.

Huaxing RMB ” shall mean Shanghai Fengxian Information and Technology Development Partnership (LLP) ( 上海丰羡信息科技发展合伙企业 ( 有限合伙 )), a limited partnership established in the PRC.

Huaxing US ” shall mean Fountain Sight Limited, a limited liability company incorporated in the British Virgin Islands.

IAS ” shall mean the applicable International Accounting Standards published by the International Accounting Standards Board from time to time.

Intellectual Property ” shall mean any and all (a) patents, patent rights, patent applications, and all reissues, re-examinations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (b) inventions (whether patentable or not), improvements, concepts, innovations and industrial models, (c) registered and unregistered copyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), (d) URLs, domain names, web sites, web pages and any part thereof, (e) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (f) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (g) trade names, trade dress, trademarks, service marks, and registrations and applications therefor, and (h) the goodwill of the business symbolized or represented by the foregoing, customer lists and other confidential and proprietary information and common-law rights.

 

[Annex A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Investment Securities ” shall mean the Preferred Shares and/or the Conversion Shares.

New Investors ” shall mean, collectively, TH Capital, Huaxing US and Huaxing RMB.

Ordinary Majority ” shall mean the holders representing more than fifty percent (50%) of the Ordinary Shares then outstanding, voting as a single class on an as-converted basis.

Ordinary Shareholders ” shall mean the holders of the Ordinary Shares of the Company.

Ordinary Shares ” shall mean the ordinary shares of the Company, par value US$0.000005 per share.

Person ” shall mean 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, the Macau Special Administrative Region and the Islands of Taiwan.

PRC Subsidiaries ” shall mean the entities set forth on Schedule A-1 , and “ PRC Subsidiary ” shall mean any one of such entities.

Preferred Majority ” shall mean collectively, the Series Seed Majority, the Series A Majority and the Series B Majority.

Preferred Shares ” shall mean the Company’s Series Seed Preferred Shares, Series A Preferred Shares, Series B Preferred, Series B+ Preferred Shares Shares and/or other preferred shares of the company that may be issued from time to time.

Preferred Shareholders ” shall mean the holders of the Preferred Shares of the Company.

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 an implied pre-money valuation of US$4,000,000,000 (or equivalent RMB) or more, or in a similar public offering of Ordinary Shares in a jurisdiction and on an internationally recognized securities exchange or inter-dealer quotation system outside of the United States, including the Stock Exchange of Hong Kong Limited, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, provided such public offering is equivalent to the aforementioned in terms of offering proceeds and regulatory approval, and is approved by the Preferred Majority.

 

[Annex A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


R elevant Period ” shall mean in relation to any Founder, the period during which the Founder is directly or indirectly a shareholder, director, officer and/or employee (either a full-time employee or a part-time employee) and/or has any direct or indirect interest (legal or beneficial) in the capital of any of the Group Companies.

Restriction Period ” shall mean two (2) years after the expiration of the Relevant Period.

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.

SEC ” shall mean the U.S. Securities and Exchange Commission.

Securities Act ” shall mean the U.S. Securities Act of 1933, as amended.

Series Seed Majority ” shall mean the holders holding more than two-thirds (2/3) of the then outstanding Series Seed Preferred Shares, voting as a single class on an as-converted basis.

Series Seed Preferred Shares ” shall mean the Company’s Series Seed Preferred Shares, par value US$0.000005 per share.

Series A Majority ” shall mean the holders holding more than fifty percent (50%) of the then outstanding Series A Preferred Shares, voting as a single class on an as-converted basis.

Series A Preferred Shares ” shall mean the Series A Preferred Shares of the Company, par value US$0.000005 per share.

Series B Majority ” shall mean the holders holding more than fifty percent (50%) of the then outstanding Series B Preferred Shares and the then outstanding Series B+ Preferred Shares, voting as a single class on an as-converted basis.

Series B Preferred Shares ” shall mean the Series B Preferred Shares of the Company, par value US$0.000005 per share.

Series B+ Preferred Shares ” shall mean the Series B+ Preferred Shares of the Company, par value US$0.000005 per share.

Shareholders ” shall mean the Ordinary Shareholders and the Preferred Shareholders (each a “ Shareholder ”), unless the text specifically indicates otherwise.

Shares ” shall mean all Preferred Shares and all Ordinary Shares now owned or subsequently acquired by any shareholder.

Smallyes Group Companies ” shall mean, collectively, Zhejiang Smallyes Network Technology Co., Ltd. ( 浙江小也网络科技有限公司 ), Hangzhou Smallyes Cosmetics Co., Ltd. ( 杭州小也化妆品有限公司 ) and Shanghai Suye Cosmetics Co., Ltd. ( 上海素野化妆品有限公司 ).

 

[Annex A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Subsidiary ” or “ subsidiary ” shall mean, with respect to any subject entity (the “ subject entity ”), (i) any company, partnership or other entity (x) more than fifty percent (50%) of whose shares or other interests entitled to vote in the election of directors or (y) more than a fifty percent (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 IAS or U.S. GAAP, 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. Notwithstanding the above, as applied to the Company, the term “Subsidiary” or “subsidiary” includes the the HK Co., the WFOE, Domestic Co, the PRC Subsidiaries and the HK Subsidiary.

TH Capital ” shall mean China TH Capital Limited.

Trade Sale ” shall mean any of the following events:

(i)     the acquisition of any Group Company (whether by a sale of equity, merger or consolidation) in which in excess of fifty percent (50%) of such Group Company’s voting power outstanding before such transaction is transferred;

(ii)    the sale, transfer or other disposition of all or substantially all of the assets, or Intellectual Property of any Group Company; or

(iii)     the exclusive licensing of all or substantially all of any Group Company’s Intellectual Property rights.

Transaction Documents ” shall mean this Agreement, the Share Purchase Agreement, the Restated M&A, the Resturcturing 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.

Trustbridge ” shall mean, collectively, FASTURN OVERSEAS LIMITED and TRUSTBRIDGE PARTNERS IV, L.P.

US$ ” and “ USD ” shall mean the lawful currency of the United States of America.

U.S. GAAP ” shall mean the accounting principles generally accepted in the United States.

 

[Annex A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


EXHIBIT A

PROTECTIVE PROVISIONS

Part I    Acts of the Group Companies Requiring Approval of Preferred Majority

In addition to such other restrictions or limitations as may be provided herein or in other Transaction Documents, for so long as any Preferred Share remains outstanding, each Group Company shall not, and each of the Warrantors (as defined under the Share Purchase Agreement) shall procure each Group Company not to, directly or indirectly, and whether by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, take any of the actions listed in this Part I of Exhibit A without the prior written consent of the Preferred Majority. Notwithstanding anything to the contrary contained herein, where any act listed in this Part I of Exhibit A requires the approval of the Shareholders in accordance with the Statute, and if the Shareholders vote in favour of such act but the approval of the Preferred Majority has not yet been obtained, the Preferred Shareholders who vote against such act at a meeting of the Shareholders in aggregate shall have the voting rights equal to the aggregate voting power of all the Shareholders who voted in favor of such act plus one (1).

 

  (a)

any change to the Restated M&A or other Charter Documents of the Company or any of its Subsidiaries;

 

  (b)

any filing by or against any Group Company for the appointment of a receiver, administrator or other form of external manager, or the winding up, liquidation, bankruptcy or insolvency of any Group Company;

 

  (c)

increase, reduce or cancel the authorized or issued share capital of the Company and/or any of its Subsidiaries or issue, allot, purchase or redeem any shares or securities convertible into or carrying a right of subscription in respect of shares or any share warrants (but excluding any redemption provided under Article 19 of the Restated M&A) or grant or issue any options rights or warrants of which may require the issue of shares in the future or do any act which has the effect of diluting or reducing the effective shareholding of the holders of the Preferred Shares in the Company;

 

  (d)

the consolidation or merger with or into any other business entity or change of control of any Group Company;

 

  (e)

take any action that reclassifies any outstanding shares into shares having preferences or priority as to dividends or assets senior to or on a parity with the preference of the holders of the Preferred Shares;

 

  (f)

any Deemed Liquidation Event (but excluding any Drag-Along Sale);

 

  (g)

the declaration or payment or change of policy of a dividend or other distributions on any securities of any Group Company; capitalization of the premiums of the Company and/or any of its Subsidiaries;

 

  (h)

any increase or decrease in the size of the Board;


  (i)

adopt the annual budget of the Group Companies or any substantial amendment to the business plan or annual budgets of the Group Companies previously adopted;

 

  (j)

substantial change to the principle business of the Group Companies;

 

  (k)

any financing plan by the Group Companies from other investors; and

 

  (l)

enter into or change arrangements for any public offering of the Company’s or any of its Subsidiaries’ securities, including the selection of any underwriter, accountant, counsel, and the exchange stock for such offering; approval on the offering or listing scheme, valuation and pre-listing restructuring plan of the Group Companies.

 

[Exhibit A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


Part II    Acts of the Group Companies Requiring Approval of the Investor Directors

In addition to such other restrictions or limitations as may be provided herein or in other Transaction Documents, for so long as there is any Investor Director, each Group Company shall not, and each of the Warrantors shall procure each Group Company not to, directly or indirectly, and whether by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, take any of the actions listed in this Part II of Exhibit A without the prior written consent of all the Investor Directors. Notwithstanding anything to the contrary contained herein, where any act listed in this Part II of Exhibit A requires the approval of the Board in accordance with the Statute, and if the Board vote in favour of such act but the approval of all the Investor Directors have not yet been obtained, the Investor Directors shall have the voting rights equal to the aggregate voting power of all the Directors who voted in favor of such act plus one (1).

 

  (a)

any investment into other company, partnership, trust, joint venture or entity which is in excess of US$1,000,000 in respect of any one (1) transaction or in related transactions in any fiscal year by the Company and/or any of its Subsidiaries; or establishment of any joint venture with investment amount exceeding US$1,000,000;

 

  (b)

any borrowing beyond the annual budget in excess of US$2,000,000 in respect of any one (1) transaction or in related transactions in any fiscal year by the Company and/or any of its Subsidiaries other than any short-term financing obtained from banks or other financial institutions in the ordinary course of business;

 

  (c)

purchase or lease of any assets with value exceeding US$500,000 in a single transaction or series of related transactions by any Group Company beyond the annual budget of the Group Companies;

 

  (d)

any related party transaction between any Group Company and any shareholder, director, officer, employee, or any Affiliate of the foregoing, any Affiliate of any Group Company, or any shareholder, director, officer, employee of any Affiliate of any Group Company, or any other entity in which any Founderholds any euiqyt interest beyond the ordinary course of business (in respect of any transaction between any Group Company and any Smallyes Group Company, only applicable to any transaction the scope and amount of which substantially differ from those existing as of the date hereof);

 

  (e)

beyond the ordinary course of business, any loan provided by any Group Company to any third party in an amount exeeding US$1,000,000; or the provision of any guarantee or security for or in connection with any indebtedness of liabilities of any third party (excluding any loan or guarantee existing as of the date hereof);

 

  (f)

create or issue any debenture constituting a pledge, lien or charge on the material assets (the amount of which exceeding 5% of the total book value of the Group Companies) of any Group Company;

 

[Exhibit A to the Amended and Restated Shareholders Agreement – Yunji Inc.]


  (g)

sell, transfer or dispose of material assets (the amount of which exceeding 5% of the total book value of the Group Companies) or business of any Group Company;

 

  (h)

sell, transfer, license, charge, encumber or otherwise dispose of any material technology or material trademarks, patents, copyrights or other intellectual property owned by any Group Company (exluding any technology license necessary in the ordinary course of business);

 

  (i)

sale, transfer, dispose of or dilute the Company’s interest, directly or indirectly, in any of its Subsidiaries; or approval on the equity transfer of any Subsidary;

 

  (j)

any adoption, amendment or termination of any bonus or profit sharing scheme, including any employee share option or share participation scheme or any employee incentive scheme, but excluding the ESOP provided under Section 10.4 in connection with 191,663,158 Ordinary Shares and corresponding options;

 

  (k)

appoint or dismissal of the chief executive officer and chief financial officer of the Company and/or any of its Subsidiaries;

 

  (l)

raise, withdraw, settler or reconcile any claim in relation to dispute involving more than US$1,000,000; and

 

  (m)

appoint or change the auditors of the Company and/or any of its Subsidiaries; or substantial change to the accounting policy of the Company and/or any of its Subsidiaries.

 

[Exhibit A to the Amended and Restated Shareholders Agreement – Yunji Inc.]

Exhibit 5.1

Our ref      ELR/739567-000002/14310622v2

Yunji Inc.

15/F, South Building, Hipark Phase 2,

Xiaoshan District

Hangzhou 310000, Zhejiang Province

People’s Republic of China

20 March 2019

Dear Sirs

Yunji Inc.

We have acted as Cayman Islands legal advisers to Yunji Inc. (the “ Company ”) in connection with the Company’s registration statement on Form F-1, including all amendments or supplements thereto (the “ Registration Statement ”), filed with the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended to date relating to the offering by the Company of certain American depositary shares (the “ ADSs ”) representing the Company’s Class A ordinary shares of par value US$0.000005 per share (the “ Shares ”).

We are furnishing this opinion as Exhibits 5.1, 8.1 and 23.2 to the Registration Statement.

 

1

Documents Reviewed

For the purposes of this opinion, we have reviewed only originals, copies or final drafts of the following documents:

 

1.1

The certificate of incorporation of the Company dated 17 November 2017 issued by the Registrar of Companies in the Cayman Islands.

 

1.2

The second amended and restated memorandum and articles of association of the Company as adopted by special resolution passed on 4 June 2018 (the “ Pre -IPO Memorandum and Articles ”).

 

1.3

The third amended and restated memorandum and articles of association of the Company as conditionally adopted by a special resolution passed on 19 March 2019 and effective immediately prior to the completion of the Company’s initial public offering of the ADSs representing the Shares (the “ IPO Memorandum and Articles ”).

 

1.4

The written resolutions of the directors of the Company dated 19 March 2019 (the “ Directors’ Resolutions ”).

 

1.5

The written resolutions of the shareholders of the Company dated 19 March 2019 (the “ Shareholders’ Resolutions ”).

 

1.6

A certificate from a director of the Company, a copy of which is attached hereto (the “ Director’s Certificate ”).


1.7

A certificate of good standing dated 19 March 2019, issued by the Registrar of Companies in the Cayman Islands (the “ Certificate of Good Standing ”).

 

1.8

The Registration Statement.

 

2

Assumptions

The following opinions are given only as to, and based on, circumstances and matters of fact existing and known to us on the date of this opinion letter. These opinions only relate to the laws of the Cayman Islands which are in force on the date of this opinion letter. In giving these opinions we have relied (without further verification) upon the completeness and accuracy, as of the date of this opinion letter, of the Director’s Certificate and the Certificate of Good Standing. We have also relied upon the following assumptions, which we have not independently verified:

 

2.1

Copies of documents, conformed copies or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals.

 

2.2

All signatures, initials and seals are genuine.

 

2.3

There is nothing under any law (other than the law of the Cayman Islands), which would or might affect the opinions set out below.

 

3

Opinion

Based upon the foregoing and subject to the qualifications set out below and having regard to such legal considerations as we deem relevant, we are of the opinion that:

 

3.1

The Company has been duly incorporated as an exempted company with limited liability and is validly existing and in good standing with the Registrar of Companies under the laws of the Cayman Islands.

 

3.2

The authorised share capital of the Company, with effect immediately prior to the completion of the Company’s initial public offering of the ADSs representing the Shares, will be US$100,000 divided into 20,000,000,000 shares comprising of (i) 17,000,000,000 Class A Ordinary Shares of a par value of US$0.000005 each, (ii) 2,000,000,000 Class B Ordinary Shares of a par value of US$0.000005 each and (iii) 1,000,000,000 shares of a par value of US$0.000005 each of such class or classes (however designated) as the board of directors of the Company may determine in accordance with the IPO Memorandum and Articles.

 

3.3

The issue and allotment of the Shares have been duly authorised and when allotted, issued and paid for as contemplated in the Registration Statement, the Shares will be legally issued and allotted, fully paid and non-assessable. As a matter of Cayman law, a share is only issued when it has been entered in the register of members (shareholders).

 

3.4

The statements under the caption “Taxation” in the prospectus forming part of the Registration Statement, to the extent that they constitute statements of Cayman Islands law, are accurate in all material respects and that such statements constitute our opinion.

 

4

Qualifications

In this opinion the phrase “non-assessable” means, with respect to the Shares in the Company, that a shareholder shall not, solely by virtue of its status as a shareholder, be liable for additional assessments or calls on the Shares by the Company or its creditors (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

 

2


Except as specifically stated herein, we make no comment with respect to any representations and warranties which may be made by or with respect to the Company in any of the documents or instruments cited in this opinion or otherwise with respect to the commercial terms of the transactions, which are the subject of this opinion.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our name under the headings “Enforceability of Civil Liabilities”, “Taxation” and “Legal Matters” and elsewhere in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the Rules and Regulations of the Commission thereunder.

Yours faithfully

/s/ Maples and Calder (Hong Kong) LLP

Maples and Calder (Hong Kong) LLP

 

3


Yunji Inc.

Maples Corporate Services Limited,

PO Box 309, Ugland House,

Grand Cayman, KY1-1104, Cayman Islands

19 March 2019

To:    Maples and Calder (Hong Kong) LLP

53/F, The Center 

99 Queen’s Road Central 

Central, Hong Kong 

Dear Sirs

Yunji Inc. (the “Company”)

I, the undersigned, being a director of the Company, am aware that you are being asked to provide a legal opinion (the “ Opinion ”) in relation to certain aspects of Cayman Islands law. Capitalised terms used in this certificate have the meaning given to them in the Opinion. I hereby certify that:

 

1

The Pre-IPO Memorandum and Articles remain in full force and effect and, except as amended by the Shareholders’ Resolutions adopting the IPO Memorandum and Articles, are otherwise unamended.

 

2

The Directors’ Resolutions were duly passed in the manner prescribed in the Pre-IPO Memorandum and Articles (including, without limitation, with respect to the disclosure of interests (if any) by directors of the Company) and have not been amended, varied or revoked in any respect.

 

3

The Shareholders’ Resolutions were duly passed in the manner prescribed in the Pre-IPO Memorandum and Articles and have not been amended, varied or revoked in any respect.

 

4

The authorised share capital of the Company is US$50,000 divided into 9,104,783,248 Ordinary Shares of a nominal or par value of US$0.000005 each and 895,216,752 Preferred Shares of a nominal or par value of US$0.000005 each, 373,000,000 of which are designated as Series Seed Preferred Shares, 389,200,000 of which are designated as Series A Preferred Shares, 111,911,357 of which are designated as Series B Preferred Shares, and 21,105,395 of which are designated as Series B+ Preferred Shares.

 

5

The authorised share capital of the Company, with effect immediately prior to the completion of the Company’s initial public offering of the ADSs representing the Shares, will be US$100,000 divided into 20,000,000,000 shares comprising of (i) 17,000,000,000 Class A Ordinary Shares of a par value of US$0.000005 each, (ii) 2,000,000,000 Class B Ordinary Shares of a par value of US$0.000005 each and (iii) 1,000,000,000 shares of a par value of US$0.000005 each of such class or classes (however designated) as the board of directors of the Company may determine in accordance with the IPO Memorandum and Articles.

 

6

The shareholders of the Company have not restricted or limited the powers of the directors in any way and there is no contractual or other prohibition (other than as arising under Cayman Islands law) binding on the Company prohibiting it from issuing and allotting the Shares or otherwise performing its obligations under the Registration Statement.


7

The directors of the Company at the date of the Directors’ Resolutions were as follows:

 

XIAO Shanglue
HAO Huan
KONG Qingrong
ZHANG Tiecheng
Ying Wei
JIN Wenjie
Sun Yanhua
WAN Zhi

 

8

Each director considers the transactions contemplated by the Registration Statement to be of commercial benefit to the Company and has acted bona fide in the best interests of the Company, and for a proper purpose of the Company in relation to the transactions which are the subject of the Opinion.

 

9

To the best of my knowledge and belief, having made due inquiry, the Company is not the subject of legal, arbitral, administrative or other proceedings in any jurisdiction that would have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company. Nor have the directors or shareholders taken any steps to have the Company struck off or placed in liquidation, nor have any steps been taken to wind up the Company. Nor has any receiver been appointed over any of the Company’s property or assets.

 

10

Upon the completion of the Company’s initial public offering of the ADSs representing the Shares, the Company will not be subject to the requirements of Part XVIIA of the Companies Law (2018 Revision).

I confirm that you may continue to rely on this Certificate as being true and correct on the day that you issue the Opinion unless I shall have previously notified you personally to the contrary.

[ signature page follows ]


Signature:

  

/s/ Shanglue Xiao

  

Name:

   Shanglue Xiao   

Title:

   Director   

Exhibit 10.1

Yunji Inc.

2019 Share Incentive Plan

ARTICLE 1

PURPOSE

The purpose of the Plan is to promote the success and enhance the value of Yunji Inc., an exempted company formed under the laws of the Cayman Islands (the “ Company ”), by linking the personal interests of the Directors, Employees, and Consultants to those of the Company’s shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s shareholders. The Plan amends and restates the previously adopted 2017 Share Incentive Plan of the Company in its entirety and assumes all awards granted under the 2017 Share Incentive Plan.

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.

2.1    “ Applicable Laws ” means the legal requirements relating to the Plan and the Awards under applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders, and the rules of any applicable stock exchange or national market system, of any jurisdiction applicable to Awards granted to residents therein.

2.2    “ Award ” means an Option, Restricted Share, Restricted Share Units or other types of award approved by the Committee granted to a Participant pursuant to the Plan.

2.3    “ Award Agreement ” means any written agreement, contract, or other instrument or document evidencing an Award, including through electronic medium.

2.4    “ Board ” means the Board of Directors of the Company.

2.5    “ Cause ” with respect to a Participant means (unless otherwise expressly provided in the applicable Award Agreement, or another applicable contract with the Participant that defines such term for purposes of determining the effect that a “for cause” termination has on the Participant’s Awards) a termination of employment or service based upon a finding by the Service Recipient, acting in good faith and based on its reasonable belief at the time, that the Participant:

(a)    has been negligent in the discharge of his or her duties to the Service Recipient, has refused to perform stated or assigned duties or is incompetent in or (other than by reason of a disability or analogous condition) incapable of performing those duties;

 

1


(b)    has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information;

(c)    has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation or policy of the Service Recipient; or has been convicted of, or plead guilty or nolo contendere to, a felony or misdemeanor (other than minor traffic violations or similar offenses);

(d)    has materially breached any of the provisions of any agreement with the Service Recipient;

(e)    has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the reputation, business or assets of, the Service Recipient; or

(f)    has improperly induced a vendor or customer to break or terminate any contract with the Service Recipient or induced a principal for whom the Service Recipient acts as agent to terminate such agency relationship.

A termination for Cause shall be deemed to occur (subject to reinstatement upon a contrary final determination by the Committee) on the date on which the Service Recipient first delivers written notice to the Participant of a finding of termination for Cause.

2.6    “ Code ” means the Internal Revenue Code of 1986 of the United States, as amended.

2.7     “ Committee ” means a committee of the Board described in Article 10.

2.8     “ Consultant ” means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to a Service Recipient; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or adviser is a natural person who has contracted directly with the Service Recipient to render such services.

2.9     “ Corporate Transaction ”, unless otherwise defined in an Award Agreement, means any of the following transactions, provided, however, that the Committee shall determine under (d) and (e) whether multiple transactions are related, and its determination shall be final, binding and conclusive:

(a)    an amalgamation, arrangement or consolidation or scheme of arrangement (i) in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is incorporated or (ii) following which the holders of the voting securities of the Company do not continue to hold more than 50% of the combined voting power of the voting securities of the surviving entity;

(b)    the sale, transfer or other disposition of all or substantially all of the assets of the Company;

 

2


(c)    the complete liquidation or dissolution of the Company;

(d)    any reverse takeover or series of related transactions culminating in a reverse takeover (including, but not limited to, a tender offer followed by a reverse takeover) in which the Company is the surviving entity but (A) the Company’s equity securities outstanding immediately prior to such takeover are converted or exchanged by virtue of the takeover into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such takeover or the initial transaction culminating in such takeover, but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction; or

(e)    acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction.

2.10    “ Director ”, means a member of the Board or a member of the board of directors of any Subsidiary of the Company.

2.11     “ Disability ”, unless otherwise defined in an Award Agreement, means that the Participant qualifies to receive long-term disability payments under the Service Recipient’s long-term disability insurance program, as it may be amended from time to time, to which the Participant provides services regardless of whether the Participant is covered by such policy. If the Service Recipient to which the Participant provides service does not have a long-term disability plan in place, “Disability” means that a Participant is unable to carry out the responsibilities and functions of the position held by the Participant by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Participant will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Committee in its discretion.

2.12    “ Effective Date ” shall have the meaning set forth in Section 11.1.

2.13    “ Employee ” means any person, including an officer or a Director, who is in the employment of a Service Recipient, subject to the control and direction of the Service Recipient as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by a Service Recipient shall not be sufficient to constitute “employment” by the Service Recipient.

2.14    “ Exchange Act ” means the Securities Exchange Act of 1934 of the United States, as amended.

 

3


2.15    “ Fair Market Value ” means, as of any date, the value of Shares determined as follows:

(a)    If the Shares are listed on one or more established stock exchanges or national market systems, including without limitation, the New York Stock Exchange or the NASDAQ Stock Market, its Fair Market Value shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Shares are listed (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported on the website maintained by such exchange or market system or such other source as the Committee deems reliable; or

(b)    In the absence of an established market for the Shares of the type described in (a) above, the Fair Market Value thereof shall be determined by the Committee in good faith and in its discretion by reference to (i) the placing price of the latest private placement of the Shares and the development of the Company’s business operations and the general economic and market conditions since such latest private placement, (ii) other third party transactions involving the Shares and the development of the Company’s business operation and the general economic and market conditions since such transaction, (iii) an independent valuation of the Shares, or (iv) such other methodologies or information as the Committee determines to be indicative of Fair Market Value.

2.16    “ Group Entity ” means any of the Company and Subsidiaries of the Company.

2.17    “ Incentive Share Option ” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

2.18    “ Independent Director ” means (i) if the Shares or other securities representing the Shares are not listed on a stock exchange, a Director of the Company who is a Non-Employee Director; and (ii) if the Shares or other securities representing the Shares are listed on one or more stock exchange, a Director of the Company who meets the independence standards under the applicable corporate governance rules of the stock exchange(s).

2.19    “ Non-Employee Director ” means a member of the Board who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.

2.20    “ Non-Qualified Share Option ” means an Option that is not intended to be an Incentive Share Option.

2.21    “ Option ” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of Shares at a specified price during specified time periods. An Option may be either an Incentive Share Option or a Non-Qualified Share Option.

2.22    “ Participant ” means a person who, as a Director, Consultant or Employee, has been granted an Award pursuant to the Plan.

2.23    “ Parent ” means a parent corporation under Section 424(e) of the Code.

2.24    “ Plan ” means this 2019 Share Incentive Plan of Yunji Inc., as amended and/or restated from time to time.

 

4


2.25    “ Related Entity ” means any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or Subsidiary of the Company holds a substantial ownership interest, directly or indirectly, or controls through contractual arrangements and consolidates the financial results according to applicable accounting standards, but which is not a Subsidiary and which the Board designates as a Related Entity for purposes of the Plan.

2.26    “ Restricted Share ” means a Share awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture.

2.27    “ Restricted Share Unit ” means the right granted to a Participant pursuant to Article 7 to receive a Share at a future date.

2.28    “ Securities Act ” means the Securities Act of 1933 of the United States, as amended.

2.29    “ Service Recipient ” means the Company or Subsidiary of the Company to which a Participant provides services as an Employee, a Consultant or a Director.

2.30    “ Share ” means the ordinary shares of the Company, par value US$0.000005 per share, and such other securities of the Company that may be substituted for Shares pursuant to Article 9.

2.31    “ Subsidiary ” means any corporation or other entity of which a majority of the outstanding voting shares or voting power is beneficially owned directly or indirectly by the Company.

2.32    “ Trading Date ” means the closing of the first sale to the general public of the Shares pursuant to a registration statement filed with and declared effective by the U.S. Securities and Exchange Commission under the Securities Act.

ARTICLE 3

SHARES SUBJECT TO THE PLAN

3.1     Number of Shares .

(a)    Subject to the provisions of Article 9 and Section 3.1(b), the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Share Options) (the “ Award Pool ”) shall initially be 227,401,861 Shares, which shall be increased by a number equal to 1% of the then total issued and outstanding Shares on an as-converted fully diluted basis, on each of the first, second, third, fourth and fifth anniversary of the Effective Date.

 

5


(b)    To the extent that an Award terminates, expires, or lapses for any reason, any Shares subject to the Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by Applicable Laws, Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form or combination by a Group Entity shall not be counted against Shares available for grant pursuant to the Plan. Shares delivered by the Participant or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a). If any Restricted Shares are forfeited by the Participant or repurchased by the Company, such Shares may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a). Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Share Option to fail to qualify as an incentive share option under Section 422 of the Code.

3.2     Shares Distributed . Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury Shares (subject to Applicable Laws) or Shares purchased on the open market. Additionally, at the discretion of the Committee, any Shares distributed pursuant to an Award may be represented by American Depository Shares. If the number of Shares represented by an American Depository Share is other than on a one-to-one basis, the limitations of Section 3.1 shall be adjusted to reflect the distribution of American Depository Shares in lieu of Shares.

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

4.1     Eligibility . Persons eligible to participate in this Plan include Employees, Consultants, and Directors, as determined by the Committee.

4.2     Participation . Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan.

ARTICLE 5

OPTIONS

5.1     General . The Committee is authorized to grant Options to Participants on the following terms and conditions:

(a)     Exercise Price . The exercise price per Share subject to an Option shall be determined by the Committee and set forth in the Award Agreement which may be a fixed price or a variable price related to the Fair Market Value of the Shares. The exercise price per Share subject to an Option may be amended or adjusted in the absolute discretion of the Committee, the determination of which shall be final, binding and conclusive. For the avoidance of doubt, to the extent not prohibited by Applicable Laws or any exchange rule, a downward adjustment of the exercise prices of Options mentioned in the preceding sentence shall be effective without the approval of the Company’s shareholders or the approval of the affected Participants.

 

6


(b)     Time and Conditions of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part, including exercise prior to vesting; provided that the term of any Option granted under the Plan shall not exceed ten years, except as provided in Section 12.1. The Committee shall also determine any conditions, if any, that must be satisfied before all or part of an Option may be exercised.

(c)     Payment . The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation (i) cash or check denominated in U.S. Dollars, (ii) to the extent permissible under the Applicable Laws, cash or check in Chinese Renminbi, (iii) cash or check denominated in any other local currency as approved by the Committee, (iv) Shares held for such period of time as may be required by the Committee in order to avoid adverse financial accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, (v) after the Trading Date the delivery of a notice that the Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale, (vi) other property acceptable to the Committee with a Fair Market Value equal to the exercise price, or (vii) any combination of the foregoing. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act.

(d)     Effects of Termination of Employment or Service on Options . Termination of employment or service shall have the following effects on Options granted to the Participants:

(i)     Dismissal for Cause . Unless otherwise provided in the Award Agreement, if a Participant’s employment by or service to the Service Recipient is terminated by the Service Recipient for Cause, the Participant’s Options will terminate upon such termination, whether or not the Option is then vested and/or exercisable;

(ii)     Death or Disability . Unless otherwise provided in the Award Agreement, if a Participant’s employment by or service to the Service Recipient terminates as a result of the Participant’s death or Disability:

 

  (a)

the Participant (or his or her legal representative or beneficiary, in the case of the Participant’s Disability or death, respectively), will have until the date that is 12 months after the Participant’s termination of Employment to exercise the Participant’s Options (or portion thereof) to the extent that such Options were vested and exercisable on the date of the Participant’s termination of Employment on account of death or Disability;

 

  (b)

the Options, to the extent not vested and exercisable on the date of the Participant’s termination of Employment or service, shall terminate upon the Participant’s termination of Employment or service on account of death or Disability; and

 

7


  (c)

the Options, to the extent exercisable for the 12-month period following the Participant’s termination of Employment or service and not exercised during such period, shall terminate at the close of business on the last day of the 12-month period.

(iii)     Other Terminations of Employment or Service . Unless otherwise provided in the Award Agreement, if a Participant’s employment by or service to the Service Recipient terminates for any reason other than a termination by the Service Recipient for Cause or because of the Participant’s death or Disability:

 

  (a)

the Participant will have until the date that is 90 days after the Participant’s termination of Employment or service to exercise his or her Options (or portion thereof) to the extent that such Options were vested and exercisable on the date of the Participant’s termination of Employment or service;

 

  (b)

the Options, to the extent not vested and exercisable on the date of the Participant’s termination of Employment or service, shall terminate upon the Participant’s termination of Employment or service; and

 

  (c)

the Options, to the extent exercisable for the 90-day period following the Participant’s termination of Employment or service and not exercised during such period, shall terminate at the close of business on the last day of the 90-day period.

5.2     Incentive Share Options . Incentive Share Options may be granted to Employees of the Company or a Subsidiary of the Company. Incentive Share Options may not be granted to employees of a Related Entity or to Independent Directors or Consultants. The terms of any Incentive Share Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the following additional provisions of this Section 5.2:

(a)     Individual Dollar Limitation . The aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which Incentive Share Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Share Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Share Options.

(b)     Exercise Price . The exercise price of an Incentive Share Option shall be equal to the Fair Market Value on the date of grant. However, the exercise price of any Incentive Share Option granted to any individual who, at the date of grant, owns Shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company or any Parent or Subsidiary of the Company may not be less than 110% of Fair Market Value on the date of grant and such Option may not be exercisable for more than five years from the date of grant.

 

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(c)     Transfer Restriction . The Participant shall give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Share Option within (i) two years from the date of grant of such Incentive Share Option or (ii) one year after the transfer of such Shares to the Participant.

(d)     Expiration of Incentive Share Options . No Award of an Incentive Share Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date.

(e)     Right to Exercise . During a Participant’s lifetime, an Incentive Share Option may be exercised only by the Participant.

ARTICLE 6

RESTRICTED SHARES

6.1     Grant of Restricted Shares . The Committee, at any time and from time to time, may grant Restricted Shares to Participants as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of Restricted Shares to be granted to each Participant.

6.2     Restricted Shares Award Agreement . Each Award of Restricted Shares shall be evidenced by an Award Agreement that shall specify the period of restriction, the number of Restricted Shares granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine. Unless the Committee determines otherwise, Restricted Shares shall be held by the Company as escrow agent until the restrictions on such Restricted Shares have lapsed.

6.3     Issuance and Restrictions . Restricted Shares shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Shares or the right to receive dividends on the Restricted Shares). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.

6.4     Forfeiture/Repurchase . Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Shares that are at that time subject to restrictions shall be forfeited or repurchased in accordance with the Award Agreement; provided, however, the Committee may (a) provide in any Restricted Share Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Shares will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Shares.

6.5     Certificates for Restricted Shares . Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Shares are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Shares, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

 

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6.6     Removal of Restrictions . Except as otherwise provided in this Article 6, Restricted Shares granted under the Plan shall be released from escrow as soon as practicable after the last day of the period of restriction. The Committee, in its discretion, may accelerate the time at which any restrictions shall lapse or be removed. After the restrictions have lapsed, the Participant shall be entitled to have any legend or legends under Section 6.5 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant, subject to applicable legal restrictions. The Committee (in its discretion) may establish procedures regarding the release of Shares from escrow and the removal of legends, as necessary or appropriate to minimize administrative burdens on the Company.

ARTICLE 7

7.1     Grant of Restricted Share Units . The Committee, at any time and from time to time, may grant Restricted Share Units to Participants as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of Restricted Share Units to be granted to each Participant.

7.2     Restricted Share Units Award Agreement . Each Award of Restricted Share Units shall be evidenced by an Award Agreement that shall specify any vesting conditions, the number of Restricted Share Units granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine.

7.3     Form and Timing of Payment of Restricted Share Units . At the time of grant, the Committee shall specify the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable. Upon vesting, the Committee, in its sole discretion, may pay Restricted Share Units in the form of cash, Shares or a combination thereof.

7.4     Forfeiture/Repurchase . Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Share Units that are at that time unvested shall be forfeited or repurchased in accordance with the Award Agreement; provided, however , the Committee may (a) provide in any Restricted Share Unit Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Share Units will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Share Units.

ARTICLE 8

PROVISIONS APPLICABLE TO AWARDS

8.1     Award Agreement . Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.

 

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8.2     No Transferability; Limited Exception to Transfer Restrictions .

8.2.1 Limits on Transfer . Unless otherwise expressly provided in (or pursuant to) this Section 8.2, by applicable law and by the Award Agreement, as the same may be amended:

(a)    all Awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge;

(b)    Awards will be exercised only by the Participant; and

(c)    amounts payable or shares issuable pursuant to an Award will be delivered only to (or for the account of), and, in the case of Shares, registered in the name of, the Participant.

In addition, the shares shall be subject to the restrictions set forth in the applicable Award Agreement.

8.2.2     Further Exceptions to Limits on Transfer . The exercise and transfer restrictions in Section 8.2.1 will not apply to:

(a)    transfers to the Company or a Subsidiary;

(b)    transfers by gift to “immediate family” as that term is defined in SEC Rule 16a-1(e) promulgated under the Exchange Act;

(c)    the designation of a beneficiary to receive benefits if the Participant dies or, if the Participant has died, transfers to or exercises by the Participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution; or

(d)    if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by the Participant’s duly authorized legal representative; or

(e)    subject to the prior approval of the Committee or an executive officer or director of the Company authorized by the Committee, transfer to one or more natural persons who are the Participant’s family members or entities owned and controlled by the Participant and/or the Participant’s family members, including but not limited to trusts or other entities whose beneficiaries or beneficial owners are the Participant and/or the Participant’s family members, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee or may establish. Any permitted transfer shall be subject to the condition that the Committee receives evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes and on a basis consistent with the Company’s lawful issue of securities.

 

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Notwithstanding anything else in this Section 8.2.2 to the contrary, but subject to compliance with all Applicable Laws, Incentive Share Options, Restricted Shares and Restricted Share Units will be subject to any and all transfer restrictions under the Code applicable to such Awards or necessary to maintain the intended tax consequences of such Awards. Notwithstanding clause (b) above but subject to compliance with all Applicable Laws, any contemplated transfer by gift to “immediate family” as referenced in clause (b) above is subject to the condition precedent that the transfer be approved by the Administrator in order for it to be effective.

8.3     Beneficiaries . Notwithstanding Section 8.2, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.

8.4     Performance Objectives and Other Terms . The Committee, in its discretion, shall set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of the Awards that will be granted or paid out to the Participants.

ARTICLE 9

CHANGES IN CAPITAL STRUCTURE

9.1     Adjustments . In the event of any dividend, share split, combination or exchange of Shares, amalgamation, arrangement or consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to its shareholders, or any other change affecting the shares of Shares or the share price of a Share, the Committee shall make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan.

 

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9.2     Corporate Transactions . Except as may otherwise be provided in any Award Agreement or any other written agreement entered into by and between the Company and a Participant, if the Committee anticipates the occurrence, or upon the occurrence, of a Corporate Transaction, the Committee may, in its sole discretion, provide for (i) any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise the vested portion of such Awards during a period of time as the Committee shall determine, or (ii) the purchase of any Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award (and, for the avoidance of doubt, if as of such date the Committee determines in good faith that no amount would have been attained upon the exercise of such Award, then such Award may be terminated by the Company without payment), or (iii) the replacement of such Award with other rights or property selected by the Committee in its sole discretion or the assumption of or substitution of such Award by the successor or surviving corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of Shares and prices, or (iv) payment of such Award in cash based on the value of Shares on the date of the Corporate Transaction plus reasonable interest on the Award through the date as determined by the Committee when such Award would otherwise be vested or have been paid in accordance with its original terms, if necessary to comply with Section 409A of the Code.

9.3     Outstanding Awards – Other Changes . In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 9, the Committee may, in its absolute discretion, make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.

9.4     No Other Rights . Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of Shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, and no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to an Award or the grant or exercise price of any Award.

ARTICLE 10

ADMINISTRATION

10.1     Committee . The Plan shall be administered by the Board or a committee of one or more members of the Board (the “ Committee ”) to whom the Board shall delegate the authority to grant or amend Awards to Participants other than any of the Committee members, Independent Directors and executive officers of the Company. Reference to the Committee shall refer to the Board in absence of the Committee. Notwithstanding the foregoing, the full Board, acting by majority of its members in office, shall conduct the general administration of the Plan if required by Applicable Laws, and with respect to Awards granted to the Committee members, Independent Directors and executive officers of the Company and for purposes of such Awards the term “Committee” as used in the Plan shall be deemed to refer to the Board.

 

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10.2     Action by the Committee . A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved unanimously in writing all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of a Group Entity, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

10.3     Authority of the Committee . Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:

(a)    designate Participants to receive Awards;

(b)    determine the type or types of Awards to be granted to each Participant;

(c)    determine the number of Awards to be granted and the number of Shares to which an Award will relate;

(d)    determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;

(e)    determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

(f)    prescribe the form of each Award Agreement, which need not be identical for each Participant;

(g)    decide all other matters that must be determined in connection with an Award;

(h)    establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

(i)    interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement;

(j)    amend terms and conditions of Award Agreements; and

(k)    make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan, including design and adopt from time to time new types of Awards that are in compliance with Applicable Laws.

 

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10.4     Decisions Binding . The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.

ARTICLE 11

EFFECTIVE AND EXPIRATION DATE

11.1     Effective Date . The Plan shall become effective as of the date it is adopted and approved by the Board (the “ Effective Date ”).

11.2     Replacement of Original Plan . The Plan shall replace the previously adopted 2017 Share Incentive Plan in its entirety, and the 2017 Share Incentive Plan shall cease to be effective upon the Effective Date. The Awards granted and outstanding under the 2017 Share Incentive Plan and the evidencing original Award Agreements shall survive the termination of the 2017 Share Incentive Plan and remain effective and binding under the Plan, subject to any amendment and modification to the original Award Agreements that the Committee, in its sole discretion, shall determine.

11.3     Expiration Date . The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

ARTICLE 12

AMENDMENT, MODIFICATION, AND TERMINATION

12.1     Amendment, Modification, and Termination . At any time and from time to time, the Board may terminate, amend or modify the Plan; provided, however, that (a) to the extent necessary and desirable to comply with Applicable Laws or stock exchange rules, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required, unless the Company decides to follow home country practice, and (b) unless the Company decides to follow home country practice, shareholder approval is required for any amendment to the Plan that (i) increases the number of Shares available under the Plan (other than any adjustment as provided by Article 9 or Section 3.1(a)), or (ii) permits the Committee to extend the term of the Plan or the exercise period for an Option beyond ten years from the date of grant.

12.2     Awards Previously Granted . Except with respect to amendments made pursuant to Section 12.1, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.

 

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ARTICLE 13

GENERAL PROVISIONS

13.1     No Rights to Awards . No Participant, employee, or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly.

13.2     No Shareholders Rights . No Award gives the Participant any of the rights of a shareholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.

13.3     Taxes . No Shares shall be delivered under the Plan to any Participant until such Participant has made arrangements acceptable to the Committee for the satisfaction of any income and employment tax withholding obligations under Applicable Laws. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy all applicable taxes (including the Participant’s payroll tax obligations) required or permitted by Applicable Laws to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of Shares which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award after such Shares were acquired by the Participant from the Company) in order to satisfy any income and payroll tax liabilities applicable to the Participant with respect to the issuance, vesting, exercise or payment of the Award shall, unless specifically approved by the Committee, be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for the applicable income and payroll tax purposes that are applicable to such supplemental taxable income.

13.4     No Right to Employment or Services . Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Service Recipient to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employment or services of any Service Recipient.

13.5     Unfunded Status of Awards . The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the relevant Group Entity.

 

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13.6     Indemnification . To the extent allowable pursuant to Applicable Laws, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Memorandum of Association and Articles of Association, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

13.7     Expenses . The expenses of administering the Plan shall be borne by the Group Entities.

13.8     Fractional Shares . No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as appropriate.

13.9     Government and Other Regulations . The obligation of the Company to make payment of awards in Shares or otherwise shall be subject to all Applicable Laws, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register any of the Shares paid pursuant to the Plan under the Securities Act or any other similar law in any applicable jurisdiction. If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act or other Applicable Laws, the Company may restrict the transfer of such Shares in such manner as it deems advisable to ensure the availability of any such exemption.

13.10     Governing Law . The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the Cayman Islands.

13.11     Section  409A . To the extent that the Committee determines that any Award granted under the Plan is or may become subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and the Award Agreements shall be interpreted in accordance with Section 409A of the Code and the U.S. Department of Treasury regulations and other interpretative guidance issued thereunder, including without limitation any such regulation or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related U.S. Department of Treasury guidance.

 

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Exhibit 10.2

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “ Agreement ”) is made as of              , 2019 by and between Yunji Inc., an exempted company incorporated and existing under the laws of the Cayman Islands (the “ Company ”), and                     (PRC ID Card No.                    ) (the “ Indemnitee ”).

WHEREAS, the Indemnitee has agreed to serve as a director or officer of the Company and in such capacity will render valuable services to the Company; and

WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to render valuable services to the Company, the board of directors of the Company (the “ Board ”) has determined that this Agreement is not only reasonable and prudent, but necessary to promote and ensure the best interests of the Company and its shareholders;

NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and other good and valuable consideration, including, without limitation, the service of the Indemnitee, the receipt of which hereby is acknowledged, and in order to induce the Indemnitee to render valuable services the Company, the Company and the Indemnitee hereby agree as follows:

1.      Definitions. As used in this Agreement:

(a)     “ Change in Control ” shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar or successor schedule or form) promulgated under the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “ Act ”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred (irrespective of the applicability of the initial clause of this definition) if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act, but excluding any trustee or other fiduciary holding securities pursuant to an employee benefit or welfare plan or employee share plan of the Company or any subsidiary or affiliate of the Company, or any entity organized, appointed, established or holding securities of the Company with voting power for or pursuant to the terms of any such plan) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the Continuing Directors (as defined below) in office immediately prior to such person’s attaining such interest; (ii) the Company is a party to a merger, consolidation, scheme of arrangement, sale of assets or other reorganization, or a proxy contest, as a consequence of which Continuing Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of the Company (or any successor entity) thereafter; or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of the Company (including for this purpose any new director whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) (such directors being referred to herein as “ Continuing Directors ”) cease for any reason to constitute at least a majority of the Board of the Company.


(b)     “ Disinterested Director ” with respect to any request by the Indemnitee for indemnification or advancement of expenses hereunder shall mean a director of the Company who neither is nor was a party to the Proceeding (as defined below) in respect of which indemnification or advancement is being sought by the Indemnitee.

(c)     The term “ Expenses ” shall mean, without limitation, expenses of Proceedings, including attorneys’ fees, disbursements and retainers, accounting and witness fees, expenses related to preparation for service as a witness and to service as a witness, travel and deposition costs, expenses of investigations, judicial or administrative proceedings and appeals, amounts paid in settlement of a Proceeding by or on behalf of the Indemnitee, costs of attachment or similar bonds, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, under this Agreement, the Company’s Memorandum of Association and Articles of Association as currently in effect (the “ Articles ”), applicable law or otherwise, and reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or action for indemnification for which the Indemnitee is not otherwise compensated by the Company or any third party. The term “Expenses” shall not include the amount of judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually levied against or sustained by the Indemnitee to the extent sustained after final adjudication.

(d)     The term “ Independent Legal Counsel ” shall mean any firm of attorneys reasonably selected by the Board of the Company, so long as such firm has not represented the Company, the Company’s subsidiaries or affiliates, the Indemnitee, any entity controlled by the Indemnitee, or any party adverse to the Company, within the preceding five (5) years. Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s right to indemnification or advancement of expenses under this Agreement, the Company’s Articles, applicable law or otherwise.

(e)     The term “ Proceeding ” shall mean any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, or other proceeding (including, without limitation, an appeal therefrom), formal or informal, whether brought in the name of the Company or otherwise, whether of a civil, criminal, administrative or investigative nature, and whether by, in or involving a court or an administrative, other governmental or private entity or body (including, without limitation, an investigation by the Company or its Board), by reason of (i) the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, whether or not the Indemnitee is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement is to be provided under this Agreement, (ii) any actual or alleged act or omission or neglect or breach of duty, including, without limitation, any actual or alleged error or misstatement or misleading statement, which the Indemnitee commits or suffers while acting in any such capacity, or (iii) the Indemnitee attempting to establish or establishing a right to indemnification or advancement of expenses pursuant to this Agreement, the Company’s Articles, applicable law or otherwise.

 

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(f)     The phrase “ serving at the request of the Company as an agent of another enterprise ” or any similar terminology shall mean, unless the context otherwise requires, serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic. The phrase “serving at the request of the Company” shall include, without limitation, any service as a director/an executive officer of the Company which imposes duties on, or involves services by, such director/executive officer with respect to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic. In the event that the Indemnitee shall be a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, 50% or more of the ordinary shares, combined voting power or total equity interest of which is owned by the Company or any subsidiary or affiliate thereof, then it shall be presumed conclusively that the Indemnitee is so acting at the request of the Company.

2.      Services by the Indemnitee . The Indemnitee agrees to serve as a director or officer of the Company under the terms of the Indemnitee’s agreement with the Company for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing or is removed from the Indemnittee’s position; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or other obligation imposed by operation of law).

3.      Proceedings by or in the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such a Proceeding, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this section shall be made in respect of any claim, issue or matter as to which such person shall have been adjudicated by final judgment by a court of competent jurisdiction to be liable to the Company for willful misconduct in the performance of his/her duty to the Company, unless and only to the extent that the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which such other court shall deem proper.

4.      Proceeding Other Than a Proceeding by or in the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company), by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with such a Proceeding, to the fullest extent permitted by applicable law; provided, however, that any settlement of a Proceeding must be approved in advance in writing by the Company (which approval shall not be unreasonably withheld).

 

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5.      Indemnification for Costs, Charges and Expenses of Witness or Successful Party . Notwithstanding any other provision of this Agreement (except as set forth in subparagraph 9(a) hereof), and without a requirement for determination as required by Paragraph 8 hereof, to the extent that the Indemnitee (a) has prepared to serve or has served as a witness in any Proceeding in any way relating to (i) the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans or such plan’s participants or beneficiaries or (ii) anything done or not done by the Indemnitee as a director or officer of the Company or in connection with serving at the request of the Company as an agent of another enterprise, or (b) has been successful in defense of any Proceeding or in defense of any claim, issue or matter therein, on the merits or otherwise, including the dismissal of a Proceeding without prejudice or the settlement of a Proceeding without an admission of liability, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith to the fullest extent permitted by applicable law.

6.      Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount of the Indemnitee’s Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, then the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, interest or penalties or excise taxes to which the Indemnitee is entitled.

7.      Advancement of Expenses . The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by applicable law; provided, however, that the Indemnitee shall set forth in such request reasonable evidence that such Expenses have been incurred by the Indemnitee in connection with such Proceeding, a statement that such Expenses do not relate to any matter described in subparagraph 9(a) of this Agreement, and an undertaking in writing to repay any advances if it is ultimately determined as provided in subparagraph 8(b) of this Agreement that the Indemnitee is not entitled to indemnification under this Agreement.

8.      Indemnification Procedure; Determination of Right to Indemnification .

(a)     Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee shall, if a claim for indemnification or advancement of Expenses in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof in writing. The omission to so notify the Company will not relieve the Company from any liability which the Company may have to the Indemnitee under this Agreement unless the Company shall have lost significant substantive or procedural rights with respect to the defense of any Proceeding as a result of such omission to so notify.

 

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(b)     The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct, if any, as defined by applicable law, for indemnification pursuant to this Agreement and shall be absolutely entitled to such indemnification, unless a determination is made that the Indemnitee has not met such standards by a court of competent jurisdiction.

(c)     If a claim for indemnification or advancement of Expenses under this Agreement is not paid by the Company within thirty (30) days after receipt by the Company of written notice thereof, the rights provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be made de novo. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the directors or shareholders of the Company or Independent Legal Counsel to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, if any, nor an actual determination by the directors or shareholders of the Company or Independent Legal Counsel that the Indemnitee has not met the applicable standard of conduct shall be a defense to an action by the Indemnitee or create a presumption for the purpose of such an action that the Indemnitee has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself (i) create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in the best interests of the Company and/or its shareholders, and, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or advancement of Expenses under this Agreement, except as may be provided herein.

(d)     If a court of competent jurisdiction shall determine that the Indemnitee is entitled to any indemnification or advancement of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such adjudication (including, but not limited to, any appellate proceedings).

(e)     With respect to any Proceeding for which indemnification or advancement of Expenses is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any Expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than as provided below. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee’s written consent. The Indemnitee shall have the right to employ his/her own counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense of the Proceeding shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a proceeding, in each of which cases the fees and expenses of the Indemnitee’s counsel shall be advanced by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee.

 

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9.      Limitations on Indemnification . No payments pursuant to this Agreement shall be made by the Company:

(a)     To indemnify or advance funds to the Indemnitee for Expenses with respect to (i) Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law or (ii) Expenses incurred by the Indemnitee in connection with preparing to serve or serving, prior to a Change in Control, as a witness in cooperation with any party or entity who or which has threatened or commenced any action or proceeding against the Company, or any director, officer, employee, trustee, agent, representative, subsidiary, parent corporation or affiliate of the Company, but such indemnification or advancement of Expenses in each such case may be provided by the Company if the Board finds it to be appropriate;

(b)     To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, sustained in any Proceeding for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance;

(c)     To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any foreign or United States federal, state or local statute or regulation;

(d)     To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement;

(e)     To indemnify the Indemnitee for any Expenses (including without limitation any Expenses relating to a Proceeding attempting to enforce this Agreement), judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, on account of the Indemnitee’s conduct if such conduct shall be finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct, including, without limitation, breach of the duty of loyalty; or

(f)     If a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication;

 

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(g)     To indemnify the Indemnitee in connection with Indemnitee’s personal tax matter; or

(h)     To indemnify the Indemnitee with respect to any claim related to any dispute or breach arising under any contract or similar obligation between the Company or any of its subsidiaries or affiliates and such Indemnitee.

10.      Continuation of Indemnification . All agreements and obligations of the Company contained herein shall continue during the period that the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as an agent of another enterprise, foreign or domestic) and shall continue thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to in this Paragraph 10.

11.      Indemnification Hereunder Not Exclusive . The indemnification provided by this Agreement shall not be deemed to be exclusive of any other rights to which the Indemnitee may be entitled under the Company’s Articles, any agreement, vote of shareholders or vote of Disinterested Directors, provisions of applicable law, or otherwise, both as to action or omission in the Indemnitee’s official capacity and as to action or omission in another capacity on behalf of the Company while holding such office.

12.      Successors and Assigns .

(a)     This Agreement shall be binding upon the Indemnitee, and shall inure to the benefit of, the Indemnitee and the Indemnitee’s heirs, executors, administrators and assigns, whether or not the Indemnitee has ceased to be a director or officer, and the Company and its successors and assigns. Upon the sale of all or substantially all of the business, assets or share capital of the Company to, or upon the merger of the Company into or with, any corporation, partnership, joint venture, trust or other person, this Agreement shall inure to the benefit of and be binding upon both the Indemnitee and such purchaser or successor person. Subject to the foregoing, this Agreement may not be assigned by either party without the prior written consent of the other party hereto.

(b)     If the Indemnitee is deceased and is entitled to indemnification under any provision of this Agreement, the Company shall indemnify the Indemnitee’s estate and the Indemnitee’s spouse, heirs, executors, administrators and assigns against, and the Company shall, and does hereby agree to assume, any and all Expenses actually and reasonably incurred by or for the Indemnitee or the Indemnitee’s estate, in connection with the investigation, defense, appeal or settlement of any Proceeding. Further, when requested in writing by the spouse of the Indemnitee, and/or the Indemnitee’s heirs, executors, administrators and assigns, the Company shall provide appropriate evidence of the Company’s agreement set out herein to indemnify the Indemnitee against and to itself assume such Expenses.

13.      Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

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14.      Severability . Each and every paragraph, sentence, term and provision of this Agreement is separate and distinct so that if any paragraph, sentence, term or provision thereof shall be held to be invalid, unlawful or unenforceable for any reason, such invalidity, unlawfulness or unenforceability shall not affect the validity, unlawfulness or enforceability of any other paragraph, sentence, term or provision hereof. To the extent required, any paragraph, sentence, term or provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law. The Company’s inability, pursuant to a court order or decision, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.

15.      Savings Clause . If this Agreement or any paragraph, sentence, term or provision hereof is invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are incurred with respect to any Proceeding to the fullest extent permitted by any (a) applicable paragraph, sentence, term or provision of this Agreement that has not been invalidated or (b) applicable law.

16.      Interpretation; Governing Law . This Agreement shall be construed as a whole and in accordance with its fair meaning and any ambiguities shall not be construed for or against either party. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed and interpreted in accordance with the laws of the Cayman Islands without regard to the conflict of laws principles thereof.

17.      Amendments . No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by the party against whom enforcement is sought. The indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Company’s Articles, or by other agreements, including directors’ and officers’ liability insurance policies, of the Company.

18.      Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other.

19.      Notices . Any notice required to be given under this Agreement shall be directed to Mr. Chen Chen, the Chief Financial Officer of the Company, at 15/F, South Building, Hipark Phase 2, Xiaoshan District, Hangzhou 310000, Zhejiang Province, People’s Republic of China and to the Indemnitee at                                                          or to such other address as either shall designate to the other in writing.

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties have executed this Indemnification Agreement as of the date first written above.

 

YUNJI INC.
By:  

         

Name:  
Title:  
INDEMNITEE
By:  

         

Name:  

 

[Signature Page to Indemnification Agreement]

Exhibit 10.3

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “ Agreement” ) is entered into as of             , 2019 by and between Yunji Inc., an exempted company incorporated and existing under the laws of the Cayman Islands (the “ Company ”) and                      (ID Card No.                     ) (the “ Executive ”).

RECITALS

WHEREAS, the Company desires to employ the Executive and to assure itself of the services of the Executive during the term of Employment (as defined below) and under the terms and conditions of the Agreement;

WHEREAS, the Executive desires to be employed by the Company during the term of Employment and under the terms and conditions of the Agreement;

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Executive agree as follows:

 

1 .

EMPLOYMENT

The Company hereby agrees to employ the Executive and the Executive hereby accepts such employment, on the terms and conditions hereinafter set forth (the “ Employment ”).

 

2 .

TERM

Subject to the terms and conditions of the Agreement, the initial term of the Employment shall be          years, commencing on             , 2019 (the “ Effective Date ”) and ending on             ,          (the “ Initial Term ”), unless terminated earlier pursuant to the terms of the Agreement. Upon expiration of the Initial Term of the Employment, the Employment shall be automatically extended for successive periods of          months each (each, an “ Extension Period ”) unless either party shall have given 60 days advance written notice to the other party, in the manner set forth in Section 19 below, prior to the end of the Initial Term or the Extension Period in question, as applicable, that the term of this Agreement that is in effect at the time such written notice is given is not to be extended or further extended, as the case may be (the period during which this Agreement is effective being referred to hereafter as the “ Term ”).

 

3 .

POSITION AND DUTIES

 

  (a)

During the Term, the Executive shall serve as                      of the Company or in such other position or positions with a level of duties and responsibilities consistent with the foregoing with the Company and/or its subsidiaries and affiliates as the Board of Directors of the Company (the “ Board ”) may specify from time to time and shall have the duties, responsibilities and obligations customarily assigned to individuals serving in the position or positions in which the Executive serves hereunder and as assigned by the Board, or with the Board’s authorization, by the Company’s Chief Executive Officer.


  (b)

The Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of the Company or any subsidiaries or affiliated entity of the Company (collectively, the “ Group ”) and as a member of any committees of the board of directors of any such entity, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently provided to any other director of any member of the Group.

 

  (c)

The Executive agrees to devote all of his/her working time and efforts to the performance of his/her duties for the Company and to faithfully and diligently serve the Company in accordance with the Agreement and the guidelines, policies and procedures of the Company approved from time to time by the Board.

 

4 .

NO BREACH OF CONTRACT

The Executive hereby represents to the Company that: (i) the execution and delivery of the Agreement by the Executive and the performance by the Executive of the Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or by which the Executive is otherwise bound, except that the Executive does not make any representation with respect to agreements required to be entered into by and between the Executive and any member of the Group pursuant to the applicable law of the jurisdiction in which the Executive is based, if any; (ii) that the Executive is not in possession of any information (including, without limitation, confidential information and trade secrets) the knowledge of which would prevent the Executive from freely entering into the Agreement and carrying out his/her duties hereunder; and (iii) that the Executive is not bound by any confidentiality, trade secret or similar agreement with any person or entity other than any member of the Group.

 

5 .

LOCATION

The Executive will be based in             ,          or any other location as requested by the Company during the Term.

 

6 .

COMPENSATION AND BENEFITS

 

  (a)

Cash Compensation . As compensation for the performance by the Executive of his/her obligations hereunder, during the Term, the Company shall pay the Executive cash compensation (inclusive of the statutory benefit contributions that the Company is required to set aside for the Executive under applicable law) pursuant to Schedule A hereto, subject to annual review and adjustment by the Board or any committee designated by the Board.

 

2


  (b)

Equity Incentives . During the Term, the Executive shall be eligible to participate, at a level comparable to similarly situated executives of the Company, in such long-term compensation arrangements as may be authorized from time to time by the Board, including any share incentive plan the Company may adopt from time to time in its sole discretion.

 

  (c)

Benefits . During the Term, the Executive shall be entitled to participate in all of the employee benefit plans and arrangements made available by the Company to its similarly situated executives, including, but not limited to, any retirement plan, medical insurance plan and travel/holiday policy, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.

 

7 .

TERMINATION OF THE AGREEMENT

The Employment may be terminated as follows:

 

  (a)

Death . The Employment shall terminate upon the Executive’s death.

 

  (b)

Disability . The Employment shall terminate if the Executive has a disability, including any physical or mental impairment which, as reasonably determined by the Board, renders the Executive unable to perform the essential functions of his/her position at the Company, even with reasonable accommodation that does not impose an undue burden on the Company, for more than 180 days in any 12-month period, unless a longer period is required by applicable law, in which case that longer period shall apply.

 

  (c)

Cause . The Company may terminate the Executive’s employment hereunder for Cause. The occurrence of any of the following, as reasonably determined by the Company, shall be a reason for Cause, provided that, if the Company determines that the circumstances constituting Cause are curable, then such circumstances shall not constitute Cause unless and until the Executive has been informed by the Company of the existence of Cause and given an opportunity of ten business days to cure, and such Cause remains uncured at the end of such ten-day period:

 

  (1)

continued failure by the Executive to satisfactorily perform his/her duties;

 

  (2)

willful misconduct or gross negligence by the Executive in the performance of his/her duties hereunder, including insubordination;

 

  (3)

the Executive’s conviction or entry of a guilty or nolo contendere plea of any felony or any misdemeanor involving moral turpitude;

 

  (4)

the Executive’s commission of any act involving dishonesty that results in material financial, reputational or other harm, monetary or otherwise, to any member of the Group, including but not limited to an act constituting misappropriation or embezzlement of the property of any member of the Group as determined in good faith by the Board; or

 

3


  (5)

any material breach by the Executive of this Agreement.

 

  (d)

Good Reason . The Executive may terminate his/her employment hereunder for “Good Reason” upon the occurrence, without the written consent of the Company, of an event constituting a material breach of this Agreement by the Company that has not been fully cured within ten business days after written notice thereof has been given by the Executive to the Company setting forth in sufficient detail the conduct or activities the Executive believes constitute grounds for Good Reason, including but not limited to:

 

  (1)

the failure by the Company to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within 20 business days of the date such compensation is due; or

 

  (2)

any material breach by the Company of this Agreement.

 

  (e)

Without Cause by the Company; Without Good Reason by the Executive . The Company may terminate the Executive’s employment hereunder at any time without Cause upon 60-day prior written notice to the Executive. The Executive may terminate the Executive’s employment voluntarily for any reason or no reason at any time by giving 60-day prior written notice to the Company.

 

  (f)

Notice of Termination. Any termination of the Executive’s employment under the Agreement shall be communicated by written notice of termination (“ Notice of Termination ”) from the terminating party to the other party. The notice of termination shall indicate the specific provision(s) of the Agreement relied upon in effecting the termination.

 

  (g)

Date of Termination . The “ Date of Termination ” shall mean (i) the date set forth in the Notice of Termination, or (ii) if the Executive’s employment is terminated by the Executive’s death, the date of his/her death.

 

  (h)

Compensation upon Termination .

 

  (1)

Death . If the Executive’s employment is terminated by reason of the Executive’s death, the Company shall have no further obligations to the Executive under this Agreement and the Executive’s benefits shall be determined under the Company’s retirement, insurance and other benefit and compensation plans or programs then in effect in accordance with the terms of such plans and programs.

 

4


  (2)

By Company without Cause or by the Executive for Good Reason . If the Executive’s employment is terminated by the Company other than for Cause or by the Executive for Good Reason, the Company shall (i) continue to pay and otherwise provide to the Executive, during any notice period, all compensation, base salary and previously earned but unpaid incentive compensation, if any, and shall continue to allow the Executive to participate in any benefit plans in accordance with the terms of such plans during such notice period; and (ii) pay to the Executive, in lieu of benefits under any severance plan or policy of the Company, any such amount as may be agreed between the Company and the Executive.

 

  (3)

By Company for Cause or by the Executive other than for Good Reason . If the Executive’s employment shall be terminated by the Company for Cause or by the Executive other than for Good Reason, the Company shall pay the Executive his/her base salary at the rate in effect at the time Notice of Termination is given through the Date of Termination, and the Company shall have no additional obligations to the Executive under this Agreement.

 

  (i)

Return of Company Property . The Executive agrees that following the termination of the Executive’s employment for any reason, or at any time prior to the Executive’s termination upon the request of the Company, he/she shall return all property of the Group that is then in or thereafter comes into his/her possession, including, but not limited to, any Confidential Information (as defined below) or Intellectual Property (as defined below), or any other documents, contracts, agreements, plans, photographs, projections, books, notes, records, electronically stored data and all copies, excerpts or summaries of the foregoing, as well as any automobile or other materials or equipment supplied by the Group to the Executive, if any.

 

  (j)

Requirement for a Release . Notwithstanding the foregoing, the Company’s obligations to pay or provide any benefits shall (1) cease as of the date the Executive breaches any of the provisions of Sections 8, 9 and 11 hereof, and (2) be conditioned on the Executive signing the Company’s customary release of claims in favor of the Group and the expiration of any revocation period provided for in such release.

 

5


8.

CONFIDENTIALITY AND NONDISCLOSURE

 

  (a)

Confidentiality and Non-Disclosure.

 

  (1)

The Executive acknowledges and agrees that: (A) the Executive holds a position of trust and confidence with the Company and that his/her employment by the Company will require that the Executive have access to and knowledge of valuable and sensitive information, material, and devices relating to the Company and/or its business, activities, products, services, customers and vendors, including, but not limited to, the following, regardless of the form in which the same is accessed, maintained or stored: the identity of the Company’s actual and prospective customers and, as applicable, their representatives; prior, current or future research or development activities of the Company; the products and services provided or offered by the Company to customers or potential customers and the manner in which such services are performed or to be performed; the product and/or service needs of actual or prospective customers; pricing and cost information; information concerning the development, engineering, design, specifications, acquisition or disposition of products and/or services of the Company; user base personal data, programs, software and source codes, licensing information, personnel information, advertising client information, vendor information, marketing plans and techniques, forecasts, and other trade secrets (“Confidential Information”); and (B) the direct and indirect disclosure of any such Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, to the Company’s business.

 

  (2)

During the Term and at all times thereafter, the Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, consultant, principal or agent of any business, or in any other capacity, publish or make known, disclose, furnish, reproduce, make available, or utilize any of the Confidential Information without the prior express written approval of the Company, other than in the proper performance of the duties contemplated herein, unless and until such Confidential Information is or shall become general public knowledge through no fault of the Executive.

 

  (3)

In the event that the Executive is required by law to disclose any Confidential Information, the Executive agrees to give the Company prompt advance written notice thereof and to provide the Company with reasonable assistance in obtaining an order to protect the Confidential Information from public disclosure.

 

  (4)

The failure to mark any Confidential Information as confidential shall not affect its status as Confidential Information under this Agreement.

 

6


  (c)

Third Party Information in the Executive’s Possession . The Executive agrees that he/she shall not, during the Term, (i) improperly use or disclose any proprietary information or trade secrets of any former employer or other person or entity with which the Executive has an agreement or duty to keep in confidence information acquired by Executive, if any, or (ii) bring into the premises of Company any document or confidential or proprietary information belonging to such former employer, person or entity unless consented to in writing by such former employer, person or entity. The Executive will indemnify the Company and hold it harmless from and against all claims, liabilities, damages and expenses, including reasonable attorneys’ fees and costs of litigation, arising out of or in connection with any violation of the foregoing.

 

  (d)

Third Party Information in the Company’s Possession . The Executive recognizes that the Company may have received, and in the future may receive, from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Executive agrees that the Executive owes the Company and such third parties, during the Term and thereafter, a duty to hold all such confidential or proprietary information in strict confidence and not to disclose such information to any person or firm, or otherwise use such information, in a manner inconsistent with the limited purposes permitted by the Company’s agreement with such third party.

This Section 8 shall survive the termination of the Agreement for any reason. In the event the Executive breaches this Section 8, the Company shall have right to seek remedies permissible under applicable law.

 

9.

INTELLECTUAL PROPERTY

 

  (a)

Prior Inventions. The Executive has attached hereto, as Schedule B , a list describing all inventions, ideas, improvements, designs and discoveries, whether or not patentable and whether or not reduced to practice, original works of authorship and trade secrets made or conceived by or belonging to the Executive (whether made solely by the Executive or jointly with others) that (i) were developed by Executive prior to the Executive’s employment by the Company (collectively, “ Prior Inventions ”), (ii) relate to the Company’ actual or proposed business, products or research and development, and (iii) are not assigned to the Company hereunder; or, if no such list is attached, the Executive represents that there are no such Prior Inventions. Except to the extent set forth in Schedule B , the Executive hereby acknowledges that, if in the course of his/her service for the Company, the Executive incorporates into a Company product, process or machine a Prior Invention owned by the Executive or in which he/she has an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide right and license (which may be freely transferred by the Company to any other person or entity) to make, have made, modify, use, sell, sublicense and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine.

 

7


(b)     Assignment of Intellectual Property. The Executive hereby assigns to the Company or its designees, without further consideration and free and clear of any lien or encumbrance, the Executive’s entire right, title and interest (within the United States and all foreign jurisdictions) to any and all inventions, discoveries, improvements, developments, works of authorship, concepts, ideas, plans, specifications, software, formulas, databases, designees, processes and contributions to Confidential Information created, conceived, developed or reduced to practice by the Executive (alone or with others) during the Term which (i) are related to the Company’s current or anticipated business, activities, products, or services, (ii) result from any work performed by Executive for the Company, or (iii) are created, conceived, developed or reduced to practice with the use of Company property, including any and all Intellectual Property Rights (as defined below) therein (“ Work Product ”). Any Work Product which falls within the definition of “work made for hire”, as such term is defined in the U.S. Copyright Act, shall be considered a “work made for hire”, the copyright in which vests initially and exclusively in the Company. The Executive waives any rights to be attributed as the author of any Work Product and any “droit morale” (moral rights) in Work Product. The Executive agrees to immediately disclose to the Company all Work Product. For purposes of this Agreement, “ Intellectual Property ” shall mean any patent, copyright, trademark or service mark, trade secret, or any other proprietary rights protection legally available.

 

  (c)

Patent and Copyright Registration. The Executive agrees to execute and deliver any instruments or documents and to do all other things reasonably requested by the Company in order to more fully vest the Company with all ownership rights in the Work Product. If any Work Product is deemed by the Company to be patentable or otherwise registrable, the Executive shall assist the Company (at the Company’s expense) in obtaining letters of patent or other applicable registration therein and shall execute all documents and do all things, including testifying (at the Company’s expense) as necessary or appropriate to apply for, prosecute, obtain, or enforce any Intellectual Property right relating to any Work Product. Should the Company be unable to secure the Executive’s signature on any document deemed necessary to accomplish the foregoing, whether due to the Executive’s disability or other reason, the Executive hereby irrevocably designates and appoints the Company and each of its duly authorized officers and agents as the Executive’s agent and attorney-in-fact to act for and on the Executive’s behalf and stead to take any of the actions required of Executive under the previous sentence, with the same effect as if executed and delivered by the Executive, such appointment being coupled with an interest.

This Section 9 shall survive the termination of the Agreement for any reason. In the event the Executive breaches this Section 9, the Company shall have right to seek remedies permissible under applicable law.

 

10.

CONFLICTING EMPLOYMENT

The Executive hereby agrees that, during the Term, he/she will not engage in any other employment, occupation, consulting or other business activity related to the business in which the Company is now involved or becomes involved during the Term, nor will the Executive engage in any other activities that conflict with his/her obligations to the Company without the prior written consent of the Company.

 

8


11.

NON-COMPETITION AND NON-SOLICITATION

 

  (a)

Non-Competition . In consideration of the compensation provided to the Executive by the Company hereunder, the adequacy of which is hereby acknowledged by the parties hereto, the Executive agree that during the Term and for a period of one year following the termination of the Employment for whatever reason, the Executive shall not engage in Competition (as defined below) with the Group. For purposes of this Agreement, “Competition” by the Executive shall mean the Executive’s engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting the Executive’s name to be used in connection with the activities of, any other business or organization which competes, directly or indirectly, with the Group in the Business; provided , however , it shall not be a violation of this Section 11(a) for the Executive to become the registered or beneficial owner of up to five percent (5%) of any class of the capital stock of a publicly traded corporation in Competition with the Group, provided that the Executive does not otherwise participate in the business of such corporation.

For purposes of this Agreement, “ Business ” means the operation of e-commerce platform and provision of related services and any other business which the Group engages in, or is preparing to become engaged in, during the Term.

 

  (b)

Non-Solicitation; Non-Interference . During the Term and for a period of one year following the termination of the Executive’s employment for any reason, the Executive agrees that he/she will not, directly or indirectly, for the Executive’s benefit or for the benefit of any other person or entity, do any of the following:

 

  (1)

solicit from any customer doing business with the Group during the Term business of the same or of a similar nature to the Business;

 

  (2)

solicit from any known potential customer of the Group business of the same or of a similar nature to that which has been the subject of a known written or oral bid, offer or proposal by the Group, or of substantial preparation with a view to making such a bid, proposal or offer;

 

  (3)

solicit the employment or services of, or hire or engage, any person who is known to be employed or engaged by the Group; or

 

  (4)

otherwise interfere with the business or accounts of the Group, including, but not limited to, with respect to any relationship or agreement between the Group and any vendor or supplier.

 

9


  (c)

Injunctive Relief; Indemnity of Company . The Executive agrees that any breach or threatened breach of subsections (a) and (b) of this Section 11 would result in irreparable injury and damage to the Company for which an award of money to the Company would not be an adequate remedy. The Executive therefore also agrees that in the event of said breach or any reasonable threat of breach, the Company shall be entitled to seek an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, but not limited to, remedies available under this Agreement and the recovery of damages. The Executive and the Company further agree that the provisions of this Section 11 are reasonable. The Executive agrees to indemnify and hold harmless the Company from and against all reasonable expenses (including reasonable fees and disbursements of counsel) which may be incurred by the Company in connection with, or arising out of, any violation of this Agreement by the Executive. This Section 11 shall survive the termination of the Agreement for any reason.

 

12.

WITHHOLDING TAXES

Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to the Agreement such national, state, provincial, local or any other income, employment, or other taxes as may be required to be withheld pursuant to any applicable law or regulation.

 

13.

ASSIGNMENT

The Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer the Agreement or any rights or obligations hereunder; provided, however, that the Company may assign or transfer the Agreement or any rights or obligations hereunder to any member of the Group without such consent. If the Executive should die while any amounts would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate. The Company will require any and all successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Company had terminated the Executive’s employment other than for Cause, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Section 13, “Company” shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

 

10


14.

SEVERABILITY

If any provision of the Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of the Agreement are declared to be severable.

 

15.

ENTIRE AGREEMENT

The Agreement constitutes the entire agreement and understanding between the Executive and the Company regarding the terms of the Employment and supersedes all prior or contemporaneous oral or written agreements concerning such subject matter. The Executive acknowledges that he/she has not entered into the Agreement in reliance upon any representation, warranty or undertaking which is not set forth in the Agreement.

 

16.

GOVERNING LAW

The Agreement shall be governed by and construed in accordance with the law of the State of New York, U.S.A.

 

17.

AMENDMENT

The Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to the Agreement, which agreement is executed by both of the parties hereto.

 

18.

WAIVER

Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under the Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

 

19.

NOTICES

All notices, requests, demands and other communications required or permitted under the Agreement shall be in writing and shall be deemed to have been duly given and made if (i) delivered by hand, (ii) otherwise delivered against receipt therefor, (iii) sent by a recognized courier with next-day or second-day delivery to the last known address of the other party; or (iv) sent by e-mail with confirmation of receipt.

 

11


20.

COUNTERPARTS

The Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. The Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

 

21.

NO INTERPRETATION AGAINST DRAFTER

Each party recognizes that the Agreement is a legally binding contract and acknowledges that such party has had the opportunity to consult with legal counsel of choice. In any construction of the terms of the Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such terms.

[Remainder of the page intentionally left blank.]

 

12


IN WITNESS WHEREOF , the Agreement has been executed as of the date first written above.

 

COMPANY:     Yunji Inc.
    a Cayman Islands exempted company
                 By:  

 

    Name:  
    Title:  
EXECUTIVE:
   

 

    Name:  
    Address:  


Schedule A

Cash Compensation

 

    

Amount

    

Pay Period

 

Base Salary

     

Cash Bonus

     


Schedule B

List of Prior Inventions

 

Title

  

Date

  

Identifying Number

or Brief Description

     
     
     

 

                 No inventions or improvements  
                 Additional Sheets Attached  
Signature of Executive:                              
Print Name of Executive:                           
Date:                   

Exhibit 10.4

AMENDED AND RESTATED PROXY AGREEMENT AND POWER OF ATTORNEY

This Amended and Restated Proxy Agreement and Power of Attorney (this “ Agreement ”) is entered into as of December 14, 2018 by and among the following parties:

 

(1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”), a domestic company registered in the People’s Republic of China (“ China ” or the “ PRC ”), under the laws of the PRC;

 

(2)

Zhejiang Yunji Youxuan E-commerce Co., Ltd. (the “ Company ”), a domestic company registered in China, under the laws of the PRC;

 

(3)

Xiao Shanglue , a citizen of China, PRC ID No.: ****** ;

 

(4)

Hao Huan , a citizen of China, PRC ID No.: ******; (together with Xiao Shanglue, the “ Shareholders ”).

(Each of the WFOE, the Company, and each of the Shareholders, a “ Party ”, and collectively, the “ Parties ”.)

RECITALS

 

(A)

WHEREAS, the Shareholders collectively hold 100% equity interests in the Company.

 

(B)

WHEREAS , the WFOE and the Company have entered into an amended and restated exclusive service agreement dated December 14, 2018 (the “ Service Agreement ”), pursuant to which the Company shall pay service fees to the WFOE for the service provided by it.

 

(C)

WHEREAS , the WOFE, the Company, and the Shareholders have entered into an amended and restated equity pledge agreement dated December 14, 2018 (the “ Equity Pledge Agreement ”).

 

(D)

WHEREAS , The WFOE, the Company, and the Shareholders have entered into an amended and restated exclusive option agreement dated December 14, 2018 (the “ Exclusive Option Agreement ”).

NOW, THEREFORE , the Parties hereby agree as follows:

AGREEMENT

Section 1

The Shareholders hereby irrevocably appoint the WFOE as their Attorney-in-Fact (the “Attorney-in-Fact,” which shall include any substitute attorney-in-fact appointed pursuant to this Agreement) to exercise on its behalf any and all rights that such Shareholder has in respect of its equity interests in the Company conferred by relevant laws and regulations and the articles of association of the Company, including without limitation, the following rights (collectively, the “Shareholder Rights”):

 

  (a)

to call and attend shareholders’ meeting of the Company;

 

1


  (b)

to execute and deliver any and all written resolutions in the name and on behalf of the Shareholders;

 

  (c)

to vote by himself/herself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the Company;

 

  (d)

to sell, transfer, pledge or dispose of any or all of the equity interests in the Company;

 

  (e)

to nominate, appoint or remove the directors of the Company when necessary;

 

  (f)

to oversee the economic performance of the Company;

 

  (g)

to have full access to the financial information of the Company at any time;

 

  (h)

to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its Shareholder(s);

 

  (i)

to approve annual budgets or declare dividends; and

 

  (j)

any other rights conferred by the articles of association of the Company or the relevant laws and regulations on the Shareholders.

Each Shareholder further agrees and undertakes that without the WFOE’s prior written consent, he/she shall not exercise any of the Shareholder Rights.

Section 2

The WFOE agrees to accept the appointment as an Attorney-in-Fact. In addition, the WFOE has the right to appoint, at its sole discretion, a substitute or substitutes to perform any or all of its rights of the Attorney-in-Fact under this Agreement, and to revoke the appointment of such substitute or substitutes. The WFOE has the right to make such appointment or revocation of such appointment without prior notice to the Company or Shareholders or any consent or instruction from the Company or Shareholders.

Section 3

The Company confirms, acknowledges and agrees to the appointment of the Attorney-in-Fact to exercise any and all of the Shareholder Rights on behalf of the Shareholders. The Company further confirms and acknowledges that any and all acts done or to be done, decisions made or to be made, and instruments or other documents executed or to be executed by the Attorney-in-Fact, shall therefore be as valid and effective as if it is done, made or executed by the Shareholders.

Section 4

(a)    Each Shareholder hereby acknowledges that, if the Shareholder increases its equity interest in the Company, whether by subscribing additional amount of equity interests or otherwise, any such additional equity interests acquired by the Shareholder shall be automatically subject to this Agreement and the Attorney-in-Fact shall have the right to exercise the Shareholder Rights as described in Section 1 hereunder with respect to such additional equity interests on behalf of the Shareholder. Likewise, if the Shareholder’s equity interest in the Company is transferred to any other party, whether by voluntary transfer, judicial sale, foreclosure sale, or otherwise, any such equity interest in the Company so transferred remains subject to this Agreement and the Attorney-in-Fact shall continue to have the right to exercise the Shareholder Rights with respect to such equity interest in the Company so transferred.

 

2


(b)    Furthermore, for the avoidance of any doubt, if any equity transfer to the WFOE, or its affiliates is contemplated under any Exclusive Option Agreement and Equity Pledge Agreement(s) that the Shareholders enters into for the benefits of the WFOE, or its designees (as the same may be amended from time to time), the Attorney-in-Fact shall, on behalf of the Shareholders, have the right to sign the equity transfer agreement and other relevant agreements and to perform the Exclusive Option Agreement and the Equity Pledge Agreement(s). If required by the WFOE, the Shareholders shall sign any documents and fix the chops and/or seals thereon and the Shareholders shall take any other actions as necessary for purposes of consummation of the aforesaid equity transfer. The Shareholders shall ensure that such equity transfer be consummated and any transferee shall sign an agreement with the WFOE in a form substantially the same as this Agreement for the same purposes hereof.

Section 5

Each Shareholder further agrees, and undertakes to the WFOE that, if the Shareholders receive any dividends, interest, any other forms of capital distributions, residual assets upon liquidation, or proceeds or consideration from the transfer of equity interest as a result of, or in connection with, such Shareholders’ equity interests in the Company, the Shareholder shall, to the extent permitted by applicable laws, remit all such dividends, interest, capital distributions, assets, proceeds or consideration to the WFOE without any compensation.

Section 6

Each Shareholder hereby authorizes the Attorney-in-Fact to exercise the Shareholder Rights according to its own judgment without any oral or written instruction from the Shareholders. Each Shareholder undertakes to ratify any acts which the Attorney-in-Fact or any substitutes or agents appointed by the Attorney-in-Fact may lawfully do or cause to be done by the Shareholders pursuant to this Agreement.

Section 7

This Agreement shall become effective as of the date hereof when it is duly executed by the Parties’ authorized representatives and shall remain effective as long as the Company exists. The Shareholders shall not have the rights to revise or terminate this Agreement or revoke the appointment of the Attorney-in-Fact without the prior written consent of the WFOE. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their successors and assignees.

Section 8

This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and replace the proxy agreement and power of attorney entered into by and among the Parties on June 13, 2018.

Section 9

This Agreement shall be construed in accordance with and governed by the laws of the China.

Section 10

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

3


Section 11

This Agreement shall be executed in four originals by all Parties, with each Party keeping one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

[Signature pages follow]

 

4


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Position:   Legal Representative

 

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Zhejiang Yunji Youxuan E-commerce Co., Ltd.

(/s/ Seal of Zhejiang Yunji Youxuan E-commerce Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Position:   Legal Representative

 

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Xiao Shanglue  
Signature:  

/s/ Xiao Shanglue

 

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Hao Huan  
Signature:  

/s/ Hao Huan

 

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


Power of Attorney

The undersigned, X iao Shanglue , a Chinese citizen and a holder of 99.0099% of the registered capital (corresponding to the capital contribution of 50,000,000 RMB) in Zhejiang Yunji Youxuan E-commerce Co., Ltd. (the “ Company ”) (“ My Shareholding ”), as of December 14, 2018, hereby irrevocably authorize Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) to execute and deliver any and all written resolutions in the name and on behalf of the Shareholders; 2) to vote by itself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the Company; 3) to sell, transfer, pledge or dispose of any or all of the equity interests in the Company; 4) nominate, appoint or remove the directors of the Company when necessary; 5) to oversee the economic performance of the Company; 6) to have full access to the financial information of the Company at any time; 7) to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its Shareholder(s); 8) to approve annual budgets or declare dividends; and 9) any other rights conferred by the articles of association of the Company and/or the relevant laws and regulations on the Shareholders.

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Exclusive Option Agreement, to which I am required to be a party, on behalf of myself, and to perform the terms of the Share Pledge Agreement and Exclusive Option Agreement, both dated the date hereof, to which I am a party.

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. The WFOE has the right to make the aforesaid actions according to its own judgment without my prior consent. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

Provided that I am a shareholder of the Company, this Power of Attorney shall be irrevocable and continuously effective as of the date of execution, unless written instructions to the contrary are given by the WFOE. Once the WFOE notice me in writing to terminate this Power of Attorney in whole or in part, I will immediately withdraw the entrustment and authorization under this Power of Attorney, and immediately sign a power of attorney in the same format as this Power of Attorney to authorize the same right as provided under this Power of Attorney to other persons nominated by the WFOE.

During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the WFOE through this Power of Attorney, and shall not exercise such rights by myself.

[Signature page follow]


[Signature page to Power of Attorney]

 

Xiao Shanglue  
Signature:  

/s/ Xiao Shanglue


Power of Attorney

The undersigned, Hao Huan , a Chinese citizen and a holder of 0.9901% of the registered capital (corresponding to the capital contribution of 500,000 RMB) in Zhejiang Yunji Youxuan E-commerce Co., Ltd. (the “ Company ”) (“ My Shareholding ”), as of December 14, 2018, hereby irrevocably authorize Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) to execute and deliver any and all written resolutions in the name and on behalf of the Shareholders; 2) to vote by itself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the Company; 3) to sell, transfer, pledge or dispose of any or all of the equity interests in the Company; 4) nominate, appoint or remove the directors of the Company when necessary; 5) to oversee the economic performance of the Company; 6) to have full access to the financial information of the Company at any time; 7) to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its Shareholder(s); 8) to approve annual budgets or declare dividends; and 9) any other rights conferred by the articles of association of the Company and/or the relevant laws and regulations on the Shareholders.

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Exclusive Option Agreement, to which I am required to be a party, on behalf of myself, and to perform the terms of the Share Pledge Agreement and Exclusive Option Agreement, both dated the date hereof, to which I am a party.

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. The WFOE has the right to make the aforesaid actions according to its own judgment without my prior consent. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

Provided that I am a shareholder of the Company, this Power of Attorney shall be irrevocable and continuously effective as of the date of execution, unless written instructions to the contrary are given by the WFOE. Once the WFOE notice me in writing to terminate this Power of Attorney in whole or in part, I will immediately withdraw the entrustment and authorization under this Power of Attorney, and immediately sign a power of attorney in the same format as this Power of Attorney to authorize the same right as provided under this Power of Attorney to other persons nominated by the WFOE.

During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the WFOE through this Power of Attorney, and shall not exercise such rights by myself.

[Signature page follow]


[Signature page to Power of Attorney]

 

Hao Huan  
Signature:  

/s/ Hao Huan

Exhibit 10.5

AMENDED AND RESTATED PROXY AGREEMENT AND POWER OF ATTORNEY

This Amended and Restated Proxy Agreement and Power of Attorney (this “ Agreement ”) is entered into as of December 17, 2018 by and among the following parties:

 

(1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”), a domestic company registered in the People’s Republic of China (“ China ” or the “ PRC ”), under the laws of the PRC;

 

(2)

Yunji Sharing Technology Co., Ltd. (the “ Company ”), a domestic company registered in China, under the laws of the PRC;

 

(3)

Daqiao Network Technology (Hangzhou) Co., Ltd. , a limited liability company established under the laws of the PRC;

 

(4)

Hangzhou Yuepeng Trading Co., Ltd., a limited liability company established under the laws of the PRC;

 

(5)

Deqing Jijie Investment Management Partnership (Limited Partnership) , a limited liability partnership enterprise established under the laws of the PRC (together with Daqiao Network Technology (Hangzhou) Co., Ltd., Hangzhou Yuepeng Trading Co., Ltd., the “ Shareholders ”).

(Each of the WFOE, the Company, and each of the Shareholders, a “ Party ”, and collectively, the “ Parties ”.)

RECITALS

 

(A)

WHEREAS, the Shareholders collectively hold 100% equity interests in the Company.

 

(B)

WHEREAS , the WFOE and the Company have entered into an amended and restated exclusive service agreement dated December 17, 2018 (the “ Service Agreement ”), pursuant to which the Company shall pay service fees to the WFOE for the service provided by it.

 

(C)

WHEREAS , the WOFE, the Company, and the Shareholders have entered into an amended and restated equity pledge agreement dated December 17, 2018 (the “ Equity Pledge Agreement ”).

 

(D)

WHEREAS , The WFOE, the Company, and the Shareholders have entered into an amended and restated exclusive option agreement dated December 17, 2018 (the “ Exclusive Option Agreement ”).

NOW, THEREFORE , the Parties hereby agree as follows:

AGREEMENT

Section 1

The Shareholders hereby irrevocably appoint the WFOE as their Attorney-in-Fact (the “Attorney-in-Fact,” which shall include any substitute attorney-in-fact appointed pursuant to this Agreement) to exercise on its behalf any and all rights that such Shareholder has in respect of its equity interests in the Company conferred by relevant laws and regulations and the articles of association of the Company, including without limitation, the following rights (collectively, the “Shareholder Rights”):

 

  (a)

to call and attend shareholders’ meeting of the Company;

 

1


  (b)

to execute and deliver any and all written resolutions in the name and on behalf of the Shareholders;

 

  (c)

to vote by himself/herself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the Company;

 

  (d)

to sell, transfer, pledge or dispose of any or all of the equity interests in the Company;

 

  (e)

to nominate, appoint or remove the directors of the Company when necessary;

 

  (f)

to oversee the economic performance of the Company;

 

  (g)

to have full access to the financial information of the Company at any time;

 

  (h)

to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its Shareholder(s);

 

  (i)

to approve annual budgets or declare dividends; and

 

  (j)

any other rights conferred by the articles of association of the Company or the relevant laws and regulations on the Shareholders.

Each Shareholder further agrees and undertakes that without the WFOE’s prior written consent, he/she shall not exercise any of the Shareholder Rights.

Section 2

The WFOE agrees to accept the appointment as an Attorney-in-Fact. In addition, the WFOE has the right to appoint, at its sole discretion, a substitute or substitutes to perform any or all of its rights of the Attorney-in-Fact under this Agreement, and to revoke the appointment of such substitute or substitutes. The WFOE has the right to make such appointment or revocation of such appointment without prior notice to the Company or Shareholders or any consent or instruction from the Company or Shareholders.

Section 3

The Company confirms, acknowledges and agrees to the appointment of the Attorney-in-Fact to exercise any and all of the Shareholder Rights on behalf of the Shareholders. The Company further confirms and acknowledges that any and all acts done or to be done, decisions made or to be made, and instruments or other documents executed or to be executed by the Attorney-in-Fact, shall therefore be as valid and effective as if it is done, made or executed by the Shareholders.

Section 4

(a) Each Shareholder hereby acknowledges that, if the Shareholder increases its equity interest in the Company, whether by subscribing additional amount of equity interests or otherwise, any such additional equity interests acquired by the Shareholder shall be automatically subject to this Agreement and the Attorney-in-Fact shall have the right to exercise the Shareholder Rights as described in Section 1 hereunder with respect to such additional equity interests on behalf of the Shareholder. Likewise, if the Shareholder’s equity interest in the Company is transferred to any other party, whether by voluntary transfer, judicial sale, foreclosure sale, or otherwise, any such equity interest in the Company so transferred remains subject to this Agreement and the Attorney-in-Fact shall continue to have the right to exercise the Shareholder Rights with respect to such equity interest in the Company so transferred.

 

2


(b) Furthermore, for the avoidance of any doubt, if any equity transfer to the WFOE, or its affiliates is contemplated under any Exclusive Option Agreement and Equity Pledge Agreement(s) that the Shareholders enters into for the benefits of the WFOE, or its designees (as the same may be amended from time to time), the Attorney-in-Fact shall, on behalf of the Shareholders, have the right to sign the equity transfer agreement and other relevant agreements and to perform the Exclusive Option Agreement and the Equity Pledge Agreement(s). If required by the WFOE, the Shareholders shall sign any documents and fix the chops and/or seals thereon and the Shareholders shall take any other actions as necessary for purposes of consummation of the aforesaid equity transfer. The Shareholders shall ensure that such equity transfer be consummated and any transferee shall sign an agreement with the WFOE in a form substantially the same as this Agreement for the same purposes hereof.

Section 5

Each Shareholder further agrees, and undertakes to the WFOE that, if the Shareholders receive any dividends, interest, any other forms of capital distributions, residual assets upon liquidation, or proceeds or consideration from the transfer of equity interest as a result of, or in connection with, such Shareholders’ equity interests in the Company, the Shareholder shall, to the extent permitted by applicable laws, remit all such dividends, interest, capital distributions, assets, proceeds or consideration to the WFOE without any compensation.

Section 6

Each Shareholder hereby authorizes the Attorney-in-Fact to exercise the Shareholder Rights according to its own judgment without any oral or written instruction from the Shareholders. Each Shareholder undertakes to ratify any acts which the Attorney-in-Fact or any substitutes or agents appointed by the Attorney-in-Fact may lawfully do or cause to be done by the Shareholders pursuant to this Agreement.

Section 7

This Agreement shall become effective as of the date hereof when it is duly executed by the Parties’ authorized representatives and shall remain effective as long as the Company exists. The Shareholders shall not have the rights to revise or terminate this Agreement or revoke the appointment of the Attorney-in-Fact without the prior written consent of the WFOE. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their successors and assignees.

Section 8

This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and replace the proxy agreement and power of attorney entered into by and among the Parties on April 16, 2018.

Section 9

This Agreement shall be construed in accordance with and governed by the laws of the China.

 

3


Section 10

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

Section 11

This Agreement shall be executed in five originals by all Parties, with each Party keeping one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

[Signature pages follow]

 

4


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Position:   Legal Representative

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Yunji Sharing Technology Co., Ltd.

(/s/ Seal of Yunji Sharing Technology Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Position:   Legal Representative

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Daqiao Network Technology (Hangzhou) Co., Ltd.

(/s/ Seal of Daqiao Network Technology (Hangzhou) Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Position:   Legal Representative

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yuepeng Trading Co., Ltd.

(/s/ Seal of Hangzhou Yuepeng Trading Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Position:   Legal Representative

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Deqing Jijie Investment Management Partnership (Limited Partnership)

(/s/ Seal of Deqing Jijie Investment Management Partnership (Limited Partnership))

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Position:   Authorized Representative

Signature page to the Amended and Restated Proxy Agreement and Power of Attorney


Power of Attorney

The undersigned, Daqiao Network Technology (Hangzhou) Co., Ltd. , a limited liability company established under the laws of the PRC and a holder of 65.5346% of the registered capital (corresponding to the capital contribution of 22,190,000 RMB) in Yunji Sharing Technology Co., Ltd. (the “ Company ”) (“ My Shareholding ”), as of December 17, 2018, hereby irrevocably authorize Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) to execute and deliver any and all written resolutions in the name and on behalf of the Shareholders; 2) to vote by itself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the Company; 3) to sell, transfer, pledge or dispose of any or all of the equity interests in the Company; 4) nominate, appoint or remove the directors of the Company when necessary; 5) to oversee the economic performance of the Company; 6) to have full access to the financial information of the Company at any time; 7) to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its Shareholder(s); 8) to approve annual budgets or declare dividends; and 9) any other rights conferred by the articles of association of the Company and/or the relevant laws and regulations on the Shareholders.

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Exclusive Option Agreement, to which I am required to be a party, on behalf of myself, and to perform the terms of the Share Pledge Agreement and Exclusive Option Agreement, both dated the date hereof, to which I am a party.

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. The WFOE has the right to make the aforesaid actions according to its own judgment without my prior consent. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

Provided that I am a shareholder of the Company, this Power of Attorney shall be irrevocable and continuously effective as of the date of execution, unless written instructions to the contrary are given by the WFOE. Once the WFOE notice me in writing to terminate this Power of Attorney in whole or in part, I will immediately withdraw the entrustment and authorization under this Power of Attorney, and immediately sign a power of attorney in the same format as this Power of Attorney to authorize the same right as provided under this Power of Attorney to other persons nominated by the WFOE.


During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the WFOE through this Power of Attorney, and shall not exercise such rights by myself.

[Signature page follow]


[Signature page to Power of Attorney]

Daqiao Network Technology (Hangzhou) Co., Ltd.

(/s/ Seal of Daqiao Network Technology (Hangzhou) Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative


Power of Attorney

The undersigned, Hangzhou Yuepeng Trading Co., Ltd. , a limited liability company established under the laws of the PRC and a holder of 28.0862% of the registered capital (corresponding to the capital contribution of 9,510,000 RMB) in Yunji Sharing Technology Co., Ltd. (the “ Company ”) (“ My Shareholding ”), as of December 17, 2018, hereby irrevocably authorize Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) to execute and deliver any and all written resolutions in the name and on behalf of the Shareholders; 2) to vote by itself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the Company; 3) to sell, transfer, pledge or dispose of any or all of the equity interests in the Company; 4) nominate, appoint or remove the directors of the Company when necessary; 5) to oversee the economic performance of the Company; 6) to have full access to the financial information of the Company at any time; 7) to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its Shareholder(s); 8) to approve annual budgets or declare dividends; and 9) any other rights conferred by the articles of association of the Company and/or the relevant laws and regulations on the Shareholders.

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Exclusive Option Agreement, to which I am required to be a party, on behalf of myself, and to perform the terms of the Share Pledge Agreement and Exclusive Option Agreement, both dated the date hereof, to which I am a party.

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. The WFOE has the right to make the aforesaid actions according to its own judgment without my prior consent. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

Provided that I am a shareholder of the Company, this Power of Attorney shall be irrevocable and continuously effective as of the date of execution, unless written instructions to the contrary are given by the WFOE. Once the WFOE notice me in writing to terminate this Power of Attorney in whole or in part, I will immediately withdraw the entrustment and authorization under this Power of Attorney, and immediately sign a power of attorney in the same format as this Power of Attorney to authorize the same right as provided under this Power of Attorney to other persons nominated by the WFOE.


During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the WFOE through this Power of Attorney, and shall not exercise such rights by myself.

[Signature page follow]


[Signature page to Power of Attorney]

Hangzhou Yuepeng Trading Co., Ltd.

(/s/ Seal of Hangzhou Yuepeng Trading Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative


Power of Attorney

The undersigned, Deqing Jijie Investment Management Partnership (Limited Partnership) , a limited liability partnership enterprise established under the laws of the PRC and a holder of 6.3792% of the registered capital (corresponding to the capital contribution of 2,160,000 RMB) in Yunji Sharing Technology Co., Ltd. (the “ Company ”) (“ My Shareholding ”), as of December 17, 2018, hereby irrevocably authorize Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) to execute and deliver any and all written resolutions in the name and on behalf of the Shareholders; 2) to vote by itself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the Company; 3) to sell, transfer, pledge or dispose of any or all of the equity interests in the Company; 4) nominate, appoint or remove the directors of the Company when necessary; 5) to oversee the economic performance of the Company; 6) to have full access to the financial information of the Company at any time; 7) to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its Shareholder(s); 8) to approve annual budgets or declare dividends; and 9) any other rights conferred by the articles of association of the Company and/or the relevant laws and regulations on the Shareholders.

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Exclusive Option Agreement, to which I am required to be a party, on behalf of myself, and to perform the terms of the Share Pledge Agreement and Exclusive Option Agreement, both dated the date hereof, to which I am a party.

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. The WFOE has the right to make the aforesaid actions according to its own judgment without my prior consent. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

Provided that I am a shareholder of the Company, this Power of Attorney shall be irrevocable and continuously effective as of the date of execution, unless written instructions to the contrary are given by the WFOE. Once the WFOE notice me in writing to terminate this Power of Attorney in whole or in part, I will immediately withdraw the entrustment and authorization under this Power of Attorney, and immediately sign a power of attorney in the same format as this Power of Attorney to authorize the same right as provided under this Power of Attorney to other persons nominated by the WFOE.


During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the WFOE through this Power of Attorney, and shall not exercise such rights by myself.

[Signature page follow]


[Signature page to Power of Attorney]

Deqing Jijie Investment Management Partnership (Limited Partnership)

(/s/ Seal of Deqing Jijie Investment Management Partnership (Limited Partnership))

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Authorized Representative

Exhibit 10.6

AMENDED AND RESTATED EQUITY PLEDGE AGREEMENT

This Amended and Restated Equity Pledge Agreement (this “ Agreement ”) is entered into as of December 14, 2018 by and among the following parties:

 

(1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ Pledgee ”), a limited liability company established under the laws of the PRC;

 

(2)

Zhejiang Yunji Youxuan E-commerce Co., Ltd. (the “ Company ”), a limited liability company established under the laws of the PRC;

 

(3)

Xiao Shanglue , a PRC citizen (PRC ID No.: ******); and

 

(4)

Hao Huan , a PRC citizen (PRC ID No.: ******) (together with Xiao Shanglue, the “ Pledgors ”).

(Each of the Pledgee, the Company and the Pledgors, a “ Party ”, and collectively, the “ Parties ”.)

RECITALS

 

(A)

WHEREAS , the Pledgors hold 100% equity interest, representing RMB50.5 million of the registered capital of the Company;

 

(B)

WHEREAS , the Pledgee and the Company entered into an amended and restated exclusive service agreement dated December 14, 2018 (the “ Service Agreement ”), pursuant to which the Company shall pay service fees to the Pledgee for the services provided by the Pledgee;

 

(C)

WHEREAS , the Pledgee, the Pledgors, and the Company entered into an amended and restated exclusive option agreement dated December 14, 2018 (the “ Exclusive Option Agreement ”), pursuant to which each of the Pledgors and the other shareholders of the Company agrees to grant the Pledgee an exclusive right to purchase all of the equity interest of the Company held by it on the terms and conditions therein;

 

(D)

WHEREAS , the Pledgee and the Pledgors entered into a loan contract dated December 14, 2018 (the “ Loan Contract ”), pursuant to which the Pledgee has provided a loan to the Pledgors.

NOW , THEREFORE , the Parties hereby agree as follows:

AGREEMENT

 

1.

Principal Agreements

Each Party acknowledges and confirms that the Principal Agreements for which the security of pledge is provided hereunder include the Service Agreement, the Exclusive Option Agreement, the Loan Contract and the agreements to be executed among the Pledgor, the Company and the Pledgee from time to time.

 

2.

The Pledge

 

2.1

The Pledgors hereby unconditionally and irrevocably agree to pledge all of the equity interest of the Company held by it (including any and all interest or dividend accrued on such equity interest) (the “ Pledged Equity ”) to the Pledgee, as a security for the performance of the obligations by the Pledgors and the Company under the Principal Agreements (the “ Pledge ”).

 

1


3.

The Scope of Pledge

 

3.1

The obligations secured by the Pledge under this Agreement include all obligations of the Pledgors and the Company, including without limitation, loan and the interest (if applicable), all service fees payable to the Pledgee, all indebtedness, obligations and liabilities (including but not limited to any amounts payable to the relevant person), damages (if any), compensation, any fees and expenses for enforcing the creditor’s rights and the Pledge (including but not limited to the attorneys’ fees, arbitration fees, the assessment and auction fees related to the Pledged Equity) and any other related cost. For the avoidance of doubt, the scope of the Pledge shall not be limited by the amount of the shareholders’ capital contribution.

 

4.

The Term of Pledge

 

4.1

The Pledge shall be continuously valid and the term of the Pledge ends at the earliest of the following three dates: (1) the date on which the unpaid secured obligation has been fully settled or otherwise repaid; (2) the date on which the Pledgee exercises the Pledge in accordance with the terms and conditions of this Agreement to fully realize its rights to the secured obligation and the Pledged Equity; or (3) the date on which the Pledgors have transferred all of its equity to a third party (natural or legal person) and no longer holds the Company’s equity in accordance with the Exclusive Option Agreement.

 

4.2

During the term of the Pledge, in the event the Pledgee or the Company fail to perform any of their respective obligations in accordance with the Principal Agreements, the Pledgee shall have the right to dispose of the Pledged Equity in accordance with the provisions of this Agreement.

 

4.3

The Pledgee shall have the right to collect any and all dividends or other distributable benefits accrued on the equity and distribute or dispose such dividends or other distributable benefits at its sole discretion.

 

5.

Registration

 

5.1

The Company shall upon execution of this Agreement, record the Pledge in the shareholders’ register of the Company and provide the shareholder’s register to the Pledgee. The parties covenant that the parties hereto have executed and submitted to administration of industry and commerce (the “ AIC ”) an equity interest pledge contract in the form required by the AIC at the location of the Company (the “ AIC Pledge Contract ”) to register the Pledge with AIC. For matters not specified in the AIC Pledge Contract, the Parties shall be bound by the provisions of this Agreement. In case of any ambiguities or inconsistencies between the AIC Pledge Contract and this Agreement, provisions of this Agreement shall prevail.

 

5.2

Without limitation to any provision of this Agreement, during the term of the Pledge, the original of the register of members of the Company shall be kept by the Pledgee or its designated person.

 

5.3

With the prior consent of the Pledgee, the Pledgors may increase its capital contribution to the Company, provided that any capital contribution by the Pledgors to the Company shall be subject to this Agreement and any such capital increase shall be part of the Pledged Equity. The Company shall immediately amend the register of member and register the change to the Pledge with the AIC pursuant to this Section 5 within five (5) working days after the increase of capital contribution.

 

2


6.

The Pledgors’ Representations and Warranties

 

6.1

The Pledgors are the sole legal owners of the Pledged Equity.

 

6.2

No security interest or other encumbrance has been created on the Pledged Equity.

 

6.3

The Company is a limited liability company established and validly existing under the PRC laws. The registered capital of the Company is RMB50.5 million.

 

7.

The Pledgors’ Covenants and Further Assurance

 

7.1

The Pledgors hereby covenant to the Pledgee, that during the term of this Agreement, the Pledgors shall:

 

  7.1.1

without the Pledgee’s prior written consent, not transfer the Pledged Equity, create or permit to create any security interest or other encumbrance on the Pledged Equity, or dispose of the Pledged Equity in any other means, except for the performance of the Exclusive Option Agreement;

 

  7.1.2

comply with any or all laws and regulations applicable to the Pledge, and within five (5) working days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, provide the aforementioned notice, order or recommendation to the Pledgee, and shall comply with the requirements set forth in the aforementioned notice, order or recommendation, or submit claims and representations with respect to the aforementioned matters upon the Pledgee’s reasonable request or with consent of the Pledgee;

 

  7.1.3

promptly notify the Pledgee of any event or notice received that may have an impact on Pledgee’s rights to the Pledged Equity or any portion thereof or other obligations of the Pledgors arising out of this Agreement.

 

7.2

The Pledgors agree that the rights acquired by the Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by the Company, the Pledgors or any heirs or representatives of the Pledgors or any other persons (collectively, the “ Relevant Persons ”) through any legal proceedings.

 

  7.2.1

Without the prior written consent of the Pledgee, the Relevant Persons shall not in any manner supplement, change or amend the articles of association and bylaws of the Company, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

  7.2.2

Without the prior written consent of the Pledgee, after the execution of this Agreement, the Relevant Persons shall not in any manner sell, transfer, pledge or dispose any assets of the Company or any of its subsidiaries or any statutory or beneficiary interest derived from the business or income of the Company and shall not create any relevant security interest.

 

  7.2.3

Without the prior written consent of the Pledgee, the Relevant Persons shall ensure that the Company shall not in any manner distribute dividends to its shareholder(s), make assets distributions or conduct capital reduction or initiate liquidation procedures or make any other distributions. Any distributions, including without limitation, the distributed assets or the residual assets in liquidation shall be deemed as part of the Pledge; or

 

3


  7.2.4

Without the prior written consent of the Pledgee, the Relevant Persons shall not take actions which result in or may result in the decrease of value of Pledged Equity or jeopardize the validity of Pledge under this Agreement. In the event that the value of Pledged Equity decreases significantly and impairs the rights of the Pledgee, the Relevant Persons shall notify the Pledgee immediately, provide other assets as security as reasonably requested by and to the satisfaction of the Pledgee, and take necessary actions to resolve the foresaid events or reduce their adverse impact.

 

7.3

To protect or perfect the security interest granted by this Agreement for the payment obligation under the Principal Agreements, the Pledgors hereby undertake to execute in good faith and to cause other parties who have interests in the Pledge to execute all certificates, agreements, deeds and/or covenants required by the Pledgee. The Pledgors also undertake to perform and to cause other parties who have interests in the Pledge to perform actions required by the Pledgee, to facilitate the exercise by the Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of the Pledged Equity with the Pledgee or designee(s) of the Pledgee. The Pledgors undertake to provide the Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by the Pledgee.

 

7.4

The Pledgors hereby undertake to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, the Pledgors shall indemnify the Pledgee for all losses resulting therefrom.

 

8.

Exercise of Pledge

 

8.1

Each of the following shall constitute an event of default (“ Event of Default ”) hereunder (and an Event of Default is “continuing” if it has not been remedied or waived):

 

  8.1.1

any statement, warranty or representation made by the Pledgors or the Company, under this Agreement or any of the Principal Agreements are not true, complete or accurate in any aspect; or the Pledgors or the Company breaches or fails to fulfill any obligation or abide by any covenants and undertakings under this Agreement or any Principal Agreements; or

 

  8.1.2

any obligation of the Pledgors or the Company under this Agreement or any of the Principal Agreements is deemed as unlawful or void.

 

8.2

Upon the occurrence and during the continuance of an Event of Default, the Pledgee shall have the right to exercise all such rights as a secured party under any applicable Chinese law, including the PRC Guarantee Law and the PRC Property Law, as in effect from time to time, including without limitations:

 

  8.2.1

to sell all or any part of the Pledged Equity in one or more public or private sales upon three (3) days’ written notice to Pledgors, and any such sale or sales may be made for cash, upon credit, or for future delivery; or

 

  8.2.2

to execute an agreement with the Pledgors to acquire the Pledged Equity based on its monetary value which shall be determined by referencing the market price of the pledged property;

The Pledgee has priority to the proceeds obtained by disposition of the Pledged Equity according to the aforesaid means for repayment of fees listed under Section 3 of this Agreement.

 

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8.3

The Pledgors and the Company, at the request of the Pledgee, shall take all lawful and appropriate actions to ensure the Pledgee’s exercise of the Pledge right. For the purpose of the foregoing, the Pledgors and the Company should sign all the documents and materials and take all actions and measures reasonably required by the Pledgee.

 

9.

Assignment

 

9.1

None of the Company and the Pledgors shall assign any of its rights or obligations under this Agreement to any third party without the prior written consent of the Pledgee.

 

9.2

The Company and the Pledgors hereby agree that the Pledgee may assign its rights and obligations under this Agreement as the Pledgee may decide, at its sole discretion, and such transfer shall only be subject to a written notice sent to the Company and the Pledgors.

 

10.

Termination

This Agreement is terminated after the expiration of the term of the Pledge in accordance with Section 4 of this Agreement.

 

11.

Entire Agreement and Amendment to Agreement

 

11.1

This Agreement and all agreements and/or documents mentioned or included explicitly by this Agreement constitute the complete agreement with respect to the subject matter of this Agreement and shall supersede any and all prior oral agreements, contracts, understandings and communications made by Parties with respect to the subject matter of this Agreement, including without limitation, the equity pledge agreement entered into by and among the Parties on June 13, 2018.

 

11.2

Any modification of this Agreement shall be made in a written form and shall only become effective upon the signature by all Parties of the Agreement. Amendments and supplemental agreements to this Agreement duly executed by Parties shall be parts of this Agreement and shall have the same legal effect as this Agreement.

 

12.

Governing Law and Dispute Resolution

 

12.1

This Agreement shall be construed in accordance with and governed by the PRC laws.

 

12.2

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

13.

Effective Date and Term

 

13.1

This Agreement shall be signed and take effect as of the date first set forth above.

 

13.2

The term of this Agreement shall remain effective as long as the Pledge exists.

 

5


14.

Notices

Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of each relevant party as specified by such party from time to time. The date when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the courier service company; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant documents.

 

15.

Severability

If any provision of this Agreement is deemed to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or unenforceability shall be limited to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.

 

16.

Counterparts

This Agreement shall be executed in four (4) originals by all Parties, with each Party holding one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

[The Remainder of this page is intentionally left blank]

 

6


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Equity Pledge Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Zhejiang Yunji Youxuan E-commerce Co., Ltd.

(/s/ Seal of Zhejiang Yunji Youxuan E-commerce Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Equity Pledge Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Xiao Shanglue  
Signature:  

/s/ Xiao Shanglue

 

Signature Page to Amended and Restated Equity Pledge Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Hao Huan  
Signature:  

/s/ Hao Huan

 

Signature Page to Amended and Restated Equity Pledge Agreement


Shareholders’ Register of Zhejiang Yunji Youxuan E-commerce Co., Ltd.

(recorded on December 14, 2018, registered capital of RMB50.5 million)

 

No.

  

Name of Shareholder

   PRC ID No.   Amount Paid
(Shareholding
Percentage)
    

Payment
Made by

  

Pledge

Pledgee

001    Xiao Shanglue    ******     99.0099    Cash    RMB50,000,000 pledged to Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.
002    Hao Huan    ******     0.9901    Cash    RMB500,000 pledged to Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

[The Remainder of this page is intentionally left blank]


[Signature Page to Shareholders’ Register of Zhejiang Yunji Youxuan E-commerce Co., Ltd.]

 

Zhejiang Yunji Youxuan E-commerce Co., Ltd.

(/s/ Seal of Zhejiang Yunji Youxuan E-commerce Co., Ltd.)

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

Exhibit 10.7

AMENDED AND RESTATED EQUITY PLEDGE AGREEMENT

This Amended and Restated Equity Pledge Agreement (this “ Agreement ”) is entered into as of December 17, 2018 by and among the following parties:

 

(1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ Pledgee ”), a limited liability company established under the laws of the PRC;

 

(2)

Yunji Sharing Technology Co., Ltd. (the “ Company ”), a limited liability company established under the laws of the PRC;

 

(3)

Daqiao Network Technology (Hangzhou) Co., Ltd. , a limited liability company established under the laws of the PRC;

 

(4)

Hangzhou Yuepeng Trading Co., Ltd., a limited liability company established under the laws of the PRC; and

 

(5)

Deqing Jijie Investment Management Partnership (Limited Partnership) , a limited liability partnership enterprise established under the laws of the PRC (together with Daqiao Network Technology (Hangzhou) Co., Ltd., Hangzhou Yuepeng Trading Co., Ltd., the “ Pledgors ”)

(Each of the Pledgee, the Company and the Pledgors, a “ Party ”, and collectively, the “ Parties ”.)

RECITALS

 

(A)

WHEREAS , the Pledgors hold 100% equity interest, representing RMB33.86 million of the registered capital of the Company;

 

(B)

WHEREAS , the Pledgee and the Company entered into an amended and restated exclusive service agreement dated December 17, 2018 (the “ Service Agreement ”), pursuant to which the Company shall pay service fees to the Pledgee for the services provided by the Pledgee;

 

(C)

WHEREAS , the Pledgee, the Pledgors, and the Company entered into an amended and restated exclusive option agreement dated December 17, 2018 (the “ Exclusive Option Agreement ”), pursuant to which each of the Pledgors and the other shareholders of the Company agrees to grant the Pledgee an exclusive right to purchase all of the equity interest of the Company held by it on the terms and conditions therein.

NOW , THEREFORE , the Parties hereby agree as follows:

AGREEMENT

 

1.

Principal Agreements

Each Party acknowledges and confirms that the Principal Agreements for which the security of pledge is provided hereunder include the Service Agreement, the Exclusive Option Agreement, and the agreements to be executed among the Pledgor, the Company and the Pledgee from time to time.

 

2.

The Pledge

 

2.1

The Pledgors hereby unconditionally and irrevocably agree to pledge all of the equity interest of the Company held by it (including any and all interest or dividend accrued on such equity interest) (the “ Pledged Equity ”) to the Pledgee, as a security for the performance of the obligations by the Pledgors and the Company under the Principal Agreements (the “ Pledge ”).

 

1


3.

The Scope of Pledge

 

3.1

The obligations secured by the Pledge under this Agreement include all obligations of the Pledgors and the Company, including without limitation, loan and the interest (if applicable), all service fees payable to the Pledgee, all indebtedness, obligations and liabilities (including but not limited to any amounts payable to the relevant person), damages (if any), compensation, any fees and expenses for enforcing the creditor’s rights and the Pledge (including but not limited to the attorneys’ fees, arbitration fees, the assessment and auction fees related to the Pledged Equity) and any other related cost. For the avoidance of doubt, the scope of the Pledge shall not be limited by the amount of the shareholders’ capital contribution.

 

4.

The Term of Pledge

 

4.1

The Pledge shall be continuously valid and the term of the Pledge ends at the earliest of the following three dates: (1) the date on which the unpaid secured obligation has been fully settled or otherwise repaid; (2) the date on which the Pledgee exercises the Pledge in accordance with the terms and conditions of this Agreement to fully realize its rights to the secured obligation and the Pledged Equity; or (3) the date on which the Pledgors have transferred all of its equity to a third party (natural or legal person) and no longer holds the Company’s equity in accordance with the Exclusive Option Agreement.

 

4.2

During the term of the Pledge, in the event the Pledgee or the Company fail to perform any of their respective obligations in accordance with the Principal Agreements, the Pledgee shall have the right to dispose of the Pledged Equity in accordance with the provisions of this Agreement.

 

4.3

The Pledgee shall have the right to collect any and all dividends or other distributable benefits accrued on the equity and distribute or dispose such dividends or other distributable benefits at its sole discretion.

 

5.

Registration

 

5.1

The Company shall (1) upon execution of this Agreement, record the Pledge in the shareholders’ register of the Company and provide the shareholder’s register to the Pledgee, and (2) submit an application to the relevant administration of industry and commerce (the “ AIC ”) for the registration of the Pledge as soon as practicable following the execution of this Agreement and obtain evidencing documents of such registration. The parties covenant that for the purpose of registration of the Pledge, the parties hereto shall submit to the AIC this Agreement or an equity interest pledge contract in the form required by the AIC at the location of the Company which shall truly reflect the information of the Pledge hereunder (the “ AIC Pledge Contract ”). For matters not specified in the AIC Pledge Contract, the Parties shall be bound by the provisions of this Agreement. In case of any ambiguities or inconsistencies between the AIC Pledge Contract and this Agreement, provisions of this Agreement shall prevail. The Pledgee and the Company shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the AIC, to ensure that the Pledge shall be registered with the AIC as soon as possible after the filing of application.

 

5.2

Without limitation to any provision of this Agreement, during the term of the Pledge, the original of the register of members of the Company shall be kept by the Pledgee or its designated person.

 

2


5.3

With the prior consent of the Pledgee, the Pledgors may increase its capital contribution to the Company, provided that any capital contribution by the Pledgors to the Company shall be subject to this Agreement and any such capital increase shall be part of the Pledged Equity. The Company shall immediately amend the register of member and register the change to the Pledge with the AIC pursuant to this Section 5 within five (5) working days after the increase of capital contribution.

 

6.

The Pledgors’ Representations and Warranties

 

6.1

The Pledgors are the sole legal owners of the Pledged Equity.

 

6.2

No security interest or other encumbrance has been created on the Pledged Equity.

 

6.3

The Company is a limited liability company established and validly existing under the PRC laws. The registered capital of the Company is RMB50.5 million.

 

7.

The Pledgors’ Covenants and Further Assurance

 

7.1

The Pledgors hereby covenant to the Pledgee, that during the term of this Agreement, the Pledgors shall:

 

  7.1.1

without the Pledgee’s prior written consent, not transfer the Pledged Equity, create or permit to create any security interest or other encumbrance on the Pledged Equity, or dispose of the Pledged Equity in any other means, except for the performance of the Exclusive Option Agreement;

 

  7.1.2

comply with any or all laws and regulations applicable to the Pledge, and within five (5) working days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, provide the aforementioned notice, order or recommendation to the Pledgee, and shall comply with the requirements set forth in the aforementioned notice, order or recommendation, or submit claims and representations with respect to the aforementioned matters upon the Pledgee’s reasonable request or with consent of the Pledgee;

 

  7.1.3

promptly notify the Pledgee of any event or notice received that may have an impact on Pledgee’s rights to the Pledged Equity or any portion thereof or other obligations of the Pledgors arising out of this Agreement.

 

7.2

The Pledgors agree that the rights acquired by the Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by the Company, the Pledgors or any heirs or representatives of the Pledgors or any other persons (collectively, the “ Relevant Persons ”) through any legal proceedings.

 

  7.2.1

Without the prior written consent of the Pledgee, the Relevant Persons shall not in any manner supplement, change or amend the articles of association and bylaws of the Company, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

  7.2.2

Without the prior written consent of the Pledgee, after the execution of this Agreement, the Relevant Persons shall not in any manner sell, transfer, pledge or dispose any assets of the Company or any of its subsidiaries or any statutory or beneficiary interest derived from the business or income of the Company and shall not create any relevant security interest.

 

3


  7.2.3

Without the prior written consent of the Pledgee, the Relevant Persons shall ensure that the Company shall not in any manner distribute dividends to its shareholder(s), make assets distributions or conduct capital reduction or initiate liquidation procedures or make any other distributions. Any distributions, including without limitation, the distributed assets or the residual assets in liquidation shall be deemed as part of the Pledge; or

 

  7.2.4

Without the prior written consent of the Pledgee, the Relevant Persons shall not take actions which result in or may result in the decrease of value of Pledged Equity or jeopardize the validity of Pledge under this Agreement. In the event that the value of Pledged Equity decreases significantly and impairs the rights of the Pledgee, the Relevant Persons shall notify the Pledgee immediately, provide other assets as security as reasonably requested by and to the satisfaction of the Pledgee, and take necessary actions to resolve the foresaid events or reduce their adverse impact.

 

7.3

To protect or perfect the security interest granted by this Agreement for the payment obligation under the Principal Agreements, the Pledgors hereby undertake to execute in good faith and to cause other parties who have interests in the Pledge to execute all certificates, agreements, deeds and/or covenants required by the Pledgee. The Pledgors also undertake to perform and to cause other parties who have interests in the Pledge to perform actions required by the Pledgee, to facilitate the exercise by the Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of the Pledged Equity with the Pledgee or designee(s) of the Pledgee. The Pledgors undertake to provide the Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by the Pledgee.

 

7.4

The Pledgors hereby undertake to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, the Pledgors shall indemnify the Pledgee for all losses resulting therefrom.

 

8.

Exercise of Pledge

 

8.1

Each of the following shall constitute an event of default (“ Event of Default ”) hereunder (and an Event of Default is “continuing” if it has not been remedied or waived):

 

  8.1.1

any statement, warranty or representation made by the Pledgors or the Company, under this Agreement or any of the Principal Agreements are not true, complete or accurate in any aspect; or the Pledgors or the Company breaches or fails to fulfill any obligation or abide by any covenants and undertakings under this Agreement or any Principal Agreements; or

 

  8.1.2

any obligation of the Pledgors or the Company under this Agreement or any of the Principal Agreements is deemed as unlawful or void.

 

8.2

Upon the occurrence and during the continuance of an Event of Default, the Pledgee shall have the right to exercise all such rights as a secured party under any applicable Chinese law, including the PRC Guarantee Law and the PRC Property Law, as in effect from time to time, including without limitations:

 

  8.2.1

to sell all or any part of the Pledged Equity in one or more public or private sales upon three (3) days’ written notice to Pledgors, and any such sale or sales may be made for cash, upon credit, or for future delivery; or

 

4


  8.2.2

to execute an agreement with the Pledgors to acquire the Pledged Equity based on its monetary value which shall be determined by referencing the market price of the pledged property;

The Pledgee has priority to the proceeds obtained by disposition of the Pledged Equity according to the aforesaid means for repayment of fees listed under Section 3 of this Agreement.

 

8.3

The Pledgors and the Company, at the request of the Pledgee, shall take all lawful and appropriate actions to ensure the Pledgee’s exercise of the Pledge right. For the purpose of the foregoing, the Pledgors and the Company should sign all the documents and materials and take all actions and measures reasonably required by the Pledgee.

 

9.

Assignment

 

9.1

None of the Company and the Pledgors shall assign any of its rights or obligations under this Agreement to any third party without the prior written consent of the Pledgee.

 

9.2

The Company and the Pledgors hereby agree that the Pledgee may assign its rights and obligations under this Agreement as the Pledgee may decide, at its sole discretion, and such transfer shall only be subject to a written notice sent to the Company and the Pledgors.

 

10.

Termination

This Agreement is terminated after the expiration of the term of the Pledge in accordance with Section 4 of this Agreement.

 

11.

Entire Agreement and Amendment to Agreement

 

11.1

This Agreement and all agreements and/or documents mentioned or included explicitly by this Agreement constitute the complete agreement with respect to the subject matter of this Agreement and shall supersede any and all prior oral agreements, contracts, understandings and communications made by Parties with respect to the subject matter of this Agreement, including without limitation, the equity pledge agreement entered into by and among the Parties on April 16, 2018.

 

11.2

Any modification of this Agreement shall be made in a written form and shall only become effective upon the signature by all Parties of the Agreement. Amendments and supplemental agreements to this Agreement duly executed by Parties shall be parts of this Agreement and shall have the same legal effect as this Agreement.

 

12.

Governing Law and Dispute Resolution

 

12.1

This Agreement shall be construed in accordance with and governed by the PRC laws.

 

12.2

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

13.

Effective Date and Term

 

13.1

This Agreement shall be signed and take effect as of the date first set forth above.

 

5


13.2

The term of this Agreement shall remain effective as long as the Pledge exists.

 

14.

Notices

Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of each relevant party as specified by such party from time to time. The date when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the courier service company; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant documents.

 

15.

Severability

If any provision of this Agreement is deemed to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or unenforceability shall be limited to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.

 

16.

Counterparts

This Agreement shall be executed in five (5) originals by all Parties, with each Party holding one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

[The Remainder of this page is intentionally left blank]

 

6


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

Signature Page to Amended and Restated Equity Pledge Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Yunji Sharing Technology Co., Ltd.

(/s/ Seal of Yunji Sharing Technology Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

Signature Page to Amended and Restated Equity Pledge Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Daqiao Network Technology (Hangzhou) Co., Ltd.

(/s/ Seal of Daqiao Network Technology (Hangzhou) Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

Signature Page to Amended and Restated Equity Pledge Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yuepeng Trading Co., Ltd.

(/s/ Seal of Hangzhou Yuepeng Trading Co., Ltd.)

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

Signature Page to Amended and Restated Equity Pledge Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Deqing Jijie Investment Management Partnership (Limited Partnership)

(/s/ Seal of Deqing Jijie Investment Management Partnership (Limited Partnership))

 

Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Authorized Representative

Signature Page to Amended and Restated Equity Pledge Agreement


Shareholders’ Register of Yunji Sharing Technology Co., Ltd.

(recorded on December 17, 2018, registered capital of RMB33.86 million)

 

No.

  

Name of Shareholder

  

Unified Social Credit Code

   Amount Paid
(Shareholding
Percentage)
    Payment
Made by
  

Pledge

Pledgee

001   

Daqiao Network

Technology (Hangzhou)

Co., Ltd.

   91330100583243951A      65.5346   Cash    RMB22,190,000 pledged to Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.
002   

Hangzhou Yuepeng

Trading Co., Ltd.

   913301030639554968      28.0862   Cash    RMB9,510,000 pledged to Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.
003    Deqing Jijie Investment Management Partnership (Limited Partnership)    91330521MA28CFP11F      6.3792   Cash    RMB2,160,000 pledged to Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

[The Remainder of this page is intentionally left blank]


[Signature Page to Shareholders’ Register of Yunji Sharing Technology Co., Ltd.]

 

Yunji Sharing Technology Co., Ltd.
(/s/ Seal of Yunji Sharing Technology Co., Ltd.)
Signature:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

Exhibit 10.8

AMENDED AND RESTATED EXCLUSIVE SERVICE AGREEMENT

This Amended And Restated Exclusive Service Agreement (this “ Agreement ”) is entered into as of December 14, 2018 by and among the following parties:

 

(1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (“ Party A ”), a domestic company registered in the People’s Republic of China (“ China ” or the “ PRC ”), under the laws of the PRC; and

 

(2)

Zhejiang Yunji Youxuan E-commerce Co., Ltd. (“ Party B ”), a domestic company registered in China, under the laws of the PRC.

(Each of Party A and Party B, a “ Party ”, and collectively, the “ Parties ”.)

After friendly consultations conducted on the principle of equality and mutual benefit, the Parties hereby agree as follows:

 

1.

Provision of Services

 

1.1

In accordance with the terms and conditions set forth in this Agreement, Party B hereby irrevocably appoints and designates Party A as their exclusive service provider to provide the technical and business support services as set forth in Schedule 1 .

 

1.2

Party A has the right to designate and appoint, at its sole discretion, any affiliate of Party A to provide any and all services set forth in this Section.

 

1.3

During the term of this Agreement, Party B shall not, without Party A’s written consent, directly and indirectly, obtain the same or similar services as provided under this Agreement from any third party, or enter into any similar service agreement with any third party.

 

1.4

To ensure that the cash flow requirements of Party B’s ordinary operations are met and/or to set off any loss accrued during such operations, Party A is obligated, only to the extent permissible under PRC law, to provide financing support for Party B, whether or not Party B actually incurs any such operational loss. Party A’s financing support for Party B may take the form of bank entrusted loans or borrowings. Contracts for any such entrusted loans or borrowings shall be executed separately. Party A will not require Party B to repay the loans or borrowings when Party B has no ability to repay.

 

2.

Service Fee and Payment

 

2.1

Party A shall have the right to determine, at its sole discretion, the service fee and proper payment manners for Party B. The calculation and payment manners of the service fee are stipulated in Schedule 2 of this Agreement.

 

2.2

If Party A, at its sole discretion, determines that the fee calculation mechanism specified herein shall no longer apply for any reasons at any time or from time to time during the term of this Agreement, Party A shall have the rights to adjust the fee by giving a 10-day written notice to Party B in advance.

 

3.

Intellectual Property Rights

 

3.1

Any intellectual properties developed in the performance of this Agreement, including but not limited to copyrights, patents and knowhow, shall belong to Party A, and Party B shall enjoy no rights other than those expressly provided herein.

 

1


3.2

If a development is based on the intellectual properties owned by Party B, Party B shall ensure and warrant that such intellectual properties are flawless. Otherwise, Party B shall bear all damage and losses caused to Party A due to any flaw of such intellectual properties. If Party A are to bear any liabilities to any third party thus caused, it has the right to claim recover all of its losses from Party B.

 

3.3

The Parties agree that this clause shall remain survive after the termination or expiration of this Agreement.

 

4.

Representations and Warranties

 

4.1

Party A hereby represents and warrants as follows:

 

  (a)

It is a legal person duly incorporated and validly existing under PRC laws;

 

  (b)

Its execution and performance of this Agreement are within Party A’s corporate power and business scope;

 

  (c)

It has taken necessary corporate actions and obtained appropriate authorizations, and has obtained the necessary consents or approvals from other third parties or government agencies;

 

  (d)

The execution and performance of this Agreement by Party A do not violate the laws and contracts binding upon Party A; and

 

  (e)

Upon execution, this Agreement will constitute a legal, valid and binding obligation of Party A enforceable against Party A in accordance with its terms.

 

4.2

Party B hereby represents and warrants as follows:

 

  (a)

It is a legal person duly incorporated and validly existing under PRC laws;

 

  (b)

Its execution and performance of this Agreement are within its entity power and business scope;

 

  (c)

It has taken necessary corporate actions and obtained appropriate authorizations, and has obtained the necessary consents or approvals from other third parties or government agencies;

 

  (d)

Its execution and performance of this Agreement do not violate the laws and contracts binding upon it; and

 

  (e)

Upon execution, this Agreement will constitute a legal, valid and binding obligation of Party B enforceable against Party B in accordance with its terms.

 

4.3

Party B further warrants Party A as follows:

 

  (a)

Party B shall pay the service fee to Party A in full and in a timely manner according to this Agreement.

 

  (b)

Within the term of this Agreement, Party B shall:

 

  (i)

maintain the continuous effectiveness of the permits and qualifications in relation to the business of Party B; and

 

2


  (ii)

cooperate with Party A in Party A’s provision of services, and take reasonable advices and suggestions given by Party A in respect of the business of the Party B.

 

4.4

Party A shall have the right to examine the accounts of the Party B regularly or at any time. Within the term of this Agreement, the Party B shall cooperate with Party A and its direct or indirect shareholders on audit or due diligence work and provide the auditor and/or other professionals with the information and materials in respect of operation, business, clients, finance and employee. Furthermore, the Party B shall give consent to Party A or its shareholders that for the purpose of listing, Party A or its shareholders may disclose such information and material when it is necessary.

 

4.5

Each Party warrants to the other Party that, it will execute all the necessary documents and take all the necessary actions, including without limitation, issue necessary power of attorney to the other Party for the purpose of carrying out this Agreement and achieving the purpose of this Agreement.

 

5.

Confidentiality

Party B agrees to take all reasonable steps to protect and maintain the confidentiality of the confidential data and information received by Party B in connection with the performance of this Agreement (collectively, the “ Confidential Information ”). Party B shall not disclose, give or transfer any Confidential Information to any third party without Party A’s prior written consent. Upon termination of this Agreement, Party B shall, at Party A’s request, return any and all documents, information or software containing any of such Confidential Information to Party A or destroy it at its own discretion, and delete all of such Confidential Information from any memory devices, and cease to use such Confidential Information.

 

6.

Effective Date and Term

 

6.1

This Agreement shall be signed and take effect as of the date first set forth above.

 

6.2

The term of this Agreement is ten (10) years and shall be automatically extended for successive ten (10) years unless terminated as provided herein. Notwithstanding the foregoing provisions, Party A may terminate this Agreement, at its sole discretion, at any time with a written notice to Party B given thirty (30) days in advance. Party B has no right to terminate this Agreement.

 

7.

Governing Law and Dispute Resolution

 

7.1

This Agreement shall be construed with and governed by the laws of the PRC.

 

7.2

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (the “ CIETAC ”) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

8.

Notices

Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of each relevant Party or both Parties set forth below or such other address or addressees as specified by such Party from time to time. The date when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the internationally-recognized courier service agency; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant documents.

 

3


9.

Assignment

 

9.1

Party B shall not assign any of its respective rights or obligations under this Agreement to any third party without the prior written consent of Party A.

 

9.2

Party B hereby agrees that Party A may assign its rights and obligations under this Agreement, only be subject to a written notice to Party B.

 

10.

Severability

If any provision of this Agreement is judged to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or unenforceability shall be only with respect to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.

 

11.

Amendment or Supplement

Any amendment or supplement to this Agreement shall be made by Parties in writing. The amendments or supplements duly executed by each party shall form an integral part of this Agreement and shall have the same legal effect as this Agreement.

 

12.

Counterparts

This Agreement shall be executed in two originals by Parties, with Party A and Party B holding one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

 

13.

Entire Agreement and Amendment to Agreement

This Agreement and all agreements and/ or documents mentioned or included explicitly by this Agreement constitute the complete agreement with respect to the subject matter of this Agreement and shall substitute any and all prior oral agreements, contracts, understandings and communications made by the Parties with respect to the subject matter of this Agreement, including without limitation, the exclusive service agreement entered into by and among the Parties on June 13, 2018.

[Signature pages follow]

 

4


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

Authorized Representative: XIAO Shanglue

Signature: /s/ XIAO Shanglue             

Seal: (/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

Zhejiang Yunji Youxuan E-commerce Co., Ltd.

Authorized Representative: XIAO Shanglue

Signature: /s/ XIAO Shanglue             

Seal: (/s/ Seal of Zhejiang Yunji Youxuan E-commerce Co., Ltd.)

Signature page to Exclusive Service Agreement


SCHEDULE 1

Contents of Service

 

1.

Contents of Service

 

1.1

Providing the following technology development and transfer, technical consulting services:

 

  (a)

Technology development of new business;

 

  (b)

Technology support and maintenance of current business;

 

  (c)

Periodical update of all the business content; and

 

  (d)

Offering and maintaining the hardware and network which are necessary for the business operation.

 

1.2

Providing occupation and pre-occupation staff training services;

 

1.3

Providing public relation services;

 

1.4

Providing market investigation, research and consulting services;

 

1.5

Providing mid or short-term market development, market plan services;

 

1.6

Providing human resource management and internal information management;

 

1.7

Providing network development, updating and daily maintenance;

 

1.8

Licensing of software and trademark;

 

1.9

Other services determined from time to time by Party A according to the need of business and capacity of Party A.


SCHEDULE 2

Calculation and Payment of Service Fee

 

1.

Calculation and Payment of Service Fee

 

1.1

The fee for the services provided under this Agreement is calculated based on the revenue of Party B and the corresponding operating cost and sales, management and other costs and expenses, and may be charged in the form of:

 

  (a)

a percentage of the revenue of Party B;

 

  (b)

a fixed license fee for certain software; and/or

 

  (c)

other method determined from time to time by Party A according to the nature of services provided.

 

1.2

The specific amount of such fee shall be determined by Party A through taking account of the following factors, and Party A shall send Party B written confirmation for service fee:

 

  (a)

The technical difficulty and complexity of the services provided by Party A;

 

  (b)

The time spent by employees of Party A concerning the services;

 

  (c)

The contents and commercial value of the services provided by Party A;

 

  (d)

The benchmark price of similar services in the market.

 

2.

Party A shall calculate service fee payable on a fixed term basis and deliver Party B corresponding invoices. Party B shall pay the service fee to the bank account designated by Party A within 10 business days after receipt of such invoices, and deliver a copy of the remittance certificate by facsimile or mail to Party A within 10 business days after payment. Party A shall issue a receipt within 10 business days after receipt of the service fee.

Exhibit 10.9

AMENDED AND RESTATED EXCLUSIVE SERVICE AGREEMENT

This Amended and Restated Exclusive Service Agreement (this “ Agreement ”) is entered into as of December 17, 2018 by and among the following parties:

 

  (1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (“ Party A ”), a domestic company registered in the People’s Republic of China (“ China ” or the “ PRC ”), under the laws of the PRC; and

 

  (2)

Yunji Sharing Technology Co., Ltd. (“ Party B ”), a domestic company registered in China, under the laws of the PRC.

(Each of Party A and Party B, a “ Party ”, and collectively, the “ Parties ”.)

After friendly consultations conducted on the principle of equality and mutual benefit, the Parties hereby agree as follows:

 

1.

Provision of Services

 

1.1

In accordance with the terms and conditions set forth in this Agreement, Party B hereby irrevocably appoints and designates Party A as their exclusive service provider to provide the technical and business support services as set forth in Schedule 1 .

 

1.2

Party A has the right to designate and appoint, at its sole discretion, any affiliate of Party A to provide any and all services set forth in this Section.

 

1.3

During the term of this Agreement, Party B shall not, without Party A’s written consent, directly and indirectly, obtain the same or similar services as provided under this Agreement from any third party, or enter into any similar service agreement with any third party.

 

1.4

To ensure that the cash flow requirements of Party B’s ordinary operations are met and/or to set off any loss accrued during such operations, Party A is obligated, only to the extent permissible under PRC law, to provide financing support for Party B, whether or not Party B actually incurs any such operational loss. Party A’s financing support for Party B may take the form of bank entrusted loans or borrowings. Contracts for any such entrusted loans or borrowings shall be executed separately. Party A will not require Party B to repay the loans or borrowings when Party B has no ability to repay.

 

2.

Service Fee and Payment

 

2.1

Party A shall have the right to determine, at its sole discretion, the service fee and proper payment manners for Party B. The calculation and payment manners of the service fee are stipulated in Schedule 2 of this Agreement.

 

2.2

If Party A, at its sole discretion, determines that the fee calculation mechanism specified herein shall no longer apply for any reasons at any time or from time to time during the term of this Agreement, Party A shall have the rights to adjust the fee by giving a 10-day written notice to Party B in advance.

 

3.

Intellectual Property Rights

 

3.1

Any intellectual properties developed in the performance of this Agreement, including but not limited to copyrights, patents and knowhow, shall belong to Party A, and Party B shall enjoy no rights other than those expressly provided herein.

 

1


3.2

If a development is based on the intellectual properties owned by Party B, Party B shall ensure and warrant that such intellectual properties are flawless. Otherwise, Party B shall bear all damage and losses caused to Party A due to any flaw of such intellectual properties. If Party A are to bear any liabilities to any third party thus caused, it has the right to claim recover all of its losses from Party B.

 

3.3

The Parties agree that this clause shall remain survive after the termination or expiration of this Agreement.

 

4.

Representations and Warranties

 

4.1

Party A hereby represents and warrants as follows:

 

  (a)

It is a legal person duly incorporated and validly existing under PRC laws;

 

  (b)

Its execution and performance of this Agreement are within Party A’s corporate power and business scope;

 

  (c)

It has taken necessary corporate actions and obtained appropriate authorizations, and has obtained the necessary consents or approvals from other third parties or government agencies;

 

  (d)

The execution and performance of this Agreement by Party A do not violate the laws and contracts binding upon Party A; and

 

  (e)

Upon execution, this Agreement will constitute a legal, valid and binding obligation of Party A enforceable against Party A in accordance with its terms.

 

4.2

Party B hereby represents and warrants as follows:

 

  (a)

It is a legal person duly incorporated and validly existing under PRC laws;

 

  (b)

Its execution and performance of this Agreement are within its entity power and business scope;

 

  (c)

It has taken necessary corporate actions and obtained appropriate authorizations, and has obtained the necessary consents or approvals from other third parties or government agencies;

 

  (d)

Its execution and performance of this Agreement do not violate the laws and contracts binding upon it; and

 

  (e)

Upon execution, this Agreement will constitute a legal, valid and binding obligation of Party B enforceable against Party B in accordance with its terms.

 

4.3

Party B further warrants Party A as follows:

 

  (a)

Party B shall pay the service fee to Party A in full and in a timely manner according to this Agreement.

 

  (b)

Within the term of this Agreement, Party B shall:

 

  (i)

maintain the continuous effectiveness of the permits and qualifications in relation to the business of Party B; and

 

2


  (ii)

cooperate with Party A in Party A’s provision of services, and take reasonable advices and suggestions given by Party A in respect of the business of the Party B.

 

4.4

Party A shall have the right to examine the accounts of the Party B regularly or at any time. Within the term of this Agreement, the Party B shall cooperate with Party A and its direct or indirect shareholders on audit or due diligence work and provide the auditor and/or other professionals with the information and materials in respect of operation, business, clients, finance and employee. Furthermore, the Party B shall give consent to Party A or its shareholders that for the purpose of listing, Party A or its shareholders may disclose such information and material when it is necessary.

 

4.5

Each Party warrants to the other Party that, it will execute all the necessary documents and take all the necessary actions, including without limitation, issue necessary power of attorney to the other Party for the purpose of carrying out this Agreement and achieving the purpose of this Agreement.

 

5.

Confidentiality

Party B agrees to take all reasonable steps to protect and maintain the confidentiality of the confidential data and information received by Party B in connection with the performance of this Agreement (collectively, the “ Confidential Information ”). Party B shall not disclose, give or transfer any Confidential Information to any third party without Party A’s prior written consent. Upon termination of this Agreement, Party B shall, at Party A’s request, return any and all documents, information or software containing any of such Confidential Information to Party A or destroy it at its own discretion, and delete all of such Confidential Information from any memory devices, and cease to use such Confidential Information.

 

6.

Effective Date and Term

 

6.1

This Agreement shall be signed and take effect as of the date first set forth above.

 

6.2

The term of this Agreement is ten (10) years and shall be automatically extended for successive ten (10) years unless terminated as provided herein. Notwithstanding the foregoing provisions, Party A may terminate this Agreement, at its sole discretion, at any time with a written notice to Party B given thirty (30) days in advance. Party B has no right to terminate this Agreement.

 

7.

Governing Law and Dispute Resolution

 

7.1

This Agreement shall be construed with and governed by the laws of the PRC.

 

7.2

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (the “ CIETAC ”) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

8.

Notices

Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of each relevant Party or both Parties set forth below or such other address or addressees as specified by such Party from time to time. The date when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the internationally-recognized courier service agency; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant documents.

 

3


9.

Assignment

 

9.1

Party B shall not assign any of its respective rights or obligations under this Agreement to any third party without the prior written consent of Party A.

 

9.2

Party B hereby agrees that Party A may assign its rights and obligations under this Agreement, only be subject to a written notice to Party B.

 

10.

Severability

If any provision of this Agreement is judged to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or unenforceability shall be only with respect to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.

 

11.

Amendment or Supplement

Any amendment or supplement to this Agreement shall be made by Parties in writing. The amendments or supplements duly executed by each party shall form an integral part of this Agreement and shall have the same legal effect as this Agreement.

 

12.

Counterparts

This Agreement shall be executed in two originals by Parties, with Party A and Party B holding one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

 

13.

Entire Agreement and Amendment to Agreement

This Agreement and all agreements and/ or documents mentioned or included explicitly by this Agreement constitute the complete agreement with respect to the subject matter of this Agreement and shall substitute any and all prior oral agreements, contracts, understandings and communications made by the Parties with respect to the subject matter of this Agreement, including without limitation, the exclusive service agreement entered into by and among the Parties on April 16, 2018.

[Signature pages follow]

 

4


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

Authorized Representative: XIAO Shanglue

Signature: /s/ XIAO Shanglue             

Seal: (/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

Yunji Sharing Technology Co., Ltd.

Authorized Representative: XIAO Shanglue

Signature: /s/ XIAO Shanglue             

Seal: (/s/ Seal of Yunji Sharing Technology Co., Ltd.)

Signature page to Exclusive Service Agreement


SCHEDULE 1

Contents of Service

 

1.

Contents of Service

 

1.1

Providing the following technology development and transfer, technical consulting services:

 

  (a)

Technology development of new business;

 

  (b)

Technology support and maintenance of current business;

 

  (c)

Periodical update of all the business content; and

 

  (d)

Offering and maintaining the hardware and network which are necessary for the business operation.

 

1.2

Providing occupation and pre-occupation staff training services;

 

1.3

Providing public relation services;

 

1.4

Providing market investigation, research and consulting services;

 

1.5

Providing mid or short-term market development, market plan services;

 

1.6

Providing human resource management and internal information management;

 

1.7

Providing network development, updating and daily maintenance;

 

1.8

Licensing of software and trademark;

 

1.9

Other services determined from time to time by Party A according to the need of business and capacity of Party A.


SCHEDULE 2

Calculation and Payment of Service Fee

 

1.

Calculation and Payment of Service Fee

 

1.1

The fee for the services provided under this Agreement is calculated based on the revenue of Party B and the corresponding operating cost and sales, management and other costs and expenses, and may be charged in the form of:

 

  (a)

a percentage of the revenue of Party B;

 

  (b)

a fixed license fee for certain software; and/or

 

  (c)

other method determined from time to time by Party A according to the nature of services provided.

 

1.2

The specific amount of such fee shall be determined by Party A through taking account of the following factors, and Party A shall send Party B written confirmation for service fee:

 

  (a)

The technical difficulty and complexity of the services provided by Party A;

 

  (b)

The time spent by employees of Party A concerning the services;

 

  (c)

The contents and commercial value of the services provided by Party A;

 

  (d)

The benchmark price of similar services in the market.

 

2.

Party A shall calculate service fee payable on a fixed term basis and deliver Party B corresponding invoices. Party B shall pay the service fee to the bank account designated by Party A within 10 business days after receipt of such invoices, and deliver a copy of the remittance certificate by facsimile or mail to Party A within 10 business days after payment. Party A shall issue a receipt within 10 business days after receipt of the service fee.

Exhibit 10.10

AMENDED AND RESTATED EXCLUSIVE OPTION AGREEMENT

This Amended and Restated Exclusive Option Agreement (this “ Agreement ”) is entered into as of December 14, 2018 by and among the following parties:

 

(1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”), a limited liability company established under the laws of the PRC;

 

(2)

Xiao Shanglue , a citizen of China, PRC ID No.: ******;

 

(3)

Hao Huan (together with Xiao Shanglue, the “ Shareholders ”), a citizen of China, PRC ID No.: ******; and

 

(4)

Zhejiang Yunji Youxuan E-commerce Co., Ltd. (the “ Company ”), a limited liability company established under the laws of the PRC.

(Each of WFOE, the Shareholders and the Company individually being referred to as a “ Party ” and collectively the “ Parties ”.)

RECITALS

 

(A)

WHEREAS , the Shareholders hold 100% equity interest in the Company.

 

(B)

WHEREAS , the WFOE and the Company entered into an amended and restated exclusive service agreement (the “ Exclusive Service Agreement ”) dated December 14, 2018, pursuant to which the Company shall pay the WFOE for relevant services it received from the WFOE;

 

(C)

WHEREAS , the WFOE, the Company and its shareholders entered into an amended and restated equity pledge agreement (the “ Equity Pledge Agreement ”) dated December 14, 2018;

 

(D)

WHEREAS , the WFOE, the Company and its shareholders entered into a loan contract (the “ Loan Contract ”) dated December 14, 2018.

THEREFORE , the Parties hereby agree as follows:

AGREEMENT

 

1.

Target Equity Interest

 

1.1

The Shareholders agrees and irrevocably, unconditionally and exclusively grants the WFOE an option to require such Shareholder to transfer any and all of the equity interest of the Company held by such Shareholder (“ Target Equity ”) to the WFOE or a third party designated by the WFOE (“ Designee ”), in whole or in part, subject to the WFOE’s specific requirements (“ Equity Transfer Option ”) in the following circumstances:

 

  1.1.1

The WFOE and/or the Designee are permitted to own lawfully all or part of the Target Equity under the PRC laws and regulations; or

 

  1.1.2

Any other circumstances deemed as appropriate or necessary by the WFOE in its sole discretion.

 

1.2

The Company hereby agrees the Shareholders to grant this option to the WFOE.

 

1


1.3

The WFOE shall have the right to exercise its purchase right in whole or in part and to acquire the Target Equity in whole or in part without any limit at any time and from time to time.

 

1.4

The WFOE may designate any third party to acquire the Target Equity in whole or in part and the Shareholders shall not refuse and shall transfer the Target Equity in whole or in part to such Designee as requested by the WFOE.

 

1.5

Prior to the transfer of the Target Equity to the WFOE or the Designee according to this Agreement, the Shareholders shall not transfer any Target Equity without the WFOE’s prior written consent.

 

2.

Target Assets

 

2.1

The Company hereby agrees and irrevocably, unconditionally and exclusively grants the WFOE an option to require the Company to transfer any and all of the assets of the Company (“ Target Assets ”) to the WFOE or the Designee, in whole or in part, subject to the WFOE’s specific requirements (“ Assets Transfer Option ”), in the following circumstances:

 

  2.1.1

The WFOE and/or the Designee are permitted to own lawfully all or part of the Target Assets under the PRC laws and regulations; or

 

  2.1.2

Any other circumstances deemed as appropriate or necessary by the WFOE in its sole discretion.

 

2.2

The Shareholders hereby agrees the Company to grant this option.

 

2.3

The WFOE shall have the right to exercise its purchase right in whole or in part and to acquire the Target Assets in whole or in part without any limit at any time and from time to time.

 

2.4

The WFOE may designate any third party to acquire the Target Equity in whole or in part and the Company and the Shareholders shall not refuse and shall transfer the Target Assets in whole or in part to such Designee as requested by the WFOE.

 

2.5

Prior to the transfer of the Target Assets to the WFOE or the Designee according to this Agreement, the Company and the Shareholders shall not transfer the Target Assets without the WFOE’s prior written consent.

 

3.

Procedures for the Exercise of Equity Transfer Option

 

3.1

Upon execution of this Agreement, the Shareholders shall have duly executed an equity interest transfer agreement in the format set forth in APPENDIX 1 attached hereto and deliver the said document to the WFOE.

 

3.2

If the WFOE decides to exercise the Equity Transfer Option pursuant to Section 1.1 hereinabove, it shall send written notice to the Company and the Shareholders specifying the proportion of the Target Equity to be acquired and the identity of the transferee (“ Equity Purchase Notice ”).

 

3.3

The Company and the Shareholders shall furnish all materials and documents necessary for the registration of the aforesaid equity interest transfer within 30 days after the date of Equity Purchase Notice, take all necessary actions and measures, including but not limited to holding shareholders meetings and board meetings, and obtain other shareholders’ written consent to waive any preemptive right that they may have with respect to the transfer of the Target Equity.

 

2


3.4

The Company shall cause the shareholders of the Company, the WFOE and/or the Designees to sign an equity transfer agreement in substantially the form attached hereto as APPENDIX 1 with respect to any transfer of Target Equity Interest carried out pursuant to this Agreement and the Equity Purchase Notice; provided , however , if there is specific requirements for the form and substance of the equity transfer agreement under the PRC laws, such specific requirement shall be followed.

 

3.5

If the event the WFOE decides to exercise its equity interest purchase right pursuant to Section 1.1, the relevant Parties shall execute all the necessary contracts, agreements or documents, obtain all the necessary government licenses and permits and take all necessary actions to transfer the effective ownership of the Target Equity to the WFOE and/or the Designee(s), without any encumbrance, and cause the WFOE and/or the Designee(s) to become the registered owner(s) of such Target Equity. For the purpose of this section and this Agreement, “Encumbrance” shall mean any security, mortgage, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, excluding any encumbrance created under this Agreement, the Equity Pledge Agreement and the Exclusive Service Agreement.

 

4.

Procedures for the Exercise of Assets Transfer Option

 

4.1

Upon execution of this Agreement, the Company shall have executed the Assets Transfer Agreement in the format set forth in APPENDIX 2 attached hereto and deliver the aforesaid document to the WFOE.

 

4.2

If the WFOE decides to exercise the Assets Transfer Option pursuant to Section 2.1 hereinabove, it shall send written notice to the Company specifying the Target Assets to be transferred and the identity of the transferee (“ Assets Purchase Notice ”).

 

4.3

The Company and the Shareholders shall furnish all materials and documents necessary for the assets transfer and the registration thereof (if any) within 30 days after the date of the Assets Purchase Notice, and take all necessary actions and measure, including but not limited to holding shareholders meetings or board meetings to approve the transactions.

 

4.4

The Company and the Shareholders shall cause the Company to sign an asset transfer agreement with the WFOE and/or the Designees in substantially the form attached hereto as APPENDIX 2 with respect to any transfer of Target Assets carried out pursuant to this Agreement and the Asset Purchase Notice; provided , however , if there is specific requirements for the form and substance of the asset transfer agreement under the PRC laws, such specific requirement shall be followed.

 

4.5

The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer the effective ownership of the Target Assets to the WFOE and/or the Designee(s), without any Encumbrance, and cause the WFOE and/or the Designee(s) to become the registered owner(s) of the Target Assets.

 

5.

 

5.1

The total transfer price for the Target Equity and/or the Target Assets shall be equal to the loan provided by the WFOE to the Shareholders under the Loan Contract (“ Transfer Price ”). If any of the Target Equity and/or the Target Assets is transferred in installments, the amount payable for each installment shall be determined in accordance with the proportion of Target Equity and/or the Target Assets to be transferred.

 

3


5.2

All the taxes, fees and expenses arising from the transfer of the Target Equity and/or the Target Assets shall be borne by all Parties in accordance with the PRC laws.

 

6.

Covenants

 

6.1

Covenants of the Company and the shareholders

The Shareholders and the Company hereby covenant as follows:

 

  6.1.1

Without the prior written consent of the WFOE, they shall not in any manner supplement, change or amend the articles of association and bylaws of the Company, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

  6.1.2

They shall maintain the Company’s corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

  6.1.3

Without the prior written consent of the WFOE, they shall not at any time following the date hereof, sell, transfer, mortgage, pledge or dispose of in any manner any assets of the Company or any of the Company’s subsidiaries, as amended from time to time, or legal or beneficial interest in the business (except in the ordinary course of business) or revenues of the Company, or allow the encumbrance thereon of any security interest;

 

  6.1.4

Without the prior written consent of the WFOE, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for debts incurred in the ordinary course of business;

 

  6.1.5

They shall always operate all of the Company’s businesses during the ordinary course of business to maintain the asset value of the Company and refrain from any action/omission that may affect the Company’s operating status and asset value;

 

  6.1.6

Without the prior written consent of the WFOE, they shall not cause the Company to execute any material contract, except the contracts in the ordinary course of business;

 

  6.1.7

Without the prior written consent of the WFOE, they shall not cause the Company to provide any person or business with any loan or credit other than in the course of ordinary business;

 

  6.1.8

They shall provide the WFOE with information on the Company’s business operations and financial condition at the WFOE’s request;

 

  6.1.9

If requested by the WFOE, they shall procure and maintain insurance in respect of the Company’s assets and business from an insurance carrier acceptable to the WFOE, at an amount and type of coverage typical for companies that operate similar businesses;

 

  6.1.10

Without the prior written consent of the WFOE, they shall not cause or permit the Company to merge, consolidate with, acquire or invest in any person;

 

4


  6.1.11

They shall immediately notify the WFOE of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Company’s assets, business or revenue;

 

  6.1.12

To maintain the ownership by the Company of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

  6.1.13

Without the prior written consent of the WFOE, they shall ensure that the Company shall not in any manner distribute dividends, assets or any distributable benefit to the Shareholders, provided that upon the WFOE’s written request, the Company shall immediately distribute part or all distributable profits to the Shareholders who shall in turn immediately and unconditionally pay or transfer to the WFOE any such distribution;

 

  6.1.14

If the aggregate amount of the Transfer Price received by it in respect of the transfer of the Target Equity it holds is higher than its contribution to the Company, or it receives any form of profit distribution, dividend or bonus from the Company, then the Shareholder agrees to waive, to the extent not in violation of the PRC Laws, the proceeds from such premium and any such profit distribution, dividend or bonus, and the WFOE shall be entitled to such part of proceeds, otherwise the Shareholder shall make compensation to the WFOE and/or the Designees to recover any damage that may arise from such circumstances; and

 

  6.1.15

At the request of the WFOE, they shall appoint any person designated by the WFOE as the director and/or executive director of the Company.

 

6.2

Covenants related to Equity of the Company

Each Shareholder hereby covenants as follows:

 

  6.2.1

Without the prior written consent of the WFOE, each Shareholder shall not sell, transfer, pledge or dispose of in any other manner any legal or beneficial interest in the Target Equity or allow the encumbrance thereon of any security interest, except for the pledge placed on the Target Equity in accordance with the Equity Pledge Agreement;

 

  6.2.2

Without the prior written consent of the WFOE, each Shareholder shall cause the shareholders’ meeting and/or the board of directors and/or executive director of the Company not to approve the sale, transfer, pledge or disposition in any other manner of any legal or beneficial interest in the Target Equity or allow the encumbrance thereon of any security interest, except for the pledge placed on the Target Equity in accordance with the Equity Pledge Agreement;

 

  6.2.3

The Shareholder shall cause the shareholders’ meeting or the board of directors and/or executive director of the Company not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of the WFOE;

 

  6.2.4

The Shareholder shall immediately notify the WFOE of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Target Equity;

 

5


  6.2.5

At the request of the WFOE at any time, the Shareholder shall promptly and unconditionally cause the transfer of the Target Equity to be approved and consummated as set forth in this Agreement;

 

  6.2.6

To the extent necessary to maintain the Shareholder’s ownership in the Company, the Shareholder shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

  6.2.7

The Shareholder shall appoint any designee of the WFOE as the director and/or executive director of the Company, at the request of the WFOE;

 

  6.2.8

The Shareholder shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among the Shareholder, the WFOE, and the Company, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. To the extent that the Shareholder has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under the Equity Pledge Agreement or under the proxy agreement and power of attorney granted in favor of the Shareholder, the Shareholder shall not exercise such rights except in accordance with the written instructions of the WFOE.

 

7.

Representations and Warranties

The Shareholders and the Company hereby represent and warrant to the WFOE, jointly and severally, as of the date of this Agreement and each date of transfer of the Target Equity, that:

 

7.1

The Shareholders and the Company have the authority to execute and deliver this Agreement and any relevant Equity Interest Transfer Agreement concerning the Target Equity to be transferred thereunder, and to perform their obligations under this Agreement and any Equity Interest Transfer Agreements;

 

7.2

The execution and delivery of this Agreement or any Equity Interest Transfer Agreements and the obligations under this Agreement or any Equity Interest Transfer Agreements: (i) do not cause any violation of any applicable laws of PRC; (ii) are not inconsistent with the articles of association, bylaws or other organizational documents of the Company; (iii) do not cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) do not cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; and (v) do not cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;

 

7.3

The Shareholders have good and merchantable title to the Target Equity. Except for the Equity Pledge Agreement, the Shareholders have not placed any security interest on the Target Equity;

 

7.4

The Company has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets, except for encumbrance disclosed to the WFOE for which the WFOE’s written consent has been obtained;

 

7.5

The Company does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to the WFOE for which the WFOE’s written consent has been obtained; and

 

6


7.6

The Company has complied with all laws and regulations of PRC that are applicable to asset acquisitions.

 

8.

Taxes and Fees

Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of the PRC in connection with the preparation and execution of this Agreement and the Equity Interest Transfer Agreement, as well as the consummation of the transactions contemplated under this Agreement and the Equity Interest Transfer Agreement.

 

9.

Confidentiality

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or regulations or requirements of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

10.

Assignment

 

10.1

The Company and the Shareholders shall not assign any of their respective rights or obligations under this Agreement to any third party without the prior written consent of the WFOE.

 

10.2

The Company and the Shareholders hereby agree that the WFOE may assign its rights and obligations under this Agreement as the WFOE may decide at its sole discretion, and such assignment shall only be subject to a written notice sent to the Company and the Shareholders.

 

11.

Entire Agreement and Amendment to Agreement

 

11.1

This Agreement and all agreements and/ or documents mentioned or included explicitly by this Agreement constitute the complete agreement with respect to the subject matter of this Agreement and shall substitute any and all prior oral agreements, contracts, understandings and communications made by the Parties with respect to the subject matter of this Agreement, including without limitation, the exclusive option agreement entered into by and among the Parties on June 13, 2018.

 

11.2

The Company and the Shareholders shall not have the right to amend, supplement or cancel this Agreement in any manner without the prior written consent of the WFOE.

 

11.3

The appendix is an integral part of this Agreement and has the same legal effects as the other parts of the Agreement.

 

7


12.

Governing Law and Dispute Resolution

 

12.1

This Agreement shall be construed in accordance with and governed by the laws of the PRC.

 

12.2

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

13.

Effective Date and Term

 

13.1

This Agreement shall be signed and take effect as of the date first set forth above.

 

13.2

Unless terminated in accordance with the provisions herein, this Agreement is valid for ten(10) years, and may automatically be extended for another ten(10) years when expires. This agreement may be extended for unlimited times.

 

14.

Termination

Neither the Company nor the Shareholders shall have the right to terminate this Agreement. Notwithstanding the foregoing provisions, the WFOE may terminate this Agreement at any time in its sole discretion by giving the Company and the Shareholders ten (10) days prior written notice.

 

15.

Notices

Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of each relevant party as specified by such party from time to time. The date when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the courier service company; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant documents.

 

16.

Severability

If any provision of this Agreement is judged to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or unenforceability shall be only limited to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.

 

17.

Counterparts

This Agreement shall be executed in four originals, with each Party holding one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

[Signature pages follow]

 

8


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Exclusive Option Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Zhejiang Yunji Youxuan E-commerce Co., Ltd.

(/s/ Seal of Zhejiang Yunji Youxuan E-commerce Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Exclusive Option Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Xiao Shanglue
Signature:  

/s/ Xiao Shanglue

 

Signature Page to Amended and Restated Exclusive Option Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Hao Huan
Signature:  

/s/ Hao Huan

 

Signature Page to Amended and Restated Exclusive Option Agreement


APPENDIX 1

Equity Interest Transfer Agreement

This Equity Interest Transfer Agreement (“ Agreement ”) is entered into in China by:

Transferor:

Transferee:

NOW, the parties hereto agree as follows concerning the equity interest transfer:

 

  1.

The transferor agrees to transfer to the transferee     % of equity interest of Zhejiang Yunji Youxuan E-commerce Co., Ltd. held by the transferor, and the transferee agrees to accept said equity interest.

 

  2.

After the closing of equity interest transfer, the transferor shall not have any rights and obligations as a shareholder with regard to the transferred shares, and the transferee shall have such rights and obligations as a shareholder of Zhejiang Yunji Youxuan E-commerce Co., Ltd.

 

  3.

Any matter not covered by this Agreement may be further agreed on by the parties hereto by signing supplementary agreements.

 

  4.

This Agreement shall be effective from the signing day.

 

  5.

This Agreement is executed in four originals, with each party holding one original. The remaining originals will be used for the filing with the administration of industry and commerce.


Transferor: Xiao Shanglue, Hao Huan
Signature:  

/s/ Xiao Shanglue

 

/s/ Hao Huan

Date:  
Transferee: Xiao Shanglue
Signature:  

/s/ Xiao Shanglue

Date:  


APPENDIX 2

Assets Transfer Agreement

This Assets Transfer Agreement (“ Agreement ”) is entered into in China by:

Transferor: Zhejiang Yunji Youxuan E-commerce Co., Ltd.

Transferee:

NOW, the Parties agree as follows concerning the assets transfer:

 

  1.

The transferor agrees to transfer to the transferee the assets set forth in Schedule-1 hereto, and the transferee agrees to accept the said assets.

 

  1.

After the closing of assets transfer, the transferor shall not have any rights and obligations as an owner with regard to the transferred assets, and the transferee shall have such rights and obligations as an owner of the transferred assets.

 

  2.

Any matter not covered by this Agreement may be determined by the Parties by way of signing supplementary agreements.

 

  3.

This Agreement shall be effective from the signing day.

 

  4.

This Agreement is executed in four originals, with each party holding one original. The remaining originals will be used for the filing with the administration of industry and commerce.


Transferor:

Zhejiang Yunji Youxuan E-commerce Co., Ltd.

(/s/ Seal of Zhejiang Yunji Youxuan E-commerce Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative
Date:  
Transferee:
Xiao Shanglue
Signature:  

/s/ Xiao Shanglue

Date:  

Schedule - List of Assets

Exhibit 10.11

AMENDED AND RESTATED EXCLUSIVE OPTION AGREEMENT

This Amended and Restated Exclusive Option Agreement (this “ Agreement ”) is entered into as of December 17, 2018 by and among the following parties:

 

(1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ WFOE ”), a limited liability company established under the laws of the PRC;

 

(2)

Daqiao Network Technology (Hangzhou) Co., Ltd. , a limited liability company established under the laws of the PRC;

 

(3)

Hangzhou Yuepeng Trading Co., Ltd., a limited liability company established under the laws of the PRC;

 

(4)

Deqing Jijie Investment Management Partnership (Limited Partnership) , a limited liability partnership enterprise established under the laws of the PRC (together with Daqiao Network Technology (Hangzhou) Co., Ltd., Hangzhou Yuepeng Trading Co., Ltd., the “ Shareholders ”); and

 

(5)

Yunji Sharing Technology Co., Ltd. (the “ Company ”), a limited liability company established under the laws of the PRC.

(Each of WFOE, the Shareholders and the Company individually being referred to as a “ Party ” and collectively the “ Parties ”.)

RECITALS

 

(A)

WHEREAS , the Shareholders hold 100% equity interest in the Company.

 

(B)

WHEREAS , the WFOE and the Company entered into an amended and restated exclusive service agreement (the “ Exclusive Service Agreement ”) dated December 17, 2018, pursuant to which the Company shall pay the WFOE for relevant services it received from the WFOE;

 

(C)

WHEREAS , the WFOE, the Company and its shareholders entered into an amended and restated equity pledge agreement (the “ Equity Pledge Agreement ”) dated December 17, 2018.

THEREFORE , the Parties hereby agree as follows:

AGREEMENT

 

1.

Target Equity Interest

 

1.1

The Shareholders agrees and irrevocably, unconditionally and exclusively grants the WFOE an option to require such Shareholder to transfer any and all of the equity interest of the Company held by such Shareholder (“ Target Equity ”) to the WFOE or a third party designated by the WFOE (“ Designee ”), in whole or in part, subject to the WFOE’s specific requirements (“ Equity Transfer Option ”) in the following circumstances:

 

  1.1.1

The WFOE and/or the Designee are permitted to own lawfully all or part of the Target Equity under the PRC laws and regulations; or

 

  1.1.2

Any other circumstances deemed as appropriate or necessary by the WFOE in its sole discretion.

 

1


1.2

The Company hereby agrees the Shareholders to grant this option to the WFOE.

 

1.3

The WFOE shall have the right to exercise its purchase right in whole or in part and to acquire the Target Equity in whole or in part without any limit at any time and from time to time.

 

1.4

The WFOE may designate any third party to acquire the Target Equity in whole or in part and the Shareholders shall not refuse and shall transfer the Target Equity in whole or in part to such Designee as requested by the WFOE.

 

1.5

Prior to the transfer of the Target Equity to the WFOE or the Designee according to this Agreement, the Shareholders shall not transfer any Target Equity without the WFOE’s prior written consent.

 

2.

Target Assets

 

2.1

The Company hereby agrees and irrevocably, unconditionally and exclusively grants the WFOE an option to require the Company to transfer any and all of the assets of the Company (“ Target Assets ”) to the WFOE or the Designee, in whole or in part, subject to the WFOE’s specific requirements (“ Assets Transfer Option ”), in the following circumstances:

 

  2.1.1

The WFOE and/or the Designee are permitted to own lawfully all or part of the Target Assets under the PRC laws and regulations; or

 

  2.1.2

Any other circumstances deemed as appropriate or necessary by the WFOE in its sole discretion.

 

2.2

The Shareholders hereby agrees the Company to grant this option.

 

2.3

The WFOE shall have the right to exercise its purchase right in whole or in part and to acquire the Target Assets in whole or in part without any limit at any time and from time to time.

 

2.4

The WFOE may designate any third party to acquire the Target Equity in whole or in part and the Company and the Shareholders shall not refuse and shall transfer the Target Assets in whole or in part to such Designee as requested by the WFOE.

 

2.5

Prior to the transfer of the Target Assets to the WFOE or the Designee according to this Agreement, the Company and the Shareholders shall not transfer the Target Assets without the WFOE’s prior written consent.

 

3.

Procedures for the Exercise of Equity Transfer Option

 

3.1

Upon execution of this Agreement, the Shareholders shall have duly executed an equity interest transfer agreement in the format set forth in APPENDIX 1 attached hereto and deliver the said document to the WFOE.

 

3.2

If the WFOE decides to exercise the Equity Transfer Option pursuant to Section 1.1 hereinabove, it shall send written notice to the Company and the Shareholders specifying the proportion of the Target Equity to be acquired and the identity of the transferee (“ Equity Purchase Notice ”).

 

3.3

The Company and the Shareholders shall furnish all materials and documents necessary for the registration of the aforesaid equity interest transfer within 30 days after the date of Equity Purchase Notice, take all necessary actions and measures, including but not limited to holding shareholders meetings and board meetings, and obtain other shareholders’ written consent to waive any preemptive right that they may have with respect to the transfer of the Target Equity.

 

2


3.4

The Company shall cause the shareholders of the Company, the WFOE and/or the Designees to sign an equity transfer agreement in substantially the form attached hereto as APPENDIX 1 with respect to any transfer of Target Equity Interest carried out pursuant to this Agreement and the Equity Purchase Notice; provided , however , if there is specific requirements for the form and substance of the equity transfer agreement under the PRC laws, such specific requirement shall be followed.

 

3.5

If the event the WFOE decides to exercise its equity interest purchase right pursuant to Section 1.1, the relevant Parties shall execute all the necessary contracts, agreements or documents, obtain all the necessary government licenses and permits and take all necessary actions to transfer the effective ownership of the Target Equity to the WFOE and/or the Designee(s), without any encumbrance, and cause the WFOE and/or the Designee(s) to become the registered owner(s) of such Target Equity. For the purpose of this section and this Agreement, “Encumbrance” shall mean any security, mortgage, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, excluding any encumbrance created under this Agreement, the Equity Pledge Agreement and the Exclusive Service Agreement.

 

4.

Procedures for the Exercise of Assets Transfer Option

 

4.1

Upon execution of this Agreement, the Company shall have executed the Assets Transfer Agreement in the format set forth in APPENDIX 2 attached hereto and deliver the aforesaid document to the WFOE.

 

4.2

If the WFOE decides to exercise the Assets Transfer Option pursuant to Section 2.1 hereinabove, it shall send written notice to the Company specifying the Target Assets to be transferred and the identity of the transferee (“ Assets Purchase Notice ”).

 

4.3

The Company and the Shareholders shall furnish all materials and documents necessary for the assets transfer and the registration thereof (if any) within 30 days after the date of the Assets Purchase Notice, and take all necessary actions and measure, including but not limited to holding shareholders meetings or board meetings to approve the transactions.

 

4.4

The Company and the Shareholders shall cause the Company to sign an asset transfer agreement with the WFOE and/or the Designees in substantially the form attached hereto as APPENDIX 2 with respect to any transfer of Target Assets carried out pursuant to this Agreement and the Asset Purchase Notice; provided , however , if there is specific requirements for the form and substance of the asset transfer agreement under the PRC laws, such specific requirement shall be followed.

 

4.5

The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer the effective ownership of the Target Assets to the WFOE and/or the Designee(s), without any Encumbrance, and cause the WFOE and/or the Designee(s) to become the registered owner(s) of the Target Assets.

 

3


5.

 

5.1

The total transfer price for the Target Equity and/or the Target Assets shall be RMB 1 yuan. If the PRC law or relevant regulations impose mandatory requirements on the purchase price of such Target Equity and/or the Target Assets, the purchase price shall be such minimum price permitted by PRC law or relevant regulations (“ Transfer Price ”). If any of the Target Equity and/or the Target Assets is transferred in installments, the amount payable for each installment shall be determined in accordance with the proportion of Target Equity and/or the Target Assets to be transferred.

 

5.2

All the taxes, fees and expenses arising from the transfer of the Target Equity and/or the Target Assets shall be borne by all Parties in accordance with the PRC laws.

 

6.

Covenants

 

6.1

Covenants of the Company and the shareholders

The Shareholders and the Company hereby covenant as follows:

 

  6.1.1

Without the prior written consent of the WFOE, they shall not in any manner supplement, change or amend the articles of association and bylaws of the Company, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

  6.1.2

They shall maintain the Company’s corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

  6.1.3

Without the prior written consent of the WFOE, they shall not at any time following the date hereof, sell, transfer, mortgage, pledge or dispose of in any manner any assets of the Company or any of the Company’s subsidiaries, as amended from time to time, or legal or beneficial interest in the business (except in the ordinary course of business) or revenues of the Company, or allow the encumbrance thereon of any security interest;

 

  6.1.4

Without the prior written consent of the WFOE, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for debts incurred in the ordinary course of business;

 

  6.1.5

They shall always operate all of the Company’s businesses during the ordinary course of business to maintain the asset value of the Company and refrain from any action/omission that may affect the Company’s operating status and asset value;

 

  6.1.6

Without the prior written consent of the WFOE, they shall not cause the Company to execute any material contract, except the contracts in the ordinary course of business;

 

  6.1.7

Without the prior written consent of the WFOE, they shall not cause the Company to provide any person or business with any loan or credit other than in the course of ordinary business;

 

  6.1.8

They shall provide the WFOE with information on the Company’s business operations and financial condition at the WFOE’s request;

 

  6.1.9

If requested by the WFOE, they shall procure and maintain insurance in respect of the Company’s assets and business from an insurance carrier acceptable to the WFOE, at an amount and type of coverage typical for companies that operate similar businesses;

 

  6.1.10

Without the prior written consent of the WFOE, they shall not cause or permit the Company to merge, consolidate with, acquire or invest in any person;

 

4


  6.1.11

They shall immediately notify the WFOE of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Company’s assets, business or revenue;

 

  6.1.12

To maintain the ownership by the Company of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

  6.1.13

Without the prior written consent of the WFOE, they shall ensure that the Company shall not in any manner distribute dividends, assets or any distributable benefit to the Shareholders, provided that upon the WFOE’s written request, the Company shall immediately distribute part or all distributable profits to the Shareholders who shall in turn immediately and unconditionally pay or transfer to the WFOE any such distribution;

 

  6.1.14

If the aggregate amount of the Transfer Price received by it in respect of the transfer of the Target Equity it holds is higher than its contribution to the Company, or it receives any form of profit distribution, dividend or bonus from the Company, then the Shareholder agrees to waive, to the extent not in violation of the PRC Laws, the proceeds from such premium and any such profit distribution, dividend or bonus, and the WFOE shall be entitled to such part of proceeds, otherwise the Shareholder shall make compensation to the WFOE and/or the Designees to recover any damage that may arise from such circumstances; and

 

  6.1.15

At the request of the WFOE, they shall appoint any person designated by the WFOE as the director and/or executive director of the Company.

 

6.2

Covenants related to Equity of the Company

Each Shareholder hereby covenants as follows:

 

  6.2.1

Without the prior written consent of the WFOE, each Shareholder shall not sell, transfer, pledge or dispose of in any other manner any legal or beneficial interest in the Target Equity or allow the encumbrance thereon of any security interest, except for the pledge placed on the Target Equity in accordance with the Equity Pledge Agreement;

 

  6.2.2

Without the prior written consent of the WFOE, each Shareholder shall cause the shareholders’ meeting and/or the board of directors and/or executive director of the Company not to approve the sale, transfer, pledge or disposition in any other manner of any legal or beneficial interest in the Target Equity or allow the encumbrance thereon of any security interest, except for the pledge placed on the Target Equity in accordance with the Equity Pledge Agreement;

 

  6.2.3

The Shareholder shall cause the shareholders’ meeting or the board of directors and/or executive director of the Company not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of the WFOE;

 

  6.2.4

The Shareholder shall immediately notify the WFOE of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Target Equity;

 

5


  6.2.5

At the request of the WFOE at any time, the Shareholder shall promptly and unconditionally cause the transfer of the Target Equity to be approved and consummated as set forth in this Agreement;

 

  6.2.6

To the extent necessary to maintain the Shareholder’s ownership in the Company, the Shareholder shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

  6.2.7

The Shareholder shall appoint any designee of the WFOE as the director and/or executive director of the Company, at the request of the WFOE;

 

  6.2.8

The Shareholder shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among the Shareholder, the WFOE, and the Company, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. To the extent that the Shareholder has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under the Equity Pledge Agreement or under the proxy agreement and power of attorney granted in favor of the Shareholder, the Shareholder shall not exercise such rights except in accordance with the written instructions of the WFOE.

 

7.

Representations and Warranties

The Shareholders and the Company hereby represent and warrant to the WFOE, jointly and severally, as of the date of this Agreement and each date of transfer of the Target Equity, that:

 

7.1

The Shareholders and the Company have the authority to execute and deliver this Agreement and any relevant Equity Interest Transfer Agreement concerning the Target Equity to be transferred thereunder, and to perform their obligations under this Agreement and any Equity Interest Transfer Agreements;

 

7.2

The execution and delivery of this Agreement or any Equity Interest Transfer Agreements and the obligations under this Agreement or any Equity Interest Transfer Agreements: (i) do not cause any violation of any applicable laws of PRC; (ii) are not inconsistent with the articles of association, bylaws or other organizational documents of the Company; (iii) do not cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) do not cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; and (v) do not cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;

 

7.3

The Shareholders have good and merchantable title to the Target Equity. Except for the Equity Pledge Agreement, the Shareholders have not placed any security interest on the Target Equity;

 

7.4

The Company has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets, except for encumbrance disclosed to the WFOE for which the WFOE’s written consent has been obtained;

 

7.5

The Company does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to the WFOE for which the WFOE’s written consent has been obtained; and

 

6


7.6

The Company has complied with all laws and regulations of PRC that are applicable to asset acquisitions.

 

8.

Taxes and Fees

Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of the PRC in connection with the preparation and execution of this Agreement and the Equity Interest Transfer Agreement, as well as the consummation of the transactions contemplated under this Agreement and the Equity Interest Transfer Agreement.

 

9.

Confidentiality

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or regulations or requirements of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

10.

Assignment

 

10.1

The Company and the Shareholders shall not assign any of their respective rights or obligations under this Agreement to any third party without the prior written consent of the WFOE.

 

10.2

The Company and the Shareholders hereby agree that the WFOE may assign its rights and obligations under this Agreement as the WFOE may decide at its sole discretion, and such assignment shall only be subject to a written notice sent to the Company and the Shareholders.

 

11.

Entire Agreement and Amendment to Agreement

 

11.1

This Agreement and all agreements and/ or documents mentioned or included explicitly by this Agreement constitute the complete agreement with respect to the subject matter of this Agreement and shall substitute any and all prior oral agreements, contracts, understandings and communications made by the Parties with respect to the subject matter of this Agreement, including without limitation, the exclusive option agreement entered into by and among the Parties on April 16, 2018.

 

11.2

The Company and the Shareholders shall not have the right to amend, supplement or cancel this Agreement in any manner without the prior written consent of the WFOE.

 

11.3

The appendix is an integral part of this Agreement and has the same legal effects as the other parts of the Agreement.

 

7


12.

Governing Law and Dispute Resolution

 

12.1

This Agreement shall be construed in accordance with and governed by the laws of the PRC.

 

12.2

Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

13.

Effective Date and Term

 

13.1

This Agreement shall be signed and take effect as of the date first set forth above.

 

13.2

Unless terminated in accordance with the provisions herein, this Agreement is valid for ten(10) years, and may automatically be extended for another ten(10) years when expires. This agreement may be extended for unlimited times.

 

14.

Termination

Neither the Company nor the Shareholders shall have the right to terminate this Agreement. Notwithstanding the foregoing provisions, the WFOE may terminate this Agreement at any time in its sole discretion by giving the Company and the Shareholders ten (10) days prior written notice.

 

15.

Notices

Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of each relevant party as specified by such party from time to time. The date when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the courier service company; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant documents.

 

16.

Severability

If any provision of this Agreement is judged to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or unenforceability shall be only limited to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.

 

17.

Counterparts

This Agreement shall be executed in five originals, with each Party holding one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

[Signature pages follow]

 

8


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Exclusive Option Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Yunji Sharing Technology Co., Ltd.

(/s/ Seal of Yunji Sharing Technology Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Exclusive Option Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Daqiao Network Technology (Hangzhou) Co., Ltd.

(/s/ Seal of Daqiao Network Technology (Hangzhou) Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Exclusive Option Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Hangzhou Yuepeng Trading Co., Ltd.

(/s/ Seal of Hangzhou Yuepeng Trading Co., Ltd.)

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative

 

Signature Page to Amended and Restated Exclusive Option Agreement


IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.

 

Deqing Jijie Investment Management Partnership (Limited Partnership)

(/s/ Seal of Deqing Jijie Investment Management Partnership (Limited Partnership))

 

Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Authorized Representative

 

Signature Page to Amended and Restated Exclusive Option Agreement


APPENDIX 1

Equity Interest Transfer Agreement

This Equity Interest Transfer Agreement (“ Agreement ”) is entered into in China by:

Transferor:

Transferee:

NOW, the parties hereto agree as follows concerning the equity interest transfer:

 

  1.

The transferor agrees to transfer to the transferee     % of equity interest of Yunji Sharing Technology Co., Ltd. held by the transferor, and the transferee agrees to accept said equity interest.

 

  2.

After the closing of equity interest transfer, the transferor shall not have any rights and obligations as a shareholder with regard to the transferred shares, and the transferee shall have such rights and obligations as a shareholder of Yunji Sharing Technology Co., Ltd.

 

  3.

Any matter not covered by this Agreement may be further agreed on by the parties hereto by signing supplementary agreements.

 

  4.

This Agreement shall be effective from the signing day.

 

  5.

This Agreement is executed in four originals, with each party holding one original. The remaining originals will be used for the filing with the administration of industry and commerce.


Transferor: Xiao Shanglue, Hao Huan
Signature:  

/s/ Xiao Shanglue

 

/s/ Hao Huan

Date:  
Transferee: Xiao Shanglue
Signature:  

/s/ Xiao Shanglue

Date:  


APPENDIX 2

Assets Transfer Agreement

This Assets Transfer Agreement (“ Agreement ”) is entered into in China by:

Transferor: Yunji Sharing Technology Co., Ltd.

Transferee:

NOW, the Parties agree as follows concerning the assets transfer:

 

  1.

The transferor agrees to transfer to the transferee the assets set forth in Schedule-1 hereto, and the transferee agrees to accept the said assets.

 

  2.

After the closing of assets transfer, the transferor shall not have any rights and obligations as an owner with regard to the transferred assets, and the transferee shall have such rights and obligations as an owner of the transferred assets.

 

  3.

Any matter not covered by this Agreement may be determined by the Parties by way of signing supplementary agreements.

 

  4.

This Agreement shall be effective from the signing day.

 

  5.

This Agreement is executed in four originals, with each party holding one original. The remaining originals will be used for the filing with the administration of industry and commerce.


Transferor:
Yunji Sharing Technology Co., Ltd.
(/s/ Seal of Yunji Sharing Technology Co., Ltd.)
Signature:  

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative
Date:  
Transferee:
Xiao Shanglue
Signature:  

/s/ Xiao Shanglue

Date:  

Schedule - List of Assets

Exhibit 10.12

Loan Agreement

This Loan Agreement (this “ Agreement ”) is made and entered into by and among the following Parties as of December 14, 2018, the People’s Republic of China (“ China ” or the “ PRC ”):

 

  (1)

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd. (the “ Lender ”), a domestic company registered under the laws of the PRC;

 

  (2)

Xiao Shanglue , a citizen of China, PRC ID No.: ****** ;

 

  (3)

Hao Huan , a citizen of China, PRC ID No.: ******; (together with Xiao Shanglue, the “ Borrowers ”).

Each of the Lender and the Borrowers shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.

Whereas:

 

  1.

Borrowers collectively hold 100% of equity interests (“ Borrower Equity Interest ”) in Zhejiang Yunji Youxuan E-commerce Co., Ltd. (“ Borrower Company ”), which is a limited company duly registered in the PRC with its registered capital of RMB50,500,000;

 

  2.

Lender intends to provide Borrowers with a loan to be used for the purposes set forth under this Contract.

After friendly consultation, the Parties agree as follows:

 

1

Loan

 

  1.1

In accordance with the terms and conditions of this Contract, Lender agrees to provide an interest-free loan in the amount of RMB12,120,000 to Borrowers in the aggregate, out of which Lender agrees to provide a loan in the amount of RMB12,000,000 to Xiao Shanglue and a loan in the amount of RMB120,000 to Hao Huan (collectively, the “ Loan ”). The term of the Loan shall be 10 years from the date of this Contract, which may be extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, upon the request of Lender, any Borrower shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur:

 

  1.1.1

30 days elapse after such Borrower receives a written notice from the Lender requesting repayment of the Loan;

 

  1.1.2

Such Borrower’s death, lack, or limitation of civil capacity;

 

  1.1.3

Such Borrower ceases (for any reason) to be an employee of the Lender, the Borrower Company or their affiliates;

 

  1.1.4

Such Borrower engages in or is involved in criminal activities;

 

1


  1.1.5

According to the applicable laws of China, foreign investors are permitted to invest in the principle business that is currently conducted by the Borrower Company in China with a controlling stake and/or in the form of wholly foreign-owned enterprises, the relevant competent authorities of China begin to approve such investments, and the Lender exercises the exclusive option under the Amended and Restated Exclusive Option Agreement (the “ Exclusive Option Agreement ”) described in this Contract.

 

  1.2

The Loan provided by the Lender under this Contract shall inure to the Borrowers’ benefit only and not to the Borrowers’ successor(s) or assign(s).

 

  1.3

The Borrowers agree to accept the aforementioned Loan provided by the Lender, and hereby agrees and warrants using the Loan to increase the registered capital of the Borrower Company. Without the Lender’s prior written consent, the Borrowers shall not use the Loan for any purpose other than as set forth herein.

 

  1.4

The Lender and the Borrowers hereby agree and acknowledge that the Borrowers’ method of repayment shall be at the sole discretion of the Lender, and shall at the Lender’s option take the form of the Borrowers’ transferring the Borrower Equity Interest in whole to the Lender or the Lender’s designated persons (legal or natural persons) pursuant to the Lender’s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement, and any proceeds from the transfer of the Borrower Equity Interest (to the extent permissible) shall be used by the Borrowers to repay the Loan to the Lender, in accordance with this Contract and in the manner designated by the Lender.

 

  1.5

The Lender and the Borrowers hereby agree and acknowledge that to the extent permitted by the applicable laws, the Lender shall have the right but not the obligation to purchase or designate other persons (legal or natural persons) to purchase the Borrower Equity Interest in part or in whole at any time, at the price stipulated in the Exclusive Option Agreement.

 

  1.6

The Borrowers also undertake to execute an irrevocable Amended and Restated Proxy Agreement and Power of Attorney (the “ Proxy Agreement and Power of Attorney ”), which authorizes the Lender or a legal or natural person designated by the Lender to exercise all of the Borrowers’ rights as the shareholders of the Borrower Company.

 

  1.7

When the Borrowers transfer the Borrower Equity Interest to the Lender or the Lender’s designated person(s), in the event that the transfer price of such equity interest is equal to or lower than the principal of the Loan under this Contract, the Loan under this Contract shall be deemed an interest-free loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Contract, the excess over the principal shall be deemed the interest of the Loan under this Contract payable by the Borrowers to the Lender.

 

2

Representations and Warranties

 

  2.1

Between the date of this Contract and the date of termination of this Contract, the Lender hereby makes the following representations and warranties to the Borrowers:

 

  2.1.1

The Lender is a corporation duly organized and legally existing in accordance with the laws of China;

 

2


  2.1.2

The Lender has the legal capacity to execute and perform this Contract. The execution and performance by the Lender of this Contract is consistent with the Lender’s scope of business and the provisions of the Lender’s corporate bylaws and other organizational documents, and the Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Contract; and

 

  2.1.3

This Contract constitutes the Lender’s legal, valid, and binding obligations enforceable in accordance with its terms.

 

  2.2

Between the date of this Contract and the date of termination of this Contract, the Borrowers hereby make the following representations and warranties:

 

  2.2.1

The Borrowers have the legal capacity to execute and perform this Contract. The Borrowers have obtained all necessary and proper approvals and authorizations for the execution and performance of this Contract;

 

  2.2.2

This Contract constitutes the Borrowers’ legal, valid, and binding obligations enforceable in accordance with its terms; and

 

  2.2.3

There are no disputes, litigations, arbitrations, administrative proceedings, or any other legal proceedings relating to the Borrowers, nor are there any potential disputes, litigations, arbitrations, administrative proceedings, or any other legal proceedings relating to the Borrowers.

 

3

Borrowers’ Covenants

 

  3.1

As and when they become, and for so long as they remain shareholders of the Borrower Company, the Borrowers irrevocably covenant that during the term of this Contract, they shall cause the Borrower Company:

 

  3.1.1

to strictly abide by the provisions of the Exclusive Option Agreement and the Amended and Restated Exclusive Service Agreement (the “ Exclusive Service Agreement ”) to which the Borrower Company is a party, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Option Agreement and the Exclusive Service Agreement.

 

  3.1.2

at the request of the Lender (or a party designated by the Lender), to execute the contracts/agreements on business cooperation with the Lender (or a party designated by the Lender), and to strictly abide by such contracts/agreements;

 

  3.1.3

to provide the Lender with all of the information on the Borrower Company’s business operations and financial condition at the Lender’s request;

 

  3.1.4

to immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration, or administrative proceedings relating to the Borrower Company’s assets, business, or income;

 

  3.1.5

at the request of the Lender, to appoint any persons designated by the Lender as directors of the Borrower Company;

 

  3.2

the Borrowers covenant that during the term of this Contract, they shall:

 

  3.2.1

endeavor to keep the Borrower Company engaged in its principle businesses and to keep the specific business scope of its business license;

 

3


  3.2.2

abide by the provisions of this Contract, the Proxy Agreement and Power of Attorney, the Amended and Restated Equity Interest Pledge Agreement (the “ Equity Interest Pledge Agreement ”) and the Exclusive Option Agreement to which each Borrower is a party, perform his/her obligations under this Contract, the Proxy Agreement and Power of Attorney, the Equity Interest Pledge Agreement and the Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Contract, the Proxy Agreement and Power of Attorney, the Equity Interest Pledge Agreement and the Exclusive Option Agreement;

 

  3.2.3

not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest, except in accordance with the Equity Interest Pledge Agreement;

 

  3.2.4

cause any shareholders’ meeting and/or the board of directors of the Borrower Company to not approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest, except to the Lender or the Lender’s designated person;

 

  3.2.5

cause any shareholders’ meeting and/or the board of directors of the Borrower Company to not approve the merger or consolidation of the Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of the Lender;

 

  3.2.6

immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Equity Interest;

 

  3.2.7

to the extent necessary to maintain his/her ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against all claims;

 

  3.2.8

without the prior written consent of the Lender, refrain from any action/omission that may have a material impact on the assets, business and liabilities of the Borrower Company;

 

  3.2.9

appoint any designee of the Lender as director of the Borrower Company, at the request of the Lender;

 

  3.2.10

to the extent permitted by the laws of China, at the request of the Lender at any time, promptly and unconditionally transfer all of the Borrower Equity Interest to the Lender or the Lender’s designated representative(s) at any time, and cause the other shareholders of the Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section;

 

  3.2.11

to the extent permitted by the laws of China, at the request of the Lender at any time, cause the other shareholders of the Borrower Company to promptly and unconditionally transfer all of their equity interests to the Lender or the Lender’s designated representative(s) at any time, and the Borrower hereby waives their right of first refusal (if any) with respect to the share transfer described in this Section;

 

4


  3.2.12

in the event that the Lender purchases the Borrower Equity Interest from the Borrowers in accordance with the provisions of the Exclusive Option Agreement, use such purchase price obtained thereby to repay the Loan to the Lender; and

 

  3.2.13

without the prior written consent of the Lender, not cause the Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner.

 

4

Liability for Default

 

  4.1

If the Borrowers conduct any material breach of any term of this Contract, the Lender shall have the right to terminate this Contract and require the Borrowers to compensate all damages; this Section 4.1 shall not prejudice any other rights of the Lender herein.

 

  4.2

The Borrowers shall not terminate this Contract in any event unless otherwise required by the applicable laws.

 

  4.3

In the event that the Borrowers fail to perform the repayment obligations set forth in this Contract, the Borrowers shall pay an overdue interest of 0.01% per day for the outstanding payment, until the day the Borrowers repay the full principal of the Loan, overdue interests and other payable amounts.

 

5

Notices

 

  5.1

Notices or other communications required to be given by any party pursuant to this Contract shall be written in Chinese and delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of each relevant party as specified by such party from time to time. The date when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the courier service company; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant documents.

 

6

Confidentiality

The Parties acknowledge that the existence and the terms of this Contract and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Contract are regarded as confidential information. Each Party shall maintain the confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such confidential information by such Party and such Party shall be held liable for breach of this Contract.

 

5


7

Governing Law and Resolution of Disputes

 

  7.1

The execution, effectiveness, construction, performance, amendment and termination of this Contract and the resolution of disputes shall be governed by the laws of China.

 

  7.2

Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (the “ CIETAC ”) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.

 

8

Effective Date and Term

 

  8.1

This Contract shall be signed and take effect as of the date first set forth above.

 

  8.2

The term of this Contract shall remain effective as long as the Loan exists.

 

9

Severability

If any provision of this Contract is deemed to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or unenforceability shall be limited to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.

 

10

Counterparts

This Contract shall be executed in three (3) originals by all Parties, with each Party holding one original. All originals shall have the same legal effect. The Agreement may be executed in one or more counterparts.

[The Remainder of this page is intentionally left blank]

 

6


IN WITNESS WHEREOF, the Parties have duly executed this Contract on the date appearing at the head hereof.

Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Gongxiang Network Technology Co., Ltd.)

 

Signature:

 

/s/ Xiao Shanglue

Name:   Xiao Shanglue
Title:   Legal Representative

Signature Page to Loan Contract


IN WITNESS WHEREOF, the Parties have duly executed this Contract on the date appearing at the head hereof.

Xiao Shanglue

 

Signature:  

/s/ Xiao Shanglue

Signature Page to Loan Contract


IN WITNESS WHEREOF, the Parties have duly executed this Contract on the date appearing at the head hereof.

Hao Huan

 

Signature:  

/s/ Hao Huan

Signature Page to Loan Contract

Exhibit 10.13

 

 

 

PREFERRED SHARE PURCHASE AGREEMENT

by and among

Yunji Inc.

Acceleration S Limited

TRUSTBRIDGE PARTNERS IV, L.P.

China Renaissance Corporation

Eastern Bell XII Investment Limited

CPYD Singapore Pte. Ltd.

FASTURN OVERSEAS LIMITED

Eastern Bell XIX Investment Limited

and

THE OTHER PARTIES NAMED HEREIN

February 12, 2018

 

 

 


PREFERRED SHARE PURCHASE AGREEMENT

This PREFERRED SHARE PURCHASE AGREEMENT (this “ Agreement ”) is entered into on February 12, 2018 by and among:

A.      Yunji Inc. , a Cayman Islands exempted company whose registered address is at the Office of Sertus Incorporations (Cayman) Limited, Sertus Chambers, Governors Square, Suite # 5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands (the “ Company ”);

B.      Y unji Holding Limited , a Hong Kong company whose registered address is at Room 1907, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong (the “ HK Co. ”);

C.      Yunji Sharing Technology Co., Ltd. , a company established under the laws of the PRC, whose registered address is at Suite 601, No. 14, Xintiandi Business Center, Xiacheng District, Hangzhou, Zhejiang Province, PRC (“ Domestic Co . ”);

D.      Zhejiang Jishang Youxuan E-Commerce Co., Ltd. , a company established under the laws of the PRC, whose registered address is at Suite 301, No. 14, Xintiandi Business Center, Xiacheng District, Hangzhou, Zhejiang Province, PRC (“ Operating Co. ”);

E.     The Persons as set forth on Schedule A-2 (each, a “ Founder ”, and collectively, the “ Founders ”);

F.     The entities as set forth on Schedule A-3 (each a “ Founder Holdco ”, and collectively, the “ Founder Holdcos ”);

G.     The entities as set forth on Schedule A-4-1 (each a “ Series Seed Investor ”, and collectively, the “ Series Seed Investors ”);

H.     The entities as set forth on Schedule A-4-2 (each a “ Series A Investor ”, and collectively, the “ Series A Investors ”); and

I.     The entities as set forth on Schedule A-4-3 (each a “ Series B Investor ”, and collectively, the “ Series B Investors ”, together with the Series Seed Investors and the Series A Investors, collectively, the “ Investors ”).

Each of the foregoing parties is referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

RECITALS :

A.    WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Investors certain Preferred Shares and the Investors agrees to purchase such Preferred Shares from the Company.

B.    The Parties intend to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein.

 

1


AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the Parties hereto agree as follows:

 

1.

DEFINITIONS .

1.1     Certain Defined Terms . As used in this Agreement, the following terms shall have the following respective meanings:

Action ” shall mean any notice, charge, claim, action, complaint, petition, investigation, appeal, suit, litigation, grievance, inquiry or other proceeding, whether administrative, civil, regulatory or criminal, whether at law or in equity, or otherwise under any applicable law, and whether or not before any mediator, arbitrator or Governmental Authority.

Affiliate ” shall mean, 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, (a) in the case of a natural Person, shall include, without limitation, such Person’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law, (b) in the case of an Investor, shall include (i) any Person who holds Shares as a nominee for the Investor, (ii) any shareholder of the Investor, (iii) any entity or individual which has a direct or indirect interest in the Investor (including, if applicable, any general partner or limited partner) or any fund manager thereof, (iv) any Person that directly or indirectly Controls, is Controlled by, under common Control with, or is managed by the Investor, its shareholder, the general partner or the fund manager of the Investor or its shareholder, (v) the relatives of any individual referred to in (ii), (iii) and (iv) above, and (vi) any trust Controlled by or held for the benefit of such individuals. For the avoidance of doubt, an Investor shall not be deemed to be an Affiliate of any Group Company.

Board ” shall mean the board of directors of the Company.

Business ” shall mean the business of establishment and operation of social retail service platform and operation of “Yunji Weidian” project by the Group Companies.

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 Cayman Islands, Hong Kong or the PRC.

CDH ” shall mean Acceleration S Limited.

Circular 37 ” shall mean the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Financing and Round Trip Investment via Overseas Special Purpose Companies issued by SAFE on July 4, 2014, and its amendment and interpretation promulgated by SAFE from time to time.

CFC ” shall mean the controlled foreign corporation within the meaning of Section 957 of the Code.

Code ” shall mean the United States Internal Revenue Code of 1986.

 

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Control ” with respect to any third party, shall have the meaning ascribed to it in Rule 405 under Securities Act, and shall be deemed to exist for any party (a) when such party holds at least fifty percent (50%) of the outstanding voting securities of such third party and no other party owns a greater number of outstanding voting securities of such third party or (b) over other members of such party’s immediate family. Immediate family members include, without limitation, an individual’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law. The terms “ Controlling ” and “ Controlled ” have meanings correlative to the foregoing.

Conversion Shares ” shall mean Ordinary Shares issuable upon conversion of the Preferred Shares of the Company.

Domestic Resident ” shall have the meaning set forth in Circular 37 and/or other law related to Circular 37.

Eastern Bell ” shall mean, collectively, Eastern Bell XIX Investment Limited and Eastern Bell XII Investment Limited.

Employee Share Option Plan ” or “ ESOP ” shall mean the employee share option plan of the Company to be adopted as soon as practicable after the Closing and such other arrangements, contracts, or plans as are recommended by management and approved in accordance with the Shareholders Agreement and Restated M&A.

Governmental Authority ” shall mean any nation or government, or any federation, province or state or any other political subdivision thereof; and any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC, the Cayman Islands, 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 the Company, the HK Co., the WFOE, the Domestic Co., the PRC Subsidiaries, the HK Subsidiary, and each Person (except individuals) Controlled by the Company and their respective Subsidiaries from time to time (each a “ Group Company ”), unless the context specifically indicates otherwise.

HK Subsidiary ” shall mean Yunji HongKong Limited.

Hong Kong ” shall mean the Hong Kong Special Administrative Region of the People’s Republic of China.

IAS ” shall mean the applicable International Accounting Standards published by the International Accounting Standards Board from time to time.

Indemnifiable Loss ” shall mean, with respect to any Person, any action, claim, cost, damage, deficiency, diminution in value, disbursement, expense, liability, loss, obligation, penalty, settlement, suit, or tax of any kind or nature, together with all interest, penalties, legal, accounting and other professional fees and expenses reasonably incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Person, whether directly or indirectly.

Indemnification Agreement ” shall mean the Indemnification Agreement between the Company and the director appointed by any Investor to be entered into as of the Closing in substantially the form attached hereto as Exhibit C .

 

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Intellectual Property ” shall mean any and all (a) patents, patent rights, patent applications, and all reissues, re-examinations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (b) inventions (whether patentable or not), improvements, concepts, innovations and industrial models, (c) registered and unregistered copyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), (d) URLs, domain names, web sites, web pages and any part thereof, (e) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (f) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (g) trade names, trade dress, trademarks, service marks, and registrations and applications therefor, and (h) the goodwill of the business symbolized or represented by the foregoing, customer lists and other confidential and proprietary information and common-law rights.

Key Employee ” shall mean the individuals as set forth on Schedule E .

Liabilities ” or “ Liability ” shall mean, with respect to any Person, all debts, obligations, liabilities owed by such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

Lien ” shall mean any mortgage, pledge, claim, security interest, encumbrance, title defect, lien, charge, easement, adverse claim, restrictive covenant, or other restriction or limitation of any kind whatsoever, including any restriction on the use, voting, transfer, receipt of income, or exercise of any attributes of ownership.

Material Adverse Effect ” shall mean any (a) event, occurrence, fact, condition, change or development that has had, has, or could reasonably be expected to have a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects or liabilities of the Group Companies taken as a whole, (b) material impairment of the ability of any Warrantor to perform the material obligations of such Person hereunder or under any other Transaction Documents, as applicable, or (c) material impairment of the validity or enforceability of this Agreement or any other Transaction Document against any Group Company, Founder or Founder Holdco.

Ordinary Shares ” shall mean the Company’s ordinary shares, par value US$0.000005 per share.

Permit ” shall mean any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.

Person ” shall mean 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.

PFIC ” shall mean the passive foreign investment company within the meaning of Section 1297 of the Code.

 

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PRC ” shall mean the People’s Republic of China, but solely for purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the Islands of Taiwan.

PRC Companies ” shall mean the WFOE, the Domestic Co. and the PRC Subsidiaries, and “ PRC Company ” shall mean any one of such entities.

PRC Subsidiaries ” shall mean the entities set forth on Schedule A-1 , and “ PRC Subsidiary ” shall mean any one of such entities.

Preferred Shares ” shall mean the Company’s Series Seed Preferred Shares, Series A Preferred Shares, Series B Preferred Shares and/or other preferred shares of the company that may be issued from time to time.

Preferred Majority ” shall mean collectively, the Series Seed Majority, the Series A Majority and the Series B Majority.

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 an implied pre-money valuation of US$4,000,000,000 (or equivalent RMB) or more, or in a similar public offering of Ordinary Shares in a jurisdiction and on an internationally recognized securities exchange or inter-dealer quotation system outside of the United States, including the Stock Exchange of Hong Kong Limited, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, provided such public offering is equivalent to the aforementioned in terms of offering proceeds and regulatory approval, and is approved by the Preferred Majority.

Restated M&A ” shall mean the Amended and Restated Memorandum and Articles of Association of the Company in the form attached as Exhibit A hereto.

Restructuring Agreements ” shall mean a series of agreements to be entered into by and between the Domestic Co., the WFOE or the HK Co. and certain other parties, including but not limited to an Exclusive Business Cooperation Agreement, Equity Interest Pledge Agreements, Exclusive Option Agreements, Loan Agreements, each in the form and substance satisfactory to the Investors.

RMB ” shall mean the lawful currency of the PRC.

SAFE Rules and Regulations ” shall mean Circular 37 and any other applicable laws on foreign exchange applicable to any Warrantor or any direct in direct shareholder of the Company who is a Domestic Resident.

Securities Act ” shall mean the U.S. Securities Act of 1933, as amended.

Series Seed Majority ” shall mean the holders holding more than two-thrids (2/3) of the then outstanding Series Seed Preferred Shares, voting as a single class on an as-converted basis.

Series Seed Preferred Shares ” shall mean the Company’s Series Seed Preferred Shares, par value US$0.000005 per share.

 

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Series A Majority ” shall mean the holders holding more than fifty percent (50%) of the then outstanding Series A Preferred Shares, voting as a single class on an as-converted basis.

Series A Preferred Shares ” shall mean the Company’s Series A Preferred Shares, par value US$0.000005 per share.

Series B Majority ” shall mean the holders holding more than fifty percent (50%) of the then outstanding Series B Preferred Shares, voting as a single class on an as-converted basis.

Series B Preferred Shares ” shall mean the Company’s Series B Preferred Shares, par value US$0.000005 per share.

Shares ” shall mean all Preferred Shares and all Ordinary Shares of the Company.

Shareholders Agreement ” shall mean the Shareholders Agreement among the Parties hereto and certain other parties to be entered into as of the Closing in substantially the form attached hereto as Exhibit B .

Smallyes Group Companies ” shall mean, collectively, Zhejiang Smallyes Network Technology Co., Ltd., Hangzhou Smallyes Cosmetics Co., Ltd., and Shanghai Suye Cosmetics Co., Ltd..

Subsidiary ” or “ subsidiary shall mean, with respect to any subject entity (the “subject entity”), (i) any company, partnership or other Person (x) more than fifty percent (50%) of whose shares or other interests entitled to vote in the election of directors or (y) more than a fifty percent (50%) interest in the profits or capital of such entity are owned or controlled directly or indirectly by the subject entity or through one 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 IAS or U.S. GAAP, 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. Notwithstanding the above, as applied to the Company, the term “Subsidiary” or “subsidiary” includes the the HK Co., the WFOE, Domestic Co, the PRC Subsidiaries and the HK Subsidiary.

Tax ” shall mean (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above, and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i)(a) and (i)(b) above.

 

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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.

Tax Liability ” shall mean an amount equal to the amount of any diminution in the value of the Purchased Shares or the Conversion Shares, and any and all losses, liabilities, damages, suits, obligations, judgments or settlements or any kind (including all reasonable legal costs, costs of recovery and other expenses incurred by the Investor) resulting from any claim of taxation (including those resulting from cancellation or reclamation of tax benefits of any kind relating to the Group Companies) arising from an event relating to tax, whether occurring before or after the Closing.

Transaction Documents ” shall mean this Agreement, the Shareholders Agreement, the Restated M&A, the Restructuring Agreements, the Indemnification Agreement, 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.

Trustbridge ” shall mean, collectively, FASTURN OVERSEAS LIMITED and TRUSTBRIDGE PARTNERS IV, L.P..

US$ ” and “ USD ” shall mean the lawful currency of the United States of America.

U.S. GAAP shall mean the generally accepted accounting principles in the United States.

Warrantors ” shall mean the Founders, the Founder Holdcos, the Company, the HK Co., the WFOE, the Domestic Co. and the Operating Co., unless the context specifically indicates otherwise.

WFOE ” shall mean a wholly foreign-owned enterprise to be incorporated under the Laws of the PRC and 100% held by the HK Co. All reference to the WFOE under this Agreement shall refer to the WFOE upon its establishment.

1.2     Warrantor Obligations . Where this Agreement or any Transaction Document places an obligation on any Warrantor, each other Warrantor shall use its best efforts to cause the obligated Warrantor to perform such obligation.

 

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1.3     Exhibits and Schedules . The following annex, schedules and exhibits are a part of this Agreement and hereby are deemed incorporated herein by reference:

 

Schedule A-1

   PRC Subsidiaries

Schedule A-2

   Founders

Schedule A-3

   Founder Holdcos

Schedule A-4

   Investors

Schedule B

   Capitalization Table

Schedule C

   Disclosure Schedule

Schedule D

   Notices

Schedule E

   Key Employees

Exhibit A

   Amended and Restated Memorandum of Articles of Association of the Company

Exhibit B

   Shareholders Agreement

Exhibit C

   Indemnification Agreement

Exhibit D

   Restructuring Framework Agreement

 

2.

AGREEMENT TO PURCHASE AND SELL SHARES AT THE CLOSING .

2.1     Agreement to Purchase and Sell of Series B Preferred Shares . Subject to the terms and conditions hereof, at the Closing, the Company shall issue and sell to the Series B Investors, and the Series B Investors shall purchase from the Company at such per share price, each as set forth opposite the name of such Series B Investor in Schedule A-4-3 attached hereto,, up to an aggregate of 110,803,324 Series B Preferred Shares in the amount set forth opposite the name of each Series B Investor in Schedule A-4-3 (the “ Purchased Shares ”). Each Series B Investor shall pay the purchase price set forth opposite the name of such Series B Investor in Schedule A-4-3 for its Purchased Shares as of the Closing by wire transfer of immediately available funds to a bank account designated in writing by the Company and delivered to the Series B Investors at least five (5) Business Days prior to the Closing. In the event that any Investor fails to make full payment of the purchase price pursuant to this Section 2.1 in a timely manner, the Company shall be entitled to forfeit any and all Series B Preferred Shares registered under the name of such Investor purchased by such Investor pursuant to this Agreement.

2.2     Agreement to Purchase and Sell of Series Seed Preferred Shares . Subject to the terms and conditions hereof, at the Closing, the Company shall issue and sell to the Series Seed Investors, and the Series Seed Investors shall purchase from the Company at such per share price, each as set forth opposite the name of such Series Seed Investor in Schedule A-4-1 attached hereto, up to an aggregate of 373,000,000 Series Seed Preferred Shares in the amount set forth opposite the name of each Series Seed Investor in Schedule A-4-1 . Each Series Seed Investor shall pay the purchase price set forth opposite the name of such Series Seed Investor in Schedule A-4-1 as of the Closing by delivery of a promissory note to the Coompany pursuant to Section 2.7 hereunder.

 

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2.3     Agreement to Purchase and Sell of Series A Preferred Shares . Subject to the terms and conditions hereof, at the Closing, the Company shall issue and sell to the Series A Investors, and the Series A Investors shall purchase from the Company at such per share price, each as set forth opposite the name of such Series A Investor in Schedule A-4-2 attached hereto,, up to an aggregate of 389,200,000 Series A Preferred Shares in the amount set forth opposite the name of each Series A Investor in Schedule A-4-2 . Each Series A Investor shall pay the purchase price set forth opposite the name of such Series A Investor in Schedule A-4-2 as of the Closing either by wire transfer of immediately available funds to a bank account designated in writing by the Company and delivered to the Series B Investors at least five (5) Business Days prior to the Closing or by delivery of a promissory note to the Coompany pursuant to Section 2.7 hereunder.

2.4     Pre-money Valuation . The total price payable by the Series B Investors for purchasing the Purchased Shares represents a pre-money valuation of the Company of US$1,900,000,000, including 191,663,158 Ordinary Shares reserved under the Employee Share Option Plan.

2.5     Closing . Subject to the fulfillment of the conditions to the closing as set forth in Section 5 and Section 6 (where applicable), the purchase and sale of the Purchased Shares, Series Seed Preferred Shares and Series A Preferred Shares as contemplated herein 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 Investors may mutually agree upon, which date shall be no later than five (5) Business Days after the satisfaction or waiver of each condition to the closing as set forth in Section 5 and Section 6 but in no event later than February 14, 2018 (the “ Closing ”). The Company’s shareholding structure immediately prior to and after the Closing shall be as set forth in the Company’s capitalization table attached hereto as Schedule B .

2.6     Deliveries by the Companny . At the Closing, the Company shall deliver the following items:

(a)    to the Investors (i) a certified true copy of the register of members of the Company as at the date of the Closing reflecting each Investor’s ownership of its respective Purchased Shares, Series Seed Preferred Shares and/or Series A Preferred Shares, and (ii) a certified true copy of the register of directors of the Company as at the date of the Closing, reflecting the appointment of the director designated by the Investors as contemplated by Section 5.10 hereof, each copy certified by the registered office provider of the Company to be a true and complete copy thereof;

(b)    to the Investors, a certified true copy of the share certificate to each Investor representing the Purchased Shares, Series Seed Preferred Shares and/or Series A Preferred Shares purchased by such Investor, with the original (duly signed and sealed for and on behalf of the Company) to be delivered to each Investor within ten (10) Business Days after the Closing; and

(c)    to the Series B Investors, a compliance certificate dated as of the Closing signed by each Warrantor or a duly authorized representative of each Warrantor, as applicable, certifying that all of the conditions set forth in Section 5 (except for Section 5.18) have been fulfilled, and attaching and certifying as true and complete a copy of the Company’s Restated M&A as in effect as of the Closing.

2.7     Deliveries by the Investors . At the Closing, (i) each of the Series B Preferred Shares, TRUSTBRIDGE PARTNERS IV, L.P. and Huaxing shall pay their respective purchase price set forth opposite their name in Schedule A-4-2 and Schedule A-4-3 by wire transfer of immediately available funds in U.S. dollars to an account designated by the Company, and (ii) each of Eastern Bell XII Investment Limited, Crescent, FASTURN OVERSEAS LIMITED and Eastern Bell XIX Investment Limited shall pay their respective purchase price set forth opposite their name in Schedule A-4-1 and Schedule A-4-2 by issuance of a note to the Company in the principal amount equaling to their respective purchase price (subject to adjustment provided thereunder, if applicable) to the satisfaction of the Company.

 

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2.8     Exchange Rate . For the avoidance of any doubt, each Investor shall pay its purchase price to the Company in USD. The exchange rate between RMB and USD under this Agreement shall be the official central parity rate published by the People’s Bank of China as of the date of the payment or such other exchange rate as may be agreed by the Company and the applicable Investor hereunder or otherwise in writing.

 

3.

REPRESENTATIONS AND WARRANTIES REGARDING OF THE WARRANTORS .

Unless specifically indicated otherwise, the Warrantors hereby jointly and severally represent and warrant to the Series B Investors that the statements in this Section 3, except as set forth in the Disclosure Schedule (the “ Disclosure Schedule ”) attached to this Agreement as Schedule C (the contents of which shall also be deemed to be representations and warranties hereunder), are all true, correct and complete as of the date hereof and the date of the Closing. For purposes of this Section 3, any reference to a Party’s “ knowledge ” means such Party’s best knowledge after due and diligent inquiries of officers, directors, and other employees of such Party reasonably believed to have knowledge of the matter in question.

3.1     Organization, Good Standing and Qualification .

(a)    The Company is duly organized, validly existing and in good standing under, and by virtue of, the laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted. The Company is qualified to do business and is in good standing in each jurisdiction where failure to be so qualified would have a Material Adverse Effect on its financial condition, business, prospects or operations.

(b)    Each of the PRC Companies is a company duly organized and existing under the laws of the PRC, and has all powers and all governmental licenses, permits, Governmental Authorizations, consents and approvals required to carry on its business as now conducted. The HK Subsidiary is a company duly organized and existing under the laws of Hong Kong, and has all powers and all governmental licenses, permits, Governmental Authorizations, consents and approvals required to carry on its business as now conducted. Each of the PRC Companies and the HK Subsidiary has paid all such governmental fees, taxes and stamp duty required to be paid by it under applicable PRC and other laws prior to or upon the Closing.

3.2     Due Authorization . Each Warrantor has all requisite power and authority to execute and deliver the Transaction Documents to which it/he is a party and to carry out and perform its/his obligations thereunder. All action on the part of each Warrantor (and as applicable, its/his respective officers, directors and shareholders) necessary for the authorization, execution and delivery of each Transaction Document, the authorization, issuance, reservation for issuance and delivery of all of the Purchased Shares and the Conversion Shares, and, as applicable, the performance of their respective obligations under each Transaction Document and all other agreements, instruments and documents executed and delivered in connection with the transactions contemplated hereby, has been taken or will be taken prior to the Closing. The Transaction Documents are valid and binding obligations of each Group Company, enforceable in accordance with their respective terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles. The Purchased Shares and the Conversion Shares are not subject to any preemptive rights, rights of first refusal, or liens of any kind except for rights imposed under the Restated M&A and/or the Transaction Documents.

 

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3.3     Capitalization . The authorized share capital of the Company will consist of the following immediately prior to the Closing:

(a)     Ordinary Shares . A total of 9,126,996,676 authorized Ordinary Shares of which 1,151,400,000 shares are issued and outstanding.

(b)     Preferred Shares . A total of 873,003,324 authorized Preferred Shares, ( i ) 373,000,000 of which are designated as Series Seed Preferred Shares but none of which is issued or outstanding, ( ii ) 389,200,000 of which are designated as Series A Preferred Shares but none of which is issued or outstanding, and ( iii ) 110,803,324 of which are designated as Series B Preferred Shares but none of which is issued or outstanding.

(c)     Options, Warrants, Available Shares . The Company has made available and free of any Liens (i) up to 110,803,324 Series B Preferred Shares, 389,200,000 Series A Preferred Shares and 373,000,000 Series Seed Preferred Shares, each for issuance and sale under this Agreement; (ii) 873,003,324 Ordinary Shares representing the Conversion Shares, and (iii) 191,663,158 Ordinary Shares reserved for issuance under the Employee Share Option Plan. Other than with respect to the Purchased Shares, the Conversion Shares, and Employee Share Option Plan, there are no options, warrants, conversion privileges or other rights or agreements outstanding or under which the Company is or may become obligated to issue any securities of any class or series except as set forth above. Apart from the exceptions noted in this Section 3.3, none of the Company’s outstanding shares, and no shares issuable upon exercise, conversion, or exchange of any outstanding options or other shares issuable by the Company, are subject to any preemptive rights, rights of first refusal, or other rights to purchase such shares (whether in favor of the Company or any other Person), pursuant to any agreement or commitment to which the Company is a party or of which the Company is aware, except for the rights imposed under the Restated M&A and in the Transaction Documents.

3.4     Subsidiaries (General) . Section  3.4 of the Disclosure Schedule sets forth a chart showing the accurate and complete equity structure of the Group Companies and all Subsidiaries thereof, indicating the ownership and Control relationships among all Group Companies, Subsidiaries, the Founder Holdcos, the Founders and other shareholders (if any). Except for the Restructuring Agreements, there is no contract among the Warrantors and/or with any other Person with respect to the ownership or Control of any of the Group Companies or Subsidiaries thereof. Except as disclosed in Section  3.4 of the Disclosure Schedule , no Group Company presently owns or Controls, or has ever owned or Controlled, legally or beneficially, directly or indirectly, any interest or share in any other Person or is or was a participant in any joint venture, partnership or similar arrangement. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any other Person. All other Persons which provide services similar to or competing with the Business of the Group Companies and are Controlled by any Founder have been injected into the Group Companies.

3.5     Valid Issuance of Purchased Shares.

(a)    The Purchased Shares, when issued, sold and allotted and registered in the register of members of the Company in accordance with the terms of this Agreement, will be duly authorized and validly issued, fully paid, non-assessable, and free of any Liens. The Conversion Shares have been duly and validly made available for issuance and, upon issuance will be duly and validly issued, fully paid, non-assessable and free of any Liens upon issuance.

 

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(b)    All presently outstanding Ordinary Shares of the Company are duly and validly issued, fully paid and non-assessable and free of any Liens, and such Ordinary Shares, and all outstanding shares, options and other securities of the Company, have been issued in full compliance with the requirements of all applicable securities laws and regulations, including the Securities Act, and all other antifraud and other provisions of applicable securities laws and regulations.

3.6     Liabilities . Except as described in Section  3.6 of the Disclosure Schedule and the Restructuring Agreements, no Group Company has any indebtedness for borrowed money that it has directly or indirectly created, incurred, assumed, or guaranteed, or with respect to which the Group Company has otherwise become directly or indirectly liable, except as reflected on the Financial Statements and none of the Group Companies is unable to pay its debts as and when such debts fall due or is subject to any insolvency proceedings or has had a receiver, liquidator or administrator appointed over its assets.

3.7     Title to Properties and Assets . Each Group Company has good and marketable title to all respective properties and assets reflected on the Financial Statements, in each case such property and assets are subject to no mortgage, pledge, lien, encumbrance, security interest or charge of any kind. With respect to the property and assets it leases, each Group Company is in compliance with such leases and holds valid leasehold interests in such assets free of any Liens, encumbrances, security interests or claims of any party other than the lessors of such property and assets.

3.8     Financial Statements . The Company has provided the (1) audited consolidated balance sheets, cash flow statements and income statements of the Group Companies as of December 31, 2016, and (2) unaudited consolidated balance sheets, cash flow statements and income statements of the Group Companies as of November 30, 2017 (“ Financial Statements Date ”) (all such financial statements being collectively referred to herein as the “ Financial Statements ”). Such Financial Statements (a) accord with the books and records of the respective Group Company, (b) are true, correct and complete and present fairly the financial condition and state of affairs of the respective Group Company at the date or dates therein indicated and the results of operations for the period or periods therein specified, and (c) have been prepared in accordance with PRC generally accepted accounting principles (“ PRC GAAP ”) applied on a consistent basis, except, as to the unaudited financial statements, for the omission of notes thereto and normal year-end audit adjustments.

Specifically, but not by way of limitation, the respective balance sheets included in the Financial Statements disclose all of the respective Group Company’s debts, liabilities and obligations of any nature, whether due or to become due, as of their respective dates (including absolute, accrued, and contingent liabilities) to the extent such debts, liabilities and obligations are required to be disclosed in accordance with the PRC GAAP, and each Group Company has good and marketable unencumbered title to all assets set forth on the balance sheets of the respective Financial Statements, except for such assets as have been spent, sold or transferred in the ordinary course of business since their respective dates.

 

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3.9     Activities Since Financial Statements Date . None of the following events has occurred with respect to any Group Company since the Financial Statements Date and prior to the Closing:

(a)    any declaration or payment of any dividend, or authorization or payment of any distribution upon or with respect to any class or series of its capital shares or any other equity interest;

(b)    any incurrence of indebtedness for money borrowed or any other liabilities;

(c)    any sale, exchange, assignment, or other disposition of any assets or rights (including any Intellectual Property rights or other intangible assets) or creation of any encumbrance on any of its assets or rights;

(d)    any agreements or transactions with any of its officers, directors or employees or any entity controlled by any of such individuals or with its shareholders or Persons related to such shareholders, or any agreement on transaction with any other party;

(e)    any damage, destruction or loss, whether or not covered by insurance, affecting its assets, properties, financial condition, operating results, prospects or business as presently conducted and as presently proposed to be conducted;

(f)    any waiver of a valuable right or of a debt owed to it;

(g)    any incurrence, creation, assumption, repayment, satisfaction or discharge of any Lien, claim or encumbrance or payment of any obligation;

(h)    any resignation or termination of any of its directors or key officers; or

(i)    any other event or condition of any character which would affect its assets, properties, financial condition, operating results or business.

3.10     Intellectual Property Rights .

(a)    Each Group Company (i) owns, free and clear of all Liens, and/or (ii) have the sufficient and valid right or license to use, all Intellectual Property currently used or occupied by them necessary for the Business, without any violation or infringement of the rights of others. Section  3.1 0(a) of the Disclosure Schedule contains a complete and accurate list of all Intellectual Property owned, licensed to or used by the Group Companies, whether registered or not, and a complete and accurate list of all licenses granted by any Group Company to any third party with respect to any Intellectual Property. Except as disclosed in Section  3.1 0(a) of the Disclosure Schedule , there are no outstanding options, licenses, agreements or rights of any kind granted by any Group Company to any third party, or by any other party to any Group Company, relating to any Intellectual Property currently used or proposed to be used by any Group Company for its Business, except for standard end-user agreements with respect to commercially readily available intellectual property such as “off the shelf” computer software. With respect to any licenses or agreements to which any Group Company is a party in relation to the Intellectual Property used by such Group Company, none of the Group Companies has received any communications alleging that such Group Company has violated such licenses or agreements.

 

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(b)    To the best knowledge of the Warrantors, the use, reproduction, modification, distribution, licensing of any Intellectual Property by any Group Company does not infringe, misappropriate or violate any applicable law or any Intellectual Property of any third party. There is no pending or threatened claim or Action against any Group Company contesting the right to use any of the Intellectual Property currently used by it, asserting the misuse thereof, or asserting the infringement or other violation of any Intellectual Property of any third party. No Person has challenged the ownership or use of any Intellectual Property by a Group Company in writing. To the best knowledge of the Warrantors, no Person has violated, infringed or misappropriated any Intellectual Property of any Group Company, and no Group Company has given any written notice to any other Person alleging any of the foregoing. No proceedings or claims in which any Group Company alleges that any Person is infringing upon, or otherwise violating, any Group Company’s Intellectual Property rights are pending, and none has been served, instituted or asserted by any Group Company. No Group Company has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property of such Person.

(c)    All inventions and know-how conceived by the current and former employees of the Group Companies, including without limitation the Founders and the Key Employees, which are related to the Businesses of the Group Companies are “works made for hire”, and all right, title, and interest therein, including any applications therefor, have been transferred and assigned to, and are currently owned by, the Group Companies. None of the Key Employees of any Group Company is obligated under any Contract, or subject to any Governmental Order, that would interfere with the use of his or her best efforts to promote the interests of the Group Companies or that would conflict with the Business of any Group Company as presently conducted and planned to be conducted. It will not be necessary to utilize in the course of any Group Company’s business operations any inventions of any of the respective employees of the Group Companies made prior to their employment by the Group Companies, except for inventions that have been validly and properly assigned or licensed to the Group Companies as of the date hereof. No government funding, facilities of any educational institution or research centre, or funding from third parties has been used in the development of any Intellectual Property of any Group Company.

(d)    Each Group Company has taken reasonable and appropriate steps to protect, maintain and safeguard its Intellectual Property rights and has made all applicable filings, registrations and payments of fees in connection with the foregoing to the extent required or permitted by the applicable laws. Each Group Company has taken all appropriate security measures to protect the trade secrets and the confidential information of such Group Company in connection with the Business. Without limiting the foregoing, each of the current and former officers, employees, consultants and independent contractors of the Group Companies and each of the suppliers, partners, distributors, and other third parties having access to any Intellectual Property rights of the Group Companies has executed and delivered to the relevant Group Company an agreement requiring the non-disclosure and other protection of such Intellectual Property rights. To the extent that any 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 executed 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.

(e)    The Smallyes Group Companies have transferred to the Group Companies all the trademarks relating to “Yunji” and self-owned branding products sold on Yunji platform and/or used by the Group Companies in other ways, some of such transfer of trademark is in the governmental registration process.

 

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3.11     Contracts .

(a)     Material Contracts and Obligations . All agreements, contracts, leases, licenses, instruments, commitments (oral or written), indebtedness, liabilities and other obligations to which any Group Company is a party or by which it is bound that (i) are material to the conduct and operations of its business and properties; (ii) involve any of the officers, consultants, directors, employees or shareholders of any Group Company; or (iii) obligate any Group Company to share, license or develop any product or technology have been provided to the Series B Investors and their counsel(s) (collectively, the “ Material Contracts ”). For purposes of this Section 3.11 “ material ” shall mean any agreement, contract, indebtedness, liability, arrangement or other obligation either (i) having an aggregate value, cost, liability or amount of RMB1,000,000 or more, or (ii) not terminable upon no more than thirty (30) days’ notice without penalty or obligation.

(b)     Validity and Status . Section  3.11 of the Disclosure Schedule contains a complete and accurate list of all Material Contracts. All the Material Contracts listed on Section  3.11 of the Disclosure Schedule are legally valid and binding, in full force and effect, and enforceable in accordance with their respective terms against the parties thereto, and will not violate any applicable laws. There is no existing default or breach by any party thereto and no Group Company has received any notice or claim or allegation of default or breach thereof from any party thereto, and the various transfers of assets, shares, equity interests, capital, personnel, contracts and Intellectual Property rights.

(c)     Provision of Material Contracts . A true, fully-executed copy of each Material Contract including all amendments and supplements thereto (and a written summary of all terms and conditions of each non-written Material Contract) has been delivered to the Series B Investors.

3.12     Litigation . There is no Action pending or currently threatened against any Founder, any Founder Holdco, any Group Company, any Group Company’s activities, properties or assets or against any officer, director or employee of any Group Company in connection with such officer’s, director’s or employee’s relationship with, or actions taken on behalf of, any Group Company. There is no factual or legal basis for any such Action that might result, individually or in the aggregate, in any Material Adverse Effect. No Group Company is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no Action by any Group Company currently pending or which it intends to initiate.

3.13     Governmental Consents . All consents, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings with any Governmental Authority (“ Governmental Authorizations ”) on the part of each Group Company required in connection with the execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated herein have been obtained and are currently effective and in consummating such transactions. Based in part on the representations and warranties of the Series B Investors set forth in Section 4 below, the offer, sale and issuance of the Purchased Shares and the Conversion Shares, in conformity with the terms of this Agreement, will be exempt from the registration and prospectus delivery requirements of the Securities Act and all other applicable securities laws and regulations.

 

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3.14     Compliance with Other Instruments . No Group Company is in, nor will the conduct of business of any Group Company as proposed to be conducted result in, any violation, breach or default of any constitutional document of any Group Company (which include, as applicable, articles of incorporation, memoranda and/or articles of association, by-laws, joint venture contracts and the like), or in any material respect of any term or provision of any mortgage, indenture, contract, agreement or instrument to which any Group Company is a party or by which it may be bound, or of any provision of any judgment, decree, order, statute, rule or regulation applicable to or binding upon any Group Company. The execution, delivery and performance of and compliance with the Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not result in any such violation, breach or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a default under any such constitutional documents, any such contract, agreement or instrument or a violation of any statutes, laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any asset of any Group Company.

3.15     Compliance with Laws; Permits . Except as disclosed in Section  3.15(a) of the Disclosure Schedule , each Group Company is, and has been, in compliance in all material respects with applicable laws, especially the laws and regulations in connection with the prohibition of pyramid selling. None of the Group Companies has conducted any activity in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any agency thereof in respect of the conduct of its business or the ownership of its properties. No event has occurred and no circumstance exists that (with or without notice or lapse of time) (i) may constitute or result in a violation by any Group Company of, or a failure on the part of such entity to comply with, any applicable law in any material respect, or (ii) may give rise to any 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. To the best knowledge of the Warrantors, no Group Company is under investigation with respect to a material violation of any law. Except as disclosed in Section  3.15(a) of the Disclosure Schedule , each Group Company has all Permits issued or granted by the competent Governmental Authorities necessary for the due and proper establishment and conduct of its business as currently conducted and as proposed to be conducted, the absence of which would be reasonably likely to have a Material Adverse Effect, or is able to obtain such Permits from the competent Governmental Authorities without undue burden or expense. None of the Group Companies is in default under any of such Permit issued or granted by the competent Governmental Authorities. To the best knowledge of the Warrantors, no Governmental Authority is considering modifying, suspending, revoking or denying upon expiration the renewal of any of such Permits. No Permits issued or granted by the competent Governmental Authorities contain any materially burdensome restrictions or conditions, and each Permit is in full force and effect and will remain in full force and effect upon the consummation of the transactions contemplated hereby. None of the Group Companies is in default in any material respect under any Permit issued or granted by the competent Governmental Authorities. To the best knowledge of the Warrantors, there is no reason to believe that any Permit which is subject to periodic renewal will not be granted or renewed. No Group Company has received any letter or other communication from any Governmental Authority threatening or providing notice of revocation of any such Permit issued to any Group Company or the need for compliance or remedial actions in respect of the activities carried out directly or indirectly by any Group Company. There are no fines or penalties asserted against the Group Companies under any applicable law, and none of the Group Companies has received any notice from any Governmental Authorities with respect to any material violation of any applicable law.

 

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3.16     SAFE Registration and Filing . Except as disclosed in Section  3.16 of the Disclosure Schedule , each of the Founders and the Founder Holdcos (each, a “ Company Security Holder ”), who is a Domestic Resident and subject to any of the approval, registration, reporting or filing requirements under Circular 37 or any other applicable SAFE Rules and Regulations, has complied with such approval, reporting, registration and/or filing requirements in connection with his/her/its direct or indirect investment in and ownership of Shares of the Company (including any change or amendment to such direct or indirect investment in and ownership of Shares of the Company) (if applicable), and all statements and documents provided by each Company Security Holder to any PRC Governmental Authority in the course of making such approval, reporting, registration and/or filing are true, complete and valid, in all material respects, except where the failure of certain Company Security Holders in complying with the SAFE Rules and Regulations would not result in a Material Adverse Effect. Neither the Warrantors nor, to the best knowledge of the Warrantors, any of the Company Security Holders has received any oral or written inquiries, notifications, orders or any other forms of official correspondence from SAFE or any of its local branches with respect to any actual or alleged non-compliance with the SAFE Rules and Regulations, and the Company and the Company Security Holders have made all material oral or written filings, registrations, reporting, filing or disclosing required by SAFE or any of its local branches.

3.17     Tax Matters .

(a)    All Tax Returns required to be filed on or prior to the date hereof with respect to each Group Company have been duly and timely filed by such Group Company within the requisite period and completed on a proper basis in accordance with the applicable laws, and are up to date and correct in all material respects. All Taxes owed by each Group Company (whether or not shown on every Tax Return) have been paid in full or provision for the payment thereof have been made. No deficiencies for any Taxes with respect to any Tax Returns have been asserted in writing by, and no notice of any pending action with respect to such Tax Returns has been received from, any Tax authority, and no dispute relating to any Tax Returns with any such Tax authority is outstanding or contemplated. Each Group Company has timely paid all Taxes owed by it which are due and payable (whether or not shown on any Tax Return) and withheld and remitted to the appropriate Governmental Authority all Taxes which it is obligated to withhold and remit from amounts owing to any employee, creditor, customer or third party.

(b)    No audit of any Tax Return of each Group Company and no formal investigation with respect to any such Tax Return by any Tax authority is currently in progress. 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.

(c)    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.

(d)    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.

 

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(e)    No Group Company has been the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes. No Group Company is responsible for the Taxes of any other Person by reason of contract, successor liability or otherwise.

(f)    All Tax credits and Tax holidays enjoyed by the Group Company established under applicable PRC laws since its establishment have been in compliance in all material respects 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.

(g)    No Group Company is, or has ever been a PFIC or CFC or a U.S. real property holding corporation. No Group Company anticipates that it will become a PFIC or CFC or a U. S. real property holding corporation for the current taxable year or any future taxable year. No Group Company has any plan or intention to conduct its business in a manner that would be reasonably expected to result in such Group Company becoming a PFIC or CFC or a U.S. real property holding corporation in the future.

(h)    The Company is treated as a corporation for U.S. federal income tax purposes.

3.18     Interested Party Transactions . Except as disclosed in Section  3.18 of the Disclosure Schedule , no Founder, shareholder, officer, employee or director of a Group Company or any Affiliate of any such Person (including without limitation, the Smallyes Group Companies, each of the foregoing, an “ Interested Party ”) has any agreement, 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 them. Except as disclosed in Section  3.18 of the Disclosure Schedule , no Interested Party has any direct or indirect ownership interest in any firm or corporation with which a Group Company is affiliated or with which a Group Company has a business relationship, or any firm or corporation that competes with a Group Company, except that any of the foregoing Persons may have less than one percent (1%) of record ownership interest in the Company or own less than one percent (1%) of shares in publicly traded companies that may compete with a Group Company. No Affiliate of any officer or director of a Group Company is directly or indirectly interested in any material contract with a Group Company. No Interested Party has had, either directly or indirectly, any interest in: (a) any Person or entity which purchases from or sells, licenses or furnishes to a Group Company any goods, property, intellectual or other property rights or services; or (b) any contract or agreement to which a Group Company is a party or by which it may be bound or affected. Except as disclosed in Section  3.18 of the Disclosure Schedule , all transactions entered or to be entered into by and between any Group Company and Interested Party are “arm-length” transactions.

3.19     Disclosure . No representation or warranty by any Warrantor in this Agreement or in any written statement or certificate furnished or to be furnished to the Series B Investors pursuant to any Transaction Document contains or will contain any untrue statement of fact or omits or will omit to state any fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading in any way. Each of the Warrantors has fully provided each Series B Investor with all the information that such Series B Investor has requested for deciding whether to purchase the Purchased Shares and all information that could reasonably be expected to enable the Series B Investor to make such decision.

 

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3.20     Labor Agreement and Actions; Employee Compensation . No Group Company is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or has sought to represent any of the employees, representatives or agents of a Group Company. There is no strike or other labor dispute involving a Group Company pending or threatened (nor has there been since the incorporation of each Group Company), which could have a Material Adverse Effect on any Group Company, nor is any Group Company aware of any labor organization activity involving its employees. Each Key Employee, officer, consultant and contractor of each Group Company has entered into an employment agreement, and a confidentiality, non-competition and intellectual property rights agreement. No Key Employee is obligated under, or in violation of any term of, any contract or any order of the Governmental Authorities relating to the right of any such individual to be employed by, or to contract with, such Group Company. Except as disclosed in Section  3.20 of the Disclosure Schedule , each Key Employee is currently devoting one hundred percent (100%) of his or her working time to the conduct of the business of the Group Companies. To the best knowledge of the Warrantors after due inquiry, no Warrantor is aware that any such Key Employee is planning to work less than full time at a Group Company in the future, or intends to terminate his or her employment with a Group Company, nor does any Group Company have a present intention to terminate the employment of any Key Employee. To the best knowledge of the Warrantors after due inquiry and except as disclosed in Section  3.20 of the Disclosure Schedule , no such Key Employee is currently working for a competitive enterprise, whether or not such Person is or will be compensated by such enterprise. Each Group Company has complied in all respects with all applicable national, provincial, local or municipal equal employment opportunity and other laws related to employment. No Group Company is a party to or bound by any currently effective employment contract that provides for compensation exceeding three (3) months’ average remuneration of that employee upon termination, deferred compensation agreement, severance agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement.

3.21     Restructuring Agreements. Each Warrantor hereby jointly and severally represent, warrants and covenants to the Series B Investors that during the term of the relevant Restructuring Agreements, each of the statements contained in this Section 3.21 is true, accurate and complete.

(a)    Each of the parties to the Restructuring Agreements has the legal right, power and authority (corporate and other) to enter into and perform its/his/her obligations under each Restructuring Agreement to which it/he/she is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of, and has authorized, executed and delivered, each Restructuring Agreement to which it/he/she is a party.

(b)    Each Restructuring Agreement is in full force and effect and no party to any Restructuring Agreement is in breach or default in the performance or observance of any of the terms or provisions of such Restructuring Agreement. None of the parties to any Restructuring Agreement has sent or received any communication regarding termination of or intention not to renew any Restructuring Agreement, and no such termination or non-renewal has been threatened by any of the parties thereto.

 

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3.22     Insurance . There is no claim pending under the insurance policies and bonds maintained by each Group Company as to which coverage has been questioned, denied or disputed. All premiums due and payable under all such policies and bonds have been timely paid, and each Group Company is otherwise in compliance in all respects with the terms of such policies and bonds. All such policies and bonds are in full force and effect.

3.23     Anti-Bribery, Anti-Corruption, Anti-Money Laundering and Sanctions . Each Group Company and other Warrantors and their Affiliates and their respective directors, officers, managers, employees, independent contractors, representatives, agents and other Persons acting on their behalf (collectively, “ Company Representatives ”) are and have been in compliance with all applicable laws relating to anti-bribery, anti-corruption, anti-money laundering, record keeping and internal control laws (collectively, the “ Compliance Laws ”). Without limiting the foregoing, neither any Group Company nor, any Company Representative has, directly or indirectly, offered, authorized, promised, condoned, participated in, consummated, or received notice of any allegation of, (a) the making of any gift or payment of anything of value to any Public Official by any Person to obtain any improper advantage, affect or influence any act or decision of any such Public Official, or assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person; (b) the taking of any action by any Person which (i) would violate the FCPA, if taken by an entity subject to the FCPA, (ii) would violate the U.K. Bribery Act, if taken by an entity subject to the U.K. Bribery Act, or (iii) could reasonably be expected to constitute a violation of any applicable Compliance Law; (c) the making of any false or fictitious entries in the books or records of any Group Company by any Person; or (d) the using of any assets of any Group Company for the establishment of any unlawful or unrecorded fund of monies or other assets, or the making of any unlawful or undisclosed payment.

 

4.

REPRESENTATIONS AND WARRANTIES OF INVESTOR S .

Each Investor hereby represents and warrants severally but not jointly to the Company as follows as of the date hereof and as of the Closing:

4.1     Authorization . It has full power and authority to enter into this Agreement and the other Transaction Documents, and each of the Transaction Documents, when executed and delivered by the Investor, will constitute a valid and legally binding obligation of the Investor, subject as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.

4.2     Purchase for Own Account . It is, or will be acquiring the Purchased Shares and the Conversion Shares for its own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof. By executing this Agreement, the Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participation to such Person or any third Person, with respect to any Purchased Shares or Conversion Shares, other than, with respect to any investor that is an investment fund, agreements or arrangements governing the acquisition, management and disposition of fund assets or interests in general fund assets with participants in the fund.

 

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5.

CONDITIONS TO SERIES B INVESTORS OBLIGATIONS AT THE CLOSING .

The obligations of each of the Series B Investors to purchase its respective Purchased Shares at the Closing is, unless otherwise waived in writing by such Series B Investor, subject to the fulfillment to the satisfaction of such Series B Investor on or prior to the Closing of the following conditions:

5.1     Representations and Warranties Correct . The representations and warranties made by the Warrantors in Section 3 hereof shall be true and correct and complete respects with respect to the subjects covered therein when made, and shall be true, correct and complete as of the date of the Closing with the same force and effect as if they had been made on and as of such date except in either case for those representations and warranties (i) that already contain any materiality qualification, which representations and warranties, to the extent already so qualified, shall instead be true and correct in all respects as so qualified as of such dates and (ii) that address matters only as of a particular date, which representations will have been true and correct in all material respects (subject to clause (i)) as of such particular date.

5.2     Performance of Obligations . Each Warrantor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement and other Transaction Documents that are required or contemplated to be performed or complied with by it on or before the Closing.

5.3     Authorizations . All consents of any competent Governmental Authority or of any other Person that are required to be obtained by any Party hereto (other than the Investors) in connection with the consummation of the transactions contemplated by this Agreement and other Transaction Documents shall have been duly obtained and effective as of the Closing, and evidence thereof shall have been delivered to such Series B Investor.

5.4     Proceedings and Documents . All corporate and other proceedings in connection with the transactions contemplated hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to such Series B Investor, and such Series B Investor shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request.

5.5     Group Company’s Charter Documents . The Restated M&A, in the forms attached hereto as Exhibit A , shall have been duly adopted by all necessary action of the Board and shareholders of the Company, and such adoption shall have become effective prior to the Closing with no alternation or amendment as of the Closing. The Restated M&A shall have been duly submitted for filing with the Registrar of Companies of the Cayman Islands at the Closing as evidenced by an email confirmation from the registered office provider of the Company.

5.6     Transaction Documents . Each of the parties to the Transaction Documents, other than such Series B Investor, shall have executed and delivered such Transaction Documents to such Series B Investor.

5.7     Consents and Waivers . Each Warrantor shall have obtained any and all consents and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement.

5.8     Laws . The offer and sale of the Purchased Shares and the Conversion Shares to such Series B Investor pursuant to this Agreement shall be exempt from the registration and prospectus delivery requirements of the Securities Act and shall not violate or breach or result in a violation or breach of any other applicable laws or regulations.

5.9     No Litigation . No Action shall have been threatened or instituted against any Warrantor or such Series B Investor seeking to enjoin, challenge the validity of, or assert any liability against any of them on account of, any transactions contemplated by this Agreement or the other Transaction Documents.

 

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5.10     Board . The Board of the Company shall be composed of nine (9) directors and each of Trustbridge, Eastern Bell, Crescent and CDH shall be entitled to appoint one (1) new director. All actions shall have been taken to appoint the foregoing representatives of Investors as new directors of the Company effective upon the Closing.

5.11     Employment Agreement and Confidentiality, Non-Competition and Intellectual Property Rights Agreement . Each Key Employee of the Group Companies shall have entered into an employment agreement, and a confidentiality, non-competition and Intellectual Property rights agreement with relevant PRC Company, with the effective period of more than two (2) years, each in the form satisfactory such Series B Investor and the Company shall have delivered to such Series B Investor copies of the same.

5.12     Restructuring. Relevant Group Companies and other parties thereto shall have entered into the Restructuring Framework Agreement attached hereto as Exhibit D (the restructuring of Group Companies provided under the Restructuring Framwork Agreement is hereinafter referred to as the “ Restructuring ”).

5.13     Restructuring Agreements . The HK Co., the Domestic Co. and its shareholders shall have entered into the Restructuring Agreements in the form and substance reasonably satisfactory to the Series B Investors.

5.14     Completion of SAFE Registration . Each Founder shall have complied with the SAFE Rules and Regulations and fully completed his reporting obligations and registration procedures thereunder with respect to their holding of shares in the Company, and the Series B Investors shall have been provided with evidence thereof reasonably satisfactory to them.

5.15     Legal Opinion of Offshore Counsel . The Series B Investors shall have received from Cayman Islands legal counsel of the Company a legal opinion, dated as of the Closing, in the form and substance reasonably satisfactory to the Series B Investors.

5.16     Legal Opinion of PRC Counsel . The Series B Investors shall have received from PRC legal counsel of the Company a legal opinion, dated as of the Closing, in the form and substance reasonably satisfactory to the Series B Investors.

5.17     Closing Deliveries . The Warrantors shall have tendered delivery of all of the various items they are required to deliver to such Series B Investor at the Closing under Section 2.6.

5.18     Due Diligence . Such Series B Investor shall have completed its due diligence investigation of the Group Companies and the results of the due diligence investigation in legal, financial, managerial and technological aspects shall be reasonably satisfactory to such Series B Investor.

5.19     No Material Adverse Effect. There shall have been no Material Adverse Effect on the financial condition, business, prospects or operations of any Group Company since the Financial Statements Date.

 

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6.

CONDITIONS TO COMPANY S OBLIGATIONS AT THE CLOSING .

The obligation of the Company to issue and sell the Purchased Shares, Series Seed Preferred Shares and Series A Preferred Shares to each Investor at the Closing is, unless otherwise waived in writing by the Company, subject to the fulfillment to the Company’s satisfaction on or prior to the Closing of the following conditions:

6.1     Representations and Warranties Correct . The representations and warranties made by such Investor in Section 4 hereof shall be true and correct and complete in all material respects with respect to the subjects covered therein when made, and shall be true and correct and complete as of the date of the Closing with the same force and effect as if they had been made on and as of such date, subject to changes contemplated by this Agreement.

6.2     Performance of Obligations . Such Investor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required or contemplated to be performed or complied with by it on or before the Closing.

 

7.

COVENANTS OF THE WARRANTORS .

Each of the Warrantors hereby jointly and severally covenants to the Investors as follows:

7.1     Use of Proceeds . In accordance with the budget and business plan approved by the shareholders (including the affirmative votes of the Preferred Majority), the Company shall use the proceeds from the issuance and sale of the Purchased Shares (the “ Proceeds ”) for capital expenditure, business expansion and working capital of the Company and its subsidiaries, save as otherwise stipulated in this Agreement. The Company shall not use the Proceeds in the payment of any debts or obligations of any Group Company or its Subsidiaries that is not in compliance with the purpose set forth in the foregoing sentence or in the repurchase or cancellation of securities held by any shareholders of the Group Companies or for any other purpose without the consent of the Series B Investors. The Company shall provide the necessary information relating to the Proceeds, and the aggregate amounts thereof under each category, including without limitation the amount of contribution of funds to the WFOE, as reasonably requested by the Series B Investors to facilitate their requisite tax reporting obligations (including the establishment of the tax base for the Purchased Shares to the relevant PRC tax authorities).

7.2     Additional Covenants . Except as required by this Agreement or the Shareholders Agreement or for the purpose of the Restructuring, no resolution of the directors, owners, members, joint venture parties, or shareholders of any Group Company shall be passed, nor shall any contract or commitment be entered into prior to the Closing without the written consent of the Investors, except that the Group Companies may carry on their respective businesses in the same manner as heretofore and may pass resolutions and enter into contracts and commitments in the ordinary course of business and consistent with their past practice.

7.3     Notice of Certain Events . If at any time before the Closing, any Warrantor comes to know of any material fact or event which:

(a)    is in any way inconsistent with any of the representations and warranties of the Warrantors in this Agreement;

(b)    suggests that any fact warranted by the Warrantors hereunder may not be as warranted or may be misleading; or

 

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(c)    might affect the willingness of a prudent investor to purchase the Purchased Shares on the terms contained in the Transaction Documents or the amount of the consideration a prudent investor would be prepared to pay for the Purchased Shares, then the Warrantors shall immediately notify the Investors in writing, describing the fact or event in reasonable detail.

7.4     Employee Equity; Vestin g. After the Closing, the Company (but not any other Group Company) may grant options to employees, advisors, officers, and directors of, and consultants to, the Company and its subsidiaries, but only pursuant to Employee Share Option Plan, provided that the total number of shares issued or issuable under any such Employee Share Option Plan shall not exceed 191,663,158 Ordinary Shares (proportionally adjusted to reflect any share dividends, share splits, or similar transactions). Except as approved by a majority of the Board (including the affirmative votes of the directors appointed by the Investors), shares or share options to be issued under the Employee Share Option Plan shall be subject to a minimum four (4) year vesting schedule no faster than the following, counting from the applicable grant date with respect to the total issued options or shares: twenty-five percent (25%) each at the first anniversary of the grant date, the second anniversary of the grant date, the third anniversary of the grant date and the fourth anniversary of the grant date. To the extent practicable under the PRC laws, the Group Companies shall cause to be filed and registered with the competent local branch of the SAFE of the PRC with respect to the establishment and adoption of the ESOP.

Except as otherwise approved by a majority of the Board (including the affirmative votes of the directors appointed by the Investors), the Company shall cause all future officers, directors, and employees of, and consultants to, the Company and its Subsidiaries who purchase, or receive options to purchase, shares of the Company’s Ordinary Shares, to execute and deliver agreements in forms approved by the Board (including the affirmative votes of the directors appointed by the Investors) providing for a right of repurchase in favor of the Company on vested and unvested shares without cost upon termination of the employment with cause or unilateral termination of the employment by the optionees, a prohibition on the transfer of all shares prior to a Qualified IPO (unless otherwise permitted under such Employee Share Option Plan) and a lockup or market standoff commitment after the Qualified IPO in respect of vested shares subject to the requirements that the underwriters or sponsors may have at such time.

7.5     Regulatory Compliance.

(a)    Each Founder and each Group Company shall comply with all applicable laws and regulations in the PRC in all material respects, including but not limited to applicable laws and regulations in connection with the operations of the Group Companies and the prohibition of pyramid selling, in order to prevent the Group Companies from being recognized by applicable Governmental Authorities as operator of pyramid selling business which is strictly prohibited under PRC laws and regulations. Each Warrantor shall use its best efforts to cause all shareholders of each Group Company, and any successor entity or controlled affiliate of any Group Company to, timely complete all required registrations and other procedures with applicable Governmental Authorities (including without limitation SAFE) as and when required by applicable laws and regulations. The Warrantors shall ensure that, each entity described above and its respective shareholders are in compliance with such requirements in all material respects and that there is no barrier to repatriation of profits, dividends and other distributions from the WFOE (or any successor entity) to the HK Co.

(b)    The Group Companies shall further enhance review of their suppliers’ authorization of online sale of products, in order to avoid sale of products without due authorization to the extent practicable.

 

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(c)    The Founders and Group Companies shall seek advices from the Series B Investors before engaging in new categories of products and/or new business activities, and prepare workable plan which is in compliance with applicable laws and regulations, in order to avoid substantial obstercle to the Group Companies’ Qualified IPO process and time table.

(d)    The Group Companies shall use their commercially reasonable efforts to optimize the legal relationship between the Yunji platform service provider ( i.e. , the Operating Co. and/or the New VIE Company), the third-party suppliers, and the self-owned logistics and retail companies, and clearly distinguish between platform service fees and revenues generated from sale of goods in compliance with the applicable laws and regulations.

(e)    The Group Companies shall use their commercially reasonable efforts to cooperate with reputable wearhousing and logistics service providers, in order to ensure the stability of cooperation and quality of service.

(f)    Within reasonable time limit upon request by the Investors, the PRC Companies shall complete their offices’ lease filing with competent housing administrative authorities.

7.6     SAFE Registration. The Group Companies, the Founders and the Founder Holdcos shall, cause each record and beneficial owner of shares and/or equity interests in the Company, who is a Domestic Resident, to complete, update and maintain his/her registration with SAFE as required under SAFE Circular 37 in respect of his/her direct and indirect record and beneficial ownership of any shares or equity interest in the Company and each other Group Company on a timely and continuous basis after the Closing. The Company shall promptly deliver to each Investor and its counsel’s satisfactory evidence for completion of such registration.

7.7     Permit and License. To the extent permitted by the applicable laws, each of the Group Companies shall, and the Founders shall procure each of the Group Companies to, (1) use its best efforts to maintain in a timely manner all requisite consents and permits for conducting the Business in compliance with all applicable laws, (2) use its best efforts to obtain appropriate value-added telecommunication service permit before December 31, 2018, and (3) if so required by any applicable laws, obtain additional consents and permits necessary for conducting the Business as soon as possible but in any event no later than the time limit required by the applicable PRC laws or the competent Government Authorities.

7.8     Intellectual Property Protection . The Group Companies shall establish and maintain appropriate intellectual inspection system to protect the Intellectual Property rights of the Group Companies, and shall use their best efforts to (i) submit the application with relevant Governmental Authorities in respect of the intellectual properties (including but not limited to patents, copyrights, trademarks) of the Group Companies in accordance with applicable laws and regulations as soon as practicable after the fulfillment of the conditions of such application, and (ii) take other measures to the extent desirable and commercially feasible for protecting the Group Companies’ intellectual properties such that the Group Companies may be entitled to use “Yunji” and other frequently used trademarks on its website and mobile application and in its marketing materials. The Group Companies shall, and the Founders shall cause the Group Companies to fully comply with the laws and regulations in respect of the protection of the Intellectual Property and refrain from infringing from the Intellectual Property of other parties.

 

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7.9     Employee Matters. The PRC Companies shall comply with all applicable PRC labor laws and regulations in all material respects, including without limitation, laws and regulations pertaining to welfare funds, social benefits, medical benefits, insurance, retirement benefits, and pensions.

7.10     Tax Matters . The PRC Companies shall comply with all applicable PRC tax laws and regulations in all material respects, including without limitation, laws and regulations pertaining to income tax and value added tax. The PRC Companies shall use their commercially reasonable efforts to further engage qualified tax advisor to (i) optimize the revenue booking and tax filing standard to ensure compliance with applicable laws and regulations, and (ii) conduct transfer pricing analysis and implement relevant report in daily business operation.

7.11     Restructuring . The Founders and the Group Companies shall complete the Restructuring pursuant to the Restructuring Framework Agreement as soon as practicable after the Closing, including without limitation that (i) the HK Co. shall use its commercially reasonable efforts to establish the WFOE on or before March 31, 2018, (ii) the WFOE shall enter into a series of restructuring agreements in the same form as the Restructuring Agreements with the Domestic Co. and its shareholders immediately after the incorporation of the WFOE to substitute for the Restructuring Agreements in their entirity, which shall be terminated upon the new restructuring agreements taking effect, and (iii) the Founders shall establish a new domestic company in the PRC (the “ New VIE Company ”) and enter into restructuring agreements in the same form as the Restructuring Agreements with the New VIE Company and the WFOE immediately after the incorporation of the New VIE Company. The Founders and the Company shall further procure the WFOE and the New VIE Company to enter into a deed of adherence immediately after incorporation to join in this Agreement and the Shareholders Agreement, and to assume rights and obligations as a “Group Company” hereunder and thereunder.

7.12     Smallyes Group Companies .

(a)    The Founders and the Group Companies shall further promote the process of the Smallyes Group Companies’ transfer of all the trademarks relating to “Yunji” and self-owned branding products sold on Yunji platform and/or used by the Group Companies in other ways to the Group Companies.

(b)    The Founders undertake to procure the Smallyes Group Companies (i) to sell their businesses competing to the Business of the Group Companies (the “ Competitive Businesses ”) to third parties which have no affiliated relationship with Smallyes Group Companies and the Founders, provided that the Parties agree no to set a specific timeline or deadline for such business sale and transfer, and (ii) not to invest additional resources in current Competitive Businesses or expend the scope of current Competitive Businesses.

(c)    Unless otherwise provided in the Transaction Documents, the Group Companies shall conduct business with their Interested Parties (including without limitation, the Smallyes Group Companies) on an arms-length basis.

 

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8.

INDEMNITY.

8.1     General Indemnity . Subject to other provisions of this Section 8, each of the Warrantors hereby agrees to jointly and severally indemnify, defend and hold harmless each Investor, and the Affiliates, directors, officers, partners, managers, shareholders, members, agents, counsels, successors and assigns of such Investor (each, an “ Indemnified Person ”), from and against any and all Indemnifiable Losses incurred, suffered or sustained by any Indemnified Person, directly or indirectly, arising out of or as a result of (i) any material breach or violation of, or any material inaccuracy or misrepresentation in, any representation or warranty made by any Warrantor contained herein or in any other Transaction Documents, or (ii) any material breach or violation by any Warrantor of any covenant or agreement contained herein or in any other Transaction Documents, or (iii) any Action or dispute against any Indemnified Person as a result of the subscription of the Purchased Shares by such Investor.

8.2     Limitations to Indemnity . Notwithstanding anything to the contrary herein,

(a)    ( i ) the Warrantors’ total liability in respect of all relevant claims under this Agreement and other Transaction Documents brought by any of the Indemnified Persons is limited to the total purchase price for Purchased Shares (for the avoidance of doubt, for each Investor, the limitation shall be the purchase price actualy paid by such Investor for its subscription of the Purchased Shares at the Closing), and ( ii ) the aggregate liabilities for each Founder in respect of all relevant claims under this Agreement and other Transaction Documents brought by any of the Indemnified Persons shall in no event exceed the value of all equity interests of the Group Companies directly or indirectly owned by such Founder, and any Indemnified Person shall nonetheless seek indemnification from each Founder exclusively through arising claims against the equity interests of the Group Companies directly or indirectly owned by such Founder (for avoidance of doubt, not through acquiring/enforcing any other assets or properties of any Founder), provided that, any and all properties of the Group Companies, which are misappropriated by the Founders or any of their Affiliates or relatives and/or transferred to the Founders or any of their Affiliates or relatives, shall not be deemed as part of the Founders’ personal assets and the Indemnified Persons shall have recourse against the Founders and/or his Affiliates or relatives with respect to such properties;

(b)    the Warrantors shall not be obligated to indemnify any Indemnified Person pursuant to Section 8 in respect of a claim unless and until the aggregate amount of all Indemnifiable Losses incurred with respect to such claim exceeds US$100,000, in which event the Warrantors shall be responsible for the entire amount of such Indemnifiable Losses of the Indemnified Persons; provided that a number of claims arising out of the same, related, or similar matters, facts, or circumstances shall be aggregated and form a single claim;

(c)    The Warrantors shall not be liable for any claim if the Indemnifiable Loss caused by such claim is able to be eliminated or prevented, to the reasonable satisfaction of the Investors, by the Warrantors within thirty (30) days after the date on which the notice from such Indemnified Person claiming for indemnity is received by the Warrantors; and

(d)    The Warrantors shall not liable to indemnify any Indemnified Person in respect of any claims under this Agreement or other Transaction Documents with respect to any non-compliance with applicable laws of the Warrantors or invalidity of the Restructuring Agreements to the extent that such claims would not have arisen but for a change in any law, regulation or government decrees promulgated after the Closing

 

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8.3     First Recourse . Notwithstanding of any other provisions of this Agreement, each Investor covenants and agrees, as such Investor’s and its Indemnified Person’s first recourse under this Agreement and other Transaction Documents, to use its best efforts to seek, pursue and obtain full recovery from the Warrantors other than the Founders and the Founder Holdcos for claims arising out of this Agreement and other Transaction Documents (“ Investor’s First Recourse Obligations ”) whether or not such Investor or its Indemnified Person has an independent claim or cause of action against any of the Founders and Founder Holdcos. The failure to fulfil the Investor’s First Recourse Obligations shall constitute an absolute and complete bar of action by such Investor or its Indemnified Person for, and an absolute and complete defence by the Founders and Founder Holdcos to, any claim by such Investor or any its Indemnified Person against any of the Founders and/or Founder Holdcos. Provided that a Investor or its Indeminified Person duly performs its Investor’s First Recourse Obligations aforementioned, if such Investor or its Indemnified Person has not been indemnified in part or in full for the Indemnifiable Losses, such Investor and its Indemnified Person shall be entitled to seek, pursue and obtain full recovery from the Founders and Founder Holdcos for claims arising out of this Agreement and other Transaction Documents.

 

9.

CONFIDENTIALITY AND NON-DISCLOSURE .

9.1     Disclosure of Terms . 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 Investor agrees with the Company that such Investor will keep confidential and will not disclose or divulge, any information which such Investor 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 Investor, or pursuant to information rights granted under the Shareholders 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 Investor, or unless the Company gives its written consent to such Investor’s release of the information.

9.2     Press Releases . Within sixty (60) days of the Closing, the Company may issue a press release related to the Closing, disclosing that any Investor has invested in the Company provided that (a) the release does not disclose any of the Terms, (b) the press release does not disclose the amount or other specific terms of the investment, and (c) the final form of the press release is approved in advance in writing by the Investor(s) mentioned therein. The Investors’ names and the fact that the Investors are shareholders in the Company can be included in a reusable press release boilerplate statement, so long as the relevant Investor has given the Company its initial approval of such boilerplate statement and the boilerplate statement is reproduced in exactly the form in which it was approved. No other announcement regarding any Investor in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the relevant Investor’s prior written consent, which consent may be withheld at such Investor’s sole discretion.

9.3     Permitted Disclosures . Notwithstanding anything in the foregoing to the contrary,

(a)    the Company may disclose any of the Terms to its current or bona fide prospective investors, directors, officers, employees, shareholders, investment bankers, lenders, accountants, auditors, insurers, business or financial advisors, and attorneys, in each case only where such Persons or entities are under appropriate nondisclosure obligations imposed by professional ethics, law or otherwise;

 

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(b)    any Investor (and its fund manager) may, disclose such Investor’s investment in the Company to third parties or to the public at its sole discretion and in relation thereto may use the Company’s logo and trademark and may include links to the Company’s website (without requiring the Company’s further consent). If it does so, the other Parties shall have the right to disclose to third parties any such information disclosed in a press release or other public announcement by the Investor.

(c)    any Investor shall have the right to disclose:

(i)    any information to the Investor’s Affiliate or fund manager, the Investor’s and/or its fund manager’s and/or its Affiliate’s legal counsel, fund manager, auditor, insurer, accountant, consultant or to an officer, director, general partner, limited partner, fund manager, shareholder, investment counsel or advisor, or employee of the Investor, fund manager or Affiliate and any of their investors or respective Affiliates, provided , however , that any counsel, auditor, insurer, accountant, consultant, officer, director, general partner, limited partner, fund manager, shareholder, investment counsel or advisor, or employee shall be advised of the confidential nature of the information or are under appropriate non-disclosure obligation imposed by professional ethics, law or otherwise;

(ii)    any information for fund and inter-fund reporting purposes;

(iii)    any information as required by law, government authorities, exchanges and/or regulatory bodies, including by the Securities and Futures Commission of the Hong Kong, the China Securities and Regulatory Commission of the PRC or the Securities and Exchange Commission of the United States (or equivalent for other venues);

(iv)    any information to bona fide prospective purchasers/investors of any share, security or other interests in the Company; and/or

(v)    any information contained in press releases or public announcements of the Company pursuant to Section 9.2 above.

(d)    the confidentiality obligations set out in this Section 9 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 any other 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 9 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; or

(iii)    the disclosure of information by any director of the Company to its appointer or any of its Affiliates or otherwise in accordance with the foregoing provisions of this Section 9.3.

9.4     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 9, 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 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.

 

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10.

MISCELLANEOUS .

10.1     Governing Law . This Agreement shall be governed in all respects by the laws of the Hong Kong without regard to conflicts of law principles.

10.2     Successors and Assigns . Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of and be binding upon the respective successors, heirs and assigns of the Parties whose rights or obligations hereunder are affected by such terms and conditions. This Agreement, and the rights and obligations hereunder, shall not be assigned by any Party without the prior written consent of the other Parties, provided that any Investor may assign its rights and obligations hereunder to an Affiliate of such Investor, or after the Closing, in connection with any transfer of the Purchased Shares held by such Investor to any Person which does not breach any provision of the Transaction Documents and the applicable laws, without consent of the other Parties under this Agreement but with written notice to the Company and the Founders at least ten (10) days in advance, provided that any such transferee shall execute and deliver to the Company a joinder agreement or a deed of adherence in the form satisfactory to the Company, becoming a party hereto as an “Investor” and a “Party”, subject to the terms and conditions hereof.

10.3     Entire Agreement . This Agreement, the Shareholders 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; provided , however , that nothing in this Agreement or related agreements shall be deemed to terminate or supersede the provisions of any confidentiality and non-disclosure 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.

10.4     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 email, upon the date of successful transmission, provided that the sending Party has received a system message indicating successful transmission or has not received a system message within 24 hours indicating failure of delivery or return of email; or (d) three (3) Business Days after deposit with an internationally-recognized overnight delivery service, postage prepaid, addressed to the Parties as set forth in Schedule D 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. The address of each Party is set forth in Schedule D and a Party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 10.4 by giving the other Parties written notice of the new address in the manner set forth above.

 

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10.5     Amendments and Waivers . This Agreement may only be amended or modified with the prior written consent of the Company and the Investors.

10.6     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.

10.7     Professional Fees . If the Closing occurs, or the Closing fails to occur due to a reason attributable to any Warrantor, the Company shall pay the Investors’ fees and expenses, including legal, accounting and out-of-pocket costs incurred by the Investors in connection with the transactions contemplated hereby, within five (5) Business Days after its receipt of written invoices for such fees and expenses, provided that such fees and expenses shall not exceed US$200,000. In the event the Closing does not occur due to a reason solely attributable to any Investor, such Investor shall promptly assume all legal and other professional costs and expenses incurred by or on behalf of such Investor in connection with the transactions contemplated by this Agreement, provided that each of other Parties shall bear its own expenses and costs incurred in connection with the negotiation, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby on its own. In the event of any Action at law, suit in equity or arbitration proceeding in relation to this Agreement or any Purchased Shares or Conversion Shares, the prevailing party shall be entitled to an award of reasonable attorney’s fees and out-of pocket expenses from the losing party. All Taxes arising out of or in connection with the execution and delivery of this Agreement and other Transaction Documents and the consummation of the transactions contemplated hereby and thereby shall be borne by each of the Parties according to applicable laws.

10.8     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.

10.9     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, but all of which together shall constitute one instrument.

10.10     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.

 

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10.11     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 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 and schedules are to the exhibits and schedules 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.

10.12     Dispute Resolution .

(a)     Negotiation Between Parties . The Parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of the relevant Parties within thirty (30) days after the occurrence of the dispute, either Party to the dispute may begin formal arbitration proceedings to be conducted in accordance with subsection (b) below.

(b)     Arbitration . In the event the Parties are unable to settle a dispute between them regarding this Agreement in accordance with 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 Hong Kong International Arbitration Centre Administered Arbitration Rules (the “ HKIAC Rules ”) then in force, 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 HKIAC Rules; and (ii) the language of the arbitration shall be Chinese 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 award of the arbitral tribunal shall be final and binding upon the Parties thereto, and the prevailing Party may apply to a court of competent jurisdiction for enforcement of such award.

10.13     Termination of Agreement . This Agreement may be terminated prior to the Closing (a) by mutual written consent of the Parties, (b) by either any Investor (solely in respect of such Investor) or the Company if the Closing has not been consummated by February 14, 2018, (c) by any Investor (solely in respect of such Investor), by written notice to the Company if there has been a material misrepresentation or material breach of a covenant or agreement contained in this Agreement on the part of the Warrantors, and such breach, if curable, has not been cured within thirty (30) days of such notice stating the reason and intention to so terminate, or (d) by either any Investor (solely in respect of such Investor) or the Company if, due to change of applicable laws, the consummation of the transactions contemplated hereunder would become prohibited under applicable laws. If this Agreement is terminated pursuant to the provision of Section 10.13, this Agreement will be of no further force or effect, provided that no Party shall be relieved of any Liability for a breach of this Agreement or for any misrepresentation hereunder, nor shall such termination be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation.

10.14     Survival. The provisions of Section  1 , Section  8 , Section  9 , Section  10.1 , Section  10.12 and Section  10.14 shall survive the expiration or early termination of this Agreement.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE COMPANY:
Yunji Inc.
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Director
HK Co.:
Yunji Holding Limited
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Director
DOMESTIC CO. :
Yunji Sharing Technology Co., Ltd.
(/s/ Seal of Yunji Sharing Technology Co., Ltd.)
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative
THE OPERATING CO.:
Zhejiang Jishang Youxuan E-Commerce Co., Ltd.
(/s/ Seal of Zhejiang Jishang Youxuan E-Commerce Co., Ltd.)
By:  

/s/ XIAO Shangce

Name:   XIAO Shangce
Title:   Legal Representative

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE FOUNDER HOLDCOS:
Lanlan Ltd.
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Director
THE FOUNDERS
XIAO Shanglue
By:  

/s/ XIAO Shanglue

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE FOUNDER HOLDCOS:
Kingwangpeng Holdings Limited
By:  

/s/ WANG Peng

Name:   WANG Peng
Title:   Director
THE FOUNDERS
WANG Peng
By:  

/s/ WANG Peng

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Acceleration S Limited
By:  

/s/ William Hsu

Name:   William Hsu
Title:   Director

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Eastern Bell XIX Investment Limited
By:  

/s/ SUN Yanhua

Name:   SUN Yanhua
Title:   Director

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
FASTURN OVERSEAS LIMITED
By:  

/s/ CHEN Yuan

Name:   CHEN Yuan
Title:   Director

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
CPYD Singapore Pte. Ltd.
By:  

/s/ Lawrence Lim

Name:   Lawrence Lim
Title:   Director

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
Eastern Bell XII Investment Limited
By:  

/s/ YIN Junping

Name:   YIN Junping
Title:   Management Partner

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
TRUSTBRIDGE PARTNERS IV, L.P.
By:  

/s/ LIN NING DAVID

Name:   LIN NING DAVID
Title:   Authorised Representative

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTORS:
China Renaissance Corporation
By:  

/s/ BAO FAN

Name:   BAO FAN
Title:   Director

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-1

PRC Subsidiaries

 

1.

Hangzhou Jixi Enterprise Management and Consulting Co., Ltd.;

 

2.

Zhejiang Youji Supply Chain Management Co., Ltd.;

 

3.

Huzhou Delue Network Technology Co., Ltd.;

 

4.

Zhejiang Zhelue Network Technology Co., Ltd.;

 

5.

Hangzhou Jichuang Network Technology Co., Ltd.;

 

6.

Zhejiang Jishang Youxuan E-Commerce Co., Ltd.;

 

7.

Zhejiang Jishang Network Technology Co., Ltd.;

 

8.

Zhejiang Jiyuan Network Technology Co., Ltd.; and

 

9.

Anhui Delue Network Technology Co., Ltd..

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-2

Founders

 

Name of Founder

   PRC ID  

XIAO Shanglue

     ******  

WANG Peng

     ******  

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-3

Founder Holdcos

 

Name of the Company

  

Place of Incorporation

  

Ownership

Lanlan Ltd.

   British Virgin Islands    100% owned by XIAO Shanglue

Kingwangpeng Holdings Limited

   British Virgin Islands    100% owned by WANG Peng

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-4-1

Series Seed Investors

 

Name

   No. of Series Seed
Preferred Shares
     Per Share
Price
     Purchase Price

FASTURN OVERSEAS LIMITED

     149,200,000        US$0.022      USD in equivalent
to RMB20,000,000

Eastern Bell XIX Investment Limited

     223,800,000        US$0.022      USD in equivalent
to RMB30,000,000

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-4-2

Series A Investors

 

Name

   No. of Series A
Preferred Shares
     Per Share
Price
     Purchase Price  

Eastern Bell XII Investment Limited

     56,800,000      US$ 0.088       
USD in equivalent
to RMB33,160,000
 
 

CPYD Singapore Pte. Ltd. (“ Crescent ”)

     215,800,000      US$ 0.093        US$20,000,000  

TRUSTBRIDGE PARTNERS IV, L.P.

     111,000,000      US$ 0.000005        US$555  

China Renaissance Corporation (“ Huaxing ”)

     5,600,000      US$ 0.000005        US$28  

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-4-3

Series B Investors

 

Name

   No. of Series B
Preferred Shares
     Per Share
Price
   Purchase Price

Acceleration S Limited

     110,803,324      US$0.902    US$100,000,000

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule B

Capitalization Table

Fully Diluted Capitalization Immediately Prior to the Closing

 

Name of Shareholder

   Class of Shares      Number of Shares      Percentage  

Lanlan Ltd.

     Ordinary Shares        1,051,400,000        91.31

Kingwangpeng Holdings Limited

     Ordinary Shares        100,000,000        8.69
     

 

 

    

 

 

 

Ordinary Total

        1,151,400,000        100
     

 

 

    

 

 

 

Total

        1,151,400,000        100
     

 

 

    

 

 

 

Fully Diluted Capitalization Immediately after the Closing

 

Name of Shareholder

   Class of Shares    Number of Shares      Percentage  

Lanlan Ltd.

   Ordinary Shares      1,051,400,000        47.45

Kingwangpeng Holdings Limited

   Ordinary Shares      100,000,000        4.51

ESOP

   Ordinary Shares      191,663,158        8.65
     

 

 

    

 

 

 

Ordinary Total

        1,343,063,158        60.61
     

 

 

    

 

 

 

Eastern Bell XIX Investment Limited

   Series Seed Preferred Shares      223,800,000        10.10

FASTURN OVERSEAS LIMITED

   Series Seed Preferred Shares      149,200,000        6.73
     

 

 

    

 

 

 

Series Seed Total

        373,000,000        16.83
     

 

 

    

 

 

 

CPYD Singapore Pte. Ltd.

   Series A Preferred Shares      215,800,000        9.74

Eastern Bell XII Investment Limited

   Series A Preferred Shares      56,800,000        2.56

TRUSTBRIDGE PARTNERS IV, L.P.

   Series A Preferred Shares      111,000,000        5.01

China Renaissance Corporation

   Series A Preferred Shares      5,600,000        0.25
     

 

 

    

 

 

 

Series A Total

        389,200,000        17.56
     

 

 

    

 

 

 

Acceleration S Limited

   Series B Preferred Shares      110,803,324        5.00
     

 

 

    

 

 

 

Series B Total

        110,803,324        5.00
     

 

 

    

 

 

 

Total

        2,216,066,482        100
     

 

 

    

 

 

 

 

[Schedule B to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule C

Disclosure Schedule

 

[Schedule C to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule D

Notices

For the purpose of the notice provisions contained in this Agreement, the following are the initial addresses of each Party:

 

If to any Warrantor:
Attn:    WAN Zhi
Address:    ******
Tel:    ******
Email:    ******
If to the Investors:
To CDH   
Attn:    Wang Chaofan
Address:    ******
Tel:    ******
Email:    ******
To Eastern Bell
Attn:    LI Sha
Address:    ******
Tel:    ******
Email:    ******
To Trustbridge
Attn:   

Trustbridge Partners

JING Wenjie

Address:    ******
Tel:    ******
Email:    ******
To Huaxing
Attn:    WANG Xinwei
Address:    ******
Tel:    ******
Email:    ******
To Crescent
Attn:    Lawrence Lim
Address:    ******
Tel:    ******
Email:    ******

 

[Schedule D to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule E

Key Employees

 

1.

XIAO Shanglue

2.

HAO Huan

3.

HU Jianjian

4.

LIU Youcai

5.

ZHANG Tiecheng

 

[Schedule E to the Preferred Share Purchase Agreement - Yunji Inc.]

Exhibit 10.14

 

 

 

PREFERRED SHARE PURCHASE AGREEMENT

by and among

Yunji Inc.

China TH Capital Limited

Fountain Sight Limited

Shanghai Fengxian Information and Technology Development Partnership (LLP)

and

THE OTHER PARTIES NAMED HEREIN

June 4, 2018

 

 

 


PREFERRED SHARE PURCHASE AGREEMENT

This PREFERRED SHARE PURCHASE AGREEMENT (this “ Agreement ”) is entered into on June 4, 2018 by and among:

A.      Yunji Inc. , a Cayman Islands exempted company whose registered address is at the Office of Sertus Incorporations (Cayman) Limited, Sertus Chambers, Governors Square, Suite # 5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands (the “ Company ”);

B.      Y unji Holding Limited , a Hong Kong company whose registered address is at Room 1907, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong (the “ HK Co. ”);

C.      Hangzhou Yunchuang Sharing Network Technology Co., Ltd. , a company established under the laws of the PRC, whose registered address is at Suite 505, 99 Xiwen Street, Xiacheng District, Hangzhou, Zhejiang Province, PRC (the “ WFOE ”);

D.      Yunji Sharing Technology Co., Ltd. , a company established under the laws of the PRC, whose registered address is at Suite 601, No. 14, Xintiandi Business Center, Xiacheng District, Hangzhou, Zhejiang Province, PRC (“ Domestic Co. ”);

E.      Zhejiang Jishang Youxuan E-Commerce Co., Ltd. , a company established under the laws of the PRC, whose registered address is at Suite 301, No. 14, Xintiandi Business Center, Xiacheng District, Hangzhou, Zhejiang Province, PRC (“ Operating Co. ”);

F.     The Persons as set forth on Schedule A-2 (each, a “ Founder ”, and collectively, the “ Founders ”);

G.     The entities as set forth on Schedule A-3 (each a “ Founder Holdco ”, and collectively, the “ Founder Holdcos ”);

H.     The entities as set forth on Schedule A-4 (the “ Series B Investor ”); and

I.     The entities as set forth on Schedule A-5 (each, a “ Series B+ Investor ”, and collectively, the “ Series B+ Investors ”, together with the Series B Investor, collectively, the “ Investors ”).

Each of the foregoing parties is referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

RECITALS :

A.    WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Investors certain Preferred Shares and the Investors agree to purchase such Preferred Shares from the Company.

B.    The Parties intend to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein.

 

1


AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the Parties hereto agree as follows:

 

1.

DEFINITIONS .

1.1     Certain Defined Terms . As used in this Agreement, the following terms shall have the following respective meanings:

Action ” shall mean any notice, charge, claim, action, complaint, petition, investigation, appeal, suit, litigation, grievance, inquiry or other proceeding, whether administrative, civil, regulatory or criminal, whether at law or in equity, or otherwise under any applicable law, and whether or not before any mediator, arbitrator or Governmental Authority.

Affiliate ” shall mean, 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, (a) in the case of a natural Person, shall include, without limitation, such Person’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law, (b) in the case of an Investor, shall include (i) any Person who holds Shares as a nominee for the Investor, (ii) any shareholder of the Investor, (iii) any entity or individual which has a direct or indirect interest in the Investor (including, if applicable, any general partner or limited partner) or any fund manager thereof, (iv) any Person that directly or indirectly Controls, is Controlled by, under common Control with, or is managed by the Investor, its shareholder, the general partner or the fund manager of the Investor or its shareholder, (v) the relatives of any individual referred to in (ii), (iii) and (iv) above, and (vi) any trust Controlled by or held for the benefit of such individuals. For the avoidance of doubt, an Investor shall not be deemed to be an Affiliate of any Group Company.

Board ” shall mean the board of directors of the Company.

Business ” shall mean the business of establishment and operation of social retail service platform and operation of “Yunji Weidian” project by the Group Companies.

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 Cayman Islands, Hong Kong or the PRC.

Circular 37 ” shall mean the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Financing and Round Trip Investment via Overseas Special Purpose Companies issued by SAFE on July 4, 2014, and its amendment and interpretation promulgated by SAFE from time to time.

CFC ” shall mean the controlled foreign corporation within the meaning of Section 957 of the Code.

Code ” shall mean the United States Internal Revenue Code of 1986.

Control ” with respect to any third party, shall have the meaning ascribed to it in Rule 405 under Securities Act, and shall be deemed to exist for any party (a) when such party holds at least fifty percent (50%) of the outstanding voting securities of such third party and no other party owns a greater number of outstanding voting securities of such third party or (b) over other members of such party’s immediate family. Immediate family members include, without limitation, an individual’s spouse, parents, children, siblings, mother-in-law and father-in-law and brothers and sisters-in-law. The terms “ Controlling ” and “ Controlled ” have meanings correlative to the foregoing.

 

2


Conversion Shares ” shall mean Ordinary Shares issuable upon conversion of the Preferred Shares of the Company.

Domestic Resident ” shall have the meaning set forth in Circular 37 and/or other law related to Circular 37.

Employee Share Option Plan ” or “ ESOP ” shall mean the employee share option plan of the Company to be adopted as soon as practicable after the Closing and such other arrangements, contracts, or plans as are recommended by management and approved in accordance with the Shareholders Agreement and Restated M&A.

Governmental Authority ” shall mean any nation or government, or any federation, province or state or any other political subdivision thereof; and any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC, the Cayman Islands, 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 the Company, the HK Co., the WFOE, the Domestic Co., the PRC Subsidiaries, the HK Subsidiary, and each Person (except individuals) Controlled by the Company and their respective Subsidiaries from time to time (each a “ Group Company ”), unless the context specifically indicates otherwise.

HK Subsidiary ” shall mean Yunji HongKong Limited.

Hong Kong ” shall mean the Hong Kong Special Administrative Region of the People’s Republic of China.

Huaxing US ” shall mean Fountain Sight Limited, a limited liability company incorporated in the British Virgin Islands.

Huaxing RMB ” shall mean Shanghai Fengxian Information and Technology Development Partnership (LLP), a limited partnership established in the PRC or any of its Affiliates desgianted by it.

IAS ” shall mean the applicable International Accounting Standards published by the International Accounting Standards Board from time to time.

Indemnifiable Loss ” shall mean, with respect to any Person, any action, claim, cost, damage, deficiency, diminution in value, disbursement, expense, liability, loss, obligation, penalty, settlement, suit, or tax of any kind or nature, together with all interest, penalties, legal, accounting and other professional fees and expenses reasonably incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Person, whether directly or indirectly. “ Intellectual Property ” shall mean any and all (a) patents, patent rights, patent applications, and all reissues, re-examinations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (b) inventions (whether patentable or not), improvements, concepts, innovations and industrial models, (c) registered and unregistered copyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), (d) URLs, domain names, web sites, web pages and any part thereof, (e) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (f) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (g) trade names, trade dress, trademarks, service marks, and registrations and applications therefor, and (h) the goodwill of the business symbolized or represented by the foregoing, customer lists and other confidential and proprietary information and common-law rights.

 

3


Key Employee ” shall mean the individuals as set forth on Schedule E .

Liabilities ” or “ Liability ” shall mean, with respect to any Person, all debts, obligations, liabilities owed by such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

Lien ” shall mean any mortgage, pledge, claim, security interest, encumbrance, title defect, lien, charge, easement, adverse claim, restrictive covenant, or other restriction or limitation of any kind whatsoever, including any restriction on the use, voting, transfer, receipt of income, or exercise of any attributes of ownership.

Material Adverse Effect ” shall mean any (a) event, occurrence, fact, condition, change or development that has had, has, or could reasonably be expected to have a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects or liabilities of the Group Companies taken as a whole, (b) material impairment of the ability of any Warrantor to perform the material obligations of such Person hereunder or under any other Transaction Documents, as applicable, or (c) material impairment of the validity or enforceability of this Agreement or any other Transaction Document against any Group Company, Founder or Founder Holdco.

Ordinary Shares ” shall mean the Company’s ordinary shares, par value US$0.000005 per share.

Permit ” shall mean any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.

Person ” shall mean 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.

Purchased Shares ” shall mean the Series B Preferred Shares and the Series B+ Preferred Shares (where applicable) to be issued to and subscribed by the Investors pursuant to this Agreement.

 

4


PFIC ” shall mean the passive foreign investment company within the meaning of Section 1297 of the Code.

PRC ” shall mean the People’s Republic of China, but solely for purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the Islands of Taiwan.

PRC Companies ” shall mean the WFOE, the Domestic Co. and the PRC Subsidiaries, and “ PRC Company ” shall mean any one of such entities.

PRC Subsidiaries ” shall mean the entities set forth on Schedule A-1 , and “ PRC Subsidiary ” shall mean any one of such entities.

Preferred Shares ” shall mean the Company’s Series Seed Preferred Shares, Series A Preferred Shares, Series B Preferred Shares, Series B+ Preferred Shares and/or other preferred shares of the company that may be issued from time to time.

Preferred Majority ” shall mean collectively, the Series Seed Majority, the Series A Majority and the Series B Majority.

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 an implied pre-money valuation of US$4,000,000,000 (or equivalent RMB) or more, or in a similar public offering of Ordinary Shares in a jurisdiction and on an internationally recognized securities exchange or inter-dealer quotation system outside of the United States, including the Stock Exchange of Hong Kong Limited, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, provided such public offering is equivalent to the aforementioned in terms of offering proceeds and regulatory approval, and is approved by the Preferred Majority.

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 hereto.

Restructuring Agreements ” shall mean a series of agreements to be entered into by and between the Domestic Co., the WFOE and certain other parties, including but not limited to an Exclusive Business Cooperation Agreement, Equity Interest Pledge Agreements, Exclusive Option Agreements, Loan Agreements, each in the form and substance satisfactory to the Investors.

RMB ” shall mean the lawful currency of the PRC.

SAFE ” shall mean the State Administration of Foreign Exchange of the PRC.

SAFE Rules and Regulations ” shall mean Circular 37 and any other applicable laws on foreign exchange applicable to any Warrantor or any direct in direct shareholder of the Company who is a Domestic Resident.

Securities Act ” shall mean the U.S. Securities Act of 1933, as amended.

Series Seed Majority ” shall mean the holders holding more than two-thrids (2/3) of the then outstanding Series Seed Preferred Shares, voting as a single class on an as-converted basis.

 

5


Series Seed Preferred Shares ” shall mean the Company’s Series Seed Preferred Shares, par value US$0.000005 per share.

Series A Majority ” shall mean the holders holding more than fifty percent (50%) of the then outstanding Series A Preferred Shares, voting as a single class on an as-converted basis.

Series A Preferred Shares ” shall mean the Company’s Series A Preferred Shares, par value US$0.000005 per share.

Series B Majority ” shall mean the holders holding more than fifty percent (50%) of the then outstanding Series B Preferred Shares and the then outstanding Series B+ Preferred Shares, voting as a single class on an as-converted basis.

Series B Preferred Shares ” shall mean the Company’s Series B Preferred Shares, par value US$0.000005 per share.

Series B+ Preferred Shares ” shall mean the Company’s Series B+ Preferred Shares, par value US$0.000005 per share.

Shares ” shall mean all Preferred Shares and all Ordinary Shares of the Company.

Shareholders Agreement ” shall mean the Amended and Restated Shareholders Agreement among the Parties hereto and certain other parties to be entered into as of the Closing in substantially the form attached hereto as Exhibit B .

Smallyes Group Companies ” shall mean, collectively, Zhejiang Smallyes Network Technology Co., Ltd., Hangzhou Smallyes Cosmetics Co., Ltd., and Shanghai Suye Cosmetics Co., Ltd..

Subsidiary ” or “ subsidiary shall mean, with respect to any subject entity (the “subject entity”), (i) any company, partnership or other Person (x) more than fifty percent (50%) of whose shares or other interests entitled to vote in the election of directors or (y) more than a fifty percent (50%) interest in the profits or capital of such entity are owned or controlled directly or indirectly by the subject entity or through one 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 IAS or U.S. GAAP, 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. Notwithstanding the above, as applied to the Company, the term “Subsidiary” or “subsidiary” includes the the HK Co., the WFOE, Domestic Co, the PRC Subsidiaries and the HK Subsidiary.

Tax ” shall mean (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above, and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i)(a) and (i)(b) above.

 

6


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.

Tax Liability ” shall mean an amount equal to the amount of any diminution in the value of the Purchased Shares or the Conversion Shares, and any and all losses, liabilities, damages, suits, obligations, judgments or settlements or any kind (including all reasonable legal costs, costs of recovery and other expenses incurred by the Investor) resulting from any claim of taxation (including those resulting from cancellation or reclamation of tax benefits of any kind relating to the Group Companies) arising from an event relating to tax, whether occurring before or after the Closing.

TH Capital ” shall mean China TH Capital Limited.

Transaction Documents ” shall mean this Agreement, the Shareholders Agreement, the Restated M&A, 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.

US$ ” and “ USD ” shall mean the lawful currency of the United States of America.

U.S. GAAP shall mean the generally accepted accounting principles in the United States.

Warrantors ” shall mean the Founders, the Founder Holdcos, the Company, the HK Co., the WFOE, the Domestic Co. and the Operating Co., unless the context specifically indicates otherwise.

1.2     Warrantor Obligations . Where this Agreement or any Transaction Document places an obligation on any Warrantor, each other Warrantor shall use its best efforts to cause the obligated Warrantor to perform such obligation.

 

7


1.3     Exhibits and Schedules . The following annex, schedules and exhibits are a part of this Agreement and hereby are deemed incorporated herein by reference:

 

Schedule A-1    PRC Subsidiaries
Schedule A-2    Founders
Schedule A-3    Founder Holdcos
Schedule A-4    Investors
Schedule B    Capitalization Table
Schedule C    Disclosure Schedule
Schedule D    Notices
Schedule E    Key Employees
Exhibit A    Amended and Restated Memorandum of Articles of Association of the Company
Exhibit B    Shareholders Agreement
Exhibit C    Restructuring Framework Agreement

 

2.

AGREEMENT TO PURCHASE AND SELL SHARES AT THE CLOSING .

2.1     Agreement to Purchase and Sell of Preferred Shares . Subject to the terms and conditions hereof, at the Closing, ( i ) the Company shall issue and sell to TH Capital and TH Capital shall purchase from the Company at such per share price, each as set forth opposite its name in Schedule A-4 attached hereto, up to an aggregate of 1,108,033 Series B Preferred Shares in the amount set forth opposite its name in Schedule A-4 , and (ii) the Company shall issue and sell to Huaxing US, and Huaxing US shall purchase from the Company at such per share price, each as set forth opposite its name in Schedule A-5 attached hereto, up to an aggregate of 5,276,349 Series B+ Preferred Shares in the amount set forth opposite its name in Schedule A-5 . Subject to the terms and conditions hereof, at the ODI Closing (as defined below), the Company shall issue and sell to Huaxing RMB (or any affiliate thereof, as designated by Huaxing RMB and agreed by the Company, hereinafter, collectively, also referred to as “ Huaxing RMB ”), and Huaxing RMB shall purchase from the Company at such per share price, each as set forth opposite its name in Schedule A-5 attached hereto, up to an aggregate of 15,829,046 Series B+ Preferred Shares in the amount set forth opposite its name in Schedule A-5 . Huaxing RMB agrees to use its best efforts to complete the ODI Filings as soon as practical.

2.2     Pre-money Valuation . The total price payable by the Series B Investor for purchasing the Series B Preferred Shares represents a pre-money valuation of the Company of US$2,000,000,000, and the total price payable by the Series B+ Investors for purchasing the Series B+ Preferred Shares represents a pre-money valuation of the Company of US$2,101,050,000, in each case, including 191,663,158 Ordinary Shares reserved under the Employee Share Option Plan.

2.3     Closing and ODI Closing . Subject to the fulfillment of the conditions to the closing as set forth in Section 5 and Section 6 (where applicable), the purchase and sale of the Purchased Shares in respect of TH Capital and Huaxing US as contemplated herein 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, TH Capital and Huaxing US may mutually agree upon, which date shall be no later than five (5) Business Days after the satisfaction or waiver of each condition to the closing as set forth in Section 5 and Section 6 but in no event later than May 31, 2018 or another date as mutually agreed upon by the Company the respective Investor (the “ Closing ”). Subject to the Closing, within ten (10) Business Days after ( i ) Huaxing RMB’s provision of documents evidencing the completion of all filings and approvals from the relevant PRC government including the PRC National Development and Reform Commission, the PRC Ministry of Commerce, the SAFE and the related foreign exchange bank which are required under PRC laws with respect to Huaxing RMB’s payment of the purchase price for its Purchased Shares to the Company (the “ ODI Filings ”) (including but not limited to confirmation from competent SAFE or bank of Huaxing RMB’s exchange RMB in the amount of the purchase price into USD) and the RMB Security received by the RMB Company (as defined below) as of the Closing pursuant to Section 2.5 hereunder is fully refunded to Huaxing RMB, or ( ii ) the request of Huaxing RMB in the event that Huaxing RMB fails to complete the ODI Filings (the “ ODI Failure ”), in either case not later than August 31, 2018 or another date as mutually agreed upon by the Company and Huaxing RMB, the purchase and sale of the Purchased Shares in respect of Huaxing RMB as contemplated herein shall take place remotely via the exchange of documents and signatures (the “ ODI Closing ”). The Company’s shareholding structure immediately prior to and after the Closing as well as immediately after the ODI Closing shall be as set forth in the Company’s capitalization table attached hereto as Schedule B .

 

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2.4     Deliveries by the Company . At the Closing, the Company shall deliver the following items:

(a)    to TH Capital and Huaxing US, a certified true copy of the register of members of the Company as at the date of the Closing reflecting the ownership of their respective Purchased Shares of TH Capital and Huaxing US, certified by the registered office provider of the Company to be a true and complete copy thereof;

(b)    to TH Capital and Huaxing US, a certified true copy of the share certificate to each of TH Capital and Huaxing US representing the Purchased Shares purchased by TH Capital and Huaxing US, with the original (duly signed and sealed for and on behalf of the Company) to be delivered to TH Capital and Huaxing US within ten (10) Business Days after the Closing; and

(c)    to the Investors, a compliance certificate dated as of the Closing signed by each Warrantor or a duly authorized representative of each Warrantor, as applicable, certifying that all of the conditions set forth in Section 5 (except for Section 5.11) have been fulfilled, and attaching and certifying as true and complete a copy of the Company’s Restated M&A as in effect as of the Closing.

At the ODI Closing, the Company shall deliver the following items:

(a)    to Huaxing RMB a certified true copy of the register of members of the Company as at the date of the ODI Closing reflecting Huaxing RMB’s ownership of its respective Purchased Shares, certified by the registered office provider of the Company to be a true and complete copy thereof; and

(b)    to Huaxing RMB, a certified true copy of the share certificate to Huaxing RMB representing the Purchased Shares purchased by Huaxing RMB, with the original (duly signed and sealed for and on behalf of the Company) to be delivered to Huaxing RMB within ten (10) Business Days after the ODI Closing.

2.5     Deliveries by the Investors . At the Closing, ( i ) TH Capital shall pay its respective purchase price by setting off the financial service fees payable to it by the Company in the amount equal to the purchase price set forth opposite its name in Schedule A-4 , while Huaxing US shall pay its respective purchase price set forth opposite its name in Schedule A-5 by wire transfer of immediately available funds in USD to an offshore bank account designated in writing by the Company and delivered to the Investors (the “ Offshore Account ”) at least five (5) Business Days prior to the Closing or in such other way as otherwise agreed by the Company, and ( ii ) Huaxing RMB shall pay an amount of RMB equivalent to its respective purchase price set forth opposite its name in Schedule A-5 (the “ RMB Security ”) as security for its payment of its respective purchase price pursuant to this Agreement by wire transfer of immediately available funds in RMB to an onshore bank account of an applicable Group Company (the “ RMB Company ”) designated in writing by the Company and delivered to the Investors at least five (5) Business Days prior to the Closing. The exchange rate between RMB and USD for the RMB Security shall be the official central parity rate published by the People’s Bank of China as of the date of Closing.

 

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At the ODI Closing, (i) Huaxing RMB shall pay its respective purchase price set forth opposite its name in Schedule A-5 in USD by wire transfer of immediately available funds to the Offshore Account in the event that the ODI Filings are completed; or ( ii ) in the event of the ODI Failure, Huaxing RMB shall either (a) pay the par value of its respective Purchased Shares or issue a promissory note to the Company in the amount of its respective purchase price set forth opposite its name in Schedule A-5 , provided that at the same time, the RMB Security paid by Huaxing RMB pursuant to this Section 2.5 above shall be contributed into the RMB Company as capital contribution (the “ Capital Contribution ”) in a manner mutually agreed by the Company and Huaxing RMB, so that upon the Capital Contribution Huaxing RMB shall hold the equity interest in such RMB Company at a percentage equal to the shareholding percentage of Huaxing RMB in the Company immediately after the ODI Closing, under which circumstance, Huaxing RMB agrees to enter into the Restructuring Agreements as a shareholder of the RMB Company; or (b) pay its respective purchase price set forth opposite its name in Schedule A-5 in a way mutually agreed by the Company and Huaxing RMB. Huaxing RMB hereby agrees to waive any claim against any Warrantor in relation to any loss of tax base (if applicable) in the event of ODI Failure.

In the event that any Investor fails to make full payment of the purchase price and/or the RMB Security and/or the Capital Contribution pursuant to this Section 2.5 in a timely manner, the Company shall be entitled to forfeit or refuse to register any and all Series B Preferred Shares and/or Series B+ Preferred Shares (where applicable) registered or to be registered under the name of such Investor purchased by such Investor pursuant to this Agreement.

 

3.

REPRESENTATIONS AND WARRANTIES REGARDING OF THE WARRANTORS .

Unless specifically indicated otherwise, the Warrantors hereby jointly and severally represent and warrant to the Investors that the statements in this Section 3, except as set forth in the Disclosure Schedule (the “ Disclosure Schedule ”) attached to this Agreement as Schedule C (the contents of which shall also be deemed to be representations and warranties hereunder), are all true, correct and complete as of the date hereof and the date of the Closing. For purposes of this Section 3, any reference to a Party’s “ knowledge ” means such Party’s best knowledge after due and diligent inquiries of officers, directors, and other employees of such Party reasonably believed to have knowledge of the matter in question.

3.1     Organization, Good Standing and Qualification .

(a)    The Company is duly organized, validly existing and in good standing under, and by virtue of, the laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted. The Company is qualified to do business and is in good standing in each jurisdiction where failure to be so qualified would have a Material Adverse Effect on its financial condition, business, prospects or operations.

 

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(b)    Each of the PRC Companies is a company duly organized and existing under the laws of the PRC, and has all powers and all governmental licenses, permits, Governmental Authorizations, consents and approvals required to carry on its business as now conducted. The HK Subsidiary is a company duly organized and existing under the laws of Hong Kong, and has all powers and all governmental licenses, permits, Governmental Authorizations, consents and approvals required to carry on its business as now conducted. Each of the PRC Companies and the HK Subsidiary has paid all such governmental fees, taxes and stamp duty required to be paid by it under applicable PRC and other laws prior to or upon the Closing.

3.2     Due Authorization . Each Warrantor has all requisite power and authority to execute and deliver the Transaction Documents to which it/he is a party and to carry out and perform its/his obligations thereunder. All action on the part of each Warrantor (and as applicable, its/his respective officers, directors and shareholders) necessary for the authorization, execution and delivery of each Transaction Document, the authorization, issuance, reservation for issuance and delivery of all of the Purchased Shares and the Conversion Shares, and, as applicable, the performance of their respective obligations under each Transaction Document and all other agreements, instruments and documents executed and delivered in connection with the transactions contemplated hereby, has been taken or will be taken prior to the Closing. The Transaction Documents are valid and binding obligations of each Group Company, enforceable in accordance with their respective terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles. The Purchased Shares and the Conversion Shares are not subject to any preemptive rights, rights of first refusal, or liens of any kind except for rights imposed under the Restated M&A and/or the Transaction Documents.

3.3     Capitalization . The authorized share capital of the Company will consist of the following immediately prior to the Closing:

(a)     Ordinary Shares . A total of 9,104,783,248 authorized Ordinary Shares of which 1,151,400,000 shares are issued and outstanding.

(b)     Preferred Shares . A total of 895,216,752 authorized Preferred Shares, ( i ) 373,000,000 of which are designated as Series Seed Preferred Shares, all of which are issued and outstanding, ( ii ) 389,200,000 of which are designated as Series A Preferred Shares, all of which are issued and outstanding, ( iii ) 111,911,357 of which are designated as Series B Preferred Shares, 110,803,324 of which are issued and outstanding, and the remaining of which are not issued or outstanding, and ( iv ) 21,105,395 of which are designated as Series B+ Preferred Shares, none of which are issued or outstanding.

(c)     Options, Warrants, Available Shares . The Company has made available and free of any Liens (i) up to 1,108,033 Series B Preferred Shares and 21,105,395 Series B+ Preferred Shares, each for issuance and sale under this Agreement; (ii) 22,213,428 Ordinary Shares representing the Conversion Shares, and (iii) 191,663,158 Ordinary Shares reserved for issuance under the Employee Share Option Plan. Other than with respect to the Purchased Shares, the Conversion Shares, and Employee Share Option Plan, there are no options, warrants, conversion privileges or other rights or agreements outstanding or under which the Company is or may become obligated to issue any securities of any class or series except as set forth above. Apart from the exceptions noted in this Section 3.3, none of the Company’s outstanding shares, and no shares issuable upon exercise, conversion, or exchange of any outstanding options or other shares issuable by the Company, are subject to any preemptive rights, rights of first refusal, or other rights to purchase such shares (whether in favor of the Company or any other Person), pursuant to any agreement or commitment to which the Company is a party or of which the Company is aware, except for the rights imposed under the Restated M&A and in the Transaction Documents.

 

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3.4     Subsidiaries (General) . Section  3.4 of the Disclosure Schedule sets forth a chart showing the accurate and complete equity structure of the Group Companies and all Subsidiaries thereof, indicating the ownership and Control relationships among all Group Companies, Subsidiaries, the Founder Holdcos, the Founders and other shareholders (if any). Except for the Restructuring Agreements, there is no contract among the Warrantors and/or with any other Person with respect to the ownership or Control of any of the Group Companies or Subsidiaries thereof. Except as disclosed in Section  3.4 of the Disclosure Schedule , no Group Company presently owns or Controls, or has ever owned or Controlled, legally or beneficially, directly or indirectly, any interest or share in any other Person or is or was a participant in any joint venture, partnership or similar arrangement. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any other Person. All other Persons which provide services similar to or competing with the Business of the Group Companies and are Controlled by any Founder have been injected into the Group Companies.

3.5     Valid Issuance of Purchased Shares.

(a)    The Purchased Shares, when issued, sold and allotted and registered in the register of members of the Company in accordance with the terms of this Agreement, will be duly authorized and validly issued, fully paid, non-assessable, and free of any Liens. The Conversion Shares have been duly and validly made available for issuance and, upon issuance will be duly and validly issued, fully paid, non-assessable and free of any Liens upon issuance.

(b)    All presently outstanding Ordinary Shares of the Company are duly and validly issued, fully paid and non-assessable and free of any Liens, and such Ordinary Shares, and all outstanding shares, options and other securities of the Company, have been issued in full compliance with the requirements of all applicable securities laws and regulations, including the Securities Act, and all other antifraud and other provisions of applicable securities laws and regulations.

3.6     Liabilities . Except as described in Section  3.6 of the Disclosure Schedule and the Restructuring Agreements, no Group Company has any indebtedness for borrowed money that it has directly or indirectly created, incurred, assumed, or guaranteed, or with respect to which the Group Company has otherwise become directly or indirectly liable, except as reflected on the Financial Statements and none of the Group Companies is unable to pay its debts as and when such debts fall due or is subject to any insolvency proceedings or has had a receiver, liquidator or administrator appointed over its assets.

3.7     Title to Properties and Assets . Each Group Company has good and marketable title to all respective properties and assets reflected on the Financial Statements, in each case such property and assets are subject to no mortgage, pledge, lien, encumbrance, security interest or charge of any kind. With respect to the property and assets it leases, each Group Company is in compliance with such leases and holds valid leasehold interests in such assets free of any Liens, encumbrances, security interests or claims of any party other than the lessors of such property and assets.

 

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3.8     Financial Statements . The Company has provided the unaudited consolidated balance sheets, cash flow statements and income statements of the Group Companies as of February 28, 2018 (“ Financial Statements Date ”) (all such financial statements being collectively referred to herein as the “ Financial Statements ”. Such Financial Statements (a) accord with the books and records of the respective Group Company, (b) are true, correct and complete and present fairly the financial condition and state of affairs of the respective Group Company at the date or dates therein indicated and the results of operations for the period or periods therein specified, and (c) have been prepared in accordance with PRC generally accepted accounting principles (“ PRC GAAP ”) applied on a consistent basis, except, as to the unaudited financial statements, for the omission of notes thereto and normal year-end audit adjustments.

Specifically, but not by way of limitation, the respective balance sheets included in the Financial Statements disclose all of the respective Group Company’s debts, liabilities and obligations of any nature, whether due or to become due, as of their respective dates (including absolute, accrued, and contingent liabilities) to the extent such debts, liabilities and obligations are required to be disclosed in accordance with the PRC GAAP, and each Group Company has good and marketable unencumbered title to all assets set forth on the balance sheets of the respective Financial Statements, except for such assets as have been spent, sold or transferred in the ordinary course of business since their respective dates.

3.9     Activities Since Financial Statements Date . None of the following events has occurred with respect to any Group Company since the Financial Statements Date and prior to the Closing:

(a)    any declaration or payment of any dividend, or authorization or payment of any distribution upon or with respect to any class or series of its capital shares or any other equity interest;

(b)    any incurrence of indebtedness for money borrowed or any other liabilities;

(c)    any sale, exchange, assignment, or other disposition of any assets or rights (including any Intellectual Property rights or other intangible assets) or creation of any encumbrance on any of its assets or rights;

(d)    any agreements or transactions with any of its officers, directors or employees or any entity controlled by any of such individuals or with its shareholders or Persons related to such shareholders;

(e)    any damage, destruction or loss, whether or not covered by insurance, affecting its assets, properties, financial condition, operating results, prospects or business as presently conducted and as presently proposed to be conducted;

(f)    any waiver of a valuable right or of a debt owed to it;

(g)    any incurrence, creation, assumption, repayment, satisfaction or discharge of any Lien, claim or encumbrance or payment of any obligation;

 

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(h)    any resignation or termination of any of its directors or key officers; or

(i)    any other event or condition of any character which would affect its assets, properties, financial condition, operating results or business.

3.10     Intellectual Property Rights .

(a)    Each Group Company (i) owns, free and clear of all Liens, and/or (ii) have the sufficient and valid right or license to use, all Intellectual Property currently used or occupied by them necessary for the Business, without any violation or infringement of the rights of others. Section  3.1 0(a) of the Disclosure Schedule contains a complete and accurate list of all Intellectual Property owned, licensed to or used by the Group Companies, whether registered or not, and a complete and accurate list of all licenses granted by any Group Company to any third party with respect to any Intellectual Property. Except as disclosed in Section  3.1 0(a) of the Disclosure Schedule , there are no outstanding options, licenses, agreements or rights of any kind granted by any Group Company to any third party, or by any other party to any Group Company, relating to any Intellectual Property currently used or proposed to be used by any Group Company for its Business, except for standard end-user agreements with respect to commercially readily available intellectual property such as “off the shelf” computer software. With respect to any licenses or agreements to which any Group Company is a party in relation to the Intellectual Property used by such Group Company, none of the Group Companies has received any communications alleging that such Group Company has violated such licenses or agreements.

(b)    To the best knowledge of the Warrantors, the use, reproduction, modification, distribution, licensing of any Intellectual Property by any Group Company does not infringe, misappropriate or violate any applicable law or any Intellectual Property of any third party. There is no pending or threatened claim or Action against any Group Company contesting the right to use any of the Intellectual Property currently used by it, asserting the misuse thereof, or asserting the infringement or other violation of any Intellectual Property of any third party. No Person has challenged the ownership or use of any Intellectual Property by a Group Company in writing. To the best knowledge of the Warrantors, no Person has violated, infringed or misappropriated any Intellectual Property of any Group Company, and no Group Company has given any written notice to any other Person alleging any of the foregoing. No proceedings or claims in which any Group Company alleges that any Person is infringing upon, or otherwise violating, any Group Company’s Intellectual Property rights are pending, and none has been served, instituted or asserted by any Group Company. No Group Company has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property of such Person.

(c)    All inventions and know-how conceived by the current and former employees of the Group Companies, including without limitation the Founders and the Key Employees, which are related to the Businesses of the Group Companies are “works made for hire”, and all right, title, and interest therein, including any applications therefor, have been transferred and assigned to, and are currently owned by, the Group Companies. None of the Key Employees of any Group Company is obligated under any Contract, or subject to any Governmental Order, that would interfere with the use of his or her best efforts to promote the interests of the Group Companies or that would conflict with the Business of any Group Company as presently conducted and planned to be conducted. It will not be necessary to utilize in the course of any Group Company’s business operations any inventions of any of the respective employees of the Group Companies made prior to their employment by the Group Companies, except for inventions that have been validly and properly assigned or licensed to the Group Companies as of the date hereof. No government funding, facilities of any educational institution or research centre, or funding from third parties has been used in the development of any Intellectual Property of any Group Company.

 

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(d)    Each Group Company has taken reasonable and appropriate steps to protect, maintain and safeguard its Intellectual Property rights and has made all applicable filings, registrations and payments of fees in connection with the foregoing to the extent required or permitted by the applicable laws. Each Group Company has taken all appropriate security measures to protect the trade secrets and the confidential information of such Group Company in connection with the Business. Without limiting the foregoing, each of the current and former officers, employees, consultants and independent contractors of the Group Companies and each of the suppliers, partners, distributors, and other third parties having access to any Intellectual Property rights of the Group Companies has executed and delivered to the relevant Group Company an agreement requiring the non-disclosure and other protection of such Intellectual Property rights. To the extent that any 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 executed 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.

(e)    The Smallyes Group Companies have transferred to the Group Companies all the trademarks relating to “Yunji” and self-owned branding products sold on Yunji platform and/or used by the Group Companies in other ways, some of such transfer of trademark is in the governmental registration process.

3.11     Contracts .

(a)     Material Contracts and Obligations . All agreements, contracts, leases, licenses, instruments, commitments (oral or written), indebtedness, liabilities and other obligations to which any Group Company is a party or by which it is bound that (i) are material to the conduct and operations of its business and properties; (ii) involve any of the officers, consultants, directors, employees or shareholders of any Group Company; or (iii) obligate any Group Company to share, license or develop any product or technology have been provided to the Investors and their counsel(s) (collectively, the “ Material Contracts ”). For purposes of this Section 3.11 “ material ” shall mean any agreement, contract, indebtedness, liability, arrangement or other obligation either (i) having an aggregate value, cost, liability or amount of RMB1,000,000 or more, or (ii) not terminable upon no more than thirty (30) days’ notice without penalty or obligation.

(b)     Validity and Status . Section  3.11 of the Disclosure Schedule contains a complete and accurate list of all Material Contracts. All the Material Contracts listed on Section  3.11 of the Disclosure Schedule are legally valid and binding, in full force and effect, and enforceable in accordance with their respective terms against the parties thereto, and will not violate any applicable laws. There is no existing default or breach by any party thereto and no Group Company has received any notice or claim or allegation of default or breach thereof from any party thereto, and the various transfers of assets, shares, equity interests, capital, personnel, contracts and Intellectual Property rights.

(c)     Provision of Material Contracts . A true, fully-executed copy of each Material Contract including all amendments and supplements thereto (and a written summary of all terms and conditions of each non-written Material Contract) has been delivered to the Investors.

 

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3.12     Litigation . There is no Action pending or currently threatened against any Founder, any Founder Holdco, any Group Company, any Group Company’s activities, properties or assets or against any officer, director or employee of any Group Company in connection with such officer’s, director’s or employee’s relationship with, or actions taken on behalf of, any Group Company. There is no factual or legal basis for any such Action that might result, individually or in the aggregate, in any Material Adverse Effect. No Group Company is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no Action by any Group Company currently pending or which it intends to initiate.

3.13     Governmental Consents . All consents, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings with any Governmental Authority (“ Governmental Authorizations ”) on the part of each Group Company required in connection with the execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated herein have been obtained and are currently effective and in consummating such transactions. Based in part on the representations and warranties of the Investors set forth in Section 4 below, the offer, sale and issuance of the Purchased Shares and the Conversion Shares, in conformity with the terms of this Agreement, will be exempt from the registration and prospectus delivery requirements of the Securities Act and all other applicable securities laws and regulations.

3.14     Compliance with Other Instruments . No Group Company is in, nor will the conduct of business of any Group Company as proposed to be conducted result in, any violation, breach or default of any constitutional document of any Group Company (which include, as applicable, articles of incorporation, memoranda and/or articles of association, by-laws, joint venture contracts and the like), or in any material respect of any term or provision of any mortgage, indenture, contract, agreement or instrument to which any Group Company is a party or by which it may be bound, or of any provision of any judgment, decree, order, statute, rule or regulation applicable to or binding upon any Group Company. The execution, delivery and performance of and compliance with the Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not result in any such violation, breach or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a default under any such constitutional documents, any such contract, agreement or instrument or a violation of any statutes, laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any asset of any Group Company.

3.15     Compliance with Laws; Permits . Except as disclosed in Section  3.15(a) of the Disclosure Schedule , each Group Company is, and has been, in compliance in all material respects with applicable laws, especially the laws and regulations in connection with the prohibition of pyramid selling. None of the Group Companies has conducted any activity in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any agency thereof in respect of the conduct of its business or the ownership of its properties. No event has occurred and no circumstance exists that (with or without notice or lapse of time) (i) may constitute or result in a violation by any Group Company of, or a failure on the part of such entity to comply with, any applicable law in any material respect, or (ii) may give rise to any 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. To the best knowledge of the Warrantors, no Group Company is under investigation with respect to a material violation of any law. Except as disclosed in Section  3.15(a) of the Disclosure Schedule , each Group Company has all Permits issued or granted by the competent Governmental Authorities necessary for the due and proper establishment and conduct of its business as currently conducted and as proposed to be conducted, the absence of which would be reasonably likely to have a Material Adverse Effect, or is able to obtain such Permits from the competent Governmental Authorities without undue burden or expense. None of the Group Companies is in default under any of such Permit issued or granted by the competent Governmental Authorities. To the best knowledge of the Warrantors, no Governmental Authority is considering modifying, suspending, revoking or denying upon expiration the renewal of any of such Permits. No Permits issued or granted by the competent Governmental Authorities contain any materially burdensome restrictions or conditions, and each Permit is in full force and effect and will remain in full force and effect upon the consummation of the transactions contemplated hereby. None of the Group Companies is in default in any material respect under any Permit issued or granted by the competent Governmental Authorities. To the best knowledge of the Warrantors, there is no reason to believe that any Permit which is subject to periodic renewal will not be granted or renewed. No Group Company has received any letter or other communication from any Governmental Authority threatening or providing notice of revocation of any such Permit issued to any Group Company or the need for compliance or remedial actions in respect of the activities carried out directly or indirectly by any Group Company. There are no fines or penalties asserted against the Group Companies under any applicable law, and none of the Group Companies has received any notice from any Governmental Authorities with respect to any material violation of any applicable law.

 

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3.16     SAFE Registration and Filing . Except as disclosed in Section  3.16 of the Disclosure Schedule , each of the Founders and the Founder Holdcos (each, a “ Company Security Holder ”), who is a Domestic Resident and subject to any of the approval, registration, reporting or filing requirements under Circular 37 or any other applicable SAFE Rules and Regulations, has complied with such approval, reporting, registration and/or filing requirements in connection with his/her/its direct or indirect investment in and ownership of Shares of the Company (including any change or amendment to such direct or indirect investment in and ownership of Shares of the Company) (if applicable), and all statements and documents provided by each Company Security Holder to any PRC Governmental Authority in the course of making such approval, reporting, registration and/or filing are true, complete and valid, in all material respects, except where the failure of certain Company Security Holders in complying with the SAFE Rules and Regulations would not result in a Material Adverse Effect. Neither the Warrantors nor, to the best knowledge of the Warrantors, any of the Company Security Holders has received any oral or written inquiries, notifications, orders or any other forms of official correspondence from SAFE or any of its local branches with respect to any actual or alleged non-compliance with the SAFE Rules and Regulations, and the Company and the Company Security Holders have made all material oral or written filings, registrations, reporting, filing or disclosing required by SAFE or any of its local branches.

3.17     Tax Matters .

(a)    All Tax Returns required to be filed on or prior to the date hereof with respect to each Group Company have been duly and timely filed by such Group Company within the requisite period and completed on a proper basis in accordance with the applicable laws, and are up to date and correct in all material respects. All Taxes owed by each Group Company (whether or not shown on every Tax Return) have been paid in full or provision for the payment thereof have been made. No deficiencies for any Taxes with respect to any Tax Returns have been asserted in writing by, and no notice of any pending action with respect to such Tax Returns has been received from, any Tax authority, and no dispute relating to any Tax Returns with any such Tax authority is outstanding or contemplated. Each Group Company has timely paid all Taxes owed by it which are due and payable (whether or not shown on any Tax Return) and withheld and remitted to the appropriate Governmental Authority all Taxes which it is obligated to withhold and remit from amounts owing to any employee, creditor, customer or third party.

 

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(b)    No audit of any Tax Return of each Group Company and no formal investigation with respect to any such Tax Return by any Tax authority is currently in progress. 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.

(c)    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.

(d)    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.

(e)    No Group Company has been the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes. No Group Company is responsible for the Taxes of any other Person by reason of contract, successor liability or otherwise.

(f)    All Tax credits and Tax holidays enjoyed by the Group Company established under applicable PRC laws since its establishment have been in compliance in all material respects 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.

(g)    No Group Company is, or has ever been a PFIC or CFC or a U.S. real property holding corporation. No Group Company anticipates that it will become a PFIC or CFC or a U. S. real property holding corporation for the current taxable year or any future taxable year. No Group Company has any plan or intention to conduct its business in a manner that would be reasonably expected to result in such Group Company becoming a PFIC or CFC or a U.S. real property holding corporation in the future.

(h)    The Company is treated as a corporation for U.S. federal income tax purposes.

 

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3.18     Interested Party Transactions . Except as disclosed in Section  3.18 of the Disclosure Schedule , no Founder, shareholder, officer, employee or director of a Group Company or any Affiliate of any such Person (including without limitation, the Smallyes Group Companies, each of the foregoing, an “ Interested Party ”) has any agreement, 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 them. Except as disclosed in Section  3.18 of the Disclosure Schedule , no Interested Party has any direct or indirect ownership interest in any firm or corporation with which a Group Company is affiliated or with which a Group Company has a business relationship, or any firm or corporation that competes with a Group Company, except that any of the foregoing Persons may have less than one percent (1%) of record ownership interest in the Company or own less than one percent (1%) of shares in publicly traded companies that may compete with a Group Company. No Affiliate of any officer or director of a Group Company is directly or indirectly interested in any material contract with a Group Company. No Interested Party has had, either directly or indirectly, any interest in: (a) any Person or entity which purchases from or sells, licenses or furnishes to a Group Company any goods, property, intellectual or other property rights or services; or (b) any contract or agreement to which a Group Company is a party or by which it may be bound or affected. Except as disclosed in Section  3.18 of the Disclosure Schedule , all transactions entered or to be entered into by and between any Group Company and Interested Party are “arm-length” transactions.

3.19     Disclosure . No representation or warranty by any Warrantor in this Agreement or in any written statement or certificate furnished or to be furnished to the Investors pursuant to any Transaction Document contains or will contain any untrue statement of fact or omits or will omit to state any fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading in any way. Each of the Warrantors has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Purchased Shares and all information that could reasonably be expected to enable the Investor to make such decision.

3.20     Labor Agreement and Actions; Employee Compensation . No Group Company is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or has sought to represent any of the employees, representatives or agents of a Group Company. There is no strike or other labor dispute involving a Group Company pending or threatened (nor has there been since the incorporation of each Group Company), which could have a Material Adverse Effect on any Group Company, nor is any Group Company aware of any labor organization activity involving its employees. Each Key Employee, officer, consultant and contractor of each Group Company has entered into an employment agreement, and a confidentiality, non-competition and intellectual property rights agreement. No Key Employee is obligated under, or in violation of any term of, any contract or any order of the Governmental Authorities relating to the right of any such individual to be employed by, or to contract with, such Group Company. Except as disclosed in Section  3.20 of the Disclosure Schedule , each Key Employee is currently devoting one hundred percent (100%) of his or her working time to the conduct of the business of the Group Companies. To the best knowledge of the Warrantors after due inquiry, no Warrantor is aware that any such Key Employee is planning to work less than full time at a Group Company in the future, or intends to terminate his or her employment with a Group Company, nor does any Group Company have a present intention to terminate the employment of any Key Employee. To the best knowledge of the Warrantors after due inquiry and except as disclosed in Section  3.20 of the Disclosure Schedule , no such Key Employee is currently working for a competitive enterprise, whether or not such Person is or will be compensated by such enterprise. Each Group Company has complied in all respects with all applicable national, provincial, local or municipal equal employment opportunity and other laws related to employment. No Group Company is a party to or bound by any currently effective employment contract that provides for compensation exceeding three (3) months’ average remuneration of that employee upon termination, deferred compensation agreement, severance agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement.

 

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3.21     Restructuring Agreements. Each Warrantor hereby jointly and severally represent, warrants and covenants to the Investors that during the term of the relevant Restructuring Agreements, each of the statements contained in this Section 3.21 is true, accurate and complete.

(a)    Each of the parties to the Restructuring Agreements has the legal right, power and authority (corporate and other) to enter into and perform its/his/her obligations under each Restructuring Agreement to which it/he/she is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of, and has authorized, executed and delivered, each Restructuring Agreement to which it/he/she is a party.

(b)    Each Restructuring Agreement is in full force and effect and no party to any Restructuring Agreement is in breach or default in the performance or observance of any of the terms or provisions of such Restructuring Agreement. None of the parties to any Restructuring Agreement has sent or received any communication regarding termination of or intention not to renew any Restructuring Agreement, and no such termination or non-renewal has been threatened by any of the parties thereto.

3.22     Insurance . There is no claim pending under the insurance policies and bonds maintained by each Group Company as to which coverage has been questioned, denied or disputed. All premiums due and payable under all such policies and bonds have been timely paid, and each Group Company is otherwise in compliance in all respects with the terms of such policies and bonds. All such policies and bonds are in full force and effect.

3.23     Anti-Bribery, Anti-Corruption, Anti-Money Laundering and Sanctions . Each Group Company and other Warrantors and their Affiliates and their respective directors, officers, managers, employees, independent contractors, representatives, agents and other Persons acting on their behalf (collectively, “ Company Representatives ”) are and have been in compliance with all applicable laws relating to anti-bribery, anti-corruption, anti-money laundering, record keeping and internal control laws (collectively, the “ Compliance Laws ”). Without limiting the foregoing, neither any Group Company nor, any Company Representative has, directly or indirectly, offered, authorized, promised, condoned, participated in, consummated, or received notice of any allegation of, (a) the making of any gift or payment of anything of value to any Public Official by any Person to obtain any improper advantage, affect or influence any act or decision of any such Public Official, or assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person; (b) the taking of any action by any Person which (i) would violate the FCPA, if taken by an entity subject to the FCPA, (ii) would violate the U.K. Bribery Act, if taken by an entity subject to the U.K. Bribery Act, or (iii) could reasonably be expected to constitute a violation of any applicable Compliance Law; (c) the making of any false or fictitious entries in the books or records of any Group Company by any Person; or (d) the using of any assets of any Group Company for the establishment of any unlawful or unrecorded fund of monies or other assets, or the making of any unlawful or undisclosed payment.

 

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4.

REPRESENTATIONS AND WARRANTIES OF INVESTOR S .

Each Investor hereby represents and warrants severally but not jointly to the Company as follows as of the date hereof and as of the Closing:

4.1     Authorization . It has full power and authority to enter into this Agreement and the other Transaction Documents, and each of the Transaction Documents, when executed and delivered by the Investor, will constitute a valid and legally binding obligation of the Investor, subject as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles.

4.2     Purchase for Own Account . It is, or will be acquiring the Purchased Shares and the Conversion Shares for its own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof. By executing this Agreement, the Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participation to such Person or any third Person, with respect to any Purchased Shares or Conversion Shares, other than, with respect to any investor that is an investment fund, agreements or arrangements governing the acquisition, management and disposition of fund assets or interests in general fund assets with participants in the fund.

 

5.

CONDITIONS TO INVESTORS OBLIGATIONS AT THE CLOSING .

The obligations of each of the Investors to purchase its respective Purchased Shares at the Closing or the ODI Closing (in respect of Huaxing RMB only) is, unless otherwise waived in writing by such Investor, subject to the fulfillment to the satisfaction of such Investor on or prior to the Closing of the following conditions:

5.1     Representations and Warranties Correct . The representations and warranties made by the Warrantors in Section 3 hereof shall be true and correct and complete respects with respect to the subjects covered therein when made, and shall be true, correct and complete as of the date of the Closing with the same force and effect as if they had been made on and as of such date except in either case for those representations and warranties (i) that already contain any materiality qualification, which representations and warranties, to the extent already so qualified, shall instead be true and correct in all respects as so qualified as of such dates and (ii) that address matters only as of a particular date, which representations will have been true and correct in all material respects (subject to clause (i)) as of such particular date.

5.2     Performance of Obligations . Each Warrantor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement and other Transaction Documents that are required or contemplated to be performed or complied with by it on or before the Closing.

5.3     Authorizations . All consents of any competent Governmental Authority or of any other Person that are required to be obtained by any Party hereto (other than the Investors) in connection with the consummation of the transactions contemplated by this Agreement and other Transaction Documents shall have been duly obtained and effective as of the Closing, and evidence thereof shall have been delivered to such Investor.

 

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5.4     Proceedings and Documents . All corporate and other proceedings in connection with the transactions contemplated hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to such Investor, and such Investor shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request.

5.5     Group Company’s Charter Documents . The Restated M&A, in the forms attached hereto as Exhibit A , shall have been duly adopted by all necessary action of the Board and shareholders of the Company, and such adoption shall have become effective prior to the Closing with no alternation or amendment as of the Closing. The Restated M&A shall have been duly submitted for filing with the Registrar of Companies of the Cayman Islands at the Closing as evidenced by an email confirmation from the registered office provider of the Company.

5.6     Transaction Documents . Each of the parties to the Transaction Documents, other than such Investor, shall have executed and delivered such Transaction Documents to such Investor.

5.7     Consents and Waivers . Each Warrantor shall have obtained any and all consents and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement.

5.8     Laws . The offer and sale of the Purchased Shares and the Conversion Shares to such Investor pursuant to this Agreement shall be exempt from the registration and prospectus delivery requirements of the Securities Act and shall not violate or breach or result in a violation or breach of any other applicable laws or regulations.

5.9     No Litigation . No Action shall have been threatened or instituted against any Warrantor or such Investor seeking to enjoin, challenge the validity of, or assert any liability against any of them on account of, any transactions contemplated by this Agreement or the other Transaction Documents.

5.10     Closing Deliveries . The Warrantors shall have tendered delivery of all of the various items they are required to deliver to such Investor at the Closing under Section 2.4.

5.11     Due Diligence . Such Investor shall have completed its due diligence investigation of the Group Companies and the results of the due diligence investigation in legal, financial, managerial and technological aspects shall be reasonably satisfactory to such Investor.

5.12     No Material Adverse Effect. There shall have been no Material Adverse Effect on the financial condition, business, prospects or operations of any Group Company since the Financial Statements Date.

 

6.

CONDITIONS TO COMPANY S OBLIGATIONS AT THE CLOSING .

The obligation of the Company to issue and sell the Purchased Shares to each Investor at the Closing is, unless otherwise waived in writing by the Company, subject to the fulfillment to the Company’s satisfaction on or prior to the Closing of the following conditions:

6.1     Representations and Warranties Correct . The representations and warranties made by such Investor in Section 4 hereof shall be true and correct and complete in all material respects with respect to the subjects covered therein when made, and shall be true and correct and complete as of the date of the Closing with the same force and effect as if they had been made on and as of such date, subject to changes contemplated by this Agreement.

 

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6.2     Performance of Obligations . Such Investor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required or contemplated to be performed or complied with by it on or before the Closing.

 

7.

COVENANTS OF THE WARRANTORS .

Each of the Warrantors hereby jointly and severally covenants to the Investors as follows:

7.1     Use of Proceeds . In accordance with the budget and business plan approved by the shareholders (including the affirmative votes of the Preferred Majority), the Company shall use the proceeds from the issuance and sale of the Purchased Shares (the “ Proceeds ”) for capital expenditure, business expansion and working capital of the Company and its subsidiaries, save as otherwise stipulated in this Agreement. The Company shall not use the Proceeds in the payment of any debts or obligations of any Group Company or its Subsidiaries that is not in compliance with the purpose set forth in the foregoing sentence or in the repurchase or cancellation of securities held by any shareholders of the Group Companies or for any other purpose without the consent of the Investors. The Company shall provide the necessary information relating to the Proceeds, and the aggregate amounts thereof under each category, including without limitation the amount of contribution of funds to the WFOE, as reasonably requested by the Investors to facilitate their requisite tax reporting obligations (including the establishment of the tax base for the Purchased Shares to the relevant PRC tax authorities).

7.2     Additional Covenants . Except as required by this Agreement or the Shareholders Agreement or for the purpose of the Restructuring, no resolution of the directors, owners, members, joint venture parties, or shareholders of any Group Company shall be passed, nor shall any contract or commitment be entered into prior to the Closing without the written consent of the Investors, except that the Group Companies may carry on their respective businesses in the same manner as heretofore and may pass resolutions and enter into contracts and commitments in the ordinary course of business and consistent with their past practice.

7.3     Notice of Certain Events . If at any time before the Closing, any Warrantor comes to know of any material fact or event which:

(a)    is in any way inconsistent with any of the representations and warranties of the Warrantors in this Agreement;

(b)    suggests that any fact warranted by the Warrantors hereunder may not be as warranted or may be misleading; or

(c)    might affect the willingness of a prudent investor to purchase the Purchased Shares on the terms contained in the Transaction Documents or the amount of the consideration a prudent investor would be prepared to pay for the Purchased Shares, then the Warrantors shall immediately notify the Investors in writing, describing the fact or event in reasonable detail.

 

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7.4     Employee Equity; Vestin g. After the Closing, the Company (but not any other Group Company) may grant options to employees, advisors, officers, and directors of, and consultants to, the Company and its subsidiaries, but only pursuant to Employee Share Option Plan, provided that the total number of shares issued or issuable under any such Employee Share Option Plan shall not exceed 191,663,158 Ordinary Shares (proportionally adjusted to reflect any share dividends, share splits, or similar transactions). Except as approved by a majority of the Board, shares or share options to be issued under the Employee Share Option Plan shall be subject to a minimum four (4) year vesting schedule no faster than the following, counting from the applicable grant date with respect to the total issued options or shares: twenty-five percent (25%) each at the first anniversary of the grant date, the second anniversary of the grant date, the third anniversary of the grant date and the fourth anniversary of the grant date. To the extent practicable under the PRC laws, the Group Companies shall cause to be filed and registered with the competent local branch of the SAFE of the PRC with respect to the establishment and adoption of the ESOP.

Except as otherwise approved by a majority of the Board, the Company shall cause all future officers, directors, and employees of, and consultants to, the Company and its Subsidiaries who purchase, or receive options to purchase, shares of the Company’s Ordinary Shares, to execute and deliver agreements in forms approved by the Board providing for a right of repurchase in favor of the Company on vested and unvested shares without cost upon termination of the employment with cause or unilateral termination of the employment by the optionees, a prohibition on the transfer of all shares prior to a Qualified IPO (unless otherwise permitted under such Employee Share Option Plan) and a lockup or market standoff commitment after the Qualified IPO in respect of vested shares subject to the requirements that the underwriters or sponsors may have at such time.

7.5     Regulatory Compliance.

(a)    Each Founder and each Group Company shall comply with all applicable laws and regulations in the PRC in all material respects, including but not limited to applicable laws and regulations in connection with the operations of the Group Companies and the prohibition of pyramid selling, in order to prevent the Group Companies from being recognized by applicable Governmental Authorities as operator of pyramid selling business which is strictly prohibited under PRC laws and regulations. Each Warrantor shall use its best efforts to cause all shareholders of each Group Company, and any successor entity or controlled affiliate of any Group Company to, timely complete all required registrations and other procedures with applicable Governmental Authorities (including without limitation SAFE) as and when required by applicable laws and regulations. The Warrantors shall ensure that, each entity described above and its respective shareholders are in compliance with such requirements in all material respects and that there is no barrier to repatriation of profits, dividends and other distributions from the WFOE (or any successor entity) to the HK Co.

(b)    The Group Companies shall further enhance review of their suppliers’ authorization of online sale of products, in order to avoid sale of products without due authorization to the extent practicable.

(c)    The Founders and Group Companies shall seek advices from the Investors before engaging in new categories of products and/or new business activities, and prepare workable plan which is in compliance with applicable laws and regulations, in order to avoid substantial obstacle to the Group Companies’ Qualified IPO process and time table.

(d)    The Group Companies shall use their commercially reasonable efforts to optimize the legal relationship between the Yunji platform service provider ( i.e. , the Operating Co. and/or the New VIE Company), the third-party suppliers, and the self-owned logistics and retail companies, and clearly distinguish between platform service fees and revenues generated from sale of goods in compliance with the applicable laws and regulations.

 

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(e)    The Group Companies shall use their commercially reasonable efforts to cooperate with reputable warehousing and logistics service providers, in order to ensure the stability of cooperation and quality of service.

(f)    Within reasonable time limit upon request by the Investors, the PRC Companies shall complete their offices’ lease filing with competent housing administrative authorities.

7.6     SAFE Registration. The Group Companies, the Founders and the Founder Holdcos shall, cause each record and beneficial owner of shares and/or equity interests in the Company, who is a Domestic Resident, to complete, update and maintain his/her registration with SAFE as required under SAFE Circular 37 in respect of his/her direct and indirect record and beneficial ownership of any shares or equity interest in the Company and each other Group Company on a timely and continuous basis after the Closing. The Company shall promptly deliver to each Investor and its counsel’s satisfactory evidence for completion of such registration.

7.7     Permit and License. To the extent permitted by the applicable laws, each of the Group Companies shall, and the Founders shall procure each of the Group Companies to, (1) use its best efforts to maintain in a timely manner all requisite consents and permits for conducting the Business in compliance with all applicable laws, (2) use its best efforts to obtain appropriate value-added telecommunication service permit before December 31, 2018, and (3) if so required by any applicable laws, obtain additional consents and permits necessary for conducting the Business as soon as possible but in any event no later than the time limit required by the applicable PRC laws or the competent Government Authorities.

7.8     Intellectual Property Protection . The Group Companies shall establish and maintain appropriate intellectual inspection system to protect the Intellectual Property rights of the Group Companies, and shall use their best efforts to (i) submit the application with relevant Governmental Authorities in respect of the intellectual properties (including but not limited to patents, copyrights, trademarks) of the Group Companies in accordance with applicable laws and regulations as soon as practicable after the fulfillment of the conditions of such application, and (ii) take other measures to the extent desirable and commercially feasible for protecting the Group Companies’ intellectual properties such that the Group Companies may be entitled to use “Yunji” and other frequently used trademarks on its website and mobile application and in its marketing materials. The Group Companies shall, and the Founders shall cause the Group Companies to fully comply with the laws and regulations in respect of the protection of the Intellectual Property and refrain from infringing from the Intellectual Property of other parties.

7.9     Employee Matters. The PRC Companies shall comply with all applicable PRC labor laws and regulations in all material respects, including without limitation, laws and regulations pertaining to welfare funds, social benefits, medical benefits, insurance, retirement benefits, and pensions.

7.10     Tax Matters . The PRC Companies shall comply with all applicable PRC tax laws and regulations in all material respects, including without limitation, laws and regulations pertaining to income tax and value added tax. The PRC Companies shall use their commercially reasonable efforts to further engage qualified tax advisor to (i) optimize the revenue booking and tax filing standard to ensure compliance with applicable laws and regulations, and (ii) conduct transfer pricing analysis and implement relevant report in daily business operation.

 

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7.11     Restructuring . The Founders and the Group Companies shall complete the Restructuring pursuant to the Restructuring Framework Agreement attached hereto as Exhibit C as soon as practicable after the Closing, including without limitation that the Founders shall establish a new domestic company in the PRC (the “ New VIE Company ”) and enter into restructuring agreements in the same form as the Restructuring Agreements with the New VIE Company and the WFOE immediately after the incorporation of the New VIE Company. The Founders and the Company shall further procure the New VIE Company to enter into a deed of adherence immediately after incorporation to join in this Agreement and the Shareholders Agreement, and to assume rights and obligations as a “Group Company” hereunder and thereunder.

7.12     Smallyes Group Companies .

(a)    The Founders and the Group Companies shall further promote the process of the Smallyes Group Companies’ transfer of all the trademarks relating to “Yunji” and self-owned branding products sold on Yunji platform and/or used by the Group Companies in other ways to the Group Companies.

(b)    The Founders undertake to procure the Smallyes Group Companies (i) to sell their businesses competing to the Business of the Group Companies (the “ Competitive Businesses ”) to third parties which have no affiliated relationship with Smallyes Group Companies and the Founders, provided that the Parties agree no to set a specific timeline or deadline for such business sale and transfer, and (ii) not to invest additional resources in current Competitive Businesses or expend the scope of current Competitive Businesses.

(c)    Unless otherwise provided in the Transaction Documents, the Group Companies shall conduct business with their Interested Parties (including without limitation, the Smallyes Group Companies) on an arms-length basis.

7.13    After the ODI Closing, in the event of the ODI Failure, if Huaxing RMB has received any proceeds in foregin currency other than RMB from transfer or otherwise disposal of its Purchased Shares or from its exercise of any rights under the Transaction Documents (including without limitation, liquidation preference right, dividend right, redemption right and etc.), at the request of Huaxing RMB, the Warrantors shall use their commercially reasonable efforts to assist Huaxing RMB to remit such proceeds into China and pay such proceeds in RMB to Huaxing RMB in a legally permitted manner reseanablly requested by Huaxing RMB.

 

8.

INDEMNITY.

8.1     General Indemnity . Subject to other provisions of this Section 8, each of the Warrantors hereby agrees to jointly and severally indemnify, defend and hold harmless each Investor, and the Affiliates, directors, officers, partners, managers, shareholders, members, agents, counsels, successors and assigns of such Investor (each, an “ Indemnified Person ”), from and against any and all Indemnifiable Losses incurred, suffered or sustained by any Indemnified Person, directly or indirectly, arising out of or as a result of (i) any material breach or violation of, or any material inaccuracy or misrepresentation in, any representation or warranty made by any Warrantor contained herein or in any other Transaction Documents, or (ii) any material breach or violation by any Warrantor of any covenant or agreement contained herein or in any other Transaction Documents, or (iii) any Action or dispute against any Indemnified Person as a result of the subscription of the Purchased Shares by such Investor.

 

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8.2     Limitations to Indemnity . Notwithstanding anything to the contrary herein,

(a)    ( i ) the Warrantors’ total liability in respect of all relevant claims under this Agreement and other Transaction Documents brought by any of the Indemnified Persons is limited to the total purchase price for Purchased Shares (for the avoidance of doubt, for each Investor, the limitation shall be the purchase price actually paid by such Investor for its subscription of the Purchased Shares at the Closing), and ( ii ) the aggregate liabilities for each Founder in respect of all relevant claims under this Agreement and other Transaction Documents brought by any of the Indemnified Persons shall in no event exceed the value of all equity interests of the Group Companies directly or indirectly owned by such Founder, and any Indemnified Person shall nonetheless seek indemnification from each Founder exclusively through arising claims against the equity interests of the Group Companies directly or indirectly owned by such Founder (for avoidance of doubt, not through acquiring/enforcing any other assets or properties of any Founder), provided that, any and all properties of the Group Companies, which are misappropriated by the Founders or any of their Affiliates or relatives and/or transferred to the Founders or any of their Affiliates or relatives, shall not be deemed as part of the Founders’ personal assets and the Indemnified Persons shall have recourse against the Founders and/or his Affiliates or relatives with respect to such properties;

(b)    the Warrantors shall not be obligated to indemnify any Indemnified Person pursuant to Section 8 in respect of a claim unless and until the aggregate amount of all Indemnifiable Losses incurred with respect to such claim exceeds US$100,000, in which event the Warrantors shall be responsible for the entire amount of such Indemnifiable Losses of the Indemnified Persons; provided that a number of claims arising out of the same, related, or similar matters, facts, or circumstances shall be aggregated and form a single claim;

(c)    The Warrantors shall not be liable for any claim if the Indemnifiable Loss caused by such claim is able to be eliminated or prevented, to the reasonable satisfaction of the Investors, by the Warrantors within thirty (30) days after the date on which the notice from such Indemnified Person claiming for indemnity is received by the Warrantors; and

(d)    The Warrantors shall not liable to indemnify any Indemnified Person in respect of any claims under this Agreement or other Transaction Documents with respect to any non-compliance with applicable laws of the Warrantors or invalidity of the Restructuring Agreements to the extent that such claims would not have arisen but for a change in any law, regulation or government decrees promulgated after the Closing

8.3     First Recourse . Notwithstanding of any other provisions of this Agreement, each Investor covenants and agrees, as such Investor’s and its Indemnified Person’s first recourse under this Agreement and other Transaction Documents, to use its best efforts to seek, pursue and obtain full recovery from the Warrantors other than the Founders and the Founder Holdcos for claims arising out of this Agreement and other Transaction Documents (“ Investor’s First Recourse Obligations ”) whether or not such Investor or its Indemnified Person has an independent claim or cause of action against any of the Founders and Founder Holdcos. The failure to fulfil the Investor’s First Recourse Obligations shall constitute an absolute and complete bar of action by such Investor or its Indemnified Person for, and an absolute and complete defense by the Founders and Founder Holdcos to, any claim by such Investor or any its Indemnified Person against any of the Founders and/or Founder Holdcos. Provided that an Investor or its Indemnified Person duly performs its Investor’s First Recourse Obligations aforementioned, if such Investor or its Indemnified Person has not been indemnified in part or in full for the Indemnifiable Losses, such Investor and its Indemnified Person shall be entitled to seek, pursue and obtain full recovery from the Founders and Founder Holdcos for claims arising out of this Agreement and other Transaction Documents.

 

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9.

CONFIDENTIALITY AND NON-DISCLOSURE .

9.1     Disclosure of Terms . 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 Investor agrees with the Company that such Investor will keep confidential and will not disclose or divulge, any information which such Investor 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 Investor, or pursuant to information rights granted under the Shareholders 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 Investor, or unless the Company gives its written consent to such Investor’s release of the information.

9.2     Press Releases . Within sixty (60) days of the Closing, the Company may issue a press release related to the Closing, disclosing that any Investor has invested in the Company provided that (a) the release does not disclose any of the Terms, (b) the press release does not disclose the amount or other specific terms of the investment, and (c) the final form of the press release is approved in advance in writing by the Investor(s) mentioned therein. The Investors’ names and the fact that the Investors are shareholders in the Company can be included in a reusable press release boilerplate statement, so long as the relevant Investor has given the Company its initial approval of such boilerplate statement and the boilerplate statement is reproduced in exactly the form in which it was approved. No other announcement regarding any Investor in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the relevant Investor’s prior written consent, which consent may be withheld at such Investor’s sole discretion.

9.3     Permitted Disclosures . Notwithstanding anything in the foregoing to the contrary,

(a)    the Company may disclose any of the Terms to its current or bona fide prospective investors, directors, officers, employees, shareholders, investment bankers, lenders, accountants, auditors, insurers, business or financial advisors, and attorneys, in each case only where such Persons or entities are under appropriate nondisclosure obligations imposed by professional ethics, law or otherwise;

(b)    any Investor (and its fund manager) may, disclose such Investor’s investment in the Company to third parties or to the public at its sole discretion and in relation thereto may use the Company’s logo and trademark and may include links to the Company’s website (without requiring the Company’s further consent). If it does so, the other Parties shall have the right to disclose to third parties any such information disclosed in a press release or other public announcement by the Investor.

 

28


(c)    any Investor shall have the right to disclose:

(i)    any information to the Investor’s Affiliate or fund manager, the Investor’s and/or its fund manager’s and/or its Affiliate’s legal counsel, fund manager, auditor, insurer, accountant, consultant or to an officer, director, general partner, limited partner, fund manager, shareholder, investment counsel or advisor, or employee of the Investor, fund manager or Affiliate and any of their investors or respective Affiliates, provided , however , that any counsel, auditor, insurer, accountant, consultant, officer, director, general partner, limited partner, fund manager, shareholder, investment counsel or advisor, or employee shall be advised of the confidential nature of the information or are under appropriate non-disclosure obligation imposed by professional ethics, law or otherwise;

(ii)    any information for fund and inter-fund reporting purposes;

(iii)    any information as required by law, government authorities, exchanges and/or regulatory bodies, including by the Securities and Futures Commission of the Hong Kong, the China Securities and Regulatory Commission of the PRC or the Securities and Exchange Commission of the United States (or equivalent for other venues);

(iv)    any information to bona fide prospective purchasers/investors of any share, security or other interests in the Company; and/or

(v)    any information contained in press releases or public announcements of the Company pursuant to Section 9.2 above.

(d)    the confidentiality obligations set out in this Section 9 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 any other 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 9 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; or

(iii)    the disclosure of information by any director of the Company to its appointer or any of its Affiliates or otherwise in accordance with the foregoing provisions of this Section 9.3.

9.4     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 9, 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 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.

 

29


10.

MISCELLANEOUS .

10.1     Governing Law . This Agreement shall be governed in all respects by the laws of the Hong Kong without regard to conflicts of law principles.

10.2     Successors and Assigns . Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of and be binding upon the respective successors, heirs and assigns of the Parties whose rights or obligations hereunder are affected by such terms and conditions. This Agreement, and the rights and obligations hereunder, shall not be assigned by any Party without the prior written consent of the other Parties, provided that any Investor may assign its rights and obligations hereunder to an Affiliate of such Investor, or after the Closing, in connection with any transfer of the Purchased Shares held by such Investor to any Person which does not breach any provision of the Transaction Documents and the applicable laws, without consent of the other Parties under this Agreement but with written notice to the Company and the Founders at least ten (10) days in advance, provided that any such transferee shall execute and deliver to the Company a joinder agreement or a deed of adherence in the form satisfactory to the Company, becoming a party hereto as an “Investor” and a “Party”, subject to the terms and conditions hereof.

10.3     Entire Agreement . This Agreement, the Shareholders 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; provided , however , that nothing in this Agreement or related agreements shall be deemed to terminate or supersede the provisions of any confidentiality and non-disclosure 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.

10.4     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 email, upon the date of successful transmission, provided that the sending Party has received a system message indicating successful transmission or has not received a system message within 24 hours indicating failure of delivery or return of email; or (d) three (3) Business Days after deposit with an internationally-recognized overnight delivery service, postage prepaid, addressed to the Parties as set forth in Schedule D 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. The address of each Party is set forth in Schedule D and a Party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 10.4 by giving the other Parties written notice of the new address in the manner set forth above.

10.5     Amendments and Waivers . This Agreement may only be amended or modified with the prior written consent of the Company and the Investors.

 

30


10.6     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.

10.7     Professional Fees . Each Party shall pay all of its own costs, expenses and Taxes incurred in connection with the negotiation, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby. In the event of any Action at law, suit in equity or arbitration proceeding in relation to this Agreement or any Purchased Shares or Conversion Shares, the prevailing party shall be entitled to an award of reasonable attorney’s fees and out-of pocket expenses from the losing party.

10.8     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.

10.9     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, but all of which together shall constitute one instrument.

10.10     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.

10.11     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 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 and schedules are to the exhibits and schedules 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.

 

31


10.12     Dispute Resolution .

(a)     Negotiation Between Parties . The Parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of the relevant Parties within thirty (30) days after the occurrence of the dispute, either Party to the dispute may begin formal arbitration proceedings to be conducted in accordance with subsection (b) below.

(b)     Arbitration . In the event the Parties are unable to settle a dispute between them regarding this Agreement in accordance with 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 Hong Kong International Arbitration Centre Administered Arbitration Rules (the “ HKIAC Rules ”) then in force, 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 HKIAC Rules; and (ii) the language of the arbitration shall be Chinese 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 award of the arbitral tribunal shall be final and binding upon the Parties thereto, and the prevailing Party may apply to a court of competent jurisdiction for enforcement of such award.

10.13     Termination of Agreement . This Agreement may be terminated prior to the Closing (a) by mutual written consent of the Parties, (b) by either any Investor (solely in respect of such Investor) or the Company if the Closing has not been consummated by May 31, 2018, (c) by any Investor (solely in respect of such Investor), by written notice to the Company if there has been a material misrepresentation or material breach of a covenant or agreement contained in this Agreement on the part of the Warrantors, and such breach, if curable, has not been cured within thirty (30) days of such notice stating the reason and intention to so terminate, or (d) by either any Investor (solely in respect of such Investor) or the Company if, due to change of applicable laws, the consummation of the transactions contemplated hereunder would become prohibited under applicable laws. This Agreement may be terminated solely in respect of Huaxing RMB prior to the ODI Closing (a) by mutual written consent of the Company and Huaxing RMB, or (b) by either the Company or Huaxing RMB if the ODI Closing has not been consummated by August 31, 2018. If this Agreement is terminated pursuant to the provision of Section 10.13, this Agreement will be of no further force or effect, provided that no Party shall be relieved of any Liability for a breach of this Agreement or for any misrepresentation hereunder, nor shall such termination be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation.

10.14     Survival. The provisions of Section  1 , Section  8 , Section  9 , Section  10.1 , Section  10.12 and Section  10.14 shall survive the expiration or early termination of this Agreement.

[Signature Page Follows]

 

32


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE COMPANY:

Yunji Inc.

By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Director

HK Co.:

Yunji Holding Limited

By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Director

DOMESTIC CO.:

Yunji Sharing Technology Co., Ltd.

(/s/ Seal of Yunji Sharing Technology Co., Ltd.)

By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

THE OPERATING CO.:

Zhejiang Jishang Youxuan E-Commerce Co., Ltd.

(/s/ Seal of Zhejiang Jishang Youxuan E-Commerce Co., Ltd.)

By:  

/s/ XIAO Shangce

Name:   XIAO Shangce
Title:   Legal Representative

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE WFOE:

Hangzhou Yunchuang Sharing Network

Technology Co., Ltd.

(/s/ Seal of Hangzhou Yunchuang Sharing Network Technology Co., Ltd.)
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Legal Representative

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE FOUNDER HOLDCOS:
Lanlan Ltd.
By:  

/s/ XIAO Shanglue

Name:   XIAO Shanglue
Title:   Director
THE FOUNDERS
XIAO Shanglue
By:  

/s/ XIAO Shanglue

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE FOUNDER HOLDCOS:
Kingwangpeng Holdings Limited
By:  

/s/ WANG Peng

Name:   WANG Peng
Title:   Director
THE FOUNDERS
WANG Peng
By:  

/s/ WANG Peng

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTOR:
China TH Capital Limited
By:  

/s/ SONG Liangjing

Name:   SONG Liangjing
Title:   Management Partner

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTOR:
Fountain Sight Limited
By:  

/s/ Werkun Krzysztof

Name:   Werkun Krzysztof
Title:   Authorized Representative

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

THE INVESTOR:
Shanghai Fengxian Information and Technology Development Partnership (LLP)
(/s/ Seal of Shanghai Fengxian Information and Technology Development Partnership (LLP))
By:  

/s/ WANG Xinwei

Name:   WANG Xinwei
Title:   Authorized Representative

 

[Signature Page to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-1

PRC Subsidiaries

 

1.

Hangzhou Jixi Enterprise Management and Consulting Co., Ltd.;

 

2.

Zhejiang Youji Supply Chain Management Co., Ltd.;

 

3.

Huzhou Delue Network Technology Co., Ltd.;

 

4.

Zhejiang Zhelue Network Technology Co., Ltd.;

 

5.

Hangzhou Jichuang Network Technology Co., Ltd.;

 

6.

Zhejiang Jishang Youxuan E-Commerce Co., Ltd.;

 

7.

Zhejiang Jishang Network Technology Co., Ltd.;

 

8.

Zhejiang Jiyuan Network Technology Co., Ltd.; and

 

9.

Anhui Delue Network Technology Co., Ltd..

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-2

Founders

 

Name of Founder

  

    PRC ID    

XIAO Shanglue

   [                ]

WANG Peng

   [                ]

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-3

Founder Holdcos

 

Name of the Company

  

Place of Incorporation

  

Ownership

Lanlan Ltd.

   British Virgin Islands    100% owned by XIAO Shanglue

Kingwangpeng Holdings Limited

   British Virgin Islands    100% owned by WANG Peng

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-4

Series B Investor

 

Name

   No. of Series B
Preferred Shares
     Per Share
Price
     Purchase Price  

China TH Capital Limited

     1,108,033      US$ 0.902      US$ 1,000,000  

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule A-5

Series B+ Investors

 

Name

   No. of Series B+
Preferred Shares
     Per Share
Price
     Purchase Price  

Fountain Sight Limited

     5,276,349      US$ 0.948        US$5,000,000  

Shanghai Fengxian Information and Technology Development Partnership (LLP)

     15,829,046      US$ 0.948        US$15,000,000  

 

[Schedule A to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule B

Capitalization Table

Fully Diluted Capitalization Immediately Prior to the Closing

 

Name of Shareholder

  

Class of Shares

   Number of Shares      Percentage  

Lanlan Ltd.

   Ordinary Shares      1,051,400,000        47.45

Kingwangpeng Holdings Limited

   Ordinary Shares      100,000,000        4.51

ESOP

   Ordinary Shares      191,663,158        8.65
     

 

 

    

 

 

 

Ordinary Total

        1,343,063,158        60.61
     

 

 

    

 

 

 

Eastern Bell XIX Investment Limited

   Series Seed Preferred Shares      223,800,000        10.10

FASTURN OVERSEAS LIMITED

   Series Seed Preferred Shares      149,200,000        6.73
     

 

 

    

 

 

 

Series Seed Total

        373,000,000        16.83
     

 

 

    

 

 

 

CPYD Singapore Pte. Ltd.

   Series A Preferred Shares      215,800,000        9.74

Eastern Bell XII Investment Limited

   Series A Preferred Shares      56,800,000        2.56

TRUSTBRIDGE PARTNERS IV, L.P.

   Series A Preferred Shares      111,000,000        5.01

China Renaissance Corporation

   Series A Preferred Shares      5,600,000        0.25
     

 

 

    

 

 

 

Series A Total

        389,200,000        17.56
     

 

 

    

 

 

 

Acceleration S Limited

   Series B Preferred Shares      110,803,324        5.00
     

 

 

    

 

 

 

Series B Total

        110,803,324        5.00
     

 

 

    

 

 

 

Total

        2,216,066,482        100
     

 

 

    

 

 

 

 

[Schedule B to the Preferred Share Purchase Agreement - Yunji Inc.]


Fully Diluted Capitalization Immediately After the Closing

 

Name of Shareholder

  

Class of Shares

   Number of Shares      Percentage  

Lanlan Ltd.

   Ordinary Shares      1,051,400,000        47.31

Kingwangpeng Holdings Limited

   Ordinary Shares      100,000,000        4.50

ESOP

   Ordinary Shares      191,663,158        8.62
     

 

 

    

 

 

 

Ordinary Total

        1,343,063,158        60.43
     

 

 

    

 

 

 

Eastern Bell XIX Investment Limited

   Series Seed Preferred Shares      223,800,000        10.07

FASTURN OVERSEAS LIMITED

   Series Seed Preferred Shares      149,200,000        6.71
     

 

 

    

 

 

 

Series Seed Total

        373,000,000        16.78
     

 

 

    

 

 

 

CPYD Singapore Pte. Ltd.

   Series A Preferred Shares      215,800,000        9.71

Eastern Bell XII Investment Limited

   Series A Preferred Shares      56,800,000        2.56

TRUSTBRIDGE PARTNERS IV, L.P.

   Series A Preferred Shares      111,000,000        4.99

China Renaissance Corporation

   Series A Preferred Shares      5,600,000        0.25
     

 

 

    

 

 

 

Series A Total

        389,200,000        17.51
     

 

 

    

 

 

 

Acceleration S Limited

   Series B Preferred Shares      110,803,324        4.99

China TH Capital Limited

   Series B Preferred Shares      1,108,033        0.05
     

 

 

    

 

 

 

Series B Total

        111,911,357        5.04
     

 

 

    

 

 

 

Fountain Sight Limited

   Series B+ Preferred Shares      5,276,349        0.24
     

 

 

    

 

 

 

Series B+ Total

        5,276,349        0.24
     

 

 

    

 

 

 

Total

        2,222,450,864        100
     

 

 

    

 

 

 

 

[Schedule B to the Preferred Share Purchase Agreement - Yunji Inc.]


Fully Diluted Capitalization Immediately After the ODI Closing

 

Name of Shareholder

 

Class of Shares

  Number of Shares      Percentage  

Lanlan Ltd.

  Ordinary Shares     1,051,400,000        46.97

Kingwangpeng Holdings Limited

  Ordinary Shares     100,000,000        4.47

ESOP

  Ordinary Shares     191,663,158        8.56
   

 

 

    

 

 

 

Ordinary Total

      1,343,063,158        60.00
   

 

 

    

 

 

 

Eastern Bell XIX Investment Limited

  Series Seed Preferred Shares     223,800,000        10.00

FASTURN OVERSEAS LIMITED

  Series Seed Preferred Shares     149,200,000        6.66
   

 

 

    

 

 

 

Series Seed Total

      373,000,000        16.66
   

 

 

    

 

 

 

CPYD Singapore Pte. Ltd.

  Series A Preferred Shares     215,800,000        9.64

Eastern Bell XII Investment Limited

  Series A Preferred Shares     56,800,000        2.54

TRUSTBRIDGE PARTNERS IV, L.P.

  Series A Preferred Shares     111,000,000        4.96

China Renaissance Corporation

  Series A Preferred Shares     5,600,000        0.25
   

 

 

    

 

 

 

Series A Total

      389,200,000        17.39
   

 

 

    

 

 

 

Acceleration S Limited

  Series B Preferred Shares     110,803,324        4.95

China TH Capital Limited

  Series B Preferred Shares     1,108,033        0.05
   

 

 

    

 

 

 

Series B Total

      111,911,357        5.00
   

 

 

    

 

 

 

Fountain Sight Limited

  Series B+ Preferred Shares     5,276,349        0.24

Shanghai Fengxian Information and Technology Development Partnership (LLP)

  Series B+ Preferred Shares     15,829,046        0.71
   

 

 

    

 

 

 

Series B+ Total

      21,105,395        0.95
   

 

 

    

 

 

 

Total

      2,238,279,910        100
   

 

 

    

 

 

 

 

[Schedule B to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule C

Disclosure Schedule

 

[Schedule C to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule D

Notices

For the purpose of the notice provisions contained in this Agreement, the following are the initial addresses of each Party:

 

If to any Warrantor:
Attn:    WAN Zhi
Address:    [                            ]
Tel:    [                            ]
Email:    [                            ]
If to TH Capital:
Attn:    ZHANG Sidan
Address:    [                            ]
Tel:    [                            ]
Email:    [                            ]
If to Huaxing US and/or Huaxing RMB:
Attn:    NIU Xiaoyi
Address:    [                            ]
Tel:    [                            ]
Email:    [                            ]

 

[Schedule D to the Preferred Share Purchase Agreement - Yunji Inc.]


Schedule E

Key Employees

 

1.    XIAO Shanglue
2.    HAO Huan
3.    HU Jianjian
4.    LIU Youcai
5.    ZHANG Tiecheng

 

[Schedule E to the Preferred Share Purchase Agreement - Yunji Inc.]

Exhibit 21.1

List of Principal Subsidiaries of the Registrant

 

Principal Subsidiaries

  

Place of Incorporation

Yunji Holding Limited    Hong Kong
Yunji Hongkong Limited    Hong Kong
Hangzhou Yunchuang Sharing Network Technology Co., Ltd.    PRC
Zhejiang Jiyuan Network Technology Co., Ltd.    PRC
Zhejiang Youji Supply Chain Management Co., Ltd.    PRC
Wuhan Yunteng Logistics Co., Ltd.    PRC

Consolidated Variable Interest Entities

  

Place of Incorporation

Yunji Sharing Technology Co., Ltd.    PRC
Zhejiang Yunji Preferred E-Commerce Co., Ltd.    PRC

Subsidiaries of Consolidated Variable Interest Entities

  

Place of Incorporation

Zhejiang Jishang Network Technology Co., Ltd.    PRC
Zhejiang Jishang Preferred E-Commerce Co., Ltd.    PRC
Shanghai Suye Cosmetics Co., Ltd.    PRC

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form F-1 of Yunji Inc. of our report dated March 21, 2019 relating to the financial statements, which appears in this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

/s/ PricewaterhouseCoopers Zhong Tian LLP

Shanghai, the People’s Republic of China

March 21, 2019

Exhibit 23.4

March 21, 2019

Yunji Inc.

15/F, South Building, Hipark Phase 2, Xiaoshan District

Hangzhou 310000, Zhejiang Province

People’s Republic of China

Dear Sirs:

Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the references to my name in the Registration Statement on Form F-1 (the “Registration Statement”) of Yunji Inc. (the “Company”) and any amendments thereto, which indicate that I have accepted the nomination to become a director of the Company. I further agree that immediately upon the United States Securities and Exchange Commission’s declaration of effectiveness of the Registration Statement, I will serve as a member of the board of directors of the Company.

*        *        *


Sincerely yours,
 

/s/ Li-Lan Cheng

Name:   Li-Lan Cheng

 

[Signature Page to Consent of Independent Director]

Exhibit 23.5

March 21, 2019

Yunji Inc.

15/F, South Building, Hipark Phase 2, Xiaoshan District

Hangzhou 310000, Zhejiang Province

People’s Republic of China

Dear Sirs:

Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the references to my name in the Registration Statement on Form F-1 (the “Registration Statement”) of Yunji Inc. (the “Company”) and any amendments thereto, which indicate that I have accepted the nomination to become a director of the Company. I further agree that immediately upon the United States Securities and Exchange Commission’s declaration of effectiveness of the Registration Statement, I will serve as a member of the board of directors of the Company.

*        *        *


Sincerely yours,
 

/s/ Gao Wang

Name:   Gao Wang

 

[Signature Page to Consent of Independent Director]

Exhibit 99.1

YUNJI INC.

CODE OF BUSINESS CONDUCT AND ETHICS

 

 

I.    PURPOSE

This Code of Business Conduct and Ethics (the “ Code ”) contains general guidelines for conducting the business of Yunji Inc., a Cayman Islands company, and its subsidiaries and affiliates (collectively, the “ Company ”) consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. To the extent this Code requires a higher standard than required by commercial practice or applicable laws, rules or regulations, we adhere to these higher standards.

This Code is designed to deter wrongdoing and to promote:

 

   

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

   

full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the U.S. Securities and Exchange Commission (the “ SEC ”) and in other public communications made by the Company;

 

   

compliance with applicable laws, rules and regulations;

 

   

prompt internal reporting of violations of the Code; and

 

   

accountability for adherence to the Code.

II.    APPLICABILITY

This Code applies to all directors, officers and employees of the Company, whether they work for the Company on a full-time, part-time, consultative or temporary basis (each, an “ employee ” and collectively, the “ employees ”). Certain provisions of the Code apply specifically to our chief executive officer, chief financial officer, senior finance officer, controller, senior vice presidents, vice presidents and any other persons who perform similar functions for the Company (each, a “ senior officer ,” and collectively, the “ senior officers ”).

The Board of Directors of the Company (the “ Board ”) has appointed the Company’s Chief Financial Officer as the Compliance Officer for the Company (the “ Compliance Officer ”). If you have any questions regarding the Code or would like to report any violation of the Code, please email the Compliance Officer at rexchen@yunjiglobal.com.

This Code has been adopted by the Board and shall become effective (the “ Effective Time ”) upon the effectiveness of the Company’s registration statement on Form F-1 filed by the Company with the SEC relating to the Company’s initial public offering.


III.    CONFLICTS OF INTEREST

Identifying Conflicts of Interest

A conflict of interest occurs when an employee’s private interest interferes, or appears to interfere, in any way with the interests of the Company as a whole. An employee should actively avoid any private interest that may impact such employee’s ability to act in the interests of the Company or that may make it difficult to perform the employee’s work objectively and effectively. In general, the following should be considered conflicts of interest:

 

   

Competing Business . No employee may be employed by a business that competes with the Company or deprives it of any business.

 

   

Corporate Opportunity . No employee should use corporate property, information or his/her position with the Company to secure a business opportunity that would otherwise be available to the Company. If an employee discovers a business opportunity that is in the Company’s line of business through the use of the Company’s property, information or position, the employee must first present the business opportunity to the Company before pursuing the opportunity in his/her individual capacity.

 

   

Financial Interests .

 

  (i)

No employee may have any financial interest (ownership or otherwise), either directly or indirectly through a spouse or other family member, in any other business or entity if such interest adversely affects the employee’s performance of duties or responsibilities to the Company, or requires the employee to devote time to it during such employee’s working hours at the Company;

 

  (ii)

No employee may hold any ownership interest in a privately held company that is in competition with the Company;

 

  (iii)

An employee may hold up to 5% ownership interest in a publicly traded company that is in competition with the Company; provided that if the employee’s ownership interest in such publicly traded company increases to more than 5%, the employee must immediately report such ownership to the Compliance Officer;

 

  (iv)

No employee may hold any ownership interest in a company that has a business relationship with the Company if such employee’s duties at the Company include managing or supervising the Company’s business relations with that company; and

 

  (v)

Notwithstanding the other provisions of this Code,

(a) a director or any family member of such director (collectively, “ Director Affiliates ”) or a senior officer or any family member of such senior officer (collectively, “ Officer Affiliates ”) may continue to hold his/her investment or other financial interest in a business or entity (an “ Interested Business ”) that:

(1) was made or obtained either (x) before the Company invested in or otherwise became interested in such business or entity; or (y) before the director or senior officer joined the Company (for the avoidance of doubt, regardless of whether the Company had or had not already invested in or otherwise become interested in such business or entity at the time the director or senior officer joined the Company); or


(2) may in the future be made or obtained by the director or senior officer, provided that at the time such investment or other financial interest is made or obtained, the Company has not yet invested in or otherwise become interested in such business or entity;

provided that such director or senior officer shall disclose such investment or other financial interest to the Board;

(b) an interested director or senior officer shall refrain from participating in any discussion among senior officers of the Company relating to an Interested Business and shall not be involved in any proposed transaction between the Company and an Interested Business; and

(c) before any Director Affiliate or Officer Affiliate (i) invests, or otherwise acquires any equity or other financial interest, in a business or entity that is in competition with the Company; or (ii) enters into any transaction with the Company, the related director or senior officer shall obtain prior approval from the Audit Committee of the Board.

 

   

Loans or Other Financial Transactions . No employee may obtain loans or guarantees of personal obligations from, or enter into any other personal financial transaction with, any company that is a material customer, supplier or competitor of the Company. This guideline does not prohibit arms-length transactions with recognized banks or other financial institutions.

 

   

Service on Boards and Committees . No employee shall serve on a board of directors or trustees or on a committee of any entity (whether profit or not-for-profit) whose interests could reasonably be expected to conflict with those of the Company. Employees must obtain prior approval from the Board before accepting any such board or committee position. The Company may revisit its approval of any such position at any time to determine whether an employee’s service in such position is still appropriate.

The above is in no way a complete list of situations where conflicts of interest may arise. The following questions might serve as a useful guide in assessing a potential conflict of interest situation not specifically addressed above:

 

   

Is the action to be taken legal?

 

   

Is it honest and fair?

 

   

Is it in the best interests of the Company?


Disclosure of Conflicts of Interest

The Company requires that employees fully disclose any situations that could reasonably be expected to give rise to a conflict of interest. If an employee suspects that he/she has a conflict of interest, or a situation that others could reasonably perceive as a conflict of interest, the employee must report it immediately to the Compliance Officer. Conflicts of interest may only be waived by the Board, or the appropriate committee of the Board, and will be promptly disclosed to the public to the extent required by law and applicable rules of the applicable stock exchange.

Family Members and Work

The actions of family members outside the workplace may also give rise to conflicts of interest because they may influence an employee’s objectivity in making decisions on behalf of the Company. If a member of an employee’s family is interested in doing business with the Company, the criteria as to whether to enter into or continue the business relationship and the terms and conditions of the relationship must be no less favorable to the Company compared with those that would apply to an unrelated party seeking to do business with the Company under similar circumstances.

Employees should report any situation involving family members that could reasonably be expected to give rise to a conflict of interest to their supervisor or the Compliance Officer. For purposes of this Code, “family members” or “members of employee’s family” include an employee’s spouse, parents, children and siblings, whether by blood, marriage or adoption or anyone residing in such employee’s home.

IV.    GIFTS AND ENTERTAINMENT

The giving and receiving of appropriate gifts may be considered common business practice. Appropriate business gifts and entertainment are welcome courtesies designed to build relationships and understanding among business partners. However, gifts and entertainment should never compromise, or appear to compromise, an employee’s ability to make objective and fair business decisions.

It is the responsibility of employees to use good judgment in this area. As a general rule, employees may give or receive gifts or entertainment to or from customers or suppliers only if the gift or entertainment is in compliance with applicable law, insignificant in amount and not given in consideration or expectation of any action by the recipient. All gifts and entertainment expenses made on behalf of the Company must be properly accounted for on expense reports.

We encourage employees to submit gifts received to the Company. While it is not mandatory to submit small gifts, gifts of over US$150 must be submitted immediately to the human resources department of the Company.

Bribes and kickbacks are criminal acts, strictly prohibited by law. An employee must not offer, give, solicit or receive any form of bribe or kickback anywhere in the world.


V.    FCPA COMPLIANCE

The U.S. Foreign Corrupt Practices Act (“ FCPA ”) prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. A violation of FCPA does not only violate the Company’s policy but also constitute a civil or criminal offense under FCPA which the Company is subject to after the Effective Time. No employee shall give or authorize directly or indirectly any illegal payments to government officials of any country. While the FCPA does, in certain limited circumstances, allow nominal “facilitating payments” to be made, any such payment must be discussed with and approved by an employee’s supervisor in advance before it can be made.

VI.    PROTECTION AND USE OF COMPANY ASSETS

Employees should protect the Company’s assets and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Company’s profitability. Any use of the funds or assets of the Company, whether for personal gain or not, for any unlawful or improper purpose is strictly prohibited.

To ensure the protection and proper use of the Company’s assets, each employee should:

 

   

exercise reasonable care to prevent theft, damage or misuse of the Company’s assets;

 

   

promptly report any actual or suspected theft, damage or misuse of the Company’s assets;

 

   

safeguard all electronic programs, data, communications and written materials from unauthorized access; and

 

   

use the Company’s assets only for legitimate business purposes.

Except as approved in advance by the Chief Executive Officer or Chief Financial Officer of the Company, the Company prohibits political contributions (directly or through trade associations) by any employee on behalf of the Company. Prohibited political contributions include:

 

   

any contributions of the Company’s funds or other assets for political purposes;

 

   

encouraging individual employees to make any such contribution; and

 

   

reimbursing an employee for any political contribution.


VII.    INTELLECTUAL PROPERTY AND CONFIDENTIALITY

Employees should abide by the Company’s rules and policies in protecting the intellectual property and confidential information, including the following:

 

   

All inventions, creative works, computer software, and technical or trade secrets developed by an employee in the course of performing the employee’s duties or primarily through the use of the Company’s assets or resources while working at the Company shall be the property of the Company.

 

   

Employees should maintain the confidentiality of information entrusted to them by the Company or entities with which the Company has business relations, except when disclosure is authorized or legally mandated. Confidential information includes all non-public information that might be of use to competitors, or harmful to the company or its business associates, if disclosed.

 

   

The Company maintains a strict confidentiality policy. During an employee’s term of employment with the Company, the employee shall comply with any and all written or unwritten rules and policies concerning confidentiality and shall fulfill the duties and responsibilities concerning confidentiality applicable to the employee.

 

   

In addition to fulfilling the responsibilities associated with his/her position in the Company, an employee shall not, without obtaining prior approval from the Company, disclose, announce or publish trade secrets or other confidential business information of the Company, nor shall an employee use such confidential information outside the course of his/her duties to the Company.

 

   

Even outside the work environment, an employee must maintain vigilance and refrain from disclosing important information regarding the Company or its business, business associates or employees.

 

   

An employee’s duty of confidentiality with respect to the confidential information of the Company survives the termination of such employee’s employment with the Company for any reason until such time as the Company discloses such information publicly or the information otherwise becomes available in the public sphere through no fault of the employee.

 

   

Upon termination of employment, or at such time as the Company requests, an employee must return to the Company all of its property without exception, including all forms of medium containing confidential information, and may not retain duplicate materials.

VIII.    ACCURACY OF FINANCIAL REPORTS AND OTHER PUBLIC COMMUNICATIONS

Upon the Effective Time, the Company will be required to report its financial results and other material information about its business to the public and the SEC. It is the Company’s policy to promptly disclose accurate and complete information regarding its business, financial condition and results of operations. Employees must strictly comply with all applicable standards, laws, regulations and policies for accounting and financial reporting of transactions, estimates and forecasts. Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage the Company and result in legal liability.


Employees should be on guard for, and promptly report, any possibility of inaccurate or incomplete financial reporting. Particular attention should be paid to:

 

   

Financial results that seem inconsistent with the performance of the underlying business;

 

   

Transactions that do not seem to have an obvious business purpose; and

 

   

Requests to circumvent ordinary review and approval procedures.

The Company’s senior financial officers and other employees working in the finance department have a special responsibility to ensure that all of the Company’s financial disclosures are full, fair, accurate, timely and understandable. Any practice or situation that might undermine this objective should be reported to the Compliance Officer.

Employees are prohibited from directly or indirectly taking any action to coerce, manipulate, mislead or fraudulently influence the Company’s independent auditors for the purpose of rendering the financial statements of the Company materially misleading. Prohibited actions include but are not limited to:

 

   

issuing or reissuing a report on the Company’s financial statements that is not warranted in the circumstances (due to material violations of U.S. GAAP, generally accepted auditing standards or other professional or regulatory standards);

 

   

not performing audit, review or other procedures required by generally accepted auditing standards or other professional standards;

 

   

not withdrawing an issued report when withdrawal is warranted under the circumstances; or

 

   

not communicating matters required to be communicated to the Company’s Audit Committee.

IX.    COMPANY RECORDS

Accurate and reliable records are crucial to the Company’s business and form the basis of its earnings statements, financial reports and other disclosures to the public. The Company’s records are a source of essential data that guides business decision-making and strategic planning. Company records include, but are not limited to, booking information, payroll, timecards, travel and expense reports, e-mails, accounting and financial data, measurement and performance records, electronic data files and all other records maintained in the ordinary course of business.

All Company records must be complete, accurate and reliable in all material respects. There is never an acceptable reason to make false or misleading entries. Undisclosed or unrecorded funds, payments or receipts are strictly prohibited. An employee is responsible for understanding and complying with the Company’s recordkeeping policy. An employee should contact the Compliance Officer if he/she has any questions regarding the recordkeeping policy.


X.    COMPLIANCE WITH LAWS AND REGULATIONS

Each employee has an obligation to comply with the laws of the cities, provinces, regions and countries in which the Company operates. This includes, without limitation, laws covering commercial bribery and kickbacks, patent, copyrights, trademarks and trade secrets, information privacy, insider trading, offering or receiving gratuities, employment harassment, environmental protection, occupational health and safety, false or misleading financial information, misuse of corporate assets and foreign currency exchange activities. Employees are expected to understand and comply with all laws, rules and regulations that apply to their positions at the Company. If any doubt exists about whether a course of action is lawful, the employee should seek advice immediately from the Compliance Officer.

XI.    DISCRIMINATION AND HARASSMENT

The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment based on race, ethnicity, religion, gender, age, national origin or any other protected class. For further information, employees should consult the Compliance Officer.

XII.    FAIR DEALING

Each employee should endeavor to deal fairly with the Company’s customers, suppliers, competitors and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice.

XIII.    HEALTH AND SAFETY

The Company strives to provide employees with a safe and healthy work environment. Each employee has responsibility for maintaining a safe and healthy workplace for other employees by following environmental, safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Violence or threats of violence are not permitted.

Each employee is expected to perform his/her duty to the Company in a safe manner, not under the influence of alcohol, illegal drugs or other controlled substances. The use of illegal drugs or other controlled substances in the workplace is prohibited.

XIV.    VIOLATIONS OF THE CODE

All employees have a duty to report any known or suspected violation of this Code, including any violation of laws, rules, regulations or policies that apply to the Company. Reporting a known or suspected violation of this Code by others will not be considered an act of disloyalty, but an action to safeguard the reputation and integrity of the Company and its employees.


If an employee knows of or suspects a violation of this Code, it is such employee’s responsibility to immediately report the violation to the Compliance Officer, who will work with the employee to investigate his/her concern. All questions and reports of known or suspected violations of this Code will be treated with sensitivity and discretion. The Compliance Officer and the Company will protect the employee’s confidentiality to the extent possible, consistent with the law and the Company’s need to investigate the employee’s concern.

It is the Company’s policy that any employee who violates this Code will be subject to appropriate discipline, including termination of employment, based upon the facts and circumstances of each particular situation. An employee’s conduct, if it does not comply with the law or with this Code, can result in serious consequences for both the employee and the Company.

The Company strictly prohibits retaliation against an employee who, in good faith, seeks help or reports known or suspected violations. An employee inflicting reprisal or retaliation against another employee for reporting a known or suspected violation will be subject to disciplinary action, including termination of employment.

XV.    WAIVERS OF THE CODE

Waivers of this Code will be granted on a case-by-case basis and only in extraordinary circumstances. Waivers of this Code may be made only by the Board, or the appropriate committee of the Board, and may be promptly disclosed to the public if so required by applicable laws and regulations and rules of the applicable stock exchange.

XVI.    CONCLUSION

This Code contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If employees have any questions about these guidelines, they should contact the Compliance Officer. We expect all employees to adhere to these standards. Each employee is separately responsible for his/her actions. Conduct that violates the law or this Code cannot be justified by claiming that it was ordered by a supervisor or someone in higher management positions. If an employee engages in conduct prohibited by the law or this Code, such employee will be deemed to have acted outside the scope of his/her employment. Such conduct will subject the employee to disciplinary action, including termination of employment.

* * * * * * * * * * * * *

Exhibit 99.2

漢 坤 律 師 事 務 所

H AN K UN L AW O FFICES

33/F, HKRI Centre Two, HKRI Taikoo Hui, 288 Shimen Road (No. 1), Shanghai 200041, P. R. China

TEL: (86 21) 6080 0909; FAX: (86 21) 6080 0999

Beijing Shanghai Shenzhen Hong Kong

www.hankunlaw.com

March 21, 2019

To: Yunji Inc . (the “ Company ”)

15/F, South Building, Hipark Phase 2,

Xiaoshan District, Hangzhou 310000,

Zhejiang Province,

The People’s Republic of China

Re: Legal Opinion on Certain PRC Legal Matters

Dear Sirs or Madams:

We are lawyers qualified in the People’s Republic of China (the “ PRC ” or “ China ,” which, for purposes of this opinion only, does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan) and as such are qualified to issue this opinion on the laws and regulations of the PRC effective as of the date hereof.

We are acting as PRC counsel to the Company, a company incorporated under the laws of the Cayman Islands, in connection with (i) the proposed initial public offering (the “ Offering ”) of a certain number of American depositary shares (the “ ADSs ”), each representing a certain number of Class A ordinary shares of the Company, par value US$0.000005 per share (the “ Ordinary Shares ”) as set forth in the Company’s registration statement on Form F-1, including all amendments and supplements thereto (the “ Registration Statement ”), filed by the Company with the Securities and Exchange Commission under the U.S. Securities Act of 1933 (as amended) in relation to the Offering, and (ii) the Company’s proposed listing of the ADSs on the NASDAQ Global Market.

 

A.

Documents and Assumptions

In rendering this opinion, we have carried out due diligence and examined copies of the Registration Statement and other documents, corporate records and certificates issued by the Governmental Agencies (as defined below) (collectively the “ Documents ”) as we have considered necessary or advisable for the purpose of rendering this opinion. Where certain facts were not independently established and verified by us, we have relied upon certificates or statements issued or made by the relevant Governmental Agencies and appropriate representatives of the Company and the PRC Companies (as defined below). In giving this opinion, we have made the following assumptions (the “ Assumptions ”):

 

 

CONFIDENTIALITY. This document contains confidential information which may be protected by privilege from disclosure. Unless you are the intended or authorised recipient, you shall not copy, print, use or distribute it or any part thereof or carry out any act pursuant thereto and shall advise Han Kun Law Offices immediately by telephone, e-mail or facsimile and return it promptly by mail. Thank you.

 


漢 坤 律 師 事 務 所

H AN K UN L AW O FFICES

 

(i)

all signatures, seals and chops are genuine, each signature on behalf of a party thereto is that of a person duly authorized by such party to execute the same, all Documents submitted to us as originals are authentic, and all Documents submitted to us as certified or photostatic copies conform to the originals;

 

(ii)

each of the parties to the Documents, other than the PRC Companies, (a) if a legal person or other entity, is duly organized and validly existing in good standing under the laws of its jurisdiction of organization and/or incorporation; or (b) if an individual, has full capacity for civil conduct; each of them, other than the PRC Companies, has full power and authority to execute, deliver and perform its, her or his obligations under the Documents to which it, she or he is a party, and, if a legal person or other entity, in accordance with the laws of its jurisdiction of organization and/or incorporation or the laws that it is subject to;

 

(iii)

unless otherwise indicated in the Documents, the Documents that were presented to us remain in full force and effect on the date of this opinion and have not been revoked, amended or supplemented, and no amendments, revisions, supplements, modifications or other changes have been made, and no revocation or termination has occurred, with respect to any of the Documents after they were submitted to us for the purposes of this opinion;

 

(iv)

the laws of jurisdictions other than the PRC which may be applicable to the execution, delivery, performance or enforcement of the Documents are complied with;

 

(v)

all requested Documents have been provided to us and all factual statements made to us by the Company and the PRC Companies in connection with this opinion, including but not limited to the statements set forth in the Documents, are true, correct and complete;

 

(vi)

all explanations and interpretations provided by the officials of Governmental Agencies duly reflect the official position of the relevant Governmental Agencies, and are complete, true and correct; and

 

(vii)

all Governmental Authorizations (as defined below) and other official statements and documentation obtained by the Company or any PRC Company from any Governmental Agency have been obtained by lawful means in due course, and the Documents provided to us conform with those documents submitted to Governmental Agencies for such purposes.

 

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漢 坤 律 師 事 務 所

H AN K UN L AW O FFICES

 

B.

Definitions

In addition to the terms defined in the context of this opinion, the following capitalized terms used in this opinion shall have the meanings ascribed to them as follows.

 

Chuangke Shenzhen    means Chuangke Information and Technology (Shenzhen) Co., Ltd. (创科信息科技(深圳)有限公司)
Governmental Agency    means any national, provincial or local governmental, regulatory or administrative authority, agency or commission in the PRC, or any court, tribunal or any other judicial or arbitral body in the PRC, or any body exercising, or entitled to exercise, any administrative, judicial, legislative, law enforcement, regulatory, or taxing authority or power of a similar nature in the PRC.
Governmental Authorization    means any license, approval, consent, waiver, order, sanction, certificate, authorization, filing, declaration, disclosure, registration, exemption, permission, endorsement, annual inspection, clearance, qualification, permit or license by, from or with any Governmental Agency pursuant to any PRC Laws.
Individual Shareholders    means Shanglue Xiao and Huan Hao, who collectively hold 100% of equity interests in Yunji Preferred
Hangzhou Yunchu    means Hangzhou Yunchu E-Commerce Co., Ltd. (杭州云储电子商务有限公司)
Jironghuishang    means Jironghuishang Commercial Factoring (Tianjin) Co., Ltd. (集融汇商商业保理(天津)有限公司)
New M&A Rules    means the Provisions on Merging and Acquiring Domestic Enterprises by Foreign Investors, which was promulgated by six Governmental Agencies, namely, the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (the “CSRC”), and the State Administration of Foreign Exchange, on August 8, 2006 and became effective on September 8, 2006, as amended by the Ministry of Commerce on June 22, 2009.
PRC Companies    means, collectively, all entities listed in Appendix I hereof, and each a “PRC Company.”

 

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漢 坤 律 師 事 務 所

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PRC Laws    means all applicable national, provincial and local laws, regulations, rules, notices, orders, decrees and judicial interpretations of the PRC in effect and publicly available as of the date of this opinion.
VIE Agreements    means the documents as set forth in Appendix II hereto, and each a “VIE Agreement.”
Wuhan Yunteng    means Wuhan Yunteng Logistics Co., Ltd. (武汉云腾物流有限公司)
Yiwu Yunchu    means Yiwu Yunchu Trading Co., Ltd. (义乌云储贸易有限公司)
Yunji Sharing    means Yunji Sharing Technology Co., Ltd. (云集共享科技有限公司)
Yunchuang Sharing    means Hangzhou Yunchuang Sharing Network Technology Co., Ltd. (杭州云创共享网络科技有限公司)
Yunji Preferred    means Zhejiang Yunji Preferred E-Commerce Co., Ltd. (浙江云集优选电子商务有限公司)
Zhejiang Junlue    means Zhejiang Junlue Digital Technology Co., Ltd. (浙江君略数字科技有限公司)
Zhengzhou Jicun    means Zhengzhou Jicun International Trade Co., Ltd. (郑州集存国际贸易有限公司)

 

C.

Opinions

Based on our review of the Documents and subject to the Assumptions and the Qualifications, we are of the opinion that:

(i)     VIE Structure . The ownership structure of the Company’s indirect ownership of 90% of the equity interest in Wuhan Yunteng and the ownership structure of the other PRC Companies as set forth in the Registration Statement, do not and will not, immediately after giving effect to the Offering, result in any violation of applicable PRC Laws. Each of the PRC Companies and, to the best of our knowledge after due inquiry, each of the Individual Shareholders has the power, authority and legal right to enter into, execute, deliver and perform its or his respective obligations under each VIE Agreement to which it or he is a party. Except as disclosed in the Registration Statement, each VIE Agreement constitutes valid, legal and binding obligations enforceable against each PRC Company and Individual Shareholder to which it or he is a party in accordance with its terms. To the best of our knowledge after due inquiry, none of the PRC Companies and Individual Shareholders is in material breach or default in the performance or observance of any of the terms or provisions of the VIE Agreements to which it or he is a party.

 

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漢 坤 律 師 事 務 所

H AN K UN L AW O FFICES

 

Except as disclosed in the Registration Statement, the due execution, delivery and performance of each VIE Agreement by the parties thereto and the consummation of the transactions contemplated thereunder do not, as to each of the PRC Companies that is a party to such VIE Agreement: (a) result in any violation of the business license, articles of association, approval certificate or other constitutional documents (if any) of such PRC Company; or (b) result in any violation of applicable PRC Laws. No Governmental Authorizations are required under PRC Laws in connection with the due execution, delivery or performance of each of the VIE Agreements other than those already obtained; provided, however, any exercise by Yunchuang Sharing of its rights under the relevant Exclusive Option Agreements will be subject to: (a) the Governmental Authorizations for the resulting equity transfer; (b) the exercise price for equity transfer under the VIE Agreements in accordance with PRC Laws; and (c) completion of tax filing under applicable PRC Laws.

There are, however, substantial uncertainties regarding the interpretation and application of PRC Laws and future PRC laws and regulations, and there can be no assurance that the Governmental Agencies will take a view that is not contrary to or otherwise different from our opinion stated above.

(ii)     Taxation. The statements made in the Registration Statement under the caption “Taxation—People’s Republic of China Taxation,” with respect to the PRC tax laws and regulations or interpretations, constitute true and accurate descriptions of the matters described therein in all material respects.

(iii)     NEW M&A Rules. Based on our understanding of the PRC Laws, we are of the opinion that the CSRC’s approval is not required to be obtained for the Offering and the listing and trading of the ADSs on the NASDAQ Global Market (assuming no offer, issuance or sale of the Ordinary Shares and the ADSs has been or will be made directly or indirectly within the PRC), because (a) the CSRC has not issued any definitive rule or interpretation concerning whether the Offering is subject to the New M&A Rules as of the date hereof; (b) each of Yunchuang Sharing, Chuangke Shenzhen, Hangzhou Yunchu, Yiwu Yunchu, Zhengzhou Jicun, Jironghuishang and Zhejiang Junlue is a wholly foreign-owned enterprise which was initially established by means of direct investment and not through mergers or acquisitions of the equity or assets of a “domestic company” as such term is defined under the New M&A Rules; and (c) no provision in the New M&A Rules classifies the contractual arrangements under the VIE Agreements as a type of acquisition transaction falling under the New M&A Rules.

 

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(iv)     Enforceability of Civil Procedures . The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of written arrangement with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against a company or its directors and officers if they decide that the judgment violates the basic principles of PRC Laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or the Cayman Islands.

(v)     PRC Law s . All statements set forth in the Registration Statement under the captions “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Enforceability of Civil Liabilities,” “Corporate History and Structure,” “Business,” “Regulation” and “Taxation—People’s Republic of China Taxation,” in each case insofar as such statements describe or summarize PRC legal or regulatory matters, are true and accurate in all material respects, and are fairly disclosed and correctly set forth therein, and nothing has been omitted from such statements which would make the same misleading in any material respect.

 

D.

Qualifications

Our opinion expressed above is subject to the following qualifications (the “ Qualifications ”):

 

i.

Our opinion is limited to PRC Laws of general application on the date hereof. We have made no investigation of, and do not express or imply any views on, the laws of any jurisdiction other than the PRC, and we have assumed that no such other laws would affect our opinions expressed above.

 

ii.

There is no guarantee that any of the PRC Laws referred to herein, or the interpretation or enforcement thereof, will not be changed, amended or revoked in the future with or without retrospective effect.

 

iii.

Our opinion is subject to (a) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws in the PRC affecting creditors’ rights generally, and (b) possible judicial or administrative actions or any PRC Laws affecting creditors’ rights.

 

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iv.

Our opinion is subject to the effects of (a) certain legal or statutory principles affecting the enforceability of contractual rights generally under the concepts of public interests, social ethics, national security, good faith, fair dealing, and applicable statutes of limitation; (b) any circumstance in connection with the formulation, execution or performance of any legal documents that would be deemed materially mistaken, clearly unconscionable, fraudulent, coercionary or concealing illegal intentions with a lawful form; (c) judicial discretion with respect to the availability of specific performance, injunctive relief, remedies or defenses, or the calculation of damages; and (d) the discretion of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC.

 

v.

This opinion is issued based on our understanding of PRC Laws. For matters not explicitly provided under PRC Laws, the interpretation, implementation and application of the specific requirements under PRC Laws, as well as their application to and effect on the legality, binding effect and enforceability of certain contracts, are subject to the final discretion of competent PRC legislative, administrative and judicial authorities. Under PRC Laws, foreign investment is restricted in certain industries. The interpretation and implementation of these laws and regulations, and their application to and effect on the legality, binding effect and enforceability of contracts such as the VIE Agreements and transactions contemplated by the VIE Agreements, are subject to the discretion of the competent Governmental Agency.

 

vi.

The term “enforceable” or “enforceability” as used in this opinion means that the obligations assumed by the relevant obligors under the relevant Documents are of a type which the courts of the PRC may enforce. It does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their respective terms and/or additional terms that may be imposed by the courts. As used in this opinion, the expression “to the best of our knowledge after due inquiry” or similar language with reference to matters of fact refers to the current, actual knowledge of the attorneys of this firm who have worked on matters for the Company and the PRC Companies in connection with the Offering and the transactions contemplated thereby.

 

vii.

We may rely, as to matters of fact (but not as to legal conclusions), to the extent we deem proper, on representations made by officers and employees of the Company, the PRC Companies and Governmental Agencies.

 

viii.

We have not undertaken any independent investigation, search or other verification action to determine the existence or absence of any fact or to render this opinion, and no inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of the Company or the PRC Companies or the rendering of this opinion.

 

ix.

This opinion is intended to be used in the context which is specifically referred to herein; each paragraph shall be construed as a whole and no part shall be extracted and referred to independently.

 

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x.

This opinion is strictly limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated herein. The opinion expressed herein is rendered only as of the date hereof, and we assume no responsibility to advise you of facts, circumstances, events or developments that hereafter may be brought to our attention and that may alter, affect or modify the opinion expressed herein.

This opinion is delivered solely for the purpose of and in connection with the Registration Statement publicly filed with the U.S. Securities and Exchange Commission on the date of this opinion and may not be used for any other purpose without our prior written consent.

We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Registration Statement, and to the use of our firm’s name under the captions “Risk Factors,” “Enforceability of Civil Liabilities,” “Corporate History and Structure,” “Regulation,” “Taxation—People’s Republic of China Taxation” and “Legal Matters” in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the regulations promulgated thereunder.

 

Yours faithfully,

/s/ HAN KUN LAW OFFICES

HAN KUN LAW OFFICES

 

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Appendix I

List of PRC Companies

 

1.

Hangzhou Yunchuang Sharing Network Technology Co., Ltd. (杭州云创共享网络科技有限公司);

 

2.

Hangzhou Jichuang Network Technology Co., Ltd. (杭州集创网络科技有限公司);

 

3.

Zhejiang Zhelue Network Technology Co., Ltd. (浙江哲略网络科技有限公司);

 

4.

Zhejiang Youji Supply Chain Management Co., Ltd. (浙江优集供应链管理有限公司);

 

5.

Hangzhou Jixi Enterprises Management Consulting Co., Ltd. (杭州集喜企业管理咨询有限公司);

 

6.

Zhejiang Jiyuan Network Technology Co., Ltd. (浙江集远网络科技有限公司);

 

7.

Anhui Delue Network Technology Co., Ltd. (安徽德略网络科技有限公司);

 

8.

Ningbo Yunchu Trading Co., Ltd. (宁波云储贸易有限公司);

 

9.

Wuhan Yunteng Logistics Co., Ltd. (武汉云腾物流有限公司);

 

10.

Zhengzhou Jicun International Trading Co., Ltd. (郑州集存国际贸易有限公司);

 

11.

Hangzhou Yunchu E-Commerce Co., Ltd. (杭州云储电子商务有限公司);

 

12.

Chuangke Information and Technology (Shenzhen) Co., Ltd. (创科信息科技(深圳)有限公司);

 

13.

Yiwu Yunchu Trading Co., Ltd. (义乌云储贸易有限公司);

 

14.

Jironghuishang Commercial Factoring (Tianjin) Co., Ltd. (集融汇商商业保理(天津)有限公司);

 

15.

Zhejiang Junlue Digital Technology Co., Ltd. (浙江君略数字科技有限公司);

 

16.

Huahong Financial Leasing (Hangzhou) Co., Ltd. (华弘融资租赁(杭州)有限公司);

 

17.

Yunji Sharing Technology Co., Ltd. (云集共享科技有限公司);


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18.

Zhejiang Jishang Network Technology Co., Ltd. (浙江集商网络科技有限公司);

 

19.

Zhejiang Yunji Preferred E-Commerce Co., Ltd (浙江云集优选电子商务有限公司);

 

20.

Hangzhou Caisheng Enterprises Management Consulting Co., Ltd. (杭州财盛企业管理咨询有限责任公司);

 

21.

Zhejiang Jishang Preferred E-Commerce Co., Ltd. (浙江集商优选电子商务有限公司); and

 

22.

Zhejiang Jixiang E-Commerce Co., Ltd. (浙江集享电子商务有限公司).

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Appendix II

List of VIE Agreements

In relation to Yunji Sharing:

 

1.

Amended and Restated Exclusive Service Agreement (经修订和重述的独家服务协议) dated December 17, 2018 between Hangzhou Yunchuang and Yunji Sharing;

 

2.

Amended and Restated Exclusive Option Agreement (经修订和重述的独家购买权协议) dated December 17, 2018 between Hangzhou Yunchuang, Yunji Sharing, Daqiao Network Technology (Hangzhou) Co., Ltd. (大乔网络科技(杭州)有限公司), Hangzhou Yuepeng Trading Co., Ltd. (杭州悦朋贸易有限公司), and Deqing Jijie Investment Management Partnership (Limited Partnership) (德清集杰投资管理合伙企业(有限合伙));

 

3.

Amended and Restated Voting Trust Agreement (经修订和重述的委托协议) dated December 17, 2018 between Hangzhou Yunchuang, Yunji Sharing, Daqiao Network Technology (Hangzhou) Co., Ltd. (大乔网络科技(杭州)有限公司), Hangzhou Yuepeng Trading Co., Ltd. (杭州悦朋贸易有限公司), and Deqing Jijie Investment Management Partnership (Limited Partnership) (德清集杰投资管理合伙企业(有限合伙));

 

4.

Power of Attorney (授权委托书) issued by Daqiao Network Technology (Hangzhou) Co., Ltd. (大乔网络科技(杭州)有限公司) on December 17, 2018;

 

5.

Power of Attorney (授权委托书) issued by Hangzhou Yuepeng Trading Co., Ltd. (杭州悦朋贸易有限公司) on December 17, 2018;

 

6.

Power of Attorney (授权委托书) issued by Deqing Jijie Investment Management Partnership (Limited Partnership) (德清集杰投资管理合伙企业(有限合伙)) on December 17, 2018; and

 

7.

Amended and Restated Equity Interest Pledge Agreement (经修订和重述的股权质押协议) dated December 17, 2018 between Hangzhou Yunchuang, Yunji Sharing, Daqiao Network Technology (Hangzhou) Co., Ltd. (大乔网络科技(杭州)有限公司), Hangzhou Yuepeng Trading Co., Ltd. (杭州悦朋贸易有限公司), and Deqing Jijie Investment Management Partnership (Limited Partnership) (德清集杰投资管理合伙企业(有限合伙)).


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In relation to Yunji Preferred:

 

1.

Amended and Restated Exclusive Service Agreement (经修订和重述的独家服务协议) dated December 14, 2018 between Hangzhou Yunchuang and Yunji Preferred;

 

2.

Amended and Restated Exclusive Option Agreement (经修订和重述的独家购买权协议) dated December 14, 2018 between Hangzhou Yunchuang, Yunji Preferred, Xiao Shanglue (肖尚略) and Hao Huan (郝焕);

 

3.

Amended and Restated Voting Trust Agreement (经修订和重述的委托协议) dated December 14, 2018 between Hangzhou Yunchuang, Yunji Preferred, Xiao Shanglue (肖尚略) and Hao Huan (郝焕);

 

4.

Power of Attorney (授权委托书) issued by Xiao Shanglue (肖尚略) on December 14, 2018;

 

5.

Power of Attorney (授权委托书) issued by Hao Huan (郝焕) on December 14, 2018;

 

6.

Amended and Restated Equity Interest Pledge Agreement (经修订和重述的股权质押协议) dated December 14, 2018 between Hangzhou Yunchuang, Yunji Preferred, Xiao Shanglue (肖尚略) and Hao Huan (郝焕);

 

7.

Amended and Restated Spousal Consent Letter (经修订和重述的配偶同意函) issued by Zhang Wei (张薇) and Xiao Shanglue (肖尚略) on December 14, 2018;

 

8.

Amended and Restated Spousal Consent Letter (经修订和重述的配偶同意函) issued by Yuan Jing (袁晶) and Hao Huan (郝焕) on December 14, 2018; and

 

9.

Loan Agreement dated December 14, 2018 between Hangzhou Yunchuang, Xiao Shanglue (肖尚略) and Hao Huan (郝焕).

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Exhibit 99.3

 

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March 14th, 2019

Yunji Inc.

15/F, South Building, Hipark Phase 2, Xiaoshan District

Hangzhou 310000, Zhejiang Province

People’s Republic of China

Re: Yunji Inc.

Ladies and Gentlemen,

We understand that Yunji Inc. (the “Company”) plans to file a registration statement on Form F-1 (the “Registration Statement”) with the United States Securities and Exchange Commission (the “SEC”) in connection with its proposed initial public offering (the “Proposed IPO”).

We hereby consent to the references to our name and the inclusion of information, data and statements from our research reports and amendments thereto (collectively, the “Reports”), and any subsequent amendments to the Reports, as well as the citation of our research reports and amendments thereto, in the Registration Statement and any amendments thereto, in any other future filings with the SEC by the Company, including, without limitation, filings on Form 20-F or Form 6-K or other SEC filings (collectively, the “SEC Filings”), on the websites of the Company and its subsidiaries and affiliates, in institutional and retail road shows and other activities in connection with the Proposed IPO, and in other publicity materials in connection with the Proposed IPO.

We further hereby consent to the filing of this letter as an exhibit to the Registration Statement and any amendments thereto and as an exhibit to any other SEC Filings.

Yours faithfully,

For and on behalf of

China Insights Consultancy

 

/s/ Sophia Wang

Name: Sophia Wang
Title: Executive Director

 

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