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As confidentially submitted to the Securities and Exchange Commission on September 5, 2014

Registration No. 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Momo Inc.

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

Cayman Islands		7372		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

20^th Floor, Block B

Tower 2, Wangjing SOHO

No.1 Futongdong Street

Chaoyang District, Beijing 100102

People’s Republic of China

+86-10-5731-0567

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

 

 

(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		David T. Zhang, Esq. Benjamin Su, Esq. Benjamin W. James, Esq. Kirkland & Ellis International LLP c/o 26th Floor, Gloucester Tower, The Landmark 15 Queen’s Road Central, Hong Kong +852 3761-3318

 

 

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.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Proposed maximum aggregate offering price(2)(3)		Amount of registration fee
Ordinary Shares, par value $0.0001 per share(1)		$		$

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

(2)

Includes ordinary shares that are issuable upon the exercise of the underwriters’ over-allotment option. Also includes 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 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 prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Issued             , 2014

             American Depositary Shares

 

Momo Inc.

REPRESENTING                      ORDINARY SHARES

 

 

Momo is offering              American depositary shares, or ADSs[, and the selling shareholders are offering              ADSs]. Each ADS represents              ordinary shares, par value US$0.0001 per share. This is our initial public offering and no public market currently exists for our ADSs or              ordinary shares. We anticipate the initial public offering price of our ADSs will be between US$             and US$             per ADS.

 

 

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

 

 

We have applied for the listing of our ADSs on the [NASDAQ Global Market/NYSE] under the symbol “            .”

 

 

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 11.

 

 

PRICE US$             AN ADS

 

 

 

Price to public

Underwriting Discounts and Commissions

Proceeds before expenses to Company

[Proceeds before expenses to Selling Shareholders

Per ADS

US$

US$

US$

US$

Total

US$

US$

US$

US$

]

We [and the selling shareholders] have granted the underwriters the right to purchase up to              additional ADSs to cover over-allotments within 30 days after the date of this prospectus. [We will not receive any of the proceeds from the sale of the ADSs by the selling shareholders.]

The Securities and Exchange Commission and state securities regulators have not 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 to purchasers on             , 2014.

 

 

 

MORGAN STANLEY		CREDIT SUISSE		J.P. MORGAN		CHINA RENAISSANCE

 

 

            , 2014

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

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

Until                     , 2014 (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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RISK FACTORS

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

Risks Related to Our Business and Industry

If we fail to retain our existing users, further grow our user base, or if user engagement on our platform declines, our business and operating results may be materially and adversely affected.

The size of our user base and the level of our user engagement are critical to our success. We had 147.7 million registered users as of June 30, 2014. “Registered users” as of a given day refers to the aggregate number of Momo registered user accounts from the launch of Momo through such day. Each Momo registered user account is usually linked to a mobile phone number. A single person with multiple mobile phone numbers may link to multiple Momo registered user accounts and, in such case, would be counted as multiple registered users. Our MAUs and average DAUs reached 52.4 million and 22.3 million in June 2014, respectively, representing an increase of 155.9% and 187.8% from June 2013.

Growing our user base and increasing the overall level of user engagement on our social networking platform are critical to our business. If our user growth rate slows down, our success will become increasingly dependent on our ability to retain existing users and enhance user engagement on our platform. If our Momo mobile application is no longer one of the social networking tools that people frequently use, or if people do not perceive our services to be interesting or useful, we may not be able to attract users or increase the frequency or depth of their engagement. A number of user-oriented instant communication products that achieved early popularity have since seen the size of their user base or level of user engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or user engagement level in the future. A number of factors could negatively affect user retention, growth and engagement, including if:

 

•

we are unable to attract new users to our platform or retain existing ones;

 

•

we fail to introduce new and improved services, or if we introduce services that are not favorably received by users;

 

•

we are unable to combat spam on or inappropriate or abusive use of our platform, which may lead to negative public perception of us and our brand;

 

•

technical or other problems prevent us from delivering our services in a rapid and reliable manner or otherwise adversely affect the user experience;

 

•

we suffer from negative publicity, fail to maintain our brand or if our reputation is damaged;

 

•

we fail to address user concerns related to privacy and communication, safety, security or other factors; and

 

•

there are adverse changes in our services that are mandated by, or that we elect to make to address, legislation, regulations or government policies.

If we are unable to grow our user base or enhance user engagement, our platform will become less attractive to our users, customers and platform partners, which would have a material and adverse impact on our business and operating results.

 

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We are in the early stages of monetization and cannot guarantee that the monetization strategies we have adopted will be successfully implemented or generate sustainable revenues and profit.

Our monetization model is new and evolving. We began to generate revenues in the second half of 2013 through membership subscriptions, mobile games and other services, which accounted for approximately 63.0%, 32.0% and 5.0%, respectively, of our net revenues in the first half of 2014. We generate membership subscription revenues from users who purchase membership packages for additional functionalities and privileges in our mobile application. For mobile games, we cooperate with third-party game developers to provide their games on our platform and share revenues generated by in-game purchases of virtual items with such developers. Our other services include paid emoticons and mobile marketing services. If our strategic initiatives do not enhance our ability to monetize our existing services or enable us to develop new approaches to monetization, we may not be able to maintain or increase our revenues and profits or recover any associated costs. In addition, we may in the future introduce new services to further diversify our revenue streams, including services with which we have little or no prior development or operating experience. If these new or enhanced services fail to engage users, customers or platform partners, we may fail to attract or retain users or to generate sufficient revenues to justify our investments, and our business and operating results may suffer as a result.

We have a limited operating history in a dynamic market, which makes it difficult to evaluate our future prospects.

The market for social networking platforms is relatively new, highly dynamic and may not develop as expected. Our users, customers and platform partners may not fully understand the value of our services, and potential new users, customers and platform partners may have difficulty distinguishing our services from those of our competitors. Convincing potential users, customers and platform partners of the value of our services is critical to the growth of our user base and the success of our business. See also “Industry—Mobile Social Networking in China.”

We launched our Momo mobile application in August 2011, and the relatively short operating history makes it difficult to assess our future prospects or forecast our future results. You should consider our business and prospects in light of the risks and challenges we encounter or may encounter in this developing and rapidly evolving market. These risks and challenges include our ability to, among other things:

 

•

increase our number of members and other paying users, which include users who make purchases of emoticons or purchase virtual items in mobile games offered on our platform, as well as the level of user engagement;

 

•

develop and deploy diversified and distinguishable features and services for our users and customers;

 

•

convince customers of the benefits of our marketing services compared to alternative forms of marketing;

 

•

develop or implement strategic initiatives to monetize our platform;

 

•

develop a reliable, scalable, secure, high-performance technology infrastructure that can efficiently handle increased usage;

 

•

successfully compete with other companies, some of which have substantially greater resources and market power than us, that are currently in, or may in the future enter, our industry, or duplicate the features of our services;

 

•

attract, retain and motivate talented employees; and

 

•

defend ourselves against litigation, regulatory, intellectual property, privacy or other claims.

If we fail to educate potential users, customers and platform partners about the value of our services, if the market for our platform does not develop as we expect or if we fail to address the needs of this dynamic market, our business will be harmed. Failure to adequately address these or other risks and challenges could harm our business and cause our operating results to suffer.

 

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We have incurred significant net losses in the past, and we may not be able to achieve or subsequently maintain profitability.

Since our inception, we have incurred significant net losses. As of June 30, 2014, we had an accumulated deficit of US$73.3 million. We believe that our future revenue growth will depend on, among other factors, the popularity of social networking applications, as well as our ability to attract new users, increase user engagement, effectively design and implement monetization strategies, develop new services and compete effectively and successfully. In addition, our ability to achieve and sustain profitability is affected by various factors, many of which are beyond our control, such as the continuous development of social networking, mobile games and mobile marketing services in China.

We may continue to incur losses in the near future due to our continued investments in technologies, research and development and our continued sales and marketing initiatives. Changes in the macroeconomic and regulatory environment or competitive dynamics and our inability to respond to these changes in a timely and effective manner may also impact our profitability. Accordingly, you should not rely on the revenues of any prior quarterly or annual period as an indication of our future performance.

We may not be able to successfully maintain and increase the number of our members or other paying users.

Revenues generated from membership subscription packages, mobile games and paid emoticons accounted for substantially all of our total revenues in the first half of 2014. Our future growth depends on our ability to convert our existing users into members and other paying users of our services and mobile games and retain our current members and paying users. Paying users include our members as well as users who make purchases of emoticons or purchase virtual items in mobile games offered on our platform. However, we cannot assure you that we will be able to retain our members and other paying users or continue to convert existing or new users into members and other paying users, nor can we assure you that we will be able to successfully compete with current and new competitors on members and other paying users. Our efforts to provide greater incentives for our users to subscribe for our membership status may not continue to succeed. Our members and other paying users may discontinue their subscriptions or other spending on our services because we no longer serve their needs, or simply because the interests and preferences of these users shift. If we cannot successfully maintain or increase the number of our members and other paying users, our business, results of operations and prospects will be adversely affected.

If we fail to launch new games or release upgrades to existing games that attract new players and retain existing players, our business and operating results will be materially and adversely affected.

We have relied on mobile games for a substantial portion of our revenues, and we expect mobile games to continue to be an important part of our revenues. Revenues generated from mobile games contributed 32.0% of our total revenues in the first half of 2014. Growing and retaining our user base and converting some of our users into paying users largely depend on our ability to continuously offer new games and game updates that anticipate and effectively respond to changing player interests and preferences. If we cannot maintain our existing partnership with third-party game developers, or source new popular games that retain existing players and attract new players by expanding our network of partnering game developers, our business, results of operations and prospects will be materially and adversely affected.

It is difficult to consistently anticipate player preferences or industry changes, particularly games in new genres. Neither can we assure you that the new games we offer will attract a large number of players and be commercially successful, nor can we guarantee that we will be able to meet our timetable for new game launches. A number of factors, including changing game player preferences and our relationship with existing and new third-party game developers, could affect the popularity of new games or delay the launch of new games on our platform. If the new games we introduce are not commercially successful, we may not be able to recover the expenses we incur in game development, which can be significant.

 

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In addition, new games that we offer may attract game players away from existing games on our platform. If this occurs, it will decrease the player base of our existing games, which could result in decreased revenues from such existing games. Game players of our existing games may also spend less money to purchase virtual items in our new games than they would have spent if they had continued playing our existing games, which could materially and adversely affect our revenues.

Our business is dependent on the strength of our brand and market perception of our brand.

In China, we market our services under the brand “ ” or “Momo.” Our business and financial performance are highly dependent on the strength and the market perception of our brand and services. A well-recognized brand is critical to increasing our user base and, in turn, facilitating our efforts to monetize our services and enhancing our attractiveness to customers. From time to time, we conduct marketing activities across various media to enhance our brand and to guide public perception of our brand and services. In order to create and maintain brand awareness and brand loyalty, to influence public perception and to retain existing and attract new mobile users, customers and platform partners, we may need to substantially increase our marketing expenditures. We cannot assure you, however, that these activities will be successful or that we will be able to achieve the brand promotion effect we expect.

In addition, people may not understand the value of our platform, and there may be a misperception that Momo is used solely as a tool to randomly meet or date strangers. Convincing potential new users, customers and platform partners of the value of our services is critical to increasing the number of our users, customers and platform partners and to the success of our business.

Negative publicity may harm our brand and reputation and have a material adverse effect on our business and operating results.

Negative publicity involving us, our users, our social networking platform or our business model may materially and adversely harm our brand and our business. We cannot assure you that we will be able to defuse negative publicity about us and/or our services to the satisfaction of our investors, users, customers and platform partners. There has been negative publicity about our company and the misuse of our services, which has adversely affected our brand, public image and reputation. Such negative publicity, especially when it is directly addressed against us, may also require us to engage in defensive media campaigns. This may cause us to increase our marketing expenses and divert our management’s attention and may adversely impact our business and results of operations.

Our brand image, business and operating results may be adversely impacted by user misconduct and misuse of our platform.

Our platform allows mobile users to freely contact and communicate with people nearby. Because we do not have full control over how and what users will use our platform to communicate, our platform may be misused by individuals or groups of individuals to engage in immoral, disrespectful, fraudulent or illegal activities. For example, on a daily basis we detect spam accounts through which illegal or inappropriate content is posted and illegal or fraudulent activities are conducted. Media reports and internet forums have covered some of these incidents, which has in some cases generated negative publicity about our brand and platform. We have implemented control procedures to detect and block illegal or inappropriate content and illegal or fraudulent activities conducted through the misuse of our platform, but such procedures may not prevent all such content from being posted or activities from being carried out. Moreover, as we have limited control over the real-time and offline behavior of our users, to the extent such behavior is associated with our platform, our ability to protect our brand image and reputation may be limited. Our business and the public perception of our brand may be materially and adversely affected by misuse of our platform. In addition, if any of our users suffers or alleges to have suffered physical, financial or emotional harm following contact initiated on our platform, we may face

 

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civil lawsuits or other liabilities initiated by the affected user, or governmental or regulatory actions against us. In response to allegations of illegal or inappropriate activities conducted through our platform or any negative media coverage about us, PRC government authorities may intervene and hold us liable for non-compliance with PRC laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the features and services provided on our mobile application. As a result, our business may suffer and our user base, revenues and profitability may be materially and adversely affected, and the price of our ADSs may decline.

The market in which we operate is fragmented and highly competitive. If we are unable to compete effectively for users or user engagement, our business and operating results may be materially and adversely affected.

As a social networking platform, we are subject to intense competition from providers of similar services as well as potential new types of online services, including interest-based social products. These services include mobile applications, such as Weixin and Mobile QQ. Our competitors may have substantially more cash, traffic, technical and other resources, as well as broader product or service offerings and can leverage their relationships based on other products or services to gain a larger share of marketing budgets. We may be unable to compete successfully against these competitors or new market entrants, which may adversely affect our business and financial performance.

We believe that our ability to compete effectively depends upon many factors both within and beyond our control, including:

 

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the popularity, usefulness, ease of use, performance and reliability of our services compared to those of our competitors, and the research and development abilities of us and our competitors;

 

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changes mandated by, or that we elect to make to address, legislation, regulations or government policies, some of which may have a disproportionate effect on us;

 

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acquisitions or consolidation within our industry, which may result in more formidable competitors;

 

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our ability to monetize our services;

 

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our ability to attract, retain, and motivate talented employees;

 

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our ability to manage and grow our operations cost-effectively; and

 

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our reputation and brand strength relative to our competitors.

If we fail to keep up with technological developments and evolving user expectations, we may fail to maintain or attract users and customers or generate revenues, and our business and operating results may be materially and adversely affected.

We operate in a market characterized by rapidly changing technologies, evolving industry standards, new product and service announcements, new generations of product enhancements and changing user expectations. Accordingly, our performance and the ability to further monetize the services on our platform will depend on our ability to adapt to these rapidly changing technologies and industry standards, and our ability to continually innovate in response to both evolving demands of the marketplace and competitive services. There may be occasions when we may not be as responsive as our competitors in adapting our services to changing industry standards and the needs of our users. Historically, new features may be introduced by one player in the industry, and if they are perceived as attractive to users, they are often quickly copied and improved upon by others.

Introducing new technologies into our systems involves numerous technical challenges, substantial amounts of capital and personnel resources and often takes many months to complete. For example, the market for mobile devices in China is highly fragmented, and the lower resolution, functionality, operating system compatibility

 

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and memory currently associated with the kaleidoscopic models of mobile devices in the Chinese marketplace may make the use of our services through these devices more difficult and impair the user experience. We intend to continue to devote resources to the development of additional technologies and services. We may not be able to effectively integrate new technologies on a timely basis or at all, which may decrease user satisfaction with our services. Such technologies, even if integrated, may not function as expected or may be unable to attract and retain a substantial number of mobile device users to use our Momo mobile application. We also may not be able to protect such technology from being copied by our competitors. Our failure to keep pace with rapid technological changes may cause us to fail to retain or attract users or generate revenues, and could have a material and adverse effect on our business and operating results.

If we fail to effectively manage our growth and control our costs and expenses, our business and operating results could be harmed.

We have experienced rapid growth in our business and operations and expansion of our platform since our inception in 2011, which places significant demands on our management, operational and financial resources. Since the launch of our Momo mobile application in 2011, the number of our registered users grew to 147.7 million as of June 30, 2014. Our MAUs and average DAUs reached 52.4 million and 22.3 million in June 2014, respectively, representing an increase 155.9% and 187.8% from June 2013. However, given our limited operating history and the rapidly evolving market in which we compete, we may encounter difficulties as we establish and expand our operations, product development, sales and marketing, and general and administrative capabilities. We face significant competition for talented employees from other high-growth companies, which include both publicly traded and privately held companies, and we may not be able to hire new talents quickly enough to meet our needs and support our operations. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business and operating results could be adversely affected.

We expect our costs and expenses to continue to increase in the future as we broaden our user base and increase user engagement, and develop and implement new features and services that require more complexity. In addition, our cost and expenses, such as our research and development expenses, sales and marketing expenses and general and administrative expenses, have grown rapidly as we expanded our business. Historically, our costs have increased each year, and we expect to continue to incur increasing costs to support our anticipated future growth. We expect to continue to invest in our infrastructure in order to enable us to provide our services rapidly and reliably to users. Continued growth could also strain our ability to maintain reliable service levels for our users and customers, develop and improve our operational, financial, legal and management controls, and enhance our reporting systems and procedures. If we are unable to generate adequate revenues and to manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or subsequently maintain profitability. Our expenses may grow faster than our revenues, and our expenses may be greater than we anticipate. Managing our growth will require significant expenditures and the allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition could be harmed.

Privacy concerns relating to our services and the use of user information could negatively impact our user base or user engagement, or subject us to governmental regulation and other legal obligations, which could have a material and adverse effect on our business and operating results.

We collect user profile, user location and other personal data from our users in order to better understand our users and their needs and to support our social interest graph engine and our big data analytical capabilities for more targeted services such as interest- or location- based user groups and mobile marketing services. Concerns about the collection, use, disclosure or security of personal information or chat history or other privacy-related matters, even if unfounded, could damage our reputation, cause us to lose users and customers and subject us to regulatory investigations, all of which may adversely affect our business. While we strive to comply with

 

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applicable data protection laws and regulations, as well as our privacy policies pursuant to our terms of use and other obligations we may have with respect to privacy and data protection, any failure or perceived failure to comply with these laws, regulations or policies may result, and in some cases have resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, each of which could cause us to lose users and customers and have an adverse effect on our business and operating results.

Any systems failure or compromise of our security that results in the unauthorized access to or release of the data or chat history of our users, customers or platform partners data or chat history could significantly limit the adoption of our services, as well as harm our reputation and brand. We expect to continue expending significant resources to protect against security breaches. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of services we offer and increase the size of our user base.

Our practices may become inconsistent with new laws or regulations concerning data protection, or the interpretation and application of existing consumer and data protection laws or regulations, which is often uncertain and in flux. If so, in addition to the possibility of fines, this could result in an order requiring that we change our practices, which could have an adverse effect on our business and operating results. Complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business. See also “—Risks Related to Doing Businesses in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”

The continuing and collaborative efforts of our senior management and key employees are crucial to our success, and our business may be harmed if we were to lose their services.

We depend on the continued contributions of our senior management, especially the executive officers listed in “Management” section of this prospectus, and other key employees, many of whom are difficult to replace. The loss of the services of any of our executive officers or other key employees could materially harm our business. Competition for qualified talent in China is intense. Our future success is dependent on our ability to attract a significant number of qualified employees and retain existing key employees. If we are unable to do so, our business and growth may be materially and adversely affected and the trading price of our ADSs could suffer. Our need to significantly increase the number of our qualified employees and retain key employees may cause us to materially increase compensation-related costs, including stock-based compensation.

We may not be able to adequately protect our intellectual property, which could cause us to be less competitive and third-party infringements of our intellectual property rights may adversely affect our business.

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. See also “Business—Intellectual Property.” Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.

There have been instances where third parties have cloned and launched counterfeits of our Momo mobile application on app stores or internet forums. Some of these counterfeits, once installed inadvertently by mobile users, were reported to automatically download and install other applications to these users’ mobile phones, charging them various fees. These counterfeits may mislead mobile users and negatively affect their perception

 

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of our application. Moreover, we may have to expend resources in connection with any legal actions that we take to curb these counterfeiting activities in order to protect our intellectual property rights, user experience and brand perception.

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

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

Companies in the internet, technology and media industries are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of other parties’ rights. The validity, enforceability and scope of protection of intellectual property rights in internet-related industries, particularly in China, are uncertain and still evolving. As we face increasing competition and as litigation becomes a more common method for resolving commercial disputes in China, we face a higher risk of being the subject of intellectual property infringement claims.

We allow users to upload text, graphics, audio, video and other content to our platform and download, share, link to and otherwise access games and other content on our platform. We have procedures designed to reduce the likelihood that content might be used without proper licenses or third-party consents. However, these procedures may not be effective in preventing the unauthorized posting of copyrighted content. Therefore, we may face liability for copyright or trademark infringement, defamation, unfair competition, libel, negligence, and other claims based on the nature and content of the materials that are delivered, shared or otherwise accessed through our platform.

Defending intellectual property litigation is costly and can impose a significant burden on our management and employees, and there can be no assurances that favorable final outcomes will be obtained in all cases. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our platform to reduce the risk of future liability, may have a material adverse effect on our business, financial condition and prospects.

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

We make our services available across a variety of mobile operating systems and devices. We are dependent on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, such as Android, iOS and Windows. Any changes in such mobile operating systems or devices that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. Further, if the number of platforms for which we develop our services increases, which is typically seen in a dynamic and fragmented mobile services market such as China, it will result in an increase in our costs and expenses. In order to deliver high quality services, it is important that our services work well across a range of mobile operating systems, networks, mobile devices and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these operating systems, networks, devices and standards. In the event that it is difficult for our users to access and use our services, particularly on their mobile devices, our user growth and user engagement could be harmed, and our business and operating results could be adversely affected.

 

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Our operations depend on the performance of the internet infrastructure and fixed telecommunications networks in China.

Almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Moreover, we primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. Web traffic in China has experienced significant growth during the past few years. Effective bandwidth and server storage at internet data centers in large cities such as Beijing are scarce. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in internet usage. If we cannot increase our capacity to deliver our online services, we may not be able to the increases in traffic we anticipate from our expanding user base, and the adoption of our services may be hindered, which could adversely impact our business and our ADS price.

In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet access fees or other charges to internet users increase, some users may be prevented from accessing the mobile internet and thus cause the growth of mobile internet users to decelerate. Such deceleration may adversely affect our ability to continue to expand our user base.

Our business and operating results may be harmed by service disruptions, or by our failure to timely and effectively scale and adapt our existing technology and infrastructure.

People use our platform for real-time communication, socializing and information. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, hardware failure, capacity constraints due to an overwhelming number of people accessing our mobile services simultaneously, computer viruses and denial of service, fraud and security attacks. Any disruption or failure in our infrastructure could hinder our ability to handle existing or increased traffic on our platform or cause us to lose content stored on our platform, which could significantly harm our business and our ability to retain existing users and attract new users.

As the number of our users increases and our users generate more content on our platform, we may be required to expand and adapt our technology and infrastructure to continue to reliably store and analyze this content. It may become increasingly difficult to maintain and improve the performance of our services, especially during peak usage times, as our services become more complex and our user traffic increases. If our users are unable to access Momo mobile application in a timely fashion, or at all, our user experience may be compromised and the users may seek other mobile social networking tools to meet their needs, and may not return to Momo or use Momo as often in the future, or at all. This would negatively impact our ability to attract users and maintain the level of user engagement.

Future strategic alliances 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. Strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the counterparty and an increase in expenses incurred in establishing new strategic alliances,

 

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any of which may materially and adversely affect our business. We may have little ability to control or monitor their actions and to the extent strategic third parties suffer negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with such third parties.

In addition, we may acquire additional assets, technologies or businesses that are complementary to our existing business. Future 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. Acquired assets or businesses may not generate the financial or operating results we expect. In addition, acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the incurrence of debt, the incurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant. In addition to possible shareholders’ approval, we may also have to obtain approvals and licenses from the government authorities in the PRC for the acquisitions and comply with applicable PRC laws and regulations, which could result in increased costs and delays.

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

The numbers of daily and monthly active users of Momo are calculated using internal company data that has not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable periods of measurement, there are inherent challenges in measuring usage and user engagement across our large user base. We treat each account as a separate user for the purposes of calculating our active users, because it may not always be possible to identify people that have set up more than one account. Accordingly, the calculations of our active users may not accurately reflect the actual number of people using Momo.

Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly titled metrics used by our competitors due to differences in methodology. If customers or platform partners do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and customers and platform partners may be less willing to allocate their resources or spending to Momo, which could negatively affect our business and operating results.

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

In November 2012, we adopted a share incentive plan, or the 2012 Plan, which was amended and restated in October 2013. As of the date of this prospectus, options to purchase 27,823,526 ordinary shares have been granted, 27,763,526 of which remained outstanding. See “Management—Share Incentive Plan” for a detailed discussion. We believe the granting of share options is of significant importance to our ability to attract and retain our employees, and we will continue to grant share options 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.

If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weaknesses in our internal control over financial reporting that has been identified, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.

Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm

 

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has not conducted an audit of our internal control over financial reporting. However, in preparing our consolidated financial statements as of and for the years ended December 31, 2012 and 2013, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, and other control deficiencies. The two material weaknesses identified related to lack of accounting personnel with appropriate knowledge of U.S. GAAP, and lack of a comprehensive accounting policies and procedures manual according to U.S. GAAP. Following the identification of the material weaknesses and control deficiencies, we have taken and plan to continue to take remedial measures. For details of these remedies, 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 the material weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct the material weaknesses or our failure to discover and address any other material weakness or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.

Furthermore, it is possible that, had our independent registered public accounting firm conducted an audit of our internal control over financial reporting, such firm might have identified additional material weaknesses and deficiencies. Upon completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2015. In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and 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 from prior periods.

 

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We have no business insurance coverage.

The insurance industry in China is still young and the business insurance products offered in China are limited. We do not have any business liability or disruption insurance coverage for our operations. Any business disruption, litigation or natural disaster may cause us to incur substantial costs and divert our resources.

We face risks related to health epidemics and natural disasters.

Our business could be adversely affected by the effects of epidemics. In recent years, there have been breakouts of epidemics in China and globally. Our business operations could be disrupted if one of our employees is suspected of having H1N1 flu, avian flu or another epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that the outbreak harms the Chinese economy in general and the mobile internet industry in particular.

We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide services on our platform.

Risks Related to Our Corporate Structure

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

Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in internet and other related businesses, including the provision of internet content and online game operations. Specifically, foreign ownership of an internet content provider may not exceed 50%. We are a company registered in the Cayman Islands and Beijing Momo Information Technology Ltd., or Beijing Momo IT, our wholly owned PRC subsidiary, is considered a foreign-invested enterprise. To comply with PRC laws and regulations, we conduct our business in China through Beijing Momo Technology Ltd., or Beijing Momo, our consolidated affiliated entity, and its subsidiary, based on a series of contractual arrangements by and among Beijing Momo IT, Beijing Momo and its shareholders. As a result of these contractual arrangements, we exert control over Beijing Momo and its subsidiary and consolidate or combine their operating results in our financial statements under U.S. GAAP. Beijing Momo holds the licenses, approvals and key assets that are essential for our business operations.

In the opinion of our PRC counsel, Han Kun Law Offices, the ownership structure of our PRC subsidiary and Beijing Momo, and the contractual arrangements among our PRC subsidiary, Beijing Momo and its shareholders are in compliance with existing PRC laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Thus, we cannot assure you that the PRC government will not ultimately take a view contrary to the opinion of our PRC counsel. If we are found in violation of any PRC laws or regulations or if the contractual arrangements among Beijing Momo IT, Beijing Momo and its shareholders are determined as illegal or invalid by the PRC court, arbitral tribunal or regulatory authorities, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation:

 

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revoke our business and operating licenses;

 

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require us to discontinue or restrict operations;

 

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restrict our right to collect revenues;

 

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block our websites;

 

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require us to restructure the operations in such a way as to compel us to establish a new enterprise, re-apply for the necessary licenses or relocate our businesses, staff and assets;

 

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impose additional conditions or requirements with which we may not be able to comply; or

 

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take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business.

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

We rely on contractual arrangements with Beijing Momo and its shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership.

Due to the PRC restrictions or prohibitions on foreign ownership of internet and other related businesses in China, we operate our business in China through Beijing Momo and its subsidiary, our consolidated affiliated entity and its subsidiary, in which we have no ownership interest. We rely on a series of contractual arrangements with Beijing Momo and its shareholders, including the powers of attorney, to control and operate its business. Our ability to control the consolidated affiliated entity and its subsidiary depends on the powers of attorney, pursuant to which Beijing Momo IT can vote on all matters requiring shareholder approval in the Beijing Momo. We believe this power of attorney is legally enforceable but may not be as effective as direct equity ownership. These contractual arrangements are intended to provide us with effective control over Beijing Momo and its subsidiary and allow us to obtain economic benefits from them. See “Corporate History and Structure—Contractual Arrangements with Beijing Momo” for more details about these contractual arrangements.

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

 

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business operations could be severely disrupted, which could materially and adversely affect our results of operations and financial condition.

We may lose the ability to use and enjoy assets held by Beijing Momo and its subsidiary that are important to the operation of our business if Beijing Momo or its subsidiary declares bankruptcy or becomes subject to a dissolution or liquidation proceeding.

Beijing Momo and its subsidiary, Chengdu Momo, hold certain assets that are important to our business operations, including the value-added telecommunication service license concerning the internet information service, or the ICP License, and the Online Culture Operating Permit. Under our contractual arrangements, the shareholders of Beijing Momo may not voluntarily liquidate Beijing Momo or approve it to sell, transfer, mortgage or dispose of its assets or legal or beneficial interests exceeding certain threshold in the business in any manner without our prior consent. However, in the event that the shareholders breach this obligation and voluntarily liquidate Beijing Momo, or Beijing Momo declares bankruptcy, or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Furthermore, if Beijing Momo or its subsidiary undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of its assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

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

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

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

In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary, Beijing Momo and its subsidiary are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.

 

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The shareholders of Beijing Momo may have potential conflicts of interest with us, which may materially and adversely affect our business.

The shareholders of Beijing Momo, our consolidated affiliated entity, include Messrs. Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li, who are also our shareholders, directors or officers. Conflicts of interest may arise between the roles of Messrs. Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li as shareholders, directors or officers of our company and as shareholders of Beijing Momo. We rely on these individuals to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to our company to act in good faith and in the best interest of our company and not to use their positions for personal gain. The shareholders of Beijing Momo have executed powers of attorney to appoint Beijing Momo IT, our PRC subsidiary, or a person designated by Beijing Momo IT to vote on their behalf and exercise voting rights as shareholders of Beijing Momo. We cannot assure you that when conflicts arise, shareholders of Beijing Momo will act in the best interest of our company or that conflicts will be resolved in our favor. If we cannot resolve any conflicts of interest or disputes between us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to our operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.

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

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

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

Risks Related to Doing Business in China

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

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

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developed legal systems. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at all, but

 

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which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

Regulation and censorship of information disseminated over the mobile and internet in China may adversely affect our business and subject us to liability for information displayed on our platform.

Internet companies in China are subject to a variety of existing and new rules, regulations, policies, and license and permit requirements. In connection with enforcing these rules, regulations, policies and requirements, relevant government authorities may suspend services by, or revoke licenses of, any internet or mobile content service provider that is deemed to provide illicit content online or on mobile devices, and such activities may be intensified in connection with any ongoing government campaigns. For example, in April 2014, the Office of the Anti-Pornography and Illegal Publications Working Group, the State internet Information Office, the Ministry of Industry and Information Technology and the Ministry of Public Security jointly launched an “Anti-Pornography and Illegal Publications – Clean Up the internet 2014” campaign that is expected to last from April to November 2014. The campaign aims at eliminating pornographic information and content in the Internet information services industry, and may hold individuals and corporate entities who facilitate the distribution of pornographic information and content liable under PRC laws and regulations. As a result, several websites providing literary and visual and audio content, including certain widely known websites, were subject to administrative penalties ranging from fines to license revocation to suspension of website operations, due to unhealthy and indecent content on these websites. Although we have conducted internal review to filter our users and the contents posted by our users, we cannot be sure that our internal content control efforts was sufficient to remove all content that may be viewed as indecent or otherwise non-compliant with PRC law and regulations. In addition, while we maintain a regular internal monitoring and compliance protocol, we cannot ascertain that we would not fall foul of any changing or new government regulations or standards in the future. Our business and operations to date have not been materially affected by this campaign or any other regulatory efforts made by the relevant PRC regulatory authorities. If we receive a public warning from the relevant government authorities or our licenses for reading or portal services are revoked, our reputation would be harmed and our share trading price may fluctuate widely. If the operation of our mobile social networking services is suspended, our revenues and results of operation may be materially and adversely affected.

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

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

Since our inception, we have designed and implemented procedures to monitor the content on our social networking platform in order to comply with relevant laws and regulations. However, it may not be possible to determine in all cases the types of content that could result in our liability as a distributor of such content and, if any of the content posted or displayed on our social networking platform is deemed by the PRC government to violate any content restrictions, we would not be able to continue to display such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our business, financial condition and results of operations.

 

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We may also be subject to potential liability for any unlawful actions by our users on our platform. It may be difficult to determine the type of content or actions that may result in liability to us and, if we are found to be liable, we may be prevented from operating our business in China. Moreover, the costs of compliance with these regulations may continue to increase as a result of more content being made available by an increasing number of users of our social networking platform, which may adversely affect our results of operations. Although we have adopted internal procedures to monitor content and to remove offending content once we become aware of any potential or alleged violation, we may not be able to identify all the content that may violate relevant laws and regulations or third-party intellectual property rights. Even if we manage to identify and remove offensive content, we may still be held liable.

If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our businesses in China, or if we are required to take compliance actions that are time-consuming or costly, our business, financial condition and results of operations may be materially and adversely affected.

The internet and mobile industries in China are highly regulated. Beijing Momo and its subsidiary are required to obtain and maintain applicable licenses and approvals from different regulatory authorities in order to provide their current services. Under the current PRC regulatory scheme, a number of regulatory agencies, including but not limited to the State Administration of Press, Publication, Radio, Film and Television, or SARFT, the Ministry of Culture, or MOC, Ministry of Industry and Information Technology, or MIIT, and the State Council Information Office, or SCIO, jointly regulate all major aspects of the internet industry, including the mobile internet and mobile games businesses. Operators must obtain various government approvals and licenses for relevant mobile business.

We have obtained the ICP licenses for provision of internet information services and Online Culture Operating Licenses for operation of online games. These licenses are essential to the operation of our business and are generally subject to regular government review or renewal. However, we cannot assure you that we can successfully renew these licenses in a timely manner or that these licenses are sufficient to conduct all of our present or future business.

We are also required to obtain an Internet Publishing License from SARFT in order to publish online games through the mobile networks. As of the date of this prospectus, we have yet to obtain an Internet Publishing License, and are in the process of preparing the application documents. We currently cooperate with game publishers who hold such internet publishing license to publish mobile games offered on our platform. Each mobile game is also required to be approved by SARFT prior to the commencement of its operations in China. As of the date of this prospectus, we are still in the process of applying with the SARFT for the approvals of all of our online games. In the event of any failure to meet the above-mentioned requirements, an operator may face severe monetary penalties or be forced to cease operations, any of which would have a material adverse effect on our business and results of operations. All domestic online games must be filed for registration with MOC, and all imported online games must be approved by the MOC. As of the date of this prospectus, two of the four online games we offer have completed the filing with the Ministry of Culture. If we fail to complete, obtain or maintain any of the required licenses or approvals or make the necessary filings, we may be subject to various penalties, such as confiscation of the net revenues that were generated through online games, the imposition of fines and the discontinuation or restriction of our operations of online games.

Considerable uncertainties exist regarding the interpretation and implementation of existing and future laws and regulations governing our business activities. We cannot assure you that we will not be found in violation of any future laws and regulations or any of the laws and regulations currently in effect due to changes in the relevant authorities’ interpretation of these laws and regulations. If we fail to complete, obtain or maintain any of the required licenses or approvals or make the necessary filings, we may be subject to various penalties, such as confiscation of the net revenues that were generated through the unlicensed internet or mobile activities, the

 

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imposition of fines and the discontinuation or restriction of our operations. Any such penalties may disrupt our business operations and materially and adversely affect our business, financial condition and results of operations.

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

Our revenues are substantially sourced from China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. Economic reforms begun in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 30 years, growth has been uneven across different regions and between economic sectors. The PRC government exercises significant control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Although the Chinese economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slowing of the growth of the Chinese economy since 2012. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position.

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

Under the PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. In 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, on July 27, 2011, the SAT issued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, to provide more guidance on the implementation of SAT Circular 82; the bulletin became effective on September 1, 2011. SAT Bulletin 45 clarified certain issues in the areas of resident status determination, post-determination administration and competent tax authorities’ procedures.

According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered as a PRC tax resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. SAT Bulletin 45 specifies that when provided with a copy of Chinese tax resident determination certificate from a resident Chinese controlled offshore incorporated enterprise, the payer should not withhold 10% income tax when paying the Chinese-sourced dividends, interest, royalties, etc. to the Chinese controlled offshore incorporated enterprise.

 

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

If the PRC tax authorities determine that we or any of our non-PRC subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, then we or any such non-PRC subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations.

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

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

We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors. According to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration of Taxation on December 10, 2009, with retroactive effect from January 1, 2008, or SAT Circular 698, where a non-resident enterprise transfers the equity interests in a PRC resident enterprise indirectly through a disposition of equity interests in an overseas holding company (other than a purchase and sale of shares issued by a PRC resident enterprise in public securities market), or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (a) has an effective tax rate less than 12.5% or (b) does not tax foreign income of its residents, the non-resident enterprise, as the seller, shall report such Indirect Transfer to the competent tax authority of the PRC resident enterprise within 30 days of execution of the equity transfer agreement for such Indirect Transfer. The PRC tax authority will examine the true nature of the Indirect Transfer, and if the tax authority considers that the foreign investor has adopted an abusive arrangement without reasonable commercial purposes and for the purpose of avoiding or reducing PRC tax, they will disregard the existence of the overseas holding company that is used for tax planning purposes and re-characterize the Indirect Transfer. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at the rate of up to 10%. SAT Circular 698 also points out that when a non-resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the competent tax authorities have the power to make a reasonable adjustment on the taxable income of the transaction.

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

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and other recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress on August 30, 2007 and effective as of August 1, 2008 requires

 

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that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within China, or (ii) the total turnover within China of all the operators participating in the concentration exceeded RMB2 billion, and at least two of these operators each had a turnover of more than RMB400 million within China) must be cleared by MOFCOM before they can be completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Circular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Regulations, which became effective on September 1, 2011, to implement the Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises with “national security” concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under the Circular 6 led by the National Development and Reform Commission, or NDRC, and MOFCOM under the leadership of the State Council, to carry out security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the mobile games business requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to MOFCOM review.

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

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

The SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.

SAFE Circular 37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75.

 

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

Messrs. Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li have completed SAFE registration in connection with our financings and share transfer that were completed before March 31, 2014.

However, we cannot compel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

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

On February 15, 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules, which replaced the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option Plans of Overseas Publicly-Listed Companies issued by SAFE on March 28, 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. We and our PRC employees who have been granted stock options will be subject to these regulations upon the completion of this offering. Failure of our PRC stock option holders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends to us, or otherwise materially adversely affect our business.

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

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

 

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Most of these ways are subject to PRC regulations and approvals. For example, loans by us to our wholly owned PRC subsidiary to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE. If we decide to finance our wholly owned PRC subsidiaries by means of capital contributions, these capital contributions must be approved by the MOFCOM or its local counterpart. Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to Beijing Momo, which is PRC domestic company. Further, we are not likely to finance the activities of Beijing Momo by means of capital contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in mobile internet services, online games and related businesses.

On August 29, 2008, SAFE promulgated 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, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 provides that Renminbi capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the Renminbi capital converted from the foreign currency registered capital of a foreign-invested company. The use of such Renminbi capital may not be altered without SAFE approval, and such Renminbi capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary or other penalties. Furthermore, SAFE promulgated a circular on November 9, 2010, known as Circular No. 59, which tightens the examination of the authenticity of settlement of net proceeds from our initial public offering. SAFE further promulgated the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or Circular 45, on November 9, 2011, which expressly prohibits foreign-invested enterprises from using registered capital settled in Renminbi converted from foreign currencies to grant loans through entrustment arrangements with a bank, repay inter-company loans or repay bank loans that have been transferred to a third party. Circular 142, Circular 59 and Circular 45 may significantly limit our ability to transfer the net proceeds from this offering to our PRC subsidiary and to convert such proceeds into Renminbi, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, including SAFE Circular 142, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we received from our initial public offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

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

The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’s foreign exchange policies, among other things. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. The PRC government has allowed the RMB to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010, though there also have been periods when it depreciated against the U.S. dollar. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. In addition, there remains significant

 

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international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in further appreciation in the value of the RMB against the U.S. dollar.

Our revenues and costs are mostly denominated in RMB, whereas our reporting currency is the U.S. dollar. Any significant depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position as reported in U.S. dollars. To the extent that we need to convert U.S. dollars we received from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

Our leased property interests may be defective and our right to lease the properties affected by such defects may be challenged, which could cause significant disruption to our business.

Under PRC laws, all lease agreements are required to be registered with the local housing authorities. We presently lease three premises in China, and the landlords of these premises have not completed the registration of their ownership rights or the registration of our leases with the relevant authorities. Failure to complete these required registrations may expose our landlords, lessors and us to potential monetary fines. If these registrations are not obtained in a timely manner or at all, we may be subject to monetary fines or may have to relocate our offices and incur the associated losses.

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 reports included in our prospectus filed with the US Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the US Public Company Accounting Oversight Board (United States) (“the “PCAOB”), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

Inspections of other firms that the PCAOB has conducted outside 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. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s 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 five PRC-based 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 Securities Exchange Act of 1934, as amended, or the Exchange Act.

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese affiliates of the ‘‘big four’’ accounting firms (including our auditors) and also against Dahua (the former BDO affiliate in China). The Rule 102(e)

 

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proceedings initiated by the SEC relate to these firms’ inability to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act of 2002, as the auditors located in the PRC are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC law and specific directives issued by the China Securities Regulatory Commission. The issues raised by the proceedings are not specific to our auditors or to us, but affect equally all audit firms based in China and all China-based businesses with securities listed in the United States.

In January 2014, the administrative judge reached an Initial Decision that the “big four” accounting firms should be barred from practicing before the Commission for six months. However, it is currently impossible to determine the ultimate outcome of this matter as the accounting firms have filed a Petition for Review of the Initial Decision and pending that review the effect of the Initial Decision is suspended. The SEC Commissioners will review the Initial Decision, determine whether there has been any violation and, if so, determine the appropriate remedy to be placed on these audit firms. Once such an order was made, the accounting firms would have a further right to appeal to the US Federal courts, and the effect of the order might be further stayed pending the outcome of that appeal.

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 the PRC, 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 the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

Risks Related to Our ADSs and This Offering

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

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

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

The trading price of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

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

 

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variations in our revenues, earnings, cash flow and data related to our user base or user engagement;

 

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announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

 

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announcements of new products, services and expansions by us or our competitors;

 

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changes in financial estimates by securities analysts;

 

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detrimental adverse publicity about us, our services or our industry;

 

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additions or departures of key personnel;

 

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release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

 

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potential litigation or regulatory investigations.

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

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

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

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

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

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

 

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“Underwriting” and “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling our securities after this offering.

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

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

Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, 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 the expectation of substantial sales of our ADSs in the public market could cause the price of our ADSs to decline.

Sales of our ADSs or ordinary shares 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 ordinary shares outstanding, including ordinary shares represented by ADSs. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares 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 and, in the case of the ordinary shares that certain option holders will receive when they exercise their share options, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. Any or all of these shares (other than those held by certain option holders) may be released prior to expiration of the lock-up period at the discretion of the underwriters. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could decline.

We are controlled by a small number of our existing shareholders, whose interests may differ from other shareholders, and our board of directors has the power to discourage a change of control.

After our preferred shares are automatically converted into ordinary shares upon the completion of this offering, assuming that the underwriters do not exercise their option to purchase additional ADSs, our executive officers and directors, together with our other existing shareholders, will beneficially own approximately ordinary shares, or approximately             of our outstanding ordinary shares. Accordingly, our executive officers and directors, together with our existing shareholders, could have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. In cases where their interests are aligned and they vote together, these shareholders will also have the power to prevent or cause a change in control. Without the consent of some or all of these shareholders, we may be prevented from entering into transactions that could be beneficial to us. In addition, our directors and officers could violate their fiduciary duties by diverting business opportunities from us to themselves or others. The interests of our largest shareholders may differ from the interests of our other shareholders. The concentration in ownership of our ordinary shares may cause a material decline in the value of our ADSs.

 

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Because the initial public offering price is substantially higher than the pro forma 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 each ADS than the corresponding amount paid by existing shareholders for their ordinary shares. As a result, you will experience immediate and substantial dilution of approximately US$             per ADS (assuming that no outstanding options to acquire ordinary shares are exercised). This number represents the difference between our pro forma net tangible book value per ADS of US$             as of June 30, 2014, after giving effect to this offering and the initial public offering price of US$             per ADS. See “Dilution” for a more complete description of how the value of your investment in our ADSs will be diluted upon the completion of 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.

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.

We may be classified as a passive foreign investment company under U.S. tax law, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs.

Depending upon the value of our assets, which is determined based on the market value of our ADSs, and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Based on our current income and assets and projections as to the value of our ADSs pursuant to this offering, we do not expect to be classified as a PFIC for the current taxable year or in the foreseeable future. While we do not anticipate becoming a PFIC for the current taxable year, fluctuations in the market price of our ADSs may cause us to become a PFIC for the current or any subsequent taxable year.

We will be classified as a PFIC for any taxable year if either (i) 75% or more of our gross income for the taxable year is passive income or (ii) 50% or more of the value of our assets (determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income. Although the law in this regard is unclear, we treat Beijing Momo as being owned by us for U.S. federal income tax purposes, not only because we exercise effective control over the operation of this 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 U.S. GAAP financial statements. If it were determined, however, that we are not the owner of Beijing Momo for U.S. federal income tax purposes, we would likely be treated as a PFIC for our current taxable year and any subsequent taxable year. Because of the uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets, there can be no assurance that we will not be a PFIC for current the taxable year or any future taxable year. The overall level of our passive assets will be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

If we were to be or become classified as a PFIC, a U.S. Holder (as defined in “Taxation—Material United States Federal Income Tax Considerations—General”) will generally be subject to reporting requirements and may incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of

 

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the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules. Further, if we were a PFIC for any year during which a U.S. Holder held our ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. Holder held our ADSs or ordinary shares. You are urged to consult your tax advisor concerning the U.S. federal income tax consequences of acquiring, holding, and disposing of ADSs or ordinary shares if we are or become classified as a PFIC. For more information see “Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

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

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

Our PRC counsel, Han Kun Law Offices, has advised us that, based on its understanding of the current PRC laws and regulations, we are not required to submit an application to the CSRC for the approval of the listing and trading of our ADSs on the [NASDAQ Global Market/NYSE] because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation, and (ii) our wholly owned PRC subsidiary was established by foreign direct investment, rather than through a merger or acquisition of a domestic company as defined under the M&A Rules. However, we cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel, and hence we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the ADSs. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such approval requirement could have a material adverse effect on the trading price of the ADSs.

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

We have adopted amended and restated memorandum and articles of association that will become effective immediately upon completion of this offering. Our new memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to

 

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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. For example, 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 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 ordinary shares and ADSs may be materially and adversely affected.

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

We are an exempted company limited by shares registered under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2013 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities 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 responsibilities 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 articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for 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.

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the U.S. Currently, we do not plan to rely on home country practice with respect to any corporate governance matter. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

As a result of all of the above, 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.”

 

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

We are a Cayman Islands company and all of our assets are located outside of the United States. Substantially all of our current operations are conducted in China. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil Liabilities.”

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

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company until the fifth anniversary from the date of our initial listing.

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

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

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

 

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the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;

 

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the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

 

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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

 

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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 through press releases, distributed pursuant to the rules and regulations of [NASDAQ Global Market/NYSE]. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

 

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

As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association that will become effective immediately upon completion of this offering, the minimum notice period required for convening a general meeting is 14 days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, 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 our ordinary shares underlying your ADSs at shareholders’ meetings unless:

 

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we have failed to timely provide the depositary with notice of meeting and related voting materials;

 

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

 

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

 

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a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

 

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the voting at the meeting is to be made on a show of hands.

The effect of this discretionary proxy is that if you do not vote at shareholders’ meetings, you cannot prevent our 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 ordinary shares are not subject to this discretionary proxy.

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

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares,

 

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rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

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

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

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

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

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

 

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our goals and strategies;

 

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

 

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the expected growth of mobile social networking platforms, mobile games and mobile marketing services in China;

 

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

 

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our expectations regarding our user base and level of user engagement;

 

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our plans to invest in our technology infrastructure;

 

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competition in our industry; and

 

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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 thoroughly read 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 social networking platforms, mobile games and mobile marketing industries may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ADSs. In addition, the rapidly changing nature of the mobile social services industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

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

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$            , or approximately US$             if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$             per ADS, the midpoint of the price range shown on the front cover 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 cover page 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 as follows:

 

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approximately US$             million for research and development activities, including enhancing our technology infrastructure;

 

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approximately US$             million for sales and marketing activities; and

 

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the balance for capital expenditures and other general and administrative matters, which may include, among others, acquisitions of, or investments in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments.

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

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

In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiary only through loans or capital contributions and to Beijing Momo only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiary or make additional capital contributions to our PRC subsidiary to fund their capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, which may delay or prevent us from providing the proceeds of this offering to our PRC subsidiaries. See “Risk Factors—Risks Relating to Doing Business in China—PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiary and consolidated affiliated entity and its subsidiary, or to make additional capital contributions to our PRC subsidiary.”

[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 restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that it is able to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

With shareholders’ approval, we declared a special dividend to certain holders of our ordinary shares in the amount of US$64.5 million in April 2014, among which US$58.0 million was paid. The special dividend was paid out of our share premium. See “Description of Share Capital—History of Securities Issuances—Preferred Shares.” 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 subsidiary in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See “Regulation—Regulations Relating to Dividend Distribution” and “Regulation—Regulations Relating to Taxation.”

If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. 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 June 30, 2014:

 

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on an actual basis;

 

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on a pro forma basis to reflect the automatic conversion of all of our Series A-1, Series A-2, Series A-3, Series B, Series C and Series D convertible redeemable preferred shares that are issued and outstanding into ordinary shares on a one-for-one basis immediately upon the completion of this offering.

 

•

on a pro forma as adjusted basis to reflect (i) the automatic conversion of all of our Series A-1, Series A-2, Series A-3, Series B, Series C and Series D convertible redeemable preferred shares that are issued and outstanding into ordinary shares on a one-for-one basis immediately upon completion of this offering; and (ii) the sale of             ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$             per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the over-allotment option.

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

 

		As of June 30, 2014
		Actual				Unaudited Pro Forma				Pro Forma As Adjusted
		(in US$ thousands)
Mezzanine Equity
Series A-1 and Series A-2 convertible redeemable participating preferred shares ($0.0001 par value; 31,181,820 shares authorized, issued and outstanding)			2,065				—
Series A-3 convertible redeemable participating preferred shares ($0.0001 par value; 19,797,980 shares authorized, issued and outstanding)			5,042				—
Series B convertible redeemable participating preferred shares ($0.0001 par value; 70,037,013 shares authorized, issued and outstanding)			28,432				—
Series C convertible redeemable participating preferred shares ($0.0001 par value; 36,008,642 shares authorized, issued and outstanding)			49,258				—
Series D convertible redeemable participating preferred shares ($0.0001 par value; nil shares authorized, issued and outstanding, and 43,693,356 shares authorized, issued and outstanding on a pro forma as adjusted basis)			216,545				—

 

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		As of June 30, 2014
		Actual				Unaudited Pro Forma				Pro Forma As Adjusted
		(in US$ thousands)
Equity
Ordinary shares ($0.0001 par value; 799,281,189 shares authorized, 131,348,411 shares issued and outstanding)			15				35
Treasury stock			(64,494	)			(64,494	)
Additional paid-in capital(1)			4,335				305,657
Accumulated deficit			(73,293	)			(73,293	)
Accumulated other comprehensive loss			(349	)			(349	)
Total shareholders’ equity (deficit)(1)			(133,786	)			167,556
Total liabilities, mezzanine equity and equity(1)		$	195,422			$	195,422

 

(1)

A US$1.00 change in the assumed initial public offering price of US$             per share, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, would increase, in the case of an increase, or decrease, in the case of a decrease, each of additional paid-in capital, total shareholders’ deficit and total liabilities, mezzanine equity and equity by US$            .

 

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DILUTION

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

Our net tangible book value as of June 30, 2014 was approximately US$            , or US$             per ordinary share as of that date and US$             per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price of US$             per ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus adjusted to reflect the ADS-to-ordinary share ratio, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Without taking into account any other changes in net tangible book value after June 30, 2014, other than to give effect to (i) the automatic conversion of all of our preferred shares that are issued and outstanding into ordinary shares on a one-for-one basis immediately prior to the completion of this offering and (ii) our sale of the ADSs offered in this offering at the assumed initial public offering price of US$             per ADS, the midpoint of the estimated range of the initial public offering price, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2014 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 per ordinary share		US$				US$
Net tangible book value as per ordinary share of June 30, 2014		US$				US$
Pro forma net tangible book value per ordinary share after giving effect to the conversion of our preferred shares		US$				US$
Pro forma as adjusted net tangible book value per ordinary share after giving effect to the conversion of our preferred shares and this offering		US$				US$
Amount of dilution in net tangible book value per ordinary share to new investors in this offering		US$				US$
Amount of dilution in net tangible book value per ADS to new investors in this offering		US$				US$

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

The following table summarizes, on a pro forma as adjusted basis as of June 30, 2014, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of

 

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

 

Ordinary Shares Purchased

Total Consideration

Average Price Per Ordinary Share

Average Price Per ADS

Number

Percent

Amount

Percent

Existing shareholders

US$

%

US$

US$

New investors

US$

%

US$

US$

Total

US$

100.0

%

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

The discussion and tables above assume no exercise of any outstanding share options outstanding as of the date of this prospectus. As of the date of this prospectus, there are 27,763,526 ordinary shares issuable upon exercise of outstanding share options at a weighted average exercise price of $0.1049 per share, and there are 16,994,694 ordinary shares available for future issuance upon the exercise of future grants under our 2012 Plan. To the extent that any of these options are exercised, there will be further dilution to new investors.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

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. All of our directors and executive 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 persons, 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                          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, our legal counsel as to Cayman Islands law, and Han Kun Law Offices, our legal counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, 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.

There is uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands. Maples and Calder has advised 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, a judgment obtained in such jurisdiction will be recognized and enforced in the courts of the

 

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Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment:

 

(a)

is given by a foreign court of competent jurisdiction;

 

(b)

imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given;

 

(c)

is final;

 

(d)

is not in respect of taxes, a fine or a penalty; and

 

(e)

was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.

Han Kun Law Offices has further advised us that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedure Law based either on treaties between China and the country where the judgment is rendered or on reciprocity between the 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 connection with civil liabilities. In addition, according to the PRC Civil Procedure 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. A judgment that does not violate the basic principles of PRC law or national sovereignty, security or public interest may be recognized and enforced by a PRC court base on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. However, as of the date of this prospectus, no treaty or other form of reciprocity exists between China and the United States or the Cayman Islands governing the recognition and enforcement of judgments. 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.

 

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CORPORATE HISTORY AND STRUCTURE

We started our operations in July 2011 when our founders established our consolidated affiliated entity Beijing Momo Technology Co., Ltd., or Beijing Momo, in China. In order to facilitate foreign investment in our company, we incorporated our holding company under the name of Momo Technology Company Limited in the British Virgin Islands in November 2011. In July 2014, Momo Technology Company Limited was redomiciled in the Cayman Islands as an exempted company registered under the laws of the Cayman Islands, and was renamed Momo Inc. In December 2011, we established Momo Technology HK Company Limited, or Momo HK, a wholly owned subsidiary, in Hong Kong. Subsequently, Momo HK established a wholly-owned PRC subsidiary, Beijing Momo Information Technology Co., Ltd., or Beijing Momo IT, in March 2012. In May 2013, we established Chengdu Momo Technology Co., Ltd., or Chengdu Momo, as a wholly owned subsidiary of Beijing Momo. In addition, we recently formed a Delaware subsidiary for the purpose of new product development.

The following diagram illustrates our corporate structure, including our principal subsidiaries and consolidated affiliated entity and its subsidiary, as of the date of this prospectus:

 

 

Notes:

(1)

We exercise effective control over Beijing Momo through contractual arrangements among Beijing Momo IT, Beijing Momo and Messrs. Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li, who hold 72.0%, 16.0%, 6.4% and 5.6% of the equity interest in Beijing Momo, respectively. The shareholders of Beijing Momo are shareholders, directors or officers of Momo Inc.

Contractual Arrangements with Beijing Momo

PRC laws and regulations place certain restrictions on foreign investment in and ownership of internet-based businesses. Accordingly, we conduct our operations in China principally through Beijing Momo and its subsidiary, Chengdu Momo, over which we exercise effective control through contractual arrangements among Beijing Momo IT, Beijing Momo and its shareholders.

The contractual arrangements allow us to:

 

•

exercise effective control over Beijing Momo;

 

•

receive substantially all of the economic benefits of Beijing Momo; and

 

 

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•

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

As a result of these contractual arrangements, we are the primary beneficiary of Beijing Momo and its subsidiary, and, therefore, have consolidated the financial results of Beijing Momo and its subsidiary in our consolidated financial statements in accordance with U.S. GAAP.

The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Beijing Momo IT, Beijing Momo, and the shareholders of Beijing Momo.

Business operation agreement. Under the business operation agreement entered into among Beijing Momo IT, Beijing Momo and the shareholders of Beijing Momo on April 18, 2012, as supplemented on June 9, 2014, the shareholders of Beijing Momo agreed that Beijing Momo would not enter into any transaction that could materially or adversely affect its assets, business, interests or operations without prior written consent from Beijing Momo IT, including conducting business beyond the usual and normal scope, entering into any loan or other debtor-creditor relationship with third party, selling or disposing of assets or rights, including intellectual property rights, and creating guarantees or any other security on any of its assets or intellectual property rights in favor of a third party. In addition, the shareholders of Beijing Momo agreed to vote for or appoint nominees designated by Beijing Momo IT to serve as Beijing Momo’s directors, chairman, general managers, financial controllers and other senior managers. Furthermore, Beijing Momo’s shareholders agreed to accept and implement proposals set forth by Beijing Momo IT regarding employment, day-to-day business operations and financial management. Beijing Momo IT is entitled to any dividends or other interests declared by Beijing Momo and the shareholders of Beijing Momo have agreed to promptly transfer such dividends or other interests to Beijing Momo IT. These agreements have an initial term of ten years from the date of execution, and may be extended at the discretion of Beijing Momo IT. Beijing Momo IT may terminate this agreement at any time by giving a prior written notice to Beijing Momo and its shareholders. Neither Beijing Momo nor its shareholders may terminate this agreement.

Exclusive call option agreements. Under the exclusive call option agreements between Beijing Momo IT, Beijing Momo and each of the shareholders of Beijing Momo entered into on April 18, 2012, and amended and restated on April 18, 2014, each of the shareholders of Beijing Momo irrevocably granted Beijing Momo IT an exclusive option to purchase, to the extent permitted under PRC law, all or part of their equity interests in Beijing Momo for a nominal price of RMB10 or the lowest price permitted under PRC law. In addition, Beijing Momo irrevocably granted Beijing Momo IT an exclusive and irrevocable option to purchase any or all of the assets owned by Beijing Momo at the lowest price permitted under PRC law. Without Beijing Momo IT’s prior written consent, Beijing Momo and its shareholders will not sell, transfer, mortgage or otherwise dispose of Beijing Momo’s material assets, legal or beneficial interests or revenues of more than RMB500,000, or allow an encumbrance on any interest in Beijing Momo. These agreements will remain effective until all equity interests held in Beijing Momo by its shareholders are transferred or assigned to Beijing Momo IT.

Equity interest pledge agreements. Under the equity interest pledge agreements between Beijing Momo IT, Beijing Momo and the shareholders of Beijing Momo entered into on April 18, 2012, and amended and restated on April 18, 2014, the shareholders of Beijing Momo pledged all of their equity interests in Beijing Momo (including any equity interest subsequently acquired) to Beijing Momo IT to guarantee the performance by Beijing Momo and its shareholders of their respective obligations under the contractual arrangements, including the payments due to Beijing Momo IT for services provided. If Beijing Momo or any of its shareholders breach their obligations under these contractual arrangements, Beijing Momo IT, as the pledgee, will be entitled to certain rights and remedies, including priority in receiving the proceeds from the auction or disposal of the pledged equity interests in Beijing Momo. Beijing Momo IT has the right to receive dividends generated by the pledged equity interests during the term of the pledge. The pledge becomes effective on the date when the pledge of equity interests contemplated under the agreement is registered with the relevant local administration for industry and commerce and will remain binding until Beijing Momo and its shareholders discharge all their

 

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obligations under the contractual arrangements. We have registered the equity interest pledge agreements with Chaoyang Branch of Beijing Administration for Industry and Commerce in Beijing.

Powers of attorney. Pursuant to the powers of attorney entered into on April 18, 2012 and amended and restated on April 18, 2014, each shareholder of Beijing Momo irrevocably appointed Beijing Momo IT as their attorney-in-fact to act for all matters pertaining to Beijing Momo and to exercise all of their rights as shareholders of Beijing Momo, including attending shareholders’ meetings and designating and appointing legal representatives, directors and senior management members of Beijing Momo. Beijing Momo IT may authorize or assign its rights under this appointment to any other person or entity at its sole discretion without prior notice to or prior consent from the shareholders of Beijing Momo. Each power of attorney remains in force until the shareholder ceases to hold any equity interest in Beijing Momo.

Spousal consent letters. Under the spousal consent letters, each spouse of the married shareholders of Beijing Momo unconditionally and irrevocably agreed that the equity interest in Beijing Momo held by and registered in the name of their spouse will be disposed of pursuant to the equity interest pledge agreement, the exclusive call option agreement, and the power of attorney. Each spouse agreed not to assert any rights over the equity interest in Beijing Momo held by their spouse. In addition, in the event that the spouses obtain any equity interest in Beijing Momo held by their spouse for any reason, they agreed to be bound by the contractual arrangements.

Exclusive cooperation agreements. Beijing Momo IT entered into an exclusive cooperation agreement and a supplemental agreement with Beijing Momo on August 31, 2014 to supersede the exclusive technology consulting and management services agreement signed in April 2012 between Beijing Momo IT and Beijing Momo. Under the agreement, Beijing Momo IT has the exclusive right to provide, among other things, licenses, copyrights, technical and non-technical services to Beijing Momo and receive license fees and service fees as consideration. Without Beijing Momo IT’s prior written consent, Beijing Momo may not engage any third party to provide the same or similar licenses and services provided by Beijing Momo IT under the agreement. Beijing Momo IT also solely and exclusively owns any intellectual property rights arising from the performance of the agreement. Beijing Momo IT agrees to charge the licensing and service fees only if the operating profit rate, as such term is defined in the agreement, of Beijing Momo exceeds a specified threshold, which is initially set at 3.5% and will be adjusted from time to time. Any amount over the operating profit rate will be paid to Beijing Momo IT in the form of licensing and service fees. A breakdown of licensing and service fees will be exchanged between the parties each month and paid within 60 days from the end of such month. The licensing fee for the mobile social networking software owned by Beijing Momo IT will be 12.5% of Beijing Momo’s revenues generated from its principal business, while the licensing fee for the emoticons owned by Beijing Momo IT and licensed to Beijing Momo will be 12.5% of Beijing Momo’s revenues from emoticon sales, both to be adjusted from time to time. The agreement has retrospective effect starting from January 1, 2014 with respect to the licensing and service fees. The agreement has an initial term of ten years from the date of execution, and may be extended at the sole discretion of Beijing Momo IT. Beijing Momo IT may terminate the agreement at any time with a 30-day notice to Beijing Momo, but Beijing Momo may not terminate the agreement.

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

 

•

the ownership structures of Beijing Momo IT and Beijing Momo, currently and immediately after giving effect to this offering, will not result in any violation of PRC laws or regulations currently in effect; and

 

•

the contractual arrangements among Beijing Momo IT, Beijing Momo and the shareholders of Beijing Momo governed by PRC law, currently and immediately after giving effect to this offering, are valid, binding and enforceable, and do not and will not result in any violation of PRC laws or regulations currently in effect.

 

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However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC counsel. If the PRC government finds that the agreements that establish the structure for operating our business do not comply with PRC government restrictions on foreign investment in our businesses, we could be subject to severe penalties, including being prohibited from continuing operations. See “Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or their interpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations,” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”

Beijing Momo IT also entered into an exclusive cooperation agreement with Chengdu Momo on August 31, 2014, which agreement is substantially similar to the exclusive cooperation agreement entered into between Beijing Momo IT and Beijing Momo described above.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated income and comprehensive income data for the years ended December 31, 2012 and 2013, selected consolidated balance sheet data as of December 31, 2012 and 2013 and selected consolidated cash flow data for the years ended December 31, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following selected consolidated income and comprehensive income data for the six months ended June 30, 2013 and 2014, selected consolidated balance sheet data as of June 30, 2014 and selected consolidated cash flow data for the six months ended June 30, 2013 and 2014 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented.

Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future periods. You should read this Summary Consolidated Financial 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.

 

		Year Ended December 31,								Six Months Ended June 30,
		2012				2013				2013				2014
		(in US$ thousands, except share and share-related data)
Selected Data of Consolidated Statements of Operations:
Net Revenues
Membership subscription fees			—				2,808				—				8,744
Mobile games			—				92				—				4,438
Other services			—				229				—				704
Total net revenues			—				3,129				—				13,886
Cost and expenses(1)
Cost of revenues			—				(2,927	)			—				(6,037	)
Research and development expenses			(1,454	)			(3,532	)			(1,487	)			(2,890	)
Sales and marketing expenses			(419	)			(3,018	)			(733	)			(9,071	)
General and administrative expenses			(1,969	)			(3,010	)			(1,639	)			(4,333	)
Total cost and expenses			(3,842	)			(12,487	)			(3,859	)			(22,331	)
Loss from operations			(3,842	)			(9,358	)			(3,859	)			(8,445	)
Interest income			3				32				19				181
Net loss			(3,839	)			(9,326	)			(3,840	)			(8,264	)
Deemed dividend to preferred shareholders			(3,093	)			(8,120	)			(4,604	)			(40,301	)
Net loss attributable to ordinary shareholders			(6,932	)			(17,446	)			(8,444	)			(48,565	)
Net loss per share attributable to ordinary shareholders
Basic			(0.05	)			(0.12	)			(0.06	)			(0.34	)
Diluted			(0.05	)			(0.12	)			(0.06	)			(0.34	)
Weighted average shares used in computing net loss per ordinary share
Basic			147,000,000				147,000,000				147,000,000				141,033,372
Diluted			147,000,000				147,000,000				147,000,000				141,033,372

 

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

 

		Year Ended December 31,								Six Months Ended June 30,
		2012				2013				2013				2014
		(in US$ thousands)
Cost of revenues			—				34				—				50
Research and development expenses			39				269				118				189
Sales and marketing expenses			11				128				32				204
General and administrative expenses			542				532				208				2,182
Total			592				963				358				2,625

The following table presents our summary consolidated balance sheet data as of December 31, 2012, 2013 and June 30, 2014.

 

		As of December 31,								As of June 30, 2014
		2012				2013				Actual				Unaudited Pro forma(1)				Pro forma as adjusted(2)
		(in US$ thousands)
Selected Consolidated Balance Sheet Data:
Cash and cash equivalents			18,539				55,374				176,220				176,220
Total assets			20,784				63,025				195,422				195,422
Total liabilities			143				5,566				27,866				27,866
Total mezzanine equity			27,199				80,319				301,342				—
Total equity (deficit)			(6,558	)			(22,860	)			(133,786	)			167,556

 

Notes:

(1)

The consolidated balance sheet data as of June 30, 2014 are adjusted on a unaudited pro forma basis to give effect to the automatic conversion of all of our outstanding series A-1, series A-2, series A-3, series B, series C and series D preferred shares into 200,718,811 ordinary shares immediately prior to the completion of this offering.

(2)

The consolidated balance sheet data as of June 30, 2014 are adjusted on a unaudited pro forma as adjusted basis to give effect to (i) the automatic conversion of all of our outstanding series A-1, series A-2, series A-3, series B, series C and series D preferred shares into 200,718,811 ordinary shares immediately prior to the completion of this offering and (ii) the sale of ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$             per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the over-allotment option.

 

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The following table presents our summary consolidated cash flow data for the years ended December 31, 2012 and 2013, as well as the six months ended June 30, 2013 and 2014.

 

		Year Ended December 31,								Six Months Ended June 30,
		2012				2013				2013				2014
		(in US$ thousands)
Selected Consolidated Cash Flow Data:
Net cash (used in) provided by operating activities			(4,104	)			(5,135	)			(3,203	)			3,588
Net cash used in investing activities			(1,992	)			(3,181	)			(639	)			(5,063	)
Net cash provided by financing activities			23,551				45,000				—				122,806
Effect of exchange rate changes on cash and cash equivalents			(34	)			151				153				(485	)
Net increase in cash and cash equivalents			17,421				36,835				(3,689	)			120,846
Cash and cash equivalents at beginning of year			1,118				18,539				18,539				55,374
Cash and cash equivalents at end of year			18,539				55,374				14,850				176,220

 

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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 headed “Selected Consolidated Financial 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. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

Momo connects people in a personal and lively way.

Momo is a revolutionary mobile-based social networking platform. We enable users to establish and expand social relationships based on location and interests. Our platform includes our Momo mobile application and a variety of related features, functionalities, tools and services that we provide to users, customers and platform partners. We have established Momo as one of China’s leading mobile social networking platforms in less than three years since our inception.

We focus on building and growing our user base and improving user experience. Our user base has grown rapidly since we launched Momo in July 2011, as evidenced by the following:

 

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We had 147.7 million registered users as of June 30, 2014, representing an increase of 205.9% from June 30, 2013.

 

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Our MAUs reached 52.4 million in June 2014, representing an increase of 155.9% from June 2013.

 

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Our average DAUs reached 22.3 million in June 2014, representing an increase of 187.8% from June 2013.

 

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We had 2.3 million members in the second quarter of 2014, representing an increase of 519.7% from the third quarter of 2013.

 

•

Our users sent a daily average of 625.0 million one-to-one messages, representing a daily average of 28 one-to-one messages per DAU, in June 2014; 62.0% of these messages were exchanged among people who had already followed each other.

Our large, growing and engaged user base creates a powerful network effect and a high barrier to entry.

We generate revenues primarily from membership subscription, mobile games and other services. Users can become Momo members by paying subscription fees, entitling them to additional functionalities and privileges in our mobile application. We offer mobile games developed by third-parties and share revenues generated by in-game purchases of virtual items with such developers. Our other services include paid emoticons and mobile marketing services. Our virtual store features stylish and trendy emoticons for sale, many of which are inspired by characters in popular culture. For mobile marketing services, we currently place banner ads in our mobile application for our customers.

We began monetizing in July 2013 and have achieved rapid growth from the increase in the scale of our social networking platform and the expansion of our service offerings. Our revenues more than quadrupled from US$3.1 million in the second half of 2013 to US$13.9 million in the first half of 2014. We had net losses of US$3.8 million, US$9.3 million and US$8.3 million in 2012, 2013 and the first half of 2014, respectively.

Trends in Our User Metrics

We analyze a number of user traffic metrics to evaluate our business and operating performance, and make business plans and strategic decisions.

 

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Monthly Active Users (MAUs)

MAUs are a measure of the size of our active user base, which has grown substantially since our inception. In June 2014, we had 52.4 million MAUs, compared to 20.5 million in June 2013, representing an increase of 155.9%.

Daily Active Users (DAUs)

DAUs are a measure of the size of our active user base and user engagement. In June 2014, we had 22.3 million average DAUs, compared to 7.8 million in June 2013, representing an increase of 187.8%.

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

 

Members

Members are Momo users who have paid the membership subscription fees. Our members reached 0.4 million, 0.8 million, 1.5 million and 2.3 million in the third quarter and fourth quarter of 2013 and the first quarter and second quarter of 2014, respectively.

The following chart shows the total number of our members during each of the quarters indicated.

 

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Major Factors Affecting Our Results of Operations

User Growth. Our revenues are driven by the number of our paying users, which include our members as well as users who make purchases of emoticons or purchase virtual items in mobile games offered on our platform, which in turn are affected by the growth in our active user base, and strategies we pursue to achieve active user growth that may affect our costs and expenses and results of operations. We have experienced rapid user growth since our inception. Currently, membership subscription fees are the largest component of our revenues. The growth of our member base is driven primarily by the growth of the number of active users and our ability to convert a greater portion of our users into members.

User Engagement. Changes in user engagement could affect our revenues and financial results. Active user engagement powered by diverse functionalities and rich content enables us to secure an abundant supply of user profiles and behavioral data, which is essential for our mobile marketing services and our ability to improve our service features, including our user tiering system.

Monetization. We started monetization in the third quarter of 2013, and we are continuing to refine the ways to monetize our service offerings without adversely affecting user experience. We plan to increase the revenues generated through our membership subscription fees by offering more premium services to our members. We plan to partner with third-party game developers and to develop games in-house to offer more games tailored to our platform and our users. We will continue to build our mobile marketing business, including the development of more innovative native advertising and comprehensive mobile marketing solutions. Our future revenue growth will be affected by our ability to effectively execute our monetization strategies.

Investment in Technology Infrastructure and Talent. Our technology infrastructure is critical for us to retain and attract users, customers and platform partners. We must continue to upgrade and expand our technology infrastructure to keep pace with the growth of our business, to further enhance our big data analytical capabilities and develop new features and services for our platform.

Our employee headcount has increased significantly as our business has grown and we expect this trend to continue for the foreseeable future. The number of our employees increased from 76 as of December 31, 2012 to 209 as of December 31, 2013 and further to 293 as of June 30, 2014. There is strong demand in China’s internet industry for talented and experienced personnel from fast-growing, large-scale social networking platforms. We must recruit, retain and motivate talented employees while controlling our personnel-related expenses, including share-based compensation expenses.

 

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts and as percentages of our total net revenues. 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 the results that may be expected for any future period.

 

		Year Ended December 31,												Six Months Ended June 30,
		2012				2013								2013				2014
		US$				US$				%				US$				US$				%
		(in US$ thousands, except for percentages)
Total net revenues			—				3,129				100.0				—				13,886				100.0
Cost and expenses
Cost of revenues			—				(2,927	)			(93.5	)			—				(6,037	)			(43.5	)
Research and development expenses			(1,454	)			(3,532	)			(112.9	)			(1,487	)			(2,890	)			(20.8	)
Sales and marketing expenses			(419	)			(3,018	)			(96.5	)			(733	)			(9,071	)			(65.3	)
General and administrative expenses			(1,969	)			(3,010	)			(96.2	)			(1,639	)			(4,333	)			(31.2	)
Total cost and expenses			(3,842	)			(12,487	)			(399.1	)			(3,859	)			(22,331	)			(160.8	)
Loss from operations			(3,842	)			(9,358	)			(299.1	)			(3,859	)			(8,445	)			(60.8	)
Interest income			3				32				1.0				19				181				(1.3	)
Net loss			(3,839	)			(9,326	)			(298.1	)			(3,840	)			(8,264	)			(59.5	)

Comparison of the Years Ended December 31, 2012 and 2013, and the Six Months Ended June 30, 2013 and 2014

Net revenues

We currently generate revenues primarily from membership subscription, mobile games and other services. Membership subscription and other service revenues are presented net of surcharges and taxes. Mobile games revenues are presented net of revenue sharing with game developers, surcharges and taxes.

Membership subscription. Momo users can become members by paying monthly, quarterly, semi-annual or annual membership fees. Momo members are entitled to additional functionalities and privileges on our mobile application. Our membership subscription revenues were US$2.8 million in 2013, all of which were generated in the second half of 2013, and US$8.7 million in the first half of 2014. The growth in membership subscription fees revenues is primarily driven by the significant increase in the number of our members since we started monetization. Our members increased from 0.4 million in the third quarter of 2013 to 2.3 million in the second quarter of 2014. The increase in the number of our members was in turn driven by the growth in our active user base and increased user engagement. Our MAUs increased from 9.6 million in December 2012 to 52.4 million in June 2014. Our average DAUs increased from 3.3 million in December 2012 to 22.3 million in June 2014.

Mobile games. We began to generate mobile games revenues in the fourth quarter of 2013, when we introduced two games on our platform. We have two types of mobile game services, namely non-exclusive

 

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mobile game services and exclusive mobile game services. For non-exclusive mobile game services, we offer our mobile game platform for mobile games developed by third-party game developers, and we share user payments with such game developers. Game developers may offer their games on other platforms in addition to ours. For exclusive mobile game services, we offer our mobile game platform for mobile games developed by third-party game developers, and our platform is the only one through which players can access such games. As of June 30, 2014, we operated three games on our platform under non-exclusive mobile game services and one game under exclusive mobile game services. We expect the number of games operated under exclusive mobile game services to increase in the near future. Our revenues from mobile games depend on the number of paying users, which ultimately is determined by our ability to select and offer engaging games tailored to our platform and our user profiles.

Other services. Our other services include paid emoticons and mobile marketing services. Our virtual store began to generate revenues from stylish and trendy emoticons for sale in the third quarter of 2013. The growth of our paid emoticon revenues is also primarily attributable to the increase in our paying users, which is in turn driven by the size of our active user base. Our paid emoticons paying users increased 164.5% from 50 thousand in the third quarter of 2013 to 133 thousand in the second quarter of 2014. We also generate revenues from our mobile marketing services, which currently include the placement of banner displays in our mobile application. We began to offer mobile marketing services in the third quarter of 2013.

The following table sets forth the components of our net revenues by amounts and percentages of our total net revenues for the periods presented:

 

		Year Ended December 31,												Six Months Ended June 30,
		2012				2013								2013				2014
		US$				US$				%				US$				US$				%
		(in US$ thousands, except for percentages)
Net revenues
Membership subscription			—				2,808				89.7				—				8,744				63.0
Mobile games			—				92				2.9				—				4,438				32.0
Other services			—				229				7.4				—				704				5.0
Total net revenues			—				3,129				100.0				—				13,886				100.0

Cost and expenses

Cost of revenues

Cost of revenues consists primarily of costs associated with the operation and maintenance of our platform, including bandwidth costs, SMS costs, labor costs and commission fees. Bandwidth costs, including internet data center and content delivery network fees, consist of fees that we pay to telecommunication carriers and other service providers for telecommunication services, hosting our servers at their internet data centers, and providing content and application delivery services. SMS costs consist of fees that we pay to telecommunication carriers for text message services provided to our users for verification purpose. Labor costs consist of salaries and benefits, including share-based compensation expenses, for our employees involved in the operation of our platform. Commission fees are payments made to third-party application stores and other payment channels for distributing our mobile application and membership subscription services. Users can make payments for such services through third-party online and mobile phone payment channels. These third-party payment channels typically charge a handling fee for their services.

 

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The following table sets forth the components of our cost of revenues by amounts and percentages of our total cost of revenues for the periods presented:

 

		Year Ended December 31,																Six Months Ended June 30,
		2012								2013								2013								2014
		US$				%				US$				%				US$				%				US$				%
		(in US$ thousands, except for percentages)
Cost of revenues
Bandwidth costs			—				—				(1,265	)			43.2				—				—				(2,724	)			45.1
SMS costs											(445	)			15.2				—				—				(692	)			11.5
Labor costs			—				—				(412	)			14.1				—				—				(523	)			8.7
Commission fees			—				—				(339	)			11.6				—				—				(1,229	)			20.4
Other costs			—				—				(466	)			15.9				—				—				(869	)			14.3
Total cost of revenues			—				—				(2,927	)			100.0				—				—				(6,037	)			100.0

Our cost of revenues was US$2.9 million in 2013 and US$6.0 million in the first half of 2014. Prior to generating revenues in the third quarter of 2013, we recorded US$0.6 million and US$0.8 million of bandwidth costs and SMS costs in general and administrative expenses in 2012 and the first half of 2013, respectively. We expect our cost of revenues to increase in the future as we continue to enhance the capability and reliability of our infrastructure to support user growth and increased activity on our platform.

Research and development expenses

Research and development expenses consist primarily of salaries and benefits, including share-based compensation expenses, for research and development personnel and rental expenses. Expenditures incurred during the research phase are expensed as incurred. We expect our research and development expenses to increase as we expand our research and development team, to further enhance our big data analytical capabilities and develop new features and services for our platform.

First half of 2014 compared to first half of 2013. Our research and development expenses increased by 94.4% from US$1.5 million in the first half of 2013 to US$2.9 million in the first half of 2014. This increase was primarily due to a US$1.1 million increase in salaries and benefits for research and development personnel. Our research and development headcount increased from 63 as of June 30, 2013 to 124 as of June 30, 2014.

2013 compared to 2012. Our research and development expenses increased by 142.9% from US$1.5 million in 2012 to US$3.5 million in 2013. This increase was primarily due to a US$1.7 million increase in salaries and benefits for research and development personnel. Our research and development headcount increased from 43 as of December 31, 2012 to 101 as of December 31, 2013.

Sales and marketing expenses

Sales and marketing expenses consist primarily of general marketing and promotional expenses, as well as salaries and benefits, including share-based compensation expenses, for our sales and marketing personnel. We expect our sales and marketing expenses to increase as we plan to enhance our brand awareness and attract new users.

First half of 2014 compared to first half of 2013. Our sales and marketing expenses increased from $0.7 million in the first half of 2013 to $9.1 million in the first half of 2014, primarily due to a US$6.7 million

 

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increase in marketing and promotional expenses to enhance our brand awareness and a US$1.2 million increase in salaries and other benefits for our sales and marketing personnel. Our sales and marketing headcount nearly tripled, from 29 as of June 30, 2013 to 83 as of June 30, 2014.

2013 compared to 2012. Our sales and marketing expenses increased from $0.4 million in 2012 to $3.0 million in 2013, primarily due to a US$1.0 million increase in salaries and other benefits for our sales and marketing personnel, and a US$1.0 million increase in marketing and promotional expenses to enhance our brand awareness. Our sales and marketing headcount more than doubled, from 25 as of December 31, 2012 to 57 as of December 31, 2013.

General and administrative expenses

General and administrative expenses consist primarily of salaries and expenses, including share-based compensation expense, rental expenses and professional fees. We expect our general and administrative expenses to increase as our business grows and we comply with our reporting obligations under U.S. securities laws as a public company.

First half of 2014 compared to first half of 2013. Our general and administrative expenses increased from US$1.6 million in the first half of 2013 to US$4.3 million in the first half of 2014. This increase was primarily due to a US$2.5 million increase in salaries and other benefits including share-based compensation expenses for our general and administrative personnel, and increase of rental expenses as a result of moving into a new headquarters office in May 2014, offset by a decrease in costs associated with the maintenance of our platform. We included bandwidth costs and SMS costs in an amount of US$0.8 million in the first half of 2013 in our general and administrative expenses prior to our monetization in the third quarter of 2013, but have included them in cost of revenues since then.

2013 compared to 2012. Our general and administrative expenses increased by 52.9% from US$2.0 million in 2012 to US$3.0 million in 2013. This increase was primarily due to an increase of US$0.6 million in salaries and other benefits for our general and administrative personnel, and an increase in costs associated with the maintenance of our platform. We included bandwidth costs and SMS costs in total of US$0.6 million in 2012 and US$0.8 million in 2013 in our general and administrative expenses prior to our monetization in the third quarter of 2013, but have included them in cost of revenues since then.

Net loss

First half of 2014 compared to first half of 2013. As a result of the foregoing, we recorded net loss of US$3.8 million in the first half of 2013 and US$8.3 million in the first half of 2014.

2013 compared to 2012. As a result of the foregoing, we recorded net loss of US$3.8 million in 2012 and US$9.3 million in 2013.

 

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Selected Quarterly Results of Operations

The following table sets forth our unaudited consolidated quarterly results of operations for each of the six quarters in the period from January 1, 2013 to June 30, 2014. You should read the following table in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. We have prepared this unaudited condensed consolidated quarterly financial data on the same basis as we have prepared our audited consolidated financial statements. The unaudited condensed consolidated financial data includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the quarters presented.

 

		Three months ended
		March 31, 2013				June 30, 2013				September 30, 2013				December 31, 2013				March 31, 2014				June 30, 2014
		(in US$ thousands)
Selected Data of Consolidated Statements of Operations:
Net revenues
Membership subscription			—				—				759				2,049				3,166				5,578
Mobile games			—				—				—				92				1,963				2,475
Other services			—				—				58				171				317				387
Total net revenues			—				—				817				2,312				5,446				8,440
Cost and expenses(1)
Cost of revenues			—				—				(1,198	)			(1,729	)			(2,593	)			(3,444	)
Research and development expenses			(710	)			(777	)			(843	)			(1,202	)			(1,313	)			(1,577	)
Sales and marketing expenses			(229	)			(504	)			(788	)			(1,497	)			(1,872	)			(7,199	)
General and administrative expenses			(616	)			(1,023	)			(415	)			(956	)			(993	)			(3,340	)
Total cost and expenses			(1,555	)			(2,304	)			(3,244	)			(5,384	)			(6,771	)			(15,560	)
Loss from operations			(1,555	)			(2,304	)			(2,427	)			(3,072	)			(1,325	)			(7,120	)
Interest income			4				15				8				5				92				89
Net loss			(1,551	)			(2,289	)			(2,419	)			(3,067	)			(1,233	)			(7,031	)

 

Note:

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

 

		Three months ended,
		March 31, 2013				June 30, 2013				September 30, 2013				December 31, 2013				March 31, 2014				June 30, 2014
		(in US$ thousands)
Cost of revenues			—				—				9				25				25				25
Research and development expenses			59				59				51				100				95				94
Sales and marketing expenses			16				16				16				80				92				112
General and administrative expenses			103				105				106				218				750				1,432
Total			178				180				182				423				962				1,663

Our net revenues increased from US$0.8 million in the third quarter of 2013 to US$8.4 million in the second quarter of 2014, outpacing the rate of increase of our cost of revenues during the same periods. We included bandwidth costs and SMS costs in our general and administrative expenses prior to the beginning of our monetization in the third quarter of 2013, and have included them in cost of revenues since then.

Because we only started to monetize from the third quarter of 2013, we cannot confirm or otherwise describe the seasonality of our business as a result of this very short history of monetization.

 

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Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax in the Cayman Islands. In addition, our payment of dividends to our shareholders, if any, is not subject to withholding tax in the Cayman Islands.

Hong Kong

Our subsidiary incorporated in Hong Kong is subject to the uniform tax rate of 16.5%. Under the Hong Kong tax laws, it is exempted from the Hong Kong income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on the remittance of dividends. No provision for Hong Kong tax has been made in our consolidated financial statements, as our Hong Kong subsidiary had not generated any assessable income in 2012, 2013 or the first half of 2014.

PRC

Pursuant to the EIT Law, which became effective on January 1, 2008, foreign-invested enterprises and domestic companies are subject to enterprise income tax at a uniform rate of 25%.

As we had net operating losses for the years ended December 31, 2012 and 2013, as well as the six months ended June 30, 2014, we have not incurred any PRC income taxes for those periods.

Effective January 1, 2012, the PRC Ministry of Finance and the State Administration of Taxation launched a Business Tax to Value-Added Tax Transformation Pilot Program, or the VAT Pilot Program, which imposes VAT in lieu of business tax for certain “modern service industries” in certain regions and eventually expands to nation-wide in 2013. According to the implementation circulars released by the Ministry of Finance and the State Administration of Taxation on the VAT Pilot Program, the “modern service industries” include research, development and technology services, information technology services, cultural innovation services, logistics support, lease of corporeal properties, attestation and consulting services. All of our entities were subject to the VAT Pilot Program as of June 30, 2014, or specifically, VAT at rate of 6% in lieu of business tax. With the adoption of the VAT Pilot Program, our revenues are subject to VAT payable on goods sold or taxable services provided by a general VAT taxpayer for a taxable period is the net balance of the output VAT for the period after crediting the input VAT for the period. Hence, the amount of VAT payable does not result directly from output VAT generated from goods sold or taxable services provided. Therefore, we have adopted the net presentation of VAT.

Pursuant to applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We may be subject to adverse tax consequences and our consolidated results of operations may be adversely affected if the PRC tax authorities determine that the contractual arrangements among our PRC subsidiary, Beijing Momo and its shareholders are not on an arm’s length basis and therefore constitute favorable transfer pricing. See “Risk Factors—Risks Related to Our Corporate Structure—Contractual arrangements we have entered into with Beijing Momo may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could significantly reduce our consolidated net income and the value of your investment.”

Internal Control Over Financial Reporting

In connection with the audit of our consolidated financial statements as of and for the two years ended December 31, 2012 and 2013, we and our independent registered public accounting firm identified two material weaknesses as of December 31, 2013. As defined in standards established by the PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a

 

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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 identified related to (i) the lack of accounting personnel with appropriate knowledge of U.S. GAAP and (ii) the lack of a comprehensive accounting policies and procedures manual in accordance with U.S. GAAP. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control under the Sarbanes-Oxley Act for purposes of identifying and reporting any weakness in our internal control over financial reporting. We and they are required to do so only after we become a public company. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.

To remedy our identified material weaknesses, we have adopted several measures to improve our internal control over financial reporting, including (i) establishing a U.S. GAAP financial reporting team in 2014, including hiring a chief financial officer, who is AICPA qualified, a financial controller and a financial reporting manager, each of whom has extensive U.S. GAAP financial accounting and reporting experience at big four international accounting firms and U.S.-listed public companies based in China; (ii) the periodical evaluation of the sufficiency of our accounting resources and needs for recruiting additional personnel and providing our accounting staff with regular U.S. GAAP training; and (iii) developing and implementing a full set of U.S. GAAP accounting policies and financial reporting procedures as well as related internal control policies. We expect to complete the measures above as soon as practicable and we will continue to implement measures to remedy our internal control deficiencies in order to meet the deadline imposed under Section 404 of the Sarbanes-Oxley Act.

The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. See “Risk Factors—Risks Related to Our Business and Industry—If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.”

Liquidity and Capital Resources

To date, we have financed our operations primarily through the issuance of preferred shares in private placements. As of December 31, 2012 and 2013 and June 30, 2014, we had US$18.5 million, US$55.4 million and US$176.2 million, respectively, in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash on hand and highly liquid investments, which are unrestricted from withdrawal or use, or which have original maturities of three months or less when purchased. 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 the 12 months following this offering. We may, however, need additional capital in the future to fund our continued operations.

In the future, we may rely significantly on dividends and other distributions paid by our PRC subsidiary for our cash and financing requirements. There may be restrictions on the dividends and other distributions by our PRC subsidiary. The PRC tax authorities may require us to adjust our taxable income under the contractual arrangements that our PRC subsidiary currently has in place with our consolidated affiliated entity in a way that could materially and adversely affect the ability of our PRC subsidiary to pay dividends and make other distributions to us. In addition, under PRC laws and regulations, our PRC subsidiary may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiary is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a statutory reserve fund, until the aggregate amount of such fund reaches 50% of its respective registered capital.

 

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At its discretion, our PRC subsidiary may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. The reserve fund and the staff welfare and bonus funds cannot be distributed as cash dividends. See “Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our PRC subsidiary to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.” Furthermore, our investments made as registered capital and additional paid-in capital of our PRC subsidiary, consolidated affiliated entity and its subsidiary are also subject to restrictions on their distribution and transfer according to PRC laws and regulations.

As a result, our PRC subsidiary, consolidated affiliated entity and its subsidiary in China are restricted in their ability to transfer their net assets to us in the form of cash dividends, loans or advances. As of June 30, 2014, the amount of the restricted net assets, which represents registered capital and additional paid-in capital cumulative appropriations made to statutory reserves, was US$42.1 million. As of June 30, 2014, we held cash and cash equivalents of US$149.0 million in aggregate outside of the PRC and US$27.2 million in aggregate in the PRC, of which US$13.4 million was denominated in RMB and US$13.8 million was in U.S. dollars. Of such cash and cash equivalents held in the PRC, our PRC subsidiary held cash and cash equivalents in the amount of US$13.8 million and RMB8.5 million (US$1.4 million), and our consolidated variable interest entity and its subsidiary held cash and cash equivalents in the amount of RMB74.4 million (US$12.0 million).

As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raising activities to our PRC subsidiary only through loans or capital contributions, and to our consolidated affiliated entity and its subsidiary only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiary and consolidated affiliated entity and its subsidiary, or to make additional capital contributions to our PRC subsidiary.” As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiary and consolidated affiliated entity when needed. Notwithstanding the forgoing, our PRC subsidiary may use its own retained earnings (rather than RMB converted from foreign currency denominated capital) to provide financial support to our consolidated affiliated entity either through entrustment loans from our PRC subsidiary to our consolidated affiliated entity or direct loans to such consolidated affiliated entity’s nominee shareholders, which would be contributed to the consolidated variable entity as capital injections. Such direct loans to the nominee shareholders would be eliminated in our consolidated financial statements against the consolidated affiliated entity’s share capital.

Our full time employees in the PRC participate in a government-mandated contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to such employees. We accrue for these benefits based on certain percentages of the employees’ salaries. The total provisions for such employee benefits were US$0.3 million in 2012, US$1.0 million in 2013 and US$0.9 million in the first half of 2014. We expect our contribution towards such employee benefits to increase in the future as we continue to expand our workforce and as salary levels of our employees continue to increase.

 

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

 

		Year Ended December 31,								Six Months Ended June 30,
		2012				2013				2013				2014
		(in US$ thousands)
Net cash (used in) provided by operating activities			(4,104	)			(5,135	)			(3,203	)			3,588
Net cash used in investing activities			(1,992	)			(3,181	)			(639	)			(5,063	)
Net cash provided by financing activities			23,551				45,000				—				122,806
Effect of exchange rate changes on cash and cash equivalents			(34	)			151				153				(485	)
Net increase in cash and cash equivalents			17,421				36,835				(3,689	)			120,846
Cash and cash equivalents at beginning of year			1,118				18,539				18,539				55,374
Cash and cash equivalents at end of year			18,539				55,374				14,850				176,220

Anticipated Use of Cash

We intend to invest in our research and development capabilities to grow our user base and enhance user experience. We intend to continue to market our services, promote our brand, strengthen our customer service capabilities and enhance monetization. In order to support our overall business expansion, we also expect to make investments in our corporate facilities and information technology infrastructure. We may pursue strategic alliances and acquisitions that complement our social networking platform. We plan to fund these expenditures with cash and cash equivalents that we have.

Operating Activities

Net cash provided by operating activities amounted to US$3.6 million in the first half of 2014, which was primarily attributable to a net loss of US$8.3 million, adjusted for non-cash items of US$3.7 million and increase of US$8.1 million in working capital. The non-cash items primarily included US$2.6 million in share-based compensation expenses and US$1.0 million in depreciation on property and equipment. The increase in working capital was primarily attributable to an increase in deferred revenue of US$6.6 million, an increase in accounts payable of US$4.5 million and an increase in accrued expenses and other current liabilities of US$4.7 million, which was partially offset by an increase in prepaid expenses and other current assets of US$4.6 million and an increase in accounts receivable of US$2.5 million. The increase in deferred revenue was mainly attributable to the increase of our members and membership subscription fees that our members paid in advance, as well as the increase in mobile games revenues paid in advance. The increase in accounts payable was mainly attributable to the increase in revenue-sharing payable to game developers. The increase in accrued expenses and other current liabilities was mainly attributable to (i) an increase in marketing promotional fees payable; (ii) an increase in fees payable for professional services and (iii) increased leasehold improvement expenses payable. The increase in prepaid expenses and other current assets is mainly attributable to the increase in marketing promotional expenses we paid in advance and the increase in commission fees we paid to third party application stores and other payment channels for distributing our mobile application and membership subscription services. The increase in accounts receivable is mainly attributable to the revenues collected through third-party payment channels.

Net cash used in operating activities amounted to US$5.1 million in 2013, which was primarily attributable to a net loss of US$9.3 million, adjusted for non-cash items of US$1.8 million and increase of US$2.4 million in

 

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working capital. The non-cash items included US$1.0 million in share-based compensation expenses and US$0.8 million in depreciation. The increase in working capital was primarily attributable to an increase in deferred revenue of US$3.7 million and an increase in accrued expenses and other current liabilities of US$1.3 million, which was partially offset by an increase in accounts receivable of US$1.9 million and an increase in prepaid expenses and other current assets of US$0.8 million. The increase in deferred revenue was mainly attributable to the increase of our members and membership subscription fees that our members paid in advance. The increase in accrued expenses and other current liabilities was mainly attributable to (i) increase in payroll and welfare payable relating to our increased headcount and increased salaries; and (ii) increased deferred government subsidy. The increase in accounts receivable is mainly attributable for the revenues collected through third-party payment channels. The increase in prepaid expenses and other current assets is mainly attributable to the increase in commission fees we paid to third-party application stores and other payment channels for distributing our mobile application and membership subscription services.

Net cash used in operating activities amounted to US$4.1 million in 2012, which was primarily attributable to a net loss of US$3.8 million, adjusted for non-cash items of US$0.7 million and decrease of US$1.0 million in working capital. The non-cash items include US$0.6 million in share-based compensation expenses and US$0.1 million in depreciation. The decrease in working capital was attributable to increase in accrued expenses and other current liabilities of US$0.7 million and increase in prepaid expenses and other current assets of US$0.3 million.

Investing Activities

Net cash used in investing activities amounted to US$5.1 million in the first half of 2014, which was primarily attributable to our purchase of computer and other equipment and payments for leasehold improvements.

Net cash used in investing activities amounted to US$3.2 million in 2013, which was primarily attributable to our purchase of computer and other equipment.

Net cash used in investing activities amounted to US$2.0 million in 2012, which was primarily attributable to our purchase of computer and other equipment, and advance to a related party for a cost-method investment in Smartisan Technology Co., Ltd. (which was completed in April 2013) on behalf of us. See Note 5 to the consolidated financial statements and report of independent registered public accounting firm included in this prospectus for a description of the cost-method investment.

Financing Activities

Net cash provided by financing activities amounted to US$122.8 million in the first half of 2014, which was attributable to proceeds from our issuance of preferred shares to investors.

Net cash provided by financing activities amounted to US$45.0 million in 2013, which was attributable to proceeds from our issuance of preferred shares to investors.

Net cash provided by financing activities amounted to US$23.6 million in 2012, which was attributable to proceeds from our issuance of preferred shares to investors.

Capital Expenditures

Our capital expenditures amounted to US$1.0 million, US$3.2 million and US$5.1 million in 2012, 2013 and the first half of 2014, respectively. In the past, our capital expenditures were principally incurred to purchase servers, computers and other office equipment. As our business expands, we may purchase new servers and other equipment in the future, as well as make leasehold improvements.

 

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Contractual Obligations

We lease certain of our facilities and offices under non-cancellable operating lease agreements. The rental expenses were US$0.4 million, US$0.9 million and US$1.6 million during the years ended December 31, 2012 and 2013 and the six months ended June 30, 2014, respectively.

As of June 30, 2014, future minimum commitments under non-cancelable agreements were as follows:

 

		Total				2014				2015				2016				2017				2018 and thereafter
		(in US$ thousands)
Operating lease			5,160				1,385				2,669				1,007				99				—

Other than the operating lease shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of June 30, 2014.

Holding Company Structure

Our company is a holding company with no material operations of its own. We conduct our operations primarily through our wholly owned subsidiaries and our consolidated affiliated entity and its subsidiary in China. As a result, our ability to pay dividends depends upon dividends paid by our wholly owned subsidiaries. If our wholly owned subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly owned subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our wholly owned PRC subsidiaries and our consolidated affiliated entity is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. As a result of these PRC laws and regulations, the capital and statutory reserves restricted which represented the amount of net assets of our relevant subsidiaries in PRC not available for distribution were US$42,081 as of June 30, 2014.

Off-Balance Sheet Arrangements

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

Inflation

Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2011, 2012 and 2013 were increases of 4.1%, 2.5% and 2.5%, respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect our reporting of, among other things, assets and liabilities, revenues and expenses and contingent assets and liabilities. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and other factors that we believe to be relevant

 

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under the circumstances. Since our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ from what we expect. This is especially true with some accounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our audited consolidated financial statements because they involve the greatest reliance on our management’s judgment.

Revenue recognition

We recognize revenues when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. We principally derive our revenues from membership subscription services as well as offering the platform for mobile games developed by third parties, and other services, including the use of paid emoticons and mobile marketing services.

Membership Subscription. Membership subscription is a service package that enables members to enjoy additional functions and privileges. The contract periods for the membership subscription are one month, one quarter, six months and one year. All membership subscription is nonrefundable. We collect membership subscription in advance and record it as deferred revenue. Revenues are recognized ratably over the contract period for the membership subscription services.

Mobile Games. We provide game services and generate revenues from offering the platform for mobile games developed by third-party game developers. All of the games that we currently offer are developed by third-party game developers and can be accessed and played by game players directly through our mobile game platform. We primarily view the game developers to be our customers and consider our responsibility under our agreements with the game developers to be promotion of the game developers’ games. We generally collect payments from game players in connection with the sale of in-game virtual currencies and remit certain agreed-upon percentages of the proceeds to the game developers and records revenues net of remittances. Purchases of in-game currencies are not refundable after they have been sold unless there are unused in-game currencies at the time a game is discontinued. Typically, a game will only be discontinued when the monthly revenues generated by a game become consistently insignificant. In our short history of providing mobile game services, we have never been required to pay cash refunds to game players or game developers in connection with the used in-game currencies of a discontinued game.

Mobile game revenue recognition involves certain management judgments, such as determining who is the principal in providing game services to our players, estimating the consumption date of the in-game currencies and the period of player relationship. We concluded that game developers are the principals based on the fact that the games are primarily hosted by the game developers and such developers are responsible for the maintenance of the games and determination of the prices of the virtual items used in the games. Our primary responsibility is to promote the games of the third-party developers, provide virtual currency exchange services, and offer customer support to resolve registration, log-in, virtual currency exchange and other related issues. Therefore, we report such revenues net of predetermined revenue-sharing with the game developers.

Non-exclusive mobile games services

We enter into non-exclusive agreements with game developers and offer our mobile game platform for the mobile games developed by such game developers. We have determined that we have no additional performance obligation to the developers or game players upon players’ completion of the corresponding in-game purchase. Therefore, revenues from the sale of in-game currencies are primarily recorded net of remittances to game developers and deferred until the estimated consumption date by individual games (i.e., the estimated date in-game currencies are consumed within the game), which is typically within a short period of time after purchase of the in-game currencies.

We estimate the in-game virtual currency consumption date based on the consumption behavior of game players for each reporting period. The amount and timing of our game revenues could be materially different for any period if management made different judgments or utilized different estimates. Any adjustments arising from

 

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changes in the estimate would be applied prospectively on the basis that such changes are caused by new information indicating a change in the user behavior pattern.

Exclusive mobile games services

We enter into an exclusive agreement with a game developer and provide our mobile game platform for the mobile game developed by the game developer. Under this exclusive agreement, the players can access the game only through our platform, we have determined that we are obligated to provide mobile games services to game players who purchased virtual items to gain an enhanced game-playing experience over an average period of player relationship. We believe that our performance for, and obligation to, the game developers correspond to the game developers’ services to the players. We do not have access to the data on the consumption details and the types of virtual items purchased by game players. Therefore, we cannot estimate the economic life of the virtual items. However, we maintain historical data of a particular player when the player makes a purchase and logs into the relevant game. We have adopted a policy to recognize revenues net of remittances to game developers over the estimated period of player relationship on a game-by-game basis.

We estimate the period of player relationship based on an assessment of our historical data, user behavioral patterns as well as industry research data. The period of player relationship is estimated based on data collected from those players who have purchased in-game currencies. We estimate the life of the player relationship to be the average period from the first purchase of in-game currencies to the date the player ceases to play the game.

To estimate the last login date the player plays the game, we selected all paying players that logged into the game during a particular period and continue to track these players’ log-on behaviors over a period to determine if each user is “active” or “inactive,” which is determined based on a review of the period of inactivity or idle period from the user’s last log-in. We observe the behaviors of these players to see whether they subsequently return to a game based on different inactive periods (e.g. not logging in) of one month. The percentage of players calculated that do not log back in is estimated to be the probability that players will not return to the game after a certain period of inactivity.

We consider a paying player to be inactive once he or she has reached a period of inactivity for which it is probable (defined as at least 80%) that a player will not return to a specific game. We believe that using an 80% threshold for the likelihood that a player will not return to a game is a reasonable estimate. We have consistently applied this threshold to our analysis.

If a new game is launched and only a limited period of paying player data is available, then we consider other qualitative factors, such as the playing patterns for paying players for other games with similar characteristics in the market.

Future usage patterns may differ from historical usage patterns and therefore the estimated period of player relationship with us may change in the future. The consideration of player relationship with each game is based on our best estimate that takes into account all known and relevant information at the time of assessment. We assess the estimated period of player relationships on a quarterly basis. Any adjustments arising from changes in the estimated period of player relationships are applied prospectively as such change results from new information indicating a change in the game player’s behavioral patterns.

Paid Emoticons. All paid emoticons are durable with indefinite lives and each of them is effective upon purchase payment made and download completed by a user. The price of each emoticon is fixed and identifiable. The revenues are recognized ratably over the estimated usage life of the emoticon (i.e. 180 days) by the user from the date when the emoticon is downloaded.

Revenue recognition from emoticons also involves certain management judgments. We estimate the emoticons’ estimated economic life based on the historical data for the period from the first launch in 2013 to March 31, 2014, which period was generally longer than 180 days. We performed the analysis to estimate the usage life of the emoticons based on the historical attrition pattern of the usage frequency per day from the launching date to March 31, 2014, weighted by the sales amount from each selected emoticon sample during

 

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such period. We reassess the estimated life periodically. Any adjustments arising from changes in the estimate would be applied prospectively to all existing emoticons which are not fully amortized on the basis that such changes are caused by new information indicating a change in the frequency of usage pattern.

Consolidation of Consolidated Affiliated Entities

PRC regulations currently limit direct foreign ownership of business entities providing value-added telecommunications services, advertising services and internet services in the PRC where certain licenses are required for the provision of such services. To comply with these PRC regulations, we conduct a substantial majority of our business through Beijing Momo and its subsidiary.

Beijing Momo IT, our wholly-owned PRC subsidiary, holds the power to direct the activities of Beijing Momo and its subsidiary that most significantly affect our economic performance and bears the economic risks and receives the economic benefits of Beijing Momo and its subsidiary through a series of contractual agreements with Beijing Momo and/or their nominee shareholders, including:

 

•

Exclusive cooperation agreements, as supplemented;

 

•

Equity interest pledge agreement;

 

•

Business operation agreement;

 

•

Exclusive call option agreement;

 

•

Powers of attorney; and

Based on the advice of Han Kun Law Offices, our PRC legal counsel, we believe above contractual agreements are currently legally enforceable under PRC law and regulations.

More specifically, through these contractual agreements, we believe that the nominee shareholders of Beijing Momo do not have the direct or indirect ability to make decisions regarding the activities of Beijing Momo that could have a significant impact on the economic performance of Beijing Momo because all of the voting rights of Beijing Momo’s nominee shareholders have been contractually transferred to Beijing Momo. Therefore, we have effective control over Beijing Momo. In addition, we believe that our ability to exercise effective control, together with the exclusive cooperation agreements, as supplemented, exclusive call option agreement and equity interest pledge agreement, give us the rights to receive substantially all of the economic benefits from Beijing Momo. Hence, we believe that the nominee shareholders of Beijing Momo do not have the rights to receive the expected residual returns of Beijing Momo, as such rights have been transferred to Beijing Momo. We evaluated the rights we obtained through entering into these contractual agreements and concluded we have the power to direct the activities that most significantly affect Beijing Momo’s economic performance and also have the rights to receive the economic benefits of Beijing Momo that could be significant to Beijing Momo.

Accordingly, we are the primary beneficiary of Beijing Momo and have consolidated the financial results of Beijing Momo and its subsidiary in our consolidated financial statements.

The shareholders of Beijing Momo are also our shareholders, directors or officers and therefore have no current interest in acting contrary to the contractual arrangements. However, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements and if the shareholders of Beijing Momo were to reduce their shareholdings in our company, their interests may diverge from our interests, which may increase the risk that they would act contrary to the contractual arrangements, such as causing Beijing Momo to not pay service fees under the contractual arrangements when required to do so. See “Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with Beijing Momo and its shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership.”

 

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Income Taxes

In preparing our consolidated financial statements, we must estimate our income taxes in each of the jurisdictions in which we operate. We estimate our actual tax exposure and assess temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which we include in our consolidated balance sheet. We must then assess the likelihood that we will recover our deferred tax assets from future taxable income. If we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance, we must include an expense within the tax provision in our consolidated statement of operations.

Management must exercise significant judgment to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We base the valuation allowance on our estimates of taxable income in each jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. If actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations.

U.S. GAAP requires that an entity recognize the impact of an uncertain income tax position on the income tax return at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. If we ultimately determine that payment of these liabilities will be unnecessary, we will reverse the liability and recognize a tax benefit during that period. Conversely, we record additional tax charges in a period in which we determine that a recorded tax liability is less than the expected ultimate assessment. We did not recognize any significant unrecognized tax benefits during the periods presented in this prospectus.

Uncertainties exist with respect to the application of the New EIT Law to our operations, specifically with respect to our tax residency status. The New EIT Law specifies that legal entities organized outside of the PRC will be considered residents for PRC income tax purposes if their “de facto management bodies” are located within the PRC. The New EIT Law’s implementation rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.”

Because of the uncertainties resulted from limited PRC tax guidance on the issue, it is uncertain whether our legal entities organized outside of the PRC constitute residents under the New EIT Law. If one or more of our legal entities organized outside of the PRC were characterized as PRC tax residents, the impact would adversely affect our results of operations. See “Risk Factors—Risks Related to Doing Business in China.”

The useful lives and impairment of property and equipment

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally from three to five years. Judgment is required to determine the estimated useful lives of assets, especially for computer equipment, including determining how long existing equipment can function and when new technologies will be introduced at cost-effective price points to replace existing equipment. Changes in these estimates and assumptions could materially impact our financial position and results of operations.

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, we measure impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss based on the fair value of the assets.

 

 

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Fair value of our ordinary shares

We are a private company with no quoted market prices for our ordinary shares. We have therefore needed to make estimates of the fair value of our ordinary shares at various dates for the following purposes:

 

•

Determining the fair value of our ordinary shares at the date of issuance of convertible instruments as one of the inputs into determining the intrinsic value of the beneficial conversion feature, if any.

 

•

Determining the fair value of our ordinary shares at the date of the grant of a share-based compensation awards to our employees as one of the inputs into determining the grant date fair value of the award.

 

•

Determining the fair value of our ordinary shares at the date of the grant of a share-based compensation awards to non-employees as one of the inputs into determining the grant date fair value of the award and fair value as of each period end thereafter.

In determining the estimated fair value of our ordinary shares, we have considered 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, which sets forth the preferred types of valuation that should be used. These estimates will not be necessary to determine the fair value of our ordinary shares once our ADSs begin trading.

The following table sets forth the fair value of our ordinary shares estimated at different dates in 2012, 2013 and the first half of 2014:

 

Date		Class of Shares		Fair Value				Purpose of Valuation		DLOM				Discount Rate
April 12, 2012		Ordinary shares		US$	0.01			To determine potential beneficial conversion feature in connection with the issuance of Series A-1 and Series A-2 preferred shares			33.5	%			40.00	%
June 11, 2012		Ordinary shares		US$	0.03			To determine potential beneficial conversion feature in connection with the issuance of Series A-3 preferred shares			33.5	%			38.00	%
July 13, 2012		Ordinary shares		US$	0.09			To determine potential beneficial conversion feature in connection with the issuance of Series B preferred shares			33.5	%			38.00	%
November 1, 2012		Ordinary shares		US$	0.19			Share option grant			33.0	%			35.00	%
October 8, 2013		Ordinary shares		US$	0.40			To determine potential beneficial conversion feature in connection with the issuance of Series C preferred shares			20.0	%			30.00	%
March 1, 2014		Ordinary shares		US$	4.00			Share option grant			16.0	%			21.00	%
April 22, 2014		Ordinary shares		US$	4.22			To determine potential beneficial conversion feature in connection with the issuance of Series D preferred shares			14.0	%			21.00	%

 

Note:

the fair values of ordinary shares stated above were adjusted by 1:10 share split that occurred in September 2012.

 

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In determining the fair value of our equity interest in 2012, 2013 and the first half of 2014, we used both the market approach, also known as backsolve method, and the income approach, also known as the discounted cash flow method.

The backsolve method takes into consideration of the rights and preferences of each class of equity and solves for the total equity value that is comparable with a recent transaction in our own securities, considering the rights and preferences of each class of equity. The method was used when we completed financing transactions with investors on arm’s length basis.

The discounted cash flow, or DCF method, incorporates the projected cash flow of our management’s best estimation as of each measurement date. The projected cash flow estimation includes, among others, analysis of projected revenue growth, gross margins and terminal value. The assumptions used in deriving the fair value of ordinary shares are consistent with our business plan.

The DCF method of the income approach involves applying appropriate discount rates to discount the future cash flows forecast to present value. In determining an appropriate discount rate, we have considered (i) the weighted-average cost of capital, or WACC and (ii) the rate of return expected by venture capitalists, or VCR.

Weighted Average Cost of Capital. We calculated the cost of equity of the business as of the valuation dates using the capital asset pricing model, or CAPM, the most commonly adopted method for estimating the required rate of return for equity. Under CAPM, the cost of equity is determined with consideration of, the risk-free rate, systematic risk, equity market premium, size of our company, the scale of our business and our ability in achieving forecasted projections. In deriving the WACCs, certain publicly traded companies involving social network were selected for reference as our guideline companies. To reflect the operating environment in China and the general sentiment in the U.S. capital markets towards the social network, the guideline companies were selected with consideration of the following factors: (i) the guideline companies should provide similar services, and (ii) the guideline companies should either have their principal operations in Asia Pacific region, as we operate in China, and/or are publicly listed companies in the United States as we plans to list our shares in the United States.

VCR. According to guidance prescribed by the AICPA Audit and Accounting Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation,” because private enterprises often seek financing from private equity investors, including venture capital firms, the venture capital arena provides an observable market for the cost of capital for privately held enterprises. The expected return from venture capitalists for investing in our company when we were in expansion stage ranges from 35% to 50%. As we progress through early stage of development towards this offering, the expected return from venture capitalists for investing in our company gradually declines when we were in bridge and IPO stage, which generally range from 25% to 35%.

After considering the WACC, VCR, the relative risk of the industry and the characteristics of our company, we used a discount rate of 40% as of the valuation dates in April 2012 and 21% as of April 2014. The decrease in discount rates was primarily due to our business growth and additional funding from multiple series of preferred shares investments.

The above assumptions used in determining the fair values were consistent with our business plan and major milestones we achieved. We also applied general assumptions, including the following:

 

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there will be no major changes in the existing political, legal, fiscal and economic conditions in countries in which we will carry on our business;

 

•

there will be no major changes in the current taxation law in countries in which we operates, that the rates of tax payable remain unchanged and that all applicable laws and regulations will be complied with;

 

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exchange rates and interest rates will not differ materially from those presently prevailing;

 

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•

the availability of financing will not be a constraint on the future growth of our operation;

 

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we will retain and have competent management, key personnel, and technical staff to support our ongoing operation; and

 

•

industry trends and market conditions for related industries will not deviate significantly from economic forecasts.

Since our capital structure comprised convertible preferred shares and ordinary shares at each grant date, we used the option-pricing method to allocate equity value of our company to preferred and ordinary shares, taking into account the guidance prescribed by the Practice Aid. This 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 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 based on historical volatility of guideline companies’ shares. Had we used different estimates of volatility, the allocations between preferred and ordinary shares would have been different.

We also applied a discount for lack of marketability, or DLOM, ranging from 33.5% to 14.0%, 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 discount for lack of marketability. 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 increase in the fair value of our ordinary shares from US$0.19 per share as of November 1, 2012 to US$0.40 per share as of October 8, 2013 was primarily attributable to the following factor:

 

•

During this period, we experienced continuous growth in our active user base.

 

•

We raised additional capital by issuing Series C preferred shares at US$1.25 per share in October 2013 to certain investors.

 

•

We started monetization of our user base and generated revenue in the third quarter of 2013 primarily through sale of emoticons in our virtual store and our membership subscription services. In the third quarter of 2013, we negotiated online game operation agreements with mobile game developers and integrated online games with our application. Such business development reduced the uncertainties associated with our monetization and business plan. Therefore, we lowered the discount rate used in valuation of our ordinary shares from 35% as of November 1, 2012 to 30% as of October 8, 2013.

 

•

As we progressed towards later stage of development and this offering, the liquidity of our ordinary shares increases, resulting in a decrease of lack of marketability discount from 33% as of November 1, 2012 to 20% as of October 8, 2013.

The increase in the fair value of our ordinary shares from US$0.40 per share as of October 8, 2013 to US$4.00 per share as of March 1, 2014 and further to US$4.22 as of April 22, 2014 was primarily attributable to the following factors:

 

•

During this period, we experienced continuous growth in our active user base. We launched three mobile games and started generating mobile game revenues during this period. Taking into account the growth in our active user base and the progress of the monetization of our user base, we adjusted our forecasted revenues and earnings upward when preparing financial forecast for valuation as of March 1, 2014.

 

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We raised additional capital by issuing Series D preferred shares at US$4.85 per share in April 2014 to certain investors.

 

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•

We continued to strengthen our management and finance and accounting functions by appointing Mr. Jonathan Xiaosong Zhang, who has U.S. publicly listed company and extensive financial reporting and auditing experience, as our chief financial officer, whose appointment became effective in May 2014.

 

•

As our size increases, small size premium, which is a component used in determining our discount rate, decreased. Furthermore, the substantial progress in our monetization, recruitment of key management with extensive experience, the start of our preparation for this offering and completion of Series D financing in April 2014, increased shareholders’ confidence in our business prospect and decreased the uncertainties associated with our financial forecasts. Therefore, we lowered the discount rate used in the valuation of our ordinary shares from 30% as of October 8, 2013 to 21% as of March 1, 2014 and 21% as of April 22, 2014.

 

•

As we progressed further towards this offering, we increased our estimated probability of a successful initial public offering. As our preferred shares would be automatically converted into ordinary shares upon the completion of a qualified offering, the increase in estimated probability of initial public offering success results in allocation of a higher portion of our business enterprise value to ordinary shares. The discount for lack of marketability also decreased from 20% as of October 8, 2013 to 14% as of April 22, 2014.

Share-based compensation

All share-based awards to employees and non-employee, including share options and restricted shares award, are measured at the grant date based on the fair value of the awards. Share-based compensation, net of forfeitures, is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.

The following table sets forth certain information regarding the share options granted to our employees and advisors at different dates in 2012, 2013 and the first half of 2014.

 

Grant Date

Category

No. of Options Grant

Exercise Price per Option

Weighted Average Fair Value per Option at the Grant Dates

Intrinsic Value per Option at the Grant Dates

Type of Valuation

November 1, 2012

Staff

9,050,000

US$

0.03

US$

0.16

US$

0.16

Retrospective

November 1, 2012

Non-employee

100,000

US$

0.03

US$

0.16

US$

0.16

Retrospective

October 10, 2013

Staff

8,580,000

US$

0.14

US$

0.29

US$

0.26

Retrospective

October 10, 2013

Management

5,500,000

US$

0.14

US$

0.30

US$

0.26

Retrospective

March 1, 2014

Management

4,048,660

US$

0.14

US$

3.87

US$

3.86

Retrospective

March 1, 2014

Staff

444,866

US$

0.14

US$

3.87

US$

3.86

Retrospective

March 1, 2014

Non-employee

100,000

US$

0.14

US$

3.87

US$

3.86

Retrospective

We estimated the fair value of share options using the binomial option-pricing model with the assistance from an independent valuation firm. The fair value of each option grant is estimated on the date of grant with the following key assumptions:

 

		November 1, 2012				October 10, 2013				March 1, 2014
Risk-free interest rate			2.31	%			3.09	%			3.25	%
Contractual term (number of years)			10				10				10
Expected volatility			61.70	%			54.40	%			53.70	%
Expected dividend yield			0.00	%			0.00	%			0.00	%

 

 

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Recent Accounting Pronouncements

Recent accounting pronouncements adopted

In July 2013, the FASB issued a pronouncement which provides guidance on financial statement presentation of an unrecognized tax benefits when a net operating loss carry forward, a similar tax loss, or a tax credit carry forward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP.

The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward, except as follows. To the extent a net operating loss carry forward, a similar tax loss, or a tax credit carry forward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.

This ASU applies to all entities that have unrecognized tax benefits when a net operating loss is carried forward, a similar tax loss, or a tax credit carry-forward exists at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this guidance did not have a significant effect on our consolidated financial statements.

Recent accounting pronouncements not yet adopted

In May 2014, the FASB issued, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The guidance substantially converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles.

The core principle of the guidance is that an entity should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

 

•

Step 1: Identify the contract(s) with a customer.

 

•

Step 2: Identify the performance obligations in the contract.

 

•

Step 3: Determine the transaction price.

 

•

Step 4: Allocate the transaction price to the performance obligations in the contract.

 

•

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. Early application is not permitted. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

In June 2014, the FASB issued a new pronouncement which requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation—Stock Compensation, as it relates

 

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to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We do not expect the adoption of this guidance will have a significant effect on our consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Exchange Risk

Our revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB, whereas our reporting currency is the U.S. dollar. The Renminbi is not freely convertible into foreign currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the 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. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.

We estimate that we will receive net proceeds of approximately US$             million from this offering if the underwriters do not exercise their option to purchase additional ADSs, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, based on the assumed initial offering price of US$             per ADS. Assuming that we convert the full amount of the net proceeds from this offering into RMB, a 10% appreciation of the U.S. dollar against RMB, from a rate of RMB             to US$1.00 to a rate of RMB             to US$1.00, will result in an increase of RMB             million in our net proceeds from this offering. Conversely, a 10% depreciation of the U.S. dollar against the RMB, from a rate of RMB             to US$1.00 to a rate of RMB             to US$1.00, will result in a decrease of RMB             million in our net proceeds from this offering.

Our net revenues, as denominated in RMB, was RMB85.8 million in the first half of 2014. Assuming that we convert the full amount of our net revenues in the first half of 2014 into U.S. dollars, a 10% appreciation of the U.S. dollar against RMB, from a rate of RMB6.1664 to US$1.00, which was the average RMB to U.S. dollars exchange rate in the first half of 2014, to a rate of RMB6.7830 to US$1.00, will result in a decrease of US$1.2 million in our net revenues in the first half of 2014. Conversely, a 10% depreciation of the U.S. dollar against the RMB, from a rate of RMB6.1664 to US$1.00 to a rate of RMB5.5498 to US$1.00, will result in an increase of US$1.6 million in our net revenues in the first half of 2014.

Our net loss, as denominated in RMB, was RMB31.8 million in the first half of 2014. Assuming that we convert the full amount of our net loss in the first half of 2014 into U.S. dollars, a 10% appreciation of the U.S.

 

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dollar against RMB, from a rate of RMB6.1664 to US$1.00 to a rate of RMB6.7830 to US$1.00, will result in a decrease of US$0.4 million in our net loss in the first half of 2014. Conversely, a 10% depreciation of the U.S. dollar against the RMB, from a rate of RMB6.1664 to US$1.00 to a rate of RMB5.5498 to US$1.00, will result in an increase of US$1.0 million in our net loss in the first half of 2014.

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. We generated interest income of US$3 thousand, US$32 thousand and US$0.2 million in 2012, 2013 and the first half of 2014, respectively. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future interest income may fall short of expectations due to changes in market interest rates.

 

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INDUSTRY

Global Mobile Internet Market

The global mobile internet industry has witnessed rapid growth with the continuous enhancement of internet infrastructure, proliferation of mobile devices and advancement in wireless technology. According to eMarketer, global mobile internet users totaled 1.9 billion in 2013, representing a CAGR of 29.3% over 1.2 billion in 2011, and are expected to reach 3.0 billion in 2017.

Global mobile internet users

(in billions)

 

Source: eMarketer, June 2014

China Mobile Internet Market

Similar to the global market, the mobile internet population in China has also grown substantially. According to eMarketer, the number of mobile internet users in China grew from 375.6 million in 2011 to 556.1 million in 2013, representing a CAGR of 21.7%, and is expected to further increase to 712.4 million in 2017.

China mobile internet users

(in millions)

 

Source: eMarketer, June 2014

The rising popularity of smartphones is expected to fuel the growth of mobile internet usage in China. According to Analysys, smartphone shipments in China are expected to reach 592.5 million in 2017, rising from 343.1 million in 2013, representing a CAGR of 14.6%. The increasing affordability of new smartphone models is a key contributing factor to the rapid growth of the smartphone market in China. According to Analysys, smartphones sold for below RMB700 accounted only for approximately 10% of all smartphones sales in China in 2012, whereas in 2017, it is expected that approximately 40% of total smartphone sales in China will be below RMB700.

 

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Mobile Social Networking in China

Evolution of mobile social networking in China

Mobile social networking applications refer to social networking applications that are downloaded and installed on mobile devices. Mobile social networking in China has undergone three stages of evolution:

Stage one: social networking migrating from PC to mobile (2003-2011)

The launch of Mobile QQ in 2003 initiated the emergence of mobile social networking applications in China. During this period, mobile social networking applications were simple extensions of PC-based social networks and services onto mobile devices. For instance, Mobile QQ users were generally original desktop QQ users who wanted to keep connected with their QQ friends on mobile devices. Simple text messages and pictures were the main communication formats.

Stage two: social services integrating enhanced mobile features (2011-2012)

A number of social networking applications started to integrate some enhanced features of mobile devices, such as cameras and speakers, to perform specific social functions. Content exchanged on mobile social networking applications became more diverse in terms of formats. This stage witnessed the success of mobile Weibo and the emergence of Weixin.

Stage three: the rise of new social networking applications exclusively on mobile devices (2012-present)

With the further development of the mobile internet, new social networking applications that are exclusively available on mobile devices became popular. For instance, mobile location-based services gained strong momentum, which led to the fast growth of social networking applications, such as Momo, that connect users with each other. Innovative and popular mobile applications that have attracted a large user base have evolved into widely recognized social networking platforms with a variety of features and functionalities for users, customers and platform partners.

Mobile social instant messaging in China

Mobile social instant messaging, or mobile social IM, applications integrate both social networking and instant messaging functions via mobile internet.

Mobile social IM is the most popular activity among mobile internet users in China. According to Analysys, mobile social IM applications ranked the highest among all mobile applications in China in terms of installations and activations in the second quarter of 2014. The total number of registered accounts on mobile social IM applications in China reached 1.7 billion as of 2013, and is expected to reach 3.7 billion in 2017.

According to Analysys, Mobile QQ, Weixin and Momo ranked as the top three mobile social IM applications in China in terms of MAUs, average DAUs, number of activations and total length of usage in June 2014.

Monetization Models of Mobile Social Networking Platforms in China

In China, mobile games and mobile marketing are common monetization methods for mobile-based social networking platforms.

 

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China mobile game market

Unlike console and PC games, mobile games can be played anytime and anywhere. Mobile games typically monetize through the in-game purchase of virtual items. According to Analysys, the mobile game market in China has expanded rapidly and reached a total market size of RMB13.9 billion (US$2.3 billion) in 2013 and is expected to further grow at a CAGR of 39.6% to RMB52.8 billion (US$8.7 billion) in 2017.

China mobile game market size

(RMB in billions)

 

Source: Analysys, June 2014

Mobile games in China have begun to integrate with and benefit from synergies with mobile social networking platforms. Mobile social networking platforms are natural marketing and distribution channels for mobile games, able to direct to them large and stable user traffic and facilitate healthy growth by providing high quality game operating environment. In addition, mobile social networking platforms enhance player interaction and improve player stickiness through social functions such as player rankings, competitions, and in-game virtual item exchanges. On the other hand, mobile games help mobile social networking platforms attract and retain users, increase user engagement, enrich platform content, enhance user stickiness, and accelerate the monetization.

China mobile marketing market

Mobile marketing market in China has experienced rapid growth in recent years. According to Analysys, the size of the mobile marketing market in China reached RMB13.4 billion (US$2.2 billion) in 2013, and is expected to further grow at a CAGR of 69.5% to RMB110.8 billion (US$18.3 billion) in 2017.

China mobile marketing market size

(RMB in billions)

 

Source: Analysys, June 2014.

 

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Mobile social networking platforms are rapidly changing the landscape of mobile marketing. The advantages of mobile social networking platforms are increasingly valued by advertisers. At any given moment, tens of millions of texts, pictures, videos, comments, web links and geographic locations are generated and shared on mobile social networking platforms. These data are accumulated and analyzed in order to improve the efficacy of advertising placements. Location-based services and interest-based socializing, in particular, allow mobile marketing customers to target more specific audiences or geographic regions. In addition, mobile social networking platforms transform mobile marketing from passive dissemination to active promotion. The interaction among mobile social networking platform users improves advertising effectiveness, giving platforms such as Weixin and Momo significant advantages. In addition, close personal relationships and frequent communications on these platforms make it possible to improve the efficiency of mobile marketing.

 

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BUSINESS

Overview

Momo connects people in a personal and lively way.

Momo is a revolutionary mobile-based social networking platform. We enable users to establish and expand social relationships based on location and interests. Our platform includes our Momo mobile application and a variety of related features, functionalities, tools and services that we provide to users, customers and platform partners. We have established Momo as one of China’s leading mobile social networking platforms in less than three years since our inception.

Momo has become an integral part of the daily lives of many people in China, where the increasing proliferation of smartphones and network enhancement allow more people to be connected anytime and anywhere. With powerful and precise location-based features, we enable our users to connect with each other and expand relationships from online to offline, thereby making their social networking experience more real, personal and multi-dimensional.

We aim to offer our users an authentic social experience by encouraging them to provide detailed personal information on Momo. Leveraging our social interest graph engine and our analysis of user behavior data, we are able to provide users a customized experience based on their social preferences and needs. Momo users can maintain and strengthen their relationships through our private and group communication tools, content creation and sharing functions, as well as the offline social activities promoted on our platform.

Our user base has grown rapidly since we launched Momo in July 2011, as evidenced by the following:

 

•

We had 147.7 million registered users as of June 30, 2014, representing an increase of 205.9% from June 30, 2013.

 

•

Our MAUs reached 52.4 million in June 2014, representing an increase of 155.9% from June 2013.

 

•

Our average DAUs reached 22.3 million in June 2014, representing an increase of 187.8% from June 2013.

 

•

We had 2.3 million members the second quarter of 2014, representing an increase of 519.7% from the third quarter of 2013.

 

•

Our users sent a daily average of 625.0 million one-to-one messages, representing a daily average of 28 one-to-one messages per DAU, in June 2014; 62.0% of these messages were exchanged among people who had already followed each other.

Our large, growing and engaged user base creates a powerful network effect and a high barrier to entry.

Amid the fast evolving mobile internet market in China, we have focused on building and growing our user base and improving user experience. Our Momo mobile application is free of charge. We began to generate revenues in July 2013 from our membership subscription package, which provides members with additional functions and privileges. We generated 63.0% of our net revenues from membership subscription fees in the first half of 2014. We also began to generate revenues from mobile games, paid emoticons and mobile marketing services in the second half of 2013. We believe our large, engaged user base makes Momo attractive to mobile marketing customers and platform partners. Our revenues more than quadrupled from US$3.1 million in the second half of 2013 to US$13.9 million in first half of 2014. We had net losses of US$3.8 million, US$9.3 million and US$8.3 million in 2012, 2013 and the first half of 2014, respectively.

 

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Our Strengths

We believe our success to date is largely attributable to the following key competitive strengths:

A leading mobile-based social networking platform in China

We are a leading mobile-based social networking platform in China. According to Analysys, Momo ranked No. 3 among all mobile social IM applications in China in June 2014, immediately after Mobile QQ and Weixin, in terms of MAUs, average DAUs, the number of activations and total length of usage.

Since we launched Momo three years ago, we have rapidly amassed a large user base in China primarily through organic growth. As of June 30, 2014, our registered users reached 147.7 million. In June 2014, our MAUs reached 52.4 million, an increase of 155.9% from June 2013; and our average DAUs reached 22.3 million, an increase of 187.8% from June 2013.

We believe that our large and highly engaged user base is an important business driver as it forms a large community in which our users can establish and expand social relationships based on location and interest. Our large user community provides a more captivating user experience, increases user stickiness and, in turn, attracts new users. In addition, our large and highly engaged user base provides us valuable data and feedback that enable us to fine-tune our services to better anticipate and meet the diverse social networking needs of our users, which further increases user stickiness and strengthens our leading market position. As a result, we believe that our large and highly engaged user base creates a high barrier to entry and allows us to compete effectively, continue to strengthen our brand and attract more users, customers and platform partners.

Innovative location-based social networking platform

We believe we are a pioneer in the location-based mobile social networking market in China. Through our proprietary technologies, our platform enables users to develop location-based online social relationships that they can then choose to further develop into offline relationships. In June 2014, our users on average refreshed their own Nearby People lists 167.4 million times every day.

Our Momo mobile application presents to users a curated list of nearby users, featuring pictures, proximity, last log-in time, and other detailed profile information on their personal page, such as gender, age, horoscope, occupation and interests. Our users can customize these lists by viewing nearby people with specific attributes. The detailed location and personal information allows users to discover nearby users whom they are interested in connecting or share similar interests with. Our application can precisely locate users in units of five meters. Users can contact each other via messaging or other communication tools on our platform to effectively develop new relationships.

Momo users can also create or participate in location-based groups, which are generally established around a certain point of interest, or POI. POIs include residential complexes, educational institutions, and commercial buildings, which are popular focal points for establishing and maintaining social relationships. Our location-based groups covered over 288 thousand residential complexes, 92 thousand educational institutions, and 74 thousand commercial buildings in China as of June 30, 2014. In these groups, users are able to interact with people nearby who share similar interests, making it easier for them to extend online interactions offline. We limit the size of each group to 100 users in order to foster closer communities with higher user engagement and more interactions. To cultivate offline social interactions among Momo users, our application features nearby offline events, such as concerts, plays and museum exhibits, where our users can gather and mingle.

High user engagement powered by a variety of functionalities

Our large and organically growing user base, coupled with our high user engagement, has formed a strong network effect. Our users sent a daily average of 625.0 million one-to-one messages in June 2014, 62.0% of which were exchanged among people who had already followed each other.

 

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Our location-based groups have expanded significantly. Our users have formed 3.6 million groups based on various locations and interests as of June 30, 2014. Our monthly active location-based groups have grown from 0.4 million in June 2013 to 1.8 million in June 2014. Users in our location-based groups are highly engaged because these groups are typically interest-focused. Users located in nearby neighborhoods and who share the same interests are more likely to interact with each other. An average of 221.4 million messages in location-based groups were sent every day in June 2014. Our location-based groups have been increasingly used, as 31.0% of our MAUs in June 2014 have joined at least one group, up from 18.0% in June 2013.

In addition to Nearby Users and Groups, our application also features Message Board, Topics and Nearby Events, all of which enhance user stickiness by providing more contents for users to interact with each other based on location and interests. To further enhance user stickiness, we also offer mobile games on our platform.

Superior user experience supported by strong technology capabilities

We are focused on providing a superior user experience. We believe we are at the forefront of social mobile service development and technological application. Our platform is built on technologies that can process and analyze bulk data generated by millions of users instantaneously. Our big data analytical capabilities enable us to develop an in-depth understanding of our users and categorize users based on their social preferences and behavioral patterns. Leveraging our analysis of user behavior data, as well as our social interest graph recommendation engine, we have developed a tiering system for our users whereby each user is assigned a score based primarily on his or her behavioral patterns, profile creditability, degree of engagement, and quality of interactions with other users. By classifying our users in this fashion, we can connect users to each other based on their social preferences and needs and increase the likelihood of establishing a new relationship. By doing so, we are able to foster a healthier ecosystem and encourage mutual respect and trust within Momo communities.

We have rich experience in developing location-based mobile services. Our technology enables more precise location identification and the implementation of various other innovative location-based functions on our platform. Our proprietary networking protocols ensure fast, reliable, and stable mobile communications under different network environments and across different mobile devices. Our proprietary scalable distributed storage system reduces our storage costs and enhances stability for our large user base. Our technological expertise and experience allow us to quickly identify, anticipate and address the needs of our users, and will enable us to continue to introduce new features to enhance user experience and increase user stickiness.

Visionary and experienced management team

Our senior management team has strong passion and vision in the mobile internet industry. The team possesses extensive experience in China’s internet industry and a deep understanding of China’s young population. Many of our senior management have experience in working at renowned internet companies, where they have accumulated strong execution and management capabilities. We have developed a cohesive and vibrant corporate culture that inspires and encourages innovation, which we believe helps us to attract, retain and motivate an aspiring team to drive our fast growth. Under the leadership of our senior management team, we have developed strong execution capabilities which have enabled us to grow to our current scale and to achieve the market leadership in a short period of time.

Our Strategies

We believe that we have a significant opportunity to further enhance the value we deliver to our users, customers and platform partners. We plan to execute the following growth strategies:

Expand our user community

The most critical element in our growth strategy is to rapidly expand our user community. China has the world’s largest smartphone population and is currently our biggest market. We plan to further increase our market share in China by, among other things, increasing our penetration among users across different age groups.

 

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We will continue to build our presence among Chinese speaking populations around the world and seek to foster a broader and more engaged user community. We also plan to launch a new mobile application designed to attract English speakers.

Enhance our user experience

User engagement is instrumental to the growth of our business. We seek to provide the most captivating user experience to increase user engagement and build a more trustworthy, dynamic and healthy social networking ecosystem.

We will focus on building tools for data analytics and analyzing user behavior patterns and level of engagement. We plan to further fine tune our user tiering system, expand communication channels among users, and promote more interactions among Momo users. In addition, we will continue optimizing our service features and functions to allow more users to communicate via Momo and discover its unique service features that can then expand their social relationships.

We believe new generations of mobile devices will build in more multimedia features. We plan to work with more content providers to diversify the entertainment options on our platform, including online music, books and videos. This greater variety of content will provide a more integrated and engaging mobile social platform to enrich the interaction among our users.

Increase monetization capabilities

We plan to increase revenues generated through membership subscription fees by offering more premium services to our frequent users and new functionalities accessible by members only. We will also develop a loyalty program that provides membership packages with special privileges to different tiers of members, which we believe can enhance user stickiness and membership conversion. In addition, we intend to furnish more online to offline services to our members by partnering with local businesses to offer promotions, such as shopping reward points, movie coupons and food vouchers. We believe that expanding offerings available exclusively to members will encourage more users to subscribe to our membership services.

We plan to partner with third-party game developers and to develop games in-house in order to offer more games tailored to our platform, which we believe will not only increase the interactions among users and communication within groups, but also broaden our revenue sources.

We will continue to build our mobile marketing business. Leveraging on our unique location-based services and technologies, as well as our big data analytical capabilities, we can connect our users with local merchants by distributing more local lifestyle, shopping and entertainment information to our users. In addition, we plan to develop more innovative and native advertising and comprehensive mobile marketing solutions for our mobile marketing customers.

Pursue strategic partnerships and acquisitions

We plan to continue to strengthen our relationships with platform partners through joint development arrangements, co-branding initiatives and marketing campaigns. We intend to selectively seek strategic opportunities, including investments in and acquisitions of complementary technologies, in order to expand our services in light of evolving technologies as well as changing user and customer demands.

The Momo Platform

Our Momo platform includes our Momo mobile application and a variety of related features, functionalities, tools and services that we provide to users, customers and platform partners. The Momo mobile application, which is available on Android, iOS and Windows platforms, enables users to establish and expand their social relationships based on locations and interests. Momo offers a personal and lively way for users to discover people nearby, and we facilitate the connecting, communicating, interacting, and content sharing with others. Momo features various location and interest-based features, such as Nearby Users, Groups, Message Board,

 

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Topics and Nearby Events, multi-media instant messaging tools, as well as popular mobile games. Our various functions are connected with each other. For example, our Nearby People function features links to nearby Groups and Nearby Events.

User Profile. This function allows users to share basic personal information and interests and encourage interactions. To begin the Momo experience, after downloading and installing the application, each user is asked to fill out a profile featuring pictures and detailed personal information, such as name, age, horoscope, occupation, employer, school, relationship status, date of registration with Momo, groups and topics joined, interests, accounts at other social network applications, frequent places of appearance and a personal note. Members can also post a voice recording as part of their profile. The profile page also contains a link to a chronologically arranged display of status updates, blogs and pictures posted by the user, allowing the user to share his or her experience and interest.

To further improve user experience, we have developed a tiering system whereby each user is assigned one of six scores based primarily on his or her behavioral patterns, profile credibility, degree of engagement, and quality of interactions with other users. Each user can monitor the score on his or her profile page. A user can generally improve his or her tiering score by demonstrating a pattern of wholesome social behavioral, a credible social profile, active engagement and high quality interactions with other users.

 

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Nearby People. This function allows users to find out the approximate distance from each other in real time and is the primary tool through which users can establish and expand their social relationships. In June 2014, our users on average refreshed their own Nearby People lists 167.4 million times every day.

Once our Momo mobile application is launched on a smartphone, the default page presents a curated list of nearby users with their profile pictures, distance from the nearby users and the time they last checked-in on Momo prominently displayed. The list of nearby people is by default ordered by proximity to the application users. All users can customize the list by viewing nearby people by gender and a specific period of time within which the nearby people last checked in. Users can initiate contact with nearby users by sending greeting messages and selecting to follow their accounts in order to receive notifications on their status updates. A user who receives a greeting message may then reply and choose to become a Momo friend of the initiator by also following such user. Users can adjust their privacy settings to avoid being seen by strangers or to appear invisible. Our application also allows users to block other users and report inappropriate behaviors. Our members may further filter the list of nearby users by age group, occupation, horoscope and whether the nearby person has linked his or her Momo account with other popular social network applications.

We enhance user stickiness by providing a comprehensive suite of push notifications, which include status updates, greetings from nearby users, chat messages and location of Momo friends. Our application will also notify users when their Momo friends come within close proximity. We also keep users up-to-date on the latest postings in their groups, as well as groups that their Momo friends have joined.

 

Groups. Our application allows users to create and participate in location-based groups across POIs (residential complexes, educational institutions and commercial buildings). Participation in location-based groups has been increasing among our users, as 31.0% of our MAUs in June 2014 have joined at least one group, up from 18.0% in June 2013. Location-based groups are generally established around a certain topic of interest. Each group is given a shared Momo discussion page on which group members can discuss their common

 

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interests, post their photos and exchange messages. An average of 221.4 million messages in location-based groups were sent every day in June 2014.

Our users can create groups by first selecting a specific location around which the group is centered, which must be associated with a specific residential complex, educational institution or commercial building, and second, selecting a topic of interest for the group. For example, a user can create a group for students at Peking University who are interested in photography. We limit the size of each group to 100 users in order to foster a closer, more engaged and interactive community. The maximum size of a particular group is determined by whether the group’s creator is a member and the activity level of the group, such as the frequency of messaging among users. Our application displays nearby groups created by users as ranked by proximity. A user must apply to join a nearby group, and membership admission is determined by the creator and managers of the group. In addition to our default distance-based listing of nearby groups, users are also able to search for groups using keywords.

Users can propose and organize offline events for the location-based groups. A separate page will be created for an event containing information about the activity such as type, venue and time, based on which group members can decide whether to join the event and confirm attendance. A list of confirmed attendees will be shown on the activity page as well.

To enhance the synergies between our social functions and mobile games offered on our platform, we have established groups for our mobile games players called Player Unions. Our Player Unions provide users with increased opportunities to interact and foster closer social relationships.

 

Topics. Our Topics is another feature aimed at enabling users to discover other users with common interests. Our Topics present popular themes of interest to all users. Users who have joined a certain Topic, such as Fitness or Pets, can post threads and interact with other users by replying to the threads. Users can view other users who have joined the same Topic, in the order of proximity. We also recommend popular Topics and threads to users based on their profiles. Users can also search for Topics that most interest them.

 

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Topics are created by us based on user feedback. Daily management of a Topic is delegated to the Topics host, who is responsible for selecting priority postings, and monitoring posted content for inappropriate, off-topic or unlawful materials.

 

Message Board. An important entry point for users to interact with all other users nearby is our Message Board function. Our Message Board contains status updates, micro-blogs and photos posted by nearby users, facilitating connections between people in the same neighborhoods and among Momo friends. Users can comment on the postings made by others, which are arranged by proximity. Our Message Board function has proven to be an effective means of stimulating interaction and creating social relationships among our users.

 

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Nearby Events. To facilitate offline interaction between our users and to promote our brand, we publicize events taking place in various Chinese cities close to our users, such as concerts, seminars, sport events, plays and exhibitions.

We cooperate with leading event promoters and ticketing platforms in China to upload information about popular events onto Momo. Moreover, event hosts can open a Momo account and promote their events on our platform by submitting a description of the event to us. Once we approve an event submission, it will appear on our Nearby Events page. For highly popular events, our sales team will actively seek to partner with the hosts in order to promote our brand and potentially explore monetization opportunities. For example, we have partnered with the Strawberry Music Festival, a rock ’n’ roll phenomenon among China’s youth since 2013.

Our users can search and filter events by date, type, distance, popularity and number of attendees. Our users can sign up for the events and view other people who have expressed interest in attending, to whom they may send invitations to attend the event together. After a user has signed up for an event, it is added to his/her Momo event calendar in our application.

 

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Location Roaming. To enrich our service features and make our platform more fun for our users, we introduced the location roaming function, through which users can view other Momo users in a randomly selected city around the world. For our members, our roaming function further allows them to actively select any location around the world and view a curated list of Momo users according to selected criteria. This function also allows travelers to get to know friends in a particular destination in advance.

Instant Messaging. Our application also provides instant messaging function, with which users can send text, emoticons, voice recordings, pictures and video messages to other users. Many of our fun and trendy emoticons are inspired by characters in popular culture. One of the key features of our instant messaging function is that the dialogue window presents the distance between the two parties in real time. Senders can see whether their messages have been delivered to or read by the recipient. Our instant messaging feature also allows users to turn voice messages into text, share their location information and engage in multi-person group chats. Users can sync their chat histories with multiple devices. We have also embedded third-party applications in order to facilitate more interaction between our users.

 

 

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Mobile Games

Our application offers games developed by third-party developers and customized for our platform and user profile. Games on our platform are designed with a variety of themes, cultural characteristics and features to appeal to different segments of the game player community. The games on our platform have rich social features and are developed to be enjoyed, shared and played among Momo friends. Our users typically log into and play our games with their Momo accounts. For example, in our popular mobile game Momo Craft ( ), players compete with other Momo users for domination of castles in a fictitious kingdom. Such social features contribute to the high player stickiness of mobile games offered on our platform.

Monetization Opportunities

We started monetization in July 2013. We currently generate revenues primarily from membership subscription fees, mobile games and other services. Because we started to monetize from the third quarter of 2013 only, we cannot confirm or otherwise describe the seasonality of our business as a result of this very short history of monetization.

Membership Subscription

We provide enhanced membership privileges to users who subscribe to our membership package by paying membership fees. Enhanced privileges include VIP logos, advanced search options, discounts in our emoticon store, higher limits on the maximum number of users group and the number of users that the member can follow, the ability to add a 60 second voice recording to the profile page, to search for Momo users anywhere in the world using our location roaming services, to see a list of recent visitors to their profile page and to appear invisible to specific users. We offer four membership subscription packages to our users, priced at RMB12 (US$2) per month, RMB30 (US$5) per three months, RMB60 (US$10) per six months and RMB108 (US$18) per year, respectively. We offer diverse payment options for users to pay membership subscription fees, including third-party online channels, such as Apple App Store and Alipay, as well as through mobile phone payment channels, including prepaid cell-phone recharge cards. We intend to continue exploring different ways to expand our members-only offerings so as to better serve our members and attract a larger membership base.

 

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Mobile Games

As a social networking platform, we intend to offer games that have strong features which we believe will not only increase the interactions between users and communication within groups, but also broaden our revenue sources. Such games may be developed by third parties, where we share revenues generated by in-game purchases of virtual items with such developers, or developed in-house.

Other Services

Our other services include paid emoticons and mobile marketing services. Our virtual store currently features free and paid stylish and trendy emoticons designed in-house and by third-parties, many of which are inspired by characters in popular culture. We also design customized emoticons for nearby activities that are being promoted on our platform, for our mobile marketing service customers, as well as emoticons for users living in specific geographical areas. We seek to provide mobile marketing solutions to enable our customers and platform partners to promote their brands and conduct effective marketing activities on our platform. Our mobile marketing services currently include banner ads placement for our customers. Leveraging our rich user data, our services allow customers to market precisely to their targeted audience. Customers have the ability to improve the relevance of their marketing based on users’ social interest graphs, a collection of data that we create for each user that draws upon a variety of factors, including demographics, social relationships and interests.

Technology

Our proprietary networking protocols ensure fast, reliable and stable mobile communications under different network environments in China. Our architecture focus on providing consistent user experience across different mobile devices, operating systems and network environments, which is particularly necessary in China given the wide variety of choices of mobile devices, operating systems and mobile networks.

Social Interest Graph Recommendation Engine

We have developed a comprehensive database of user social interests from the activities on our platform. We create a social interest profile for each user account based on user actions, such as group and topics memberships, social relationships, as well as demographic data such as age, gender and location. Based on these social interest profiles, our recommendation engine allows us to push content to Momo users who are more likely to find such content interesting and relevant. We believe that social context can improve the relevance of advertisements and make them a more integral part of the user experience, rather than an interruption of it. Therefore, we are continually refining our recommendation engine to improve the relevance of information we push to users.

Leveraging on our social interest graph recommendation engine and our analysis of user behavior data, we have developed a tiering system whereby each user is assigned one of six scores based on his or her behavioral patterns. Each user can monitor his or her tiering system score on our application. Using such a tiering system, we aim to enable users to connect with each other and maintain relationships based on their mutual social preferences and needs, thereby increasing the likelihood of establishing a new relationship and strengthening existing relationships. We use our tiering system to foster a healthy ecosystem and to deter harassment and other undesirable behaviors on our platform.

Scalable Distributed Storage

Our proprietary model optimizes and facilitates cost-effective data storage by building memory on solid state drives. This distributed storage model allows us to efficiently and securely manage a large amount of data while storing data on servers that are easily scalable.

Service Oriented Architecture

Our platform adopts service-oriented architecture that allows efficient software development and frequent upgrading of our services. Our platform is built on technologies that can facilitate cost-effective learning and joint research and development across different coding languages.

 

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Precision in Locating Users

Location is a key attribute of our social networking platform. Our rich experience in location-based technology has allowed us to develop technology capable of precisely locating static or mobile users within units of five meters horizontally. We believe our ability to locate users with this precision is unique in our industry.

Content Management and Monitoring

As of the date of this prospectus, we have a dedicated team of over 100 personnel reviewing and handling content on our mobile platform for compliance with applicable laws and regulations. They are aided by both proprietary and third-party software and technologies to sweep our platform and the data being transmitted on a real-time basis around-the-clock. We monitor and screen user information and user generated content against a spam list, which is a list of content and behaviors that we have determined are likely to be indicative of inappropriate or illegal content or illegal activities. Additionally, Momo users can also easily report fraud if they come across suspicious content, and each user complaint is processed by our content management and monitoring system.

Our corporate policy requires a user to accept our terms of use during the registration process before becoming a Momo user. In the user agreement, the user makes certain acknowledgments and covenants, including, among others, (i) the user is solely responsible for the authenticity, legality, harmlessness and relevancy of all information submitted for registration purpose or delivered to other users, (ii) the user is not impersonating other people or spreading information in the name of others, (iii) the user alone is responsible for any losses or injuries arising from or caused by the content on our platform and (iv) the user agrees to indemnify us for our losses or injuries arising from or caused by the activities of or content generated by the user.

Branding and Marketing

Since our inception, our user base has grown primarily by word-of-mouth which has enabled us to build our brand with relatively low marketing costs. We historically have focused our branding and marketing efforts on online promotions via popular search engines and third-party application stores.

We recently diversified our marketing efforts by sponsoring offline events that are popular among the young generation, such as the Strawberry Music Festival in China, as well as placing the outdoor ads in subways, bus stops and taxis in various major Chinese cities. We also launched a series of brand promotional videos titled “I Am One of Momo” in the form of tastefully cinematographed micro-films starring trendy Momo users in a variety of modern professions.

Customer Service

As of the date of this prospectus, we have a dedicated team of over 30 customer service personnel in our customer service center in Chengdu, China, who support our members and mobile game players. Our dedicated customer service team is well-trained on our membership services and mobile games functionalities. For our users who subscribed to our membership services, our customer service personnel provide around-the-clock support through a members-only toll-free phone number and other online communication channels. Our customer service team helps our members with issues they encounter on our mobile platform, gathers feedback on how to improve our services and receives member complaints and suggestions. Our customer service team also addresses issues that our mobile game players encounter and gathers player feedback on the functionality and popularity of the mobile games we offer.

Intellectual Property

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We have registered 11 trademarks and applied for

 

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6 trademarks with the Trademark Office of the State Administration For Industry & Commerce of the PRC. We have registered 8 software copyrights and 20 copyrights with the PRC National Copyright Administration and applied for 9 software copyrights and 10 copyrights with the PRC National Copyright Administration. We have also registered four domain names, including immomo.com, wemomo.com, immomogame.com, and momocdn.com.

Competition

As a mobile social networking platform, we are subject to intense competition from providers of similar services as well as potential new types of online services, including interest-based social products. These services include various mobile applications, such as Weixin and Mobile QQ.

Our competitors may have substantially more cash, traffic, technical and other resources, as well as broader product or service offerings and can leverage their relationships based on other products or services to gain a larger share of marketing budgets from customers. We believe that our ability to compete effectively depends upon many factors, including the size, composition and engagement of our user base, our ad targeting capabilities, market acceptance of our mobile marketing services, our marketing and selling efforts, and the strength and reputation of our brand. See “Risk Factors—Risks Related to Our Business and Industry—The market in which we participate is fragmented and highly competitive. If we are unable to compete effectively for users or cannot maintain our user engagement, our business and operating results may be materially and adversely affected.” We also experience significant competition for highly skilled personnel, including management, engineers, designers and product managers. Our growth strategy depends in part on our ability to retain our existing personnel and add additional highly skilled employees. See “Risk Factors—Risks Related to Our Business and Industry—The continuing and collaborative efforts of our senior management and key employees are crucial to our success, and our business may be harmed if we were to lose their services.”

Employees

We had 76 and 209 employees as of December 31, 2012 and 2013, respectively. As of June 30, 2014, we had 293 employees, including 259 employees in Beijing, 29 employees in Chengdu and five employees in the U.S. The following table sets forth the numbers of our employees categorized by function as of June 30, 2014.

 

		As of June 30, 2014
Function:
Operations			32
Service development			124
General administration and human resources			54
Sales, customer service and marketing			83
Total			293

In addition to our full-time employees, we used 120 contract workers dispatched to us by staffing agencies as of June 30, 2014. These contract workers are primarily responsible for content management and monitoring and for customer service.

As required by laws and regulations in China, we participate in various employee social security plans that are organized by municipal and provincial governments, including housing, pension, medical insurance and unemployment insurance. We are required under Chinese law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.

We typically enter into standard confidentiality and employment agreements with our management and service development personnel. These contracts include a standard non-compete covenant that prohibits the

 

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employee from competing with us, directly or indirectly, during his or her employment and for one year after the termination of his or her employment, provided that we pay compensation equal to 50% of the employee’s salary during the restriction period.

We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employees are represented by labor unions.

Facilities

Our headquarters and our principal service development facilities are located in Beijing. We have leased an aggregate of approximately 8,100 square meters of office space in Beijing and Chengdu as of June 30, 2014. These leases vary in duration from two to three years.

The servers that we use to provide our services are primarily maintained at various third-party internet data centers in Beijing and Tianjin.

Insurance

We do not maintain property insurance, business interruption insurance or general third-party liability insurance, nor do we maintain product liability insurance or key-man insurance.

Legal Proceedings

We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our 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 activities in China or our shareholders’ rights to receive dividends and other distributions from us.

Corporate Laws and Industry Catalog Relating to Foreign Investment

The establishment, operation and management of corporate entities in China are governed by the Company Law of the PRC, or the Company Law, effective in 1994, as amended in 1999, 2004, 2005 and 2013, respectively. The Company Law is applicable to our PRC subsidiary and consolidated affiliated entity and its subsidiary unless the PRC laws on foreign investment have stipulated otherwise.

The establishment, approval, registered capital requirement and day-to-day operational matters of wholly foreign-owned enterprises, such as our PRC subsidiary, are regulated by the Wholly Foreign-owned Enterprise Law of the PRC effective in 1986, as amended in 2000, and the Implementation Rules of the Wholly Foreign-owned Enterprise Law of the PRC effective in 1990, as amended in 2001 and 2014.

Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment, or the Catalog, which was promulgated and is amended from time to time by the Ministry of Commerce and the National Development and Reform Commission. The Catalog divides industries into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalog are generally open to foreign investment unless specifically restricted by other PRC regulations.

Establishment of wholly foreign-owned enterprises is generally permitted in encouraged industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. For example, pursuant to the latest Catalog amended in 2011, the provision of value-added telecommunications services falls in the restricted category and the percentage of foreign ownership cannot exceed 50%.

To comply with such foreign ownership restrictions, we operate our businesses in China through Beijing Momo, which is owned by PRC citizens. Beijing Momo is controlled by Beijing Momo IT through a series of contractual arrangements. Beijing Momo holds an internet content provider, or ICP, license to provide value-added telecommunication services, which is an industry in which foreign investment is “restricted” under the currently effective Catalog.

Beijing Momo IT is currently engaged in the business of software development, which is an industry in which foreign investment is “encouraged” under the currently effective Catalog.

Regulations Relating to Telecommunications Services

In September 2000, the State Council issued the Regulations on Telecommunications of China, or the Telecommunications Regulations, to regulate telecommunication activities in China. The telecommunications industry in China is governed by a licensing system based on the classifications of the telecommunications services set forth under the Telecommunications Regulations.

The Ministry of Industry and Information Technology, together with the provincial-level communications administrative bureaus, supervises and regulates the telecommunications industry in China. The Telecommunications Regulations divide the telecommunications services into two categories: infrastructure telecommunications services and value-added telecommunications services. The operation of value-added telecommunications services is subject to the examination, approval and licenses granted by the Ministry of

 

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Industry and Information Technology or its provincial-level communications administrative bureaus. According to the Catalog of Classification of Telecommunications Businesses effective in April 2003, provision of information services through the internet, such as the operation of our immomo.com.com website, is classified as value-added telecommunications services.

Regulations Relating to Foreign Investment in Value-Added Telecommunications Industry

According to the Administrative Rules for Foreign Investment in Telecommunications Enterprises issued by the State Council effective in January 2002, as amended in September 2008, a foreign investor may hold no more than a 50% equity interest in a value-added telecommunications services provider in China and such foreign investor must have experience in providing value-added telecommunications services overseas and maintain a good track record. Due to these regulations, we operate our website through Beijing Momo and its subsidiary. The most updated version of Guiding Catalog for Foreign Investment Industries, which was promulgated by the MOFCOM and the National Development and Reform Commission and became effective from January 30, 2012, or the Guiding Catalog, imposes the 50% restrictions on foreign ownership in value-added telecommunications business as well.

The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the Circular, issued by the former Ministry of Information Industry in July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested enterprises and obtain an internet content provider, or ICP, license to conduct any value-added telecommunications business in China. Under the Circular, a domestic company that holds an ICP license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, certain relevant assets, such as the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local ICP license holder or its shareholders. The Circular further requires each ICP license holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to maintain network and information security in accordance with the standards set forth under the relevant PRC regulations. If an ICP license holder fails to comply with the requirements in the Circular and also fails to remedy such non-compliance within a specified period of time, the Ministry of Industry and Information Technology or its local counterparts have the discretion to take administrative measures against such license holder, including revoking its ICP license. Beijing Momo, the operator of our website, owns the relevant domain names and registered trademarks and has the necessary personnel to operate the website.

Regulations on Internet Publication and Cultural Products

The Tentative Measures for Internet Publication Administration, or Internet Publication Measures, were jointly promulgated by the General Administration of Press and Publication and the Ministry of Industry and Information Technology on June 27, 2002 and became effective on August 1, 2002. Pursuant to the Internet Publication Measures, any act by an internet information service provider to select, edit and process content or programs and to make such content or programs available on the internet for the public to read, use and download shall constitute an internet publication. The provision of online games is deemed an internet publication activity and therefore, an online game operator shall obtain an Internet Publishing License so that it can directly offer its online games to the public in the PRC. As of the date of this prospectus, we have not yet obtained an Internet Publishing License, and are in the process of preparing the application documents.

Regulations on Online Games and Foreign Ownership Restrictions

Pursuant to the Guidance Catalog, the Internet culture business (other than online music business) falls within the category of industries prohibiting foreign investment. On February 17, 2011, the Ministry of Culture issued the revised Interim Provisions on the Administration of Internet Culture, or the Internet Culture Interim

 

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Provisions, effective as of April 1, 2011. According to the Internet Culture Interim Provisions, “Internet cultural products” are defined as including the online games specially produced for Internet and games reproduced or provided through Internet. Provision of operating Internet cultural products and related services is subject to the approval of the Ministry of Culture or its provincial counterpart.

On June 3, 2010, the Ministry of Culture promulgated the Provisional Administration Measures of Online Games, or the Online Game Measures, which came into effect on August 1, 2010. The Online Game Measures governs the research, development and operation of online games and the issuance and trading services of virtual currency. Under the Online Game Measures, all operators of online games, issuers of virtual currencies and providers of virtual currency trading services, or Online Game Business Operators, are required to obtain Internet Culture Operation Licenses. An Internet Culture Operation License is valid for three years and in case of renewal, the renewal application should be submitted 30 days prior to the expiry date of such license.

In addition, Online Game Business Operators should request the valid identity certificate of game users for registration, and notify the public 60 days ahead of the termination of any online game operations or the transfer of online game operational rights. Online game business operators are also prohibited from (i) setting compulsory matters in the online games without game users’ consent; (ii) advertising or promoting the online games that contain prohibited content, such as anything that compromise state security or divulges state secrets; and (iii) inducing game users to input legal currencies or virtual currencies to gain online game products or services, by way of random draw or other incidental means. The Online Game Measures also states that the state cultural administration authorities will formulate the compulsory clauses of a standard online game service agreement, which have been promulgated on July 29, 2010 and are required to be incorporated into the service agreement entered into between online game business operators and game users, with no conflicts with the rest of clauses in such service agreements.

On July 11, 2008, the General Office of the State Council promulgated the Regulation on Main Functions, Internal Organization and Staffing of the General Administration of Press and Publication, or the Regulation on Three Provisions. On September 14, 2009, the Central Organization Establishment Commission issued the corresponding interpretations, or the Interpretations on Three Provisions. The Regulation on Three Provisions and the Interpretation on Three Provisions granted the Ministry of Culture overall jurisdiction to regulate the online game industry, and granted the General Administration of Press and Publication the authority to issue approvals for the internet publication of online games. Specifically, (i) the Ministry of Culture is empowered to administrate online games (other than the pre-examination and approval before internet publication of online games); (ii) subject to the Ministry of Culture’s overall administration, General Administration of Press and Publication is responsible for the pre-examination and approval of the internet publication of online games; and (iii) once an online game is launched, the online game will be only administrated and regulated by the Ministry of Culture. As of the date of this prospectus, two of the four online games we offer have completed the filing with the Ministry of Culture. If we fail to complete, obtain or maintain any of the required licenses or approvals or make the necessary filings, we may be subject to various penalties, such as confiscation of the net revenues that were generated through online games, the imposition of fines and the discontinuation or restriction of our operations of online games.

On September 28, 2009, the General Administration of Press and Publication, the National Copyright Administration and the National Working Group to Eliminate Pornography and Illegal Publications jointly issued the Circular on Consistent Implementation of the Stipulation on the Three Provisions of the State Council and the Relevant Interpretations of the State Commission for Public Sector Reform and the Further Strengthening of the Pre-examination and approval of Online Games and the Approval and Examination of Imported Online Games, or the GAPP Notice. The GAPP Notice explicitly prohibits foreign investors from directly or indirectly engaging in online game business in China, including through consolidated affiliated entities. Foreign investors are not allowed to indirectly control or participate in PRC operating companies’ online game operations, whether (i) by establishing other joint ventures, entering into contractual arrangements or providing technical support for such operating companies; or (ii) in a disguised form such as by incorporating or directing user registration, user account management or game card consumption into online game platforms that are ultimately controlled or

 

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owned by foreign companies. The GAPP Notice reiterates that the General Administration of Press and Publication is responsible for the examination and approval of the import and publication of online games and states that downloading from the internet is considered a publication activity, which is subject to approval from the General Administration of Press and Publication. Violations of the GAPP Notice will result in severe penalties. For detailed analysis, see “Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or their interpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.”

Regulations Relating to Internet Content and Information Security

The Administrative Measures on Internet Information Services specify that internet information services regarding news, publications, education, medical and health care, pharmacy and medical appliances, among other things, are to be examined, approved and regulated by the relevant authorities. Internet information providers are prohibited from providing services beyond those included in the scope of their ICP licenses or filings. Furthermore, these measures clearly specify a list of prohibited content. Internet information providers are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes the lawful rights and interests of others. Internet information providers that violate the prohibition may face criminal charges or administrative sanctions by the PRC authorities. Internet information providers must monitor and control the information posted on their websites. If any prohibited content is found, they must remove the offensive content immediately, keep a record of it and report it to the relevant authorities. Beijing Momo, as an ICP license holder, is subject to these measures.

Internet information in China is also regulated and restricted from a national security standpoint. The Standing Committee of the National People’s Congress has enacted the Decisions on Maintaining Internet Security, which may subject violators to criminal punishment in China for any effort 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 has promulgated measures that prohibit use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. As an ICP license holder, Beijing Momo is subject to the laws and regulations relating to information security.

In August 2013, the MOC issued the Administration Measures on Content Review by Internet Culture Operating Entities, or the Content Review Measures, which became effective on December 1, 2013. According to the Content Review Measures, an internet culture operating entity shall censor and review its products and services to be provided to the public to ensure that such products and services do not contain any content prohibited by law, and the censor record shall be kept for at least two years. Internet culture operating entities shall adopt technical measures to conduct real-time censor over the products and services, set up internal content control department and establish content control policies. If the internet culture operating entity identifies any illegal content, it shall immediately suspend the products or services containing such content and preserve relevant record, and, in the event that such illegal content might lead to material issues, report to provincial branch of MOC.

Regulations on Anti-fatigue Compliance System and Real-name Registration System

On April 15, 2007, eight PRC government authorities, including the General Administration of Press and Publication, the Ministry of Education, the Ministry of Public Security and the Ministry of Industry and Information Technology, jointly issued the Notice on Protecting Minors Mental and Physical Health and Implementation of Online Game Anti-fatigue System, which requires the implementation of an anti-fatigue compliance system and a real-name registration system by all PRC online game operators. Under the anti-fatigue compliance system, three hours or less of continuous playing by minors, defined as game players under 18 years of age, is considered to be “healthy”, three to five hours is deemed “fatiguing”, and five hours or more is deemed

 

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“unhealthy.” Game operators are required to reduce the value of in-game benefits to a game player by half if it discovers that the amount of a time a game player spends online has reached the “fatiguing” level, and to zero in the case of the “unhealthy” level.

To identify whether a game player is a minor and thus subject to the anti-fatigue compliance system, a real-name registration system should be adopted to require online game players to register their real identity information before playing online games. Pursuant to a notice issued by the relevant eight government authorities on August 3, 2011, online game operators must submit the identity information of game players to the National Citizen Identity Information Center, a subordinate public institution of the Ministry of Public Security, for verification as of October 1, 2011.

Regulations Relating to Internet Information Services and Content of Internet Information

In September 2000, the State Council issued the Administrative Measures on Internet Information Services, or the Internet Measures, to regulate the provision of information services to online users through the internet. According to the Internet Measures, internet information services are divided into two categories: services of an operative nature and services of a non-operative nature. Our business conducted through our immomo.com website involves operating internet information services, which requires us to obtain an ICP license. If an internet information service provider fails to obtain an ICP license, the relevant local branch of the Ministry of Industry and Information Technology may levy fines, confiscate its income or even block its website. When the ICP service involves areas of news, publication, education, medical treatment, health, pharmaceuticals and medical equipment, and if required by law or relevant regulations, specific approval from the respective regulatory authorities must be obtained prior to applying for the ICP license from the Ministry of Industry and Information Technology or its provincial level counterpart. Our affiliated PRC entity, Beijing Momo, currently holds an ICP license issued by Beijing Communications Administration, a local branch of the Ministry of Industry and Information Technology. Our ICP license will expire in February 2017 and we will renew such license prior to its expiration date.

Regulations Relating to Privacy Protection

As an internet content provider, we are subject to regulations relating to protection of privacy. In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. The Administrative Measures on Internet Information Services prohibit ICP service operators from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party. Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the Ministry of Industry and Information Technology in 2011, an ICP service operator may not collect any user personal information or provide such information to third parties without the consent of a user. An ICP service operator must expressly inform the users of the method, content and purpose for the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An ICP service operator is also required to properly keep the user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures and, in severe circumstances, to make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s Congress in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the Ministry of Industry and Information Technology in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or providing such information to other parties. Any violation of the above decision or order may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities. We are subject to these regulations as an online business operator.

 

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Regulations Relating to Taxation

Up until December 31, 2007, our PRC subsidiary and consolidated affiliated entity and its subsidiary were subject to PRC enterprise income tax at the statutory rate of 33% on their PRC taxable income.

In January 2008, the PRC Enterprise Income Tax Law took effect. The PRC Enterprise Income Tax Law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where tax incentives are granted to special industries and projects. Under the PRC Enterprise Income Tax Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008 and payable to its foreign investor may be subject to a withholding tax rate of 10% if the PRC tax authorities determine that the foreign investor is a non-resident enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.

Under the PRC Enterprise Income Tax Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. A circular issued by the State Administration of Taxation in April 2009 regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese enterprise groups and established outside of China as “resident enterprises” clarified that dividends and other income paid by such PRC “resident enterprises” will be considered PRC-source income and subject to PRC withholding tax, currently at a rate of 10%, when paid to non-PRC enterprise shareholders. This circular also subjects such PRC “resident enterprises” to various reporting requirements with the PRC tax authorities. Under the implementation regulations to the PRC Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, the tax circular mentioned above specifies that certain PRC-invested overseas enterprises controlled by a Chinese enterprise or a Chinese enterprise group in the PRC will be classified as PRC resident enterprises if the following are located or resided in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, the company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors who have the voting rights.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must be a company; (ii) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (iii) it must have directly owned such required percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. Furthermore, the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation), which became effective in October 2009, require that non-resident enterprises must obtain approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. Accordingly, Momo Technology HK Company Limited may be able to benefit from the 5% withholding tax rate for the dividends it receives from Beijing Momo, if it satisfies the conditions prescribed under Circular 81 and other relevant tax rules and regulations, and obtain the approvals as required. However, according to Circular 81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

 

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In accordance with the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, if 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 (other than a purchase and sale of shares issued by a PRC resident enterprise in public securities market), or Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate of less than 12.5%, or (ii) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, shall report to the PRC competent tax authority of the PRC resident enterprise this Indirect Transfer within 30 days from the date when the equity transfer agreement was made. 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 withholding tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction. Circular 698 is retroactively effective on January 1, 2008. There is uncertainty as to the application of Circular 698. Circular 698 may be determined by the tax authorities to be applicable to our private equity financing transactions where non-resident investors were involved, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our non-resident investors in such transactions may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under the general anti-avoidance rule of the EIT Law, which may have a material adverse effect on our financial condition and results of operations or such non-resident investors’ investments in us. See “Risk Factors—Risks Related to Doing Business in China—We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.”

PRC Business Tax

Pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay a business tax at the rate of 5% on the revenues generated from providing such services. However, if the services provided are related to technology development and transfer, such business tax may be exempted subject to the approval of relevant tax authorities.

Value Added Tax

On January 1, 2012, the Chinese State Council officially launched a pilot value-added tax (“VAT”) reform program, or Pilot Program, applicable to businesses in selected industries. Businesses in the Pilot Program would pay VAT instead of business tax. The Pilot Industries in Shanghai included industries involving the leasing of tangible movable property, transportation services, research and development and technical services, information technology services, cultural and creative services, logistics and ancillary services, certification and consulting services. Revenues generated by advertising services, a type of “cultural and creative services,” are subject to the VAT tax rate of 6%. According to official announcements made by competent authorities in Beijing and Guangdong province, Beijing launched the same Pilot Program on September 1, 2012, and Guangdong province launched it on November 1, 2012. On May 24, 2013, the Ministry of Finance and the State Administration of Taxation issued the Circular on Tax Policies in the Nationwide Pilot Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries, or the Pilot Collection Circular. The scope of certain modern services industries under the Pilot Collection Circular extends to the inclusion of radio and television services. On August 1, 2013, the Pilot Program was implemented throughout China. We currently pay the pilot VAT instead of business taxes for our advertising activities, and for any other parts of our business that are deemed by the local tax authorities to belong to the applicable industries.

 

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Regulations Relating to Copyright and Trademark Protection

China has adopted legislation governing intellectual property rights, including copyrights and trademarks. China is a signatory to major international conventions on intellectual property rights and is subject to the Agreement on Trade Related Aspects of Intellectual Property Rights as a result of its accession to the World Trade Organization in December 2001.

Copyright. The National People’s Congress amended the Copyright Law in 2001 and 2010 to widen the scope of works and rights that are eligible for copyright protection. The amended Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. To address copyright infringement related to content posted or transmitted over the Internet, the National Copyright Administration and former Ministry of Information Industry jointly promulgated the Administrative Measures for Copyright Protection Related to the Internet in April 2005. These measures became effective in May 2005. To comply with these laws and regulations, we have implemented internal procedures to monitor and review the content we have been licensed from content providers before they are released on our website and remove any infringing content promptly after we receive notice of infringement from the legitimate rights holder.

On December 20, 2001, the State Council promulgated the new Regulations on Computer Software Protection, effective from January 1, 2002, which are intended to protect the rights and interests of the computer software copyright holders and encourage the development of software industry and information economy. In the PRC, software developed by PRC citizens, legal persons or other organizations is automatically protected immediately after its development, without an application or approval. Software copyright may be registered with the designated agency and if registered, the certificate of registration issued by the software registration agency will be the primary evidence of the ownership of the copyright and other registered matters. On February 20, 2002, the National Copyright Administration of the PRC introduced the Measures on Computer Software Copyright Registration, which outline the operational procedures for registration of software copyright, as well as registration of software copyright license and transfer contracts. The Copyright Protection Center of China is mandated as the software registration agency under the regulations.

The State Council and the National Copyright Administration have promulgated various rules and regulations and rules relating to protection of software in China, including the Regulations on Protection of Computer Software promulgated by State Council on January 30, 2013 and effective since March 1, 2013, and the Measures for Registration of Copyright of Computer Software promulgated by SARFT on February 20, 2002 and effective since the same date. According to these rules and regulations, software owners, licensees and transferees may register their rights in software with the National Copyright Administration or its local branches and obtain software copyright registration certificates. Although such registration is not mandatory under PRC law, software owners, licensees and transferees are encouraged to go through the registration process and registered software rights may be entitled to better protections. As of May 31, 2014, we had registered copyrights on eight software programs in China.

Trademark. The PRC Trademark Law, adopted in 1982 and revised in 1993, 2001 and 2013 respectively, protects the proprietary rights to registered trademarks. The Trademark Office under the State Administration for Industry and Commerce handles trademark registrations and may grant a term of ten years for registered trademarks, which may be extended for another ten years upon request. Trademark license agreements shall be filed with the Trademark Office for record. In addition, if a registered trademark is recognized as a well-known trademark, the protection of the proprietary right of the trademark holder may reach beyond the specific class of the relevant products or services. As of May 31, 2014, we had 11 registered trademarks and had 6 trademark applications in China.

Regulations Relating to Foreign Exchange

Pursuant to the Regulations on the Administration of Foreign Exchange issued by the State Council and effective in 1996, as amended in January 1997 and August 2008, respectively, current account transactions, such

 

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as the sale or purchase of goods, are not subject to PRC governmental approvals. Certain organizations in the PRC, including foreign-invested enterprises, may purchase, sell and/or remit foreign currencies at certain banks authorized to conduct foreign exchange business upon providing valid commercial documents. However, approval of the PRC State Administration of Foreign Exchange, or SAFE, is required for capital account transactions.

In August 2008, SAFE issued a circular on the conversion of foreign currency into Renminbi by a foreign-invested company that regulates how the converted Renminbi may be used. The circular requires that the registered capital of a foreign-invested enterprise converted into Renminbi from foreign currencies may only be utilized for purposes within its business scope. For example, such converted amounts may not be used for investments in or acquisitions of other companies, which can inhibit the ability of companies to consummate such transactions. In addition, SAFE strengthened its oversight of the flow and use of the Renminbi registered capital of foreign-invested enterprises converted from foreign currencies. The use of such Renminbi capital may not be changed without SAFE’s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been utilized. Furthermore, SAFE promulgated a circular in November 2010, which, among other things, requires the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled in the manner described in the offering documents. Violations may result in severe penalties, such as heavy fines.

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts (e.g. pre-establishment expenses account, foreign exchange capital account, guarantee account), the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible before. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

Regulations Relating to Labor

Pursuant to the PRC Labor Law effective in 1995 and the PRC Labor Contract Law effective in 2008, a written labor contract is required when an employment relationship is established between an employer and an employee. Other labor-related regulations and rules of the PRC stipulate the maximum number of working hours per day and per week as well as the minimum wages. An employer is required to set up occupational safety and sanitation systems, implement the national occupational safety and sanitation rules and standards, educate employees on occupational safety and sanitation, prevent accidents at work and reduce occupational hazards.

In the PRC, workers dispatched by an employment agency are normally engaged in temporary, auxiliary or substitute work. Pursuant to the PRC Labor Contract Law, an employment agency is the employer for workers dispatched by it and shall perform an employer’s obligations toward them. The employment contract between the employment agency and the dispatched workers, and the placement agreement between the employment agency and the company that receives the dispatched workers shall be in writing. Furthermore, the company that accepts the dispatched workers shall be jointly and severally liable for any damage caused to the dispatched workers due to violation of the Labor Contract Law by the employment agencies arising from their contracts with dispatched workers. An employer is obligated to sign an indefinite term labor contract with an employee if the employer continues to employ the employee after two consecutive fixed-term labor contracts. The employer also has to pay compensation to the employee if the employer terminates an indefinite term labor contract. Except where the

 

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employer proposes to renew a labor contract by maintaining or raising the conditions of the labor contract and the employee is not agreeable to the renewal, an employer is required to compensate the employee when a definite term labor contract expires. Furthermore, under the Regulations on Paid Annual Leave for Employees issued by the State Council in December 2007 and effective as of January 2008, an employee who has served an employer for more than one year and less than ten years is entitled to a 5-day paid vacation, those whose service period ranges from 10 to 20 years is entitled to a 10-day paid vacation, and those who has served for more than 20 years is entitled to a 15-day paid vacation. An employee who does not use such vacation time at the request of the employer shall be compensated at three times their normal salaries for each waived vacation day.

Pursuant to the Regulations on Occupational Injury Insurance effective in 2004, as amended in 2010, and the Interim Measures concerning the Maternity Insurance for Enterprise Employees effective in 1995, PRC companies must pay occupational injury insurance premiums and maternity insurance premiums for their employees. Pursuant to the Interim Regulations on the Collection and Payment of Social Insurance Premiums effective in 1999 and the Interim Measures concerning the Administration of the Registration of Social Insurance effective in 1999, basic pension insurance, medical insurance and unemployment insurance are collectively referred to as social insurance. Both PRC companies and their employees are required to contribute to the social insurance plans. Pursuant to the Regulations on the Administration of Housing Fund effective in 1999, as amended in 2002, PRC companies must register with applicable housing fund management centers and establish a special housing fund account in an entrusted bank. Both PRC companies and their employees are required to contribute to the housing funds.

According to the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Administration of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement.

Regulations Relating to Dividend Distribution

Wholly foreign-owned companies in the PRC may pay dividends only out of their accumulated profits after tax as determined in accordance with PRC accounting standards. Remittance of dividends by a wholly foreign-owned enterprise out of China is subject to examination by the banks designated by SAFE. Wholly foreign-owned companies may not pay dividends unless they set aside at least 10% of their respective accumulated profits after tax each year, if any, to fund certain reserve funds, until such time as the accumulative amount of such fund reaches 50% of the wholly foreign-owned company’s registered capital. These reserve funds are not distributable as cash dividends.

SAFE Regulations on Offshore Special Purpose Companies Held by PRC Residents or Citizens

SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or Circular 37, issued by SAFE and effective in July 2014, regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing and conduct round trip investment in China. Under Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. Circular 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with the SAFE or its local branch. SAFE Circular 37 further provides that option or share-based incentive tool holders of a non-listed SPV

 

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can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch.

PRC residents or entities who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before the implementation of the Circular 37 shall register their ownership interests or control in such SPVs with SAFE or its local branch. An amendment to the registration is required if there is a material change in the SPV registered, such as any change of basic information (including change of such PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. Failure to comply with the registration procedures set forth in Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations.

We have completed the foreign exchange registration of PRC resident shareholders of Mr. Yan Tang, Mr. Yong Li, Mr. Xiaoliang Lei and Mr. Zhiwei Li for our financings and share transfer that were completed before March 31, 2014.

M&A Rule and Overseas Listing

In August 2006, six PRC regulatory agencies, including China Securities Regulatory Commission, or CSRC, jointly adopted the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective in September 2006. This M&A Rule purports to require, among other things, offshore SPVs, formed for listing purposes through acquisition of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. We believe that CSRC approval is not required in the context of this offering as we are not a special purpose vehicle formed for listing purpose through acquisition of domestic companies that are controlled by our PRC individual shareholders, as we acquired contractual control rather than equity interests in our domestic affiliated entities.

However, we cannot assure you that the relevant PRC government agency, including the CSRC, would reach the same conclusion as we do. If the CSRC or other PRC regulatory agency subsequently determines that we need to obtain the CSRC’s approval for this offering or if CSRC or any other PRC government authorities will promulgate any interpretation or implementing rules before our listing that would require CSRC or other governmental approvals for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us to halt this offering before settlement and delivery of the ADSs offered by this prospectus.

SAFE Regulations on Employee Share Options

Pursuant to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, or Circular 7, issued by SAFE in February 2012, employees, directors, supervisors and other senior management participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed

 

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company, and complete certain other procedures. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our wholly foreign-owned subsidiaries in China and limit these subsidiaries’ ability to distribute dividends to us.

In addition, the State Administration for Taxation has issued certain circulars concerning employee share options or restricted shares. Under these circulars, the employees working in the PRC who exercise share options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of such overseas listed company 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 the employees fail to pay or the PRC subsidiaries fail to withhold their income taxes according to relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities. Following the completion of this offering, we intend to file registration with the local SAFE bureau for our employees who are PRC residents and have been granted shares or share options under our 2012 Plan and follow other procedures set forth in Circular 7 and other applicable regulations. These registrations and filings are a matter of foreign exchange control and tax procedure and the grant of share incentive awards to employees is not subject to the government’s discretionary approval. Compliance with PRC regulations on employee incentive plans has not had, and we believe will not in the future have, any material adverse effect on the implementation of our 2012 Plan.

 

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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
Yan Tang			35			Director and Chief Executive Officer
Yong Li			40			Director
Sichuan Zhang			30			Director and President of U.S. operations
David Ying Zhang			41			Director
Hongping Zhang			50			Director
Yongming Wu			39			Director
Ho Kee Harry Man			38			Director
Neil Nanpeng Shen			46			Director
Feng Yu			50			Director
Xiaoliang Lei			31			Co-president
Jingping Zhang			39			Co-president
Zhiwei Li			28			Chief Technology Officer
Jonathan Xiaosong Zhang			50			Chief Financial Officer
Li Wang			31			Chief Operating Officer

Mr. Yan Tang is our co-founder and has served as our director and chief executive officer since our inception in July 2011. Prior to founding our company, from 2003 to 2011, Mr. Tang worked at NetEase, Inc. (NASDAQ: NTES), or NetEase, initially as editor and later editor-in-chief. Mr. Tang received his bachelor’s of science degree from Chengdu University of Technology in China in 2000.

Mr. Yong Li is our co-founder and has been our director since April 2012. Mr. Li founded Fenbi Inc. (Cayman), a provider of online education services, in May 2011, and has been a board director since then. In April 2012, he founded Beijing Jingguanyu Technology Co., Ltd., a software service company, and has been its chief executive officer since then. From May 2005 to May 2010, Mr. Li was the editor-in-chief and vice president at NetEase, and then the vice president at NetEase and president of NetEase career portal business unit. Between February 2001 and May 2005, Mr. Li served as an executive editor, executive editor-in-chief and then general manager of Global Entrepreneur, a Chinese magazine. Mr. Li is also a director of two privately held companies. Mr. Li received his MBA degree from Peking University in 2004 and bachelor’s degree in law from Renmin University in China in 1996.

Ms. Sichuan Zhang has been our director since April 2012 and the president of our U.S. operations since June 2014. Ms. Zhang joined the company in July 2011 and was responsible for product design, then marketing strategies and executions. Prior to joining our company, from June 2009 to February 2011, she co-founded 4 Degrees Motion Design, an advertising design firm. She was an art director of Modern Media, a Chinese media company, from January 2009 to May 2009, a senior designer of Phoenix New Media Limited (NYSE: FENG) from January 2008 to January 2009, and a web designer of NetEase from March 2006 to April 2007. Ms. Zhang received her bachelor’s degree in South China Normal University in 2005. Ms. Zhang is the wife of Mr. Yan Tang.

Mr. David Ying Zhang has been our director since April 2012. Mr. Zhang is a founding managing partner of Matrix Partners China, where he oversees all of the venture capital investment firm’s operations. Mr. Zhang is currently also a director of Cheetah Mobile Inc. (NYSE: CMCM) and iKang Healthcare Group, Inc. (NASDAQ: KANG). In 2002, Mr. Zhang established and has since expanded WI Harper Group’s Beijing operations and co-managed its China portfolios. Prior to joining WI Harper Group, Mr. Zhang worked at Salomon Smith Barney,

 

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where he was responsible for analyzing, structuring and marketing companies in the internet, software and semiconductor sectors. Before then, Mr. Zhang worked at ABN AMRO Capital as a senior venture associate. Mr. Zhang received master of science degree in biotechnology and business from Northwestern University in 1999 and bachelor of science degree in clinical science with minor in chemistry from California State University in 1997.

Mr. Hongping Zhang has been our director since July 2012. Mr. Zhang is the managing director of Alibaba Capital Partners and a vice president of Alibaba Group responsible for investment and strategies. Prior to joining Alibaba Group, Mr. Zhang was engaged in venture capital investment with Northern Light Venture Capital from 2005 to 2011, and served as a director on the boards of a number of TMT and clean tech companies. From 2011 to 2013, Mr. Zhang worked as a senior director of business development covering Asia-Pacific region for Lantern Communications, and the general manager covering Greater China for ANDA Networks. In 1998, Mr. Zhang co-founded ServGate Technologies, Inc. in Silicon Valley. Between 1995 and 1998, Mr. Zhang worked for China CITIC Bank International Limited specializing in fund management and strategic consulting. Mr. Zhang received his MBA from the University of San Francisco in 1994, master’s degree in imaging science from Rochester Institute of Technology in 1991, and bachelor’s degree in optical engineering from Tsinghua University in 1986.

Mr. Yongming Wu has been our director since October 2013. Mr. Wu is a co-founder of Alibaba Group, and currently has served as a senior vice president of Alibaba Group since 2011. Mr. Wu has served various management roles since the inception of Alibaba Group, including heading technology development departments within Taobao and China Yahoo!, as well as leading Taobao’s search advertising development department. Prior to joining Alibaba Group, from 1997 to 1998, Mr. Wu worked at China Pages, one of the first Internet-based directories in China, and later spearheaded the technology development for the website of China’s Ministry of Foreign Trade and Economic Cooperation. Mr. Wu received his bachelor’s degree in computer science from Zhejiang University of Technology in 1996.

Mr. Ho Kee Harry Man has been our director since October 2013. Mr. Man has over 14 years of experience in the venture capital and investment business. Since January 2008, Mr. Man has been a partner at Matrix Partners China, where he oversees investments in the mobile internet sector. From early 2006 to 2008, Mr. Man was a partner at WI Harper Group, managing various investment funds focused on the China TMT market. Prior to joining WI Harper Group, Mr. Man was the vice president leading the corporate development department of Linktone Ltd. (NASDAQ: LTON), a wireless company based in China, from October 2004 to March 2006. Between 2000 and 2004, Mr. Man worked for chinadotcom corporation (NASDAQ: CHINA), the first Chinese internet company listed in the United States, where he led investments activities in China. Prior to that, Mr. Man served in the business consulting division of Andersen & Co., where he was involved in business advisory projects in the IT industry. Mr. Man earned his master’s degree in computer science and engineering and bachelor’s degree in computer engineering from the University of Michigan Ann Arbor in 1998.

Mr. Neil Nanpeng Shen was appointed to be our director in May 2014. Mr. Shen is the founding managing partner of Sequoia Capital China. Mr. Shen is a co-founder and director of Ctrip.com International, Ltd. (NASDAQ: CTRP), or Ctrip, a provider of travel services. Mr. Shen served as the chief financial officer of Ctrip from 2000 to October 2005 and as president from August 2003 to October 2005. Mr. Shen also co-founded Home Inns & Hotels Management Inc (NASDAQ: HMIN), or Home Inns, an economy hotel chain in China. Prior to founding Ctrip and Home Inns, Mr. Shen had worked for more than eight years in the investment banking industry in New York and Hong Kong. Currently, Mr. Shen is the co-chairman of Home Inns, a non-executive director of E-House (China) Holdings Limited (NYSE: EJ), a non-executive director of Le Gaga Holdings Limited (NASDAQ: GAGA), as well as a director of Qihoo 360 Technology Co. Ltd. (NYSE: QIHU). Mr. Shen received his master’s degree from the School of Management at Yale University in 1992 and his bachelor’s degree from Shanghai Jiao Tong University in 1988.

 

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Mr. Feng Yu has been our director since May 2014. Mr. Yu is the co-founder and chairman of Yunfeng Capital, a private equity fund established in 2010. Between 2006 and 2008, Mr. Yu was the co-chairman and president of Focus Media Holding Limited, which was previously listed on NASDAQ. Prior to that, in 2003, Mr. Yu founded Shanghai Target Media Co., Ltd., which operated out-of-home television advertising network, and served as its chief executive officer. Mr. Yu currently is also a board director of Huayi Brothers Media Group, a company listed on the Shenzhen Stock Exchange (Stock Code: 300027) and Media Asia Group Holdings Limited, a company listed on the Hong Kong Stock Exchange (Stock Code: 8075). Mr. Yu is also an independent director of ZhongAn Online P&C Insurance Co., Ltd. and Beijing Vantone Real Estate Co., Ltd. listed on the Shenzhen Stock Exchange (Stock Code: 600246). Mr. Yu received EMBA degree from China Europe International Business School in 2001, master’s degree in philosophy from Fudan University in 1991 and a bachelor’s degree in philosophy from the same university in 1986.

Mr. Xiaoliang Lei is our co-founder and has been our co-president since June 2014. Mr. Lei is responsible for product development. Prior to co-founding our company, Mr. Lei was the product management staff then manager at NetEase, from 2008 to 2011. Mr. Lei was an editor in charge of content development and team management at 21CN Game Channel, a game information exchange platform in China from 2004 to 2008. Mr. Lei received his bachelor of science degree in software engineering from South China University of Technology in 2004.

Mr. Jingping Zhang has been our co-president since March 2014. Prior to joining us, Mr. Zhang was a partner at Concord & Partners, a PRC law firm, from June 2012 to March 2014, and a lawyer at King & Wood Mallesons from August 2008 to June 2012. Mr. Zhang had served as a legal counsel for a number of large companies and had participated in private equity fund formation and investments, M&As, corporate restructuring, domestic and offshore initial public offerings, as well as outbound investments by Chinese companies. Mr. Zhang was a journalist, chief reporter, columnist and editor-in-chief at various media organizations, including Nanfang Media Group from August 2007 to August 2009, Economic Observer from August 2005 to August 2007 and Guangzhou Media Group from August 2003 to August 2005. Mr. Zhang received a Ph.D. from Soochow University Law School in July 2007 and a bachelor’s degree of media and mass communication from Anhui Normal University in July 1998.

Mr. Zhiwei Li is our co-founder and has been our chief technology officer since our inception. Mr. Li is in charge of overseeing the technical architecture of our company. From July 2009 to March 2011, Mr. Li was the technology director in the finance channel at NetEase. He received his bachelor of science degree in software engineering from South China University of Technology in 2008.

Mr. Jonathan Xiaosong Zhang has served as our chief financial officer since May 2014. From July 2010 to April 2014, Mr. Zhang served as the chief financial officer of iSoftStone Holdings Limited (NYSE: ISS), and was the company’s independent director between February 2010 and July 2010. Prior to joining iSoftStone Holdings Limited, Mr. Zhang served as the chief financial officer of several companies, including BJB Career Education Company Limited from June 2009 to June 2010, and Vimicro International Corporation (NASDAQ: VIMC) from September 2004 to January 2007. From 2000 to 2004, Mr. Zhang worked as a manager and then a senior manager at the Beijing office of PricewaterhouseCoopers. From 1995 to 1999, Mr. Zhang was an auditor and then a senior auditor at the Los Angeles office of KPMG LLP. Mr. Zhang is also an independent director and the chairman of audit committee of Tarena International Inc. (NASDAQ: TEDU). Mr. Zhang received his master’s degree in accountancy from the University of Illinois in 1994, his master’s degree in meteorology from Saint Louis University in 1992, and his bachelor’s degree in meteorology from Peking University in 1986. Mr. Zhang is a Certified Public Accountant in the State of California.

Mr. Li Wang has been our chief operation officer since June 2014. Mr Wang joined the company as our operation director in July 2011. Prior to joining us, Mr. Wang was the managing director of Laoluo English

 

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Training School, a start-up education service business from November 2008 to May 2011. He was the general administration staff at NEC China Co., Ltd. from April 2005 to April 2007. Mr. Wang received a bachelor’s degree in management from Beijing University of Aeronautics and Astronautics in China in 2004.

Board of Directors

Our board of directors will consist of             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 to qualify to serve as a director. A director may vote with respect to any contract, proposed contract or arrangement in which he is materially interested provided (a) such director, if his interest in such contract or arrangement is material, has declared the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice and (b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. The directors may exercise all the powers of the company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service.

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             ,             and             .             will be the chairman of our audit committee. We have determined that, and satisfy the “independence” requirements of             and Rule 10A-3 under the Exchange Act. 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             ,             and             .             will be the chairman of our compensation committee. We have determined that             ,             and             satisfy the “independence” requirements of             . 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;

 

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•

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             ,             and             .             will be the chairperson of our nominating and corporate governance committee.             ,              and             satisfy the “independence” requirements of             . 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 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 have a fiduciary duty to act honestly, in good faith and with a view to our best interests. Our directors also owe to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. 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. Our company has the right to seek damages 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 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.

 

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Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders or by the unanimous written resolution of all the shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; or (ii) is found by our company to be or becomes of unsound mind.

Employment Agreements and Indemnification Agreements

We [have entered] into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without our express consent.

We [have also entered into] indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

Compensation of Directors and Executive Officers

For the fiscal year ended December 31, 2013, we paid an aggregate of approximately US$0.3 million in cash to our executive officers, and we did not pay any compensation to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiary and consolidated affiliated entity and its subsidiary 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.

 

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Share Incentive Plan

In November 2012, we adopted a share incentive plan, or the 2012 Plan, which was amended and restated in October 2013. The purpose of our 2012 Plan is to attract and retain the best available personnel, provide additional incentives to employees, directors, consultants and advisors and promote the success of our business. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2012 Plan is 44,758,220 ordinary shares. Subject to our currently effective memorandum and articles of association, the maximum number shares reserved for issuance under the 2012 Plan shall at no time exceed 30% of the total number of our outstanding shares on an as-converted basis, unless approved by two-thirds of the total number of our outstanding shares with voting power on an as-converted basis.

As of the date of this prospectus, options to purchase 27,823,526 ordinary shares have been granted, 27,763,526 of which remained outstanding. The following paragraphs summarize the principal terms of the 2012 Plan.

Types of Awards. The 2012 Plan permits the grant of options, restricted shares or unrestricted ordinary shares.

Plan Administration. Our board of directors or one or more committees consisting solely of directors designated by our board will administer the 2012 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant. The board or such committee(s) may also delegate, to the extent permitted by applicable laws, to one or more officers of our company, its powers under the 2012 Plan to determine the officers and employees who will receive awards, the number of such awards, and the terms and conditions thereof. Subject to the limitations under the 2012 Plan, the plan administrator from time to time may authorize, generally or in specific cases only, for the benefit of any participant, any adjustment in exercise or purchase price, vesting schedule, and regranting of awards by waiver or by other legally valid means.

Award Agreement. Awards granted under the 2012 Plan are evidenced by an award agreement that sets forth terms, provisions and restrictions for each award, which may include the type of award, the term of the award, vesting provisions, the exercise or purchase price, and the provisions applicable in the event that the recipient’s employment or service terminates. Under the plan, each recipient of option award shall duly sign a power of attorney delegating the voting rights and signing rights of ordinary shares issued upon the exercise of the option award.

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

Acceleration of Awards upon Change in Control. If a change in control of our company occurs, the plan administrator may, in its sole discretion, accelerate the awards so that they may immediately vest without any forfeiture restrictions, unless the plan administrator has otherwise provided for substitution, assumption, exchange or other continuation or settlement of the award.

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 option award, which is stated in the award agreement and shall in no case be lower than the par value of our ordinary shares. Once vested, an option award will remain exercisable until the date of expiration or termination, unless otherwise provided by the plan administrator. However, each option award shall expire no more than 10 years after its date of grant.

Vesting and Purchase of Restricted Shares. The plan administrator determines the purchase price for each restricted share award, which is stated in the award agreement and shall in no case be lower than the greater of

 

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the par value of our ordinary shares or a certain percentage of the fair market value of our ordinary shares on the date of grant. Restricted share awards that remain unvested upon termination of employment as of a date specified in the award agreement shall be repurchased by our company at the lower of (i) the fair market value of the restricted shares at the time of the termination of employment or (ii) the original purchase price of the restricted shares, without interest. However, each restricted share award shall either vest or be repurchased by our company not more than 10 years after the date of grant.

Transfer Restrictions. Awards may not be transferred in any manner by the recipient, save for certain exceptions including transfers to our company, transfers by gift to an affiliate or an immediately family member, transfer by will or the laws of descent and distribution, and other exceptions provided for by the plan administrator.

Amendment and Termination of the 2012 Plan. Subject to any shareholder approval, our board of directors may, at any time, terminate or, from time to time, amend, modify or suspend this 2012 Plan. Unless terminated earlier, the 2012 Plan will terminate at the close of business on October 31, 2022.

The following table summarizes, as of the date of this prospectus, the options granted under the 2012 Plan to certain officers, directors, employees and consultants. As of the date of this prospectus, none of the awards granted was exercised after the relevant grant dates. As of the date of this prospectus, options to purchase 60,000 ordinary shares have been forfeited after the relevant grant date.

 

Name

Ordinary Shares Underlying Options Awarded

Exercise Price (US$/Share)

Date of Grant

Date of Expiration

Yan Tang

4,500,000

0.1404

October 10, 2013

October 9, 2023

Sichuan Zhang

*

0.0327

November 1, 2012

October 31, 2022

*

0.1404

October 10, 2013

October 9, 2023

David Ying Zhang

*

0.1404

October 10, 2013

October 9, 2023

Ho Kee Harry Man

*

0.1404

October 10, 2013

October 9, 2023

Xiaoliang Lei

*

0.1404

October 10, 2013

October 9, 2023

Jingping Zhang

*

0.1404

March 1, 2014

February 28, 2024

Zhiwei Li

*

0.1404

October 10, 2013

October 9, 2023

Jonathan Xiaosong Zhang

*

0.1404

March 1, 2014

February 28, 2024

Li Wang

*

0.0327

November 1, 2012

October 31, 2022

*

0.1404

October 10, 2013

October 9, 2023

Other individuals as a group

7,850,000

0.0327

November 1, 2012

October 31, 2022

4,880,000

0.1404

October 10, 2013

October 9, 2023

544,866

0.1404

March 1, 2014

February 28, 2024

Total

27,823,526

 

*	Aggregate number of shares represented by all grants of options to the person account for less than 1% of our total outstanding ordinary shares.

 

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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 as of the date of this prospectus by:

 

•

each of our directors and executive officers;

 

•

each of our principal shareholders, including all shareholders who own beneficially more than 5% of our total outstanding shares[; and

 

•

each selling shareholder.]

The calculations in the table below assume the number of ordinary shares that will be outstanding immediately after this offering is             , which is based on (i) 131,348,411 ordinary shares outstanding as of the date of this prospectus, (ii) 200,718,811 ordinary shares into which all of our outstanding preferred shares will automatically convert upon completion of this offering, and (iii)             ordinary shares in the form of ADSs issued in connection with this offering, assuming the underwriters do not exercise their option to purchase additional ADSs and excludes ordinary shares issuable upon the exercise of outstanding share options and ordinary shares reserved for issuance under our 2012 Plan.

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 Being Sold in This Offering]				Ordinary Shares Beneficially Owned After This Offering
		Number				Percent				Number		Percent		Number		Percent
Directors and Executive Officers:**
Yan Tang(1)			132,798,411				39.8
Yong Li(2)			16,846,899				5.1
Sichuan Zhang(3)			97,211,370				29.2
David Ying Zhang(4)			66,133,397				19.9
Hongping Zhang(5)			—				—
Yongming Wu(6)			—				—
Ho Kee Harry Man(7)			*				*
Neil Nanpeng Shen(8)			18,570,966				5.6
Feng Yu(9)			18,570,966				5.6
Xiaoliang Lei(10)			9,712,116				2.9
Jingping Zhang			—				—
Zhiwei Li(11)			8,028,026				2.4
Jonathan Xiaosong Zhang			—				—
Li Wang(12)			*				*
All directors and executive officers as a group			236,911,240				70.8
Principal [and Selling] Shareholders:
Gallant Future Holdings Limited(13)			96,886,370				29.2
Alibaba Investment Limited(14)			68,861,733				20.7
Matrix Partners China II Hong Kong Limited(15)			65,970,897				19.9
Rich Moon Limited(16)			18,570,966				5.6
Sequoia Funds(17)			18,570,966				5.6
Joyous Harvest Holdings Limited(18)			16,846,899				5.1

 

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Notes:

*	Less than 1% of our total outstanding shares on an as-converted basis.

**

Except for Messr. David Ying Zhang, Hongping Zhang, Yongming Wu, Ho Kee Harry Man, Neil Nanpeng Shen and Feng Yu, the business address for our executive officers and directors is 20th Floor, Block B, Tower 2, Wangjing SOHO, No.1 Futongdong Street, Chaoyang District, Beijing 100102, People’s Republic of China.

(1)

Includes (i) 96,886,370 ordinary shares held by Gallant Future Holdings Limited, (ii) 16,846,899 ordinary shares held by Joyous Harvest Holdings Limited, (iii) 9,587,116 ordinary shares held by First Optimal Holdings Limited, (iv) 8,028,026 ordinary shares held by Fast Prosperous Holdings Limited, (v) ordinary shares that Mr. Tang is entitled to acquire within 60 days from the date of this prospectus upon exercise of share options held by him under our 2012 Plan, and (vi) ordinary shares that Ms. Sichuan Zhang, the wife of Mr. Tang, is entitled to acquire within 60 days from the date of this prospectus upon exercise of share options held by Ms. Zhang under our 2012 Plan. Gallant Future Holdings Limited is incorporated in the British Virgin Islands and is wholly owned by Mr. Tang. Pursuant to a shareholder proxy agreement signed on June 11, 2012 and mutual understanding between Mr. Tang and each of the other co-founders of our company, including Messrs. Yong Li, Zhiwei Li and Xiaoliang Lei, Mr. Tang was granted irrevocable proxy to vote all the shares that the other co-founders are directly or indirectly entitled to vote as long as they and Mr. Tang directly or indirectly hold shares in our company. Joyous Harvest Holdings Limited is wholly owned by Mr. Yong Li, First Optimal Holdings Limited is wholly owned by Mr. Xiaoliang Lei, and Fast Prosperous Holdings Limited is wholly owned by Mr. Zhiwei Li.

(2)	Represents 16,846,899 ordinary shares held by Joyous Harvest Holdings Limited, a company incorporated in the British Virgin Islands and wholly owned by Mr. Li.

(3)

Includes (i) 96,886,370 ordinary shares held by Gallant Future Holdings Limited, (ii) ordinary shares that Mr. Tang is entitled to acquire within 60 days from the date of this prospectus upon exercise of share options held by him under our 2012 Plan, and (iii) 175,000 ordinary shares that Ms. Zhang is entitled to acquire within 60 days from the date of this prospectus upon exercise of share options held by her under our 2012 Plan. Gallant Future Holdings Limited is incorporated in the British Virgin Islands and is wholly owned by Ms. Zhang’s husband, Mr. Yan Tang.

(4)

Represents (i) 22,272,730 ordinary shares issuable upon the conversion of the same number of Series A-1 preferred shares, (ii) 8,909,090 ordinary shares issuable upon the conversion of the same number of Series A-2 preferred shares, (iii) 19,797,980 ordinary shares issuable upon the conversion of the same number of Series A-3 preferred shares, (iv) 4,588,600 ordinary shares issuable upon the conversion of the same number of Series B preferred shares, and (v) 10,402,497 ordinary shares issuable upon the conversion of the same number of Series C preferred shares held by Matrix Partners China II Hong Kong Limited, and (vi) ordinary shares that Mr. Zhang is entitled to acquire within 60 days from the date of this prospectus upon exercise of share options held by him under our 2012 Plan. Matrix Partners China II Hong Kong Limited is a limited company incorporated in Hong Kong. Matrix Partners China II Hong Kong Limited is controlled and 90%-owned by Matrix Partners China II, L.P., and the remaining 10% shares is held by Matrix Partners China II-A, L.P. The general partner of Matrix Partners China II, L.P. and Matrix Partners China II-A, L.P. is Matrix China II GP GP, Ltd. The directors of Matrix China II GP GP, Ltd. are David Ying Zhang, Timothy A. Barrows, David Su and Yibo Shao. The business address of Mr. Zhang is Suite 08, 20/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong.

(5)	The business address of Mr. Zhang is 26/F, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong.

(6)	The business address of Mr. Wu is 26/F, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong.

(7)

Represents ordinary shares that Mr. Man is entitled to acquire within 60 days from the date of this prospectus upon exercise of share options held by him under our 2012 Plan. The business address of Mr. Man is Suite 2601, Taikang Financial Tower, No. 38 East Third Ring Road North, Chaoyang, Beijing 100026, People’s Republic of China.

(8)

Represents (i) 2,063,441 ordinary shares issuable upon the conversion of the same number of Series D preferred shares held by Sequoia Capital China Investment Holdco II, Ltd., (ii) 11,348,923 ordinary shares issuable upon the conversion of the same number of Series D preferred shares held by Sequoia Capital China GF Holdco III-A, Ltd., and (iii) 5,158,602 ordinary shares issuable upon the conversion of the same number of Series D preferred shares held by SC China Growth III Co-Investment 2014-A, L.P. Sequoia Capital China Investment Holdco II, Ltd., Sequoia Capital China GF Holdco III-A, Ltd. and SC China Growth III Co-Investment 2014-A, L.P. are herein collectively referred to as the Sequoia Funds. The three Sequoia Funds were formed in the Cayman Islands. Sequoia Capital China Investment Holdco II, Ltd. is owned by Sequoia Capital China Growth Fund I, L.P. The general partner of Sequoia Capital China Growth Fund I, L.P. is Sequoia Capital China Growth Fund Management I, L.P., whose general partner is SC China Holdings Limited, a company incorporated in the Cayman Islands. Sequoia Capital China GF Holdco III-A, Ltd. is owned by Sequoia Capital China Growth Fund III, L.P. The general partner of Sequoia Capital China Growth Fund III, L.P. is SC China Growth III Management, L.P., whose general partner is SC China Holdings Limited. The general partner of SC China Growth III Co-Investment 2014-A, L.P. is SC China Growth III Management L.P., whose general partner is SC China Holdings Limited. SC China Holding Limited is wholly owned by SNP China Enterprises Limited, a company wholly owned by Mr. Shen. The business address of Mr. Shen is Suite 2215, Two Pacific Place, 88 Queensway Road, Hong Kong.

(9)

Represents 18,570,966 ordinary shares issuable upon the conversion of the same number of series Series D preferred shares held by Rich Moon Limited. Rich Moon Limited is 77.8% owned by Yunfeng Fund II, L.P., or YF Fund II, and 22.2% owned by Yunfeng Moon Co-invest, L.P., or YF Moon. The general partner of YF Fund II is Yunfeng Investment II, L.P. and the general partner of YF Moon is Yunfeng Moon Co-Invest GP, Ltd. Both general partners are in turn managed by their general partner, Yunfeng Investment GP II, Ltd. Mr. Yu has the sole power to direct the voting and disposition of shares of our company directly or indirectly held by Yunfeng Investment GP II, Ltd. The business address of Mr. Yu is Suite 2201, 50 Connaught Road Central, Hong Kong.

(10)

Represents (i) ordinary shares that Mr. Lei is entitled to acquire within 60 days from the date of this prospectus upon exercise of share options held by him under our 2012 Plan, and (ii) 9,587,116 ordinary shares held by First Optimal Holdings Limited, a company incorporated in the British Virgin Islands and wholly owned by Mr. Lei. Part of the ordinary shares held by First Optimal Holdings Limited remain subject to our repurchase right pursuant to our third amended and restated shareholders’ agreement dated May 15, 2014. See “Description of Share Capital—History of Securities Issuances—Ordinary Shares.” Pursuant to a shareholder proxy agreement

 

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entered into between Mr. Lei and Mr. Yan Tang on June 11, 2012 and their mutual understanding, Mr. Lei granted Mr. Tang an irrevocable proxy to vote all the shares that he is directly or indirectly entitled to vote as long as Mr. Lei and Mr. Tang still directly or indirectly holds shares in our company.

(11)

Represents 8,028,026 ordinary shares held by Fast Prosperous Holdings Limited, a company incorporated in the British Virgin Islands and wholly owned by Mr. Li. Part of the ordinary shares held by Fast Prosperous Holdings Limited remain subject to our repurchase right pursuant to our third amended and restated shareholders’ agreement dated May 15, 2014. See “Description of Share Capital—History of Securities Issuances—Ordinary Shares.” Pursuant to a shareholder proxy agreement entered into between Mr. Li and Mr. Yan Tang on June 11, 2012 and their mutual understanding, Mr. Li granted Mr. Tang an irrevocable proxy to vote all the shares that he is directly or indirectly entitled to vote as long as Mr. Li and Mr. Tang directly or indirectly hold shares in our company.

(12)	Represents ordinary shares that Mr. Wang has the right to acquire within 60 days from the date of this prospectus upon exercise of share options held by him under our 2012 Plan.

(13)

Represents 96,886,370 ordinary shares, Gallant Future Holdings Limited is a company incorporated in the British Virgin Islands and wholly owned by Mr. Yan Tang. Part of the ordinary shares held by Gallant Future Holdings Limited remain subject to our repurchase right pursuant to our third amended and restated shareholders’ agreement dated May 15, 2014. See “Description of Share Capital—History of Securities Issuances—Ordinary Shares.” Mr. Tang has sole power to direct the voting and disposition of shares of our company directly or indirectly held by Gallant Future Holdings Limited. The registered address of Gallant Future Holdings Limited is Sertus Chambers, P.O. Box 905, Quasticky Building, Road Town, Tortola, British Virgin Islands.

(14)

Represents (i) 60,859,813 ordinary shares issuable upon the conversion of the same number of series B preferred shares, and (ii) 8,001,920 ordinary shares issuable upon the conversion of the same number of series C preferred shares held by Alibaba Investment Limited. Alibaba Investment Limited is a limited liability company incorporated under the laws of the British Virgin Islands, and is wholly owned by Alibaba Group Holding Limited. The registered address of Alibaba Investment Limited is Trident Chambers, P.O. Box 146 Road Town, Tortola, British Virgin Islands.

(15)

Represents (i) 22,272,730 ordinary shares issuable upon the conversion of the same number of series A-1 preferred shares, (ii) 8,909,090 ordinary shares issuable upon the conversion of the same number of series A-2 preferred shares, (iii) 19,797,980 ordinary shares issuable upon the conversion of the same number of series A-3 preferred shares, (iv) 4,588,600 ordinary shares issuable upon the conversion of the same number of series B preferred shares, and (v) 10,402,497 ordinary shares issuable upon the conversion of the same number of series C preferred shares held by Matrix Partners China II Hong Kong Limited. Matrix Partners China II Hong Kong Limited is a limited company incorporated in Hong Kong. Matrix Partners China II Hong Kong Limited is controlled and 90%-owned by Matrix Partners China II, L.P., and the remaining 10% shares is held by Matrix Partners China II-A, L.P. The general partner of Matrix Partners China II, L.P. and Matrix Partners China II-A, L.P. is Matrix China II GP GP, Ltd. The directors of Matrix China II GP GP, Ltd. are David Ying Zhang, Timothy A. Barrows, David Su and Yibo Shao. Mr. Zhang, Mr. Barrows, Mr. Su and Mr. Shao share power to direct the voting and disposition of shares of our company directly or indirectly held by Matrix China II GP GP, Ltd. The registered address of Matrix Partners China II Hong Kong Limited is Suite 3701, 37/F, Jardine House, 1 Connaught Place, Central, Hong Kong.

(16)

Represents 18,570,966 ordinary shares issuable upon the conversion of the same number of series D preferred shares held by Rich Moon Limited. Rich Moon Limited is 77.8% owned by Yunfeng Fund II, L.P., or YF Fund II, and 22.2% owned by Yunfeng Moon Co-invest, L.P., or YF Moon. The general partner of YF Fund II is Yunfeng Investment II, L.P. and the general partner of YF Moon is Yunfeng Moon Co-Invest GP, Ltd. Both general partners are in turn managed by their general partner Yunfeng Investment GP II, Ltd. Mr. Feng Yu has the sole power to direct the voting and disposition of shares of our company directly or indirectly held by Yunfeng Investment GP II, Ltd. The business address of Rich Moon Limited is Suite 2201, 50 Connaught Road Central, Hong Kong.

(17)

Represents (i) 2,063,441 ordinary shares issuable upon the conversion of the same number of series D preferred shares held by Sequoia Capital China Investment Holdco II, Ltd., (ii) 11,348,923 ordinary shares issuable upon the conversion of the same number of series D preferred shares held by Sequoia Capital China GF Holdco III-A, Ltd., and (iii) 5,158,602 ordinary shares issuable upon the conversion of the same number of series D preferred shares held by SC China Growth III Co-Investment 2014-A, L.P. The three Sequoia Funds were formed in the Cayman Islands. Sequoia Capital China Investment Holdco II, Ltd. is owned by Sequoia Capital China Growth Fund I, L.P. The general partner of Sequoia Capital China Growth Fund I, L.P. is Sequoia Capital China Growth Fund Management I, L.P., whose general partner is SC China Holdings Limited, a company incorporated in the Cayman Islands. Sequoia Capital China GF Holdco III-A, Ltd. is owned by Sequoia Capital China Growth Fund III, L.P. The general partner of Sequoia Capital China Growth Fund III, L.P. is SC China Growth III Management, L.P., whose general partner is SC China Holdings Limited. The general partner of SC China Growth III Co-Investment 2014-A, L.P. is SC China Growth III Management L.P., whose general partner is SC China Holdings Limited. SC China Holding Limited is wholly owned by SNP China Enterprises Limited, a company wholly owned by Mr. Neil Nanpeng Shen. Mr. Shen has sole power to direct the voting and disposition of shares of our company directly or indirectly held by SNP China Enterprises Limited. The registered address of the Sequoia Funds is Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.

(18)

Represents 16,846,899 ordinary shares. Joyous Harvest Holdings Limited is a company incorporated in the British Virgin Islands and wholly owned by Mr. Yong Li. Mr. Li has sole power to direct the voting and disposition of shares of our company directly or indirectly held by Joyous Harvest Holdings Limited. The registered address of Joyous Harvest Holdings Limited is Sertus Chambers, P.O. Box 905, Quastiky Building, Road Town, Tortola, British Virgin Islands.

To our knowledge, as of the date of this prospectus, a total of 3,200,768 preferred shares are held by three record holders in the United States, representing 1.0% of our total outstanding shares on an as-converted basis. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. See “Description of Share Capital—History of Securities Issuances” for a description of issuances of our ordinary shares and preferred shares that have resulted in significant changes in ownership held by our major shareholders during the past three years.

 

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RELATED PARTY TRANSACTIONS

Contractual Arrangements with Beijing Momo and Its Shareholders

PRC laws and regulations currently limit foreign ownership of companies that engage in a value-added telecommunications service business in China. As a result, we operate our relevant business through contractual arrangements between Beijing Momo IT, our PRC subsidiary, Beijing Momo and the shareholders of Beijing Momo. For a description of these contractual arrangements, see “Corporate History and Structure—Contractual Arrangements with Beijing Momo.”

Transactions with a Founder, Director and Officer

In 2012, we paid approximately US$1.0 million to Mr. Yan Tang, our co-founder, director and chief executive officer, to acquire 12% equity interest in Smartisan Technology Co., Ltd., a manufacturer of mobile phone hardware and software, on behalf of our company.

In 2013, we extended a personal loan of approximately US$0.2 million to Mr. Yan Tang. This loan was interest-free, unsecured and repayable on demand. As of December 31, 2013, the total outstanding amount of this loan was approximately US$0.2 million. Mr. Tang fully repaid the loan in June 2014.

Private Placements

See “Description of Share Capital—History of Securities Issuances.”

Shareholders Agreement

We entered into our third amended and restated shareholders agreement on May 15, 2014 with our shareholders, which consist of holders of ordinary shares, Series A-1 preferred shares, Series A-2 preferred shares, Series A-3 preferred shares, Series B preferred shares, Series C preferred shares and Series D preferred shares. Under the shareholders agreement, holders of our registrable shares are entitled to registration rights, including demand registration rights, Form F-3 registration rights and piggyback registration rights. For a more detailed description of these registration rights, see “Description of Share Capital—History of Securities Issuances—Registration Rights.”

The shareholders agreement provides that our board of directors will consist of nine directors, including (i) two directors designated by Alibaba Investment Limited, (ii) two directors designated by Matrix Partners China II Hong Kong Limited, (iii) one director designated by the Sequoia Funds, (iv) one director designated by Rich Moon Limited, and (v) three directors designated by Mr. Yan Tang, initially to be Mr. Yan Tang, Mr. Yong Li, and Ms. Sichuan Zhang. Mr. Yan Tang will have five votes for each matter submitted to the board.

The shareholders agreement also provides for certain preferential rights, including information rights, right of first offer, drag-along right, right of first refusal and co-sale right, and veto rights on certain corporate matters. Except for the registration rights, all the preferential rights, as well as the provisions governing the board of directors, will automatically terminate upon the completion of our initial public offering.

Employment Agreements and Indemnification Agreements

See “Management—Employment Agreements and Indemnification Agreements.”

Share Incentive Plan

See “Management—Share Incentive Plan.”

 

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DESCRIPTION OF SHARE CAPITAL

We are a Cayman Islands exempted company with limited liability and our affairs are governed by our memorandum and articles of association and the Companies Law (2013 Revision) of the Cayman Islands, which we refer to as the Companies Law below.

As of the date of this prospectus, the authorized share capital of our company is US$100,000, divided into (i) 799,281,189 Ordinary Shares of US$0.0001 par value each (the “Ordinary Shares”), of which 131,348,411 shares are issued and outstanding, (ii) 22,272,730 redeemable Series A-1 Preferred Shares with par value of US$0.0001 each (the “Series A-1 Preferred Shares”), all of which are issued and outstanding, (iii) 8,909,090 redeemable Series A-2 Preferred Shares with par value of US$0.0001 each (the “Series A-2 Preferred Shares”), all of which are issued and outstanding, (iv) 19,797,980 redeemable Series A-3 Preferred Shares, with par value of US$0.0001 each (the “Series A-3 Preferred Shares”), all of which are issued and outstanding, (v) 70,037,013 redeemable Series B Preferred Shares with par value of US$0.0001 each (the “Series B Preferred Shares”), all of which are issued and outstanding, (vi) 36,008,642 redeemable Series C Preferred Shares with par value each of US$0.0001 (the “Series C Preferred Shares”), all of which are issued and outstanding, and (vii) 43,693,356 redeemable Series D Preferred Shares with par value of US$0.0001 each (the “Series D Preferred Shares”), all of which are issued and outstanding (the Ordinary Shares and all the Preferred Shares are collectively referred to herein as the “Shares”), with power for the Company insofar as is permitted by applicable law and the Articles, to redeem or purchase any of its shares and to increase or reduce the said capital 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. All of our issued Shares are fully paid.

Prior to the adoption of our second amended and restated memorandum of association on June 11, 2012 in connection with our Series A-3 preferred shares financing, each ordinary share was entitled to one vote and each preferred share was entitled the number of votes to which it would be entitled on an as-converted basis. Since June 11, 2012, each ordinary share is entitled to one vote, except that ordinary shares held by our founders or their respective BVI holding companies, as the case may be, and any ordinary shares issued under our 2012 Plan (none issued and outstanding as of the date of this prospectus) will be entitled to five votes in respect of each ordinary share held. The voting rights of holders of our preferred shares remain unchanged.

Our Post-Offering Memorandum and Articles

We expect to adopt, subject to the approval of our shareholders, 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 amended and restated memorandum and articles of association that we expect to adopt 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 amended and restated memorandum and articles of association, the objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the laws of the Cayman Islands.

Ordinary Shares. Our ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our post-offering amended and restated articles of association provide that dividends may be

 

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declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium account or any other fund or account which are legally available for this purpose in accordance with the Companies Law.

Voting Rights. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the votes attaching to the total ordinary shares present in person or by proxy.

A quorum required for a meeting of shareholders consists of one or more shareholders present and holding not less than one-third of the votes of the outstanding voting shares in our company. Shareholders may be present in person or by proxy or, if the shareholder is a legal entity, by its duly authorized representative. Shareholders’ meetings may be convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding no less than one-third of our voting share capital in issue. Advance notice of at least seven days is required for the convening of our annual general shareholders’ meeting and any other general shareholders’ meeting.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the outstanding ordinary shares cast 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 amended and restated memorandum and articles of association. Holders of the ordinary shares may, among other things, divide or combine shares in the capital of our company by ordinary resolution.

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 Global Market/NYSE] may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, after compliance with any notice required of the [NASDAQ Global Market/NYSE], be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.

 

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Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among the holders of ordinary shares shall be distributed among the holders of our ordinary shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.

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 Ordinary Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or by a special resolution of our shareholders. Our company may also repurchase any of our shares provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our memorandum and articles of association. 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 fresh 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 the company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares. The rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series) may be varied with the consent in writing of all the holders of the issued shares of that class or series or with the sanction of a resolution passed by a majority of the votes cast at a separate meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.

Issuance of Additional Shares. Our post-offering amended and restated 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 amended and restated memorandum and articles of association also authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

 

•

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 preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.

Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will

 

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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 preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders; 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.

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).

Register of Members. Under the Companies Law, we must keep a register of members and there should be entered therein:

 

•

the names and addresses of our members, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member;

 

•

the date on which the name of any person was entered on the register as a member; and

 

•

the date on which any person ceased to be a member.

Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter of Cayman Islands

 

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law to have legal title to the shares as set against its name in the register of members. Upon the completion of this offering, the register of members will be immediately updated to record and give effect to the issue of shares by us to the depositary (or its nominee) as the depositary. Once our register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the shares set against their name.

If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company or our company itself) may apply to the Grand Court of the Cayman islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.

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 United Kingdom 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 United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and Similar Arrangements. The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a combined 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 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. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders or 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;

 

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•

the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

 

•

the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a takeover offer is made and accepted by holders of 90% 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 on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and a derivative action may ordinarily not be brought by a minority shareholder. However, based on English authority, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected (and have had occasion) 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, our company to challenge:

 

a)

an act which is ultra vires the company or illegal and is therefore incapable of ratification by the shareholders,

 

b)

an act which constitutes a fraud against the minority where the wrongdoers are themselves in control of the company, or

 

c)

an act which requires a resolution with a qualified (or special) majority (i.e. more than a simple majority) which has not been obtained.

Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our post-offering amended and restated memorandum and articles of association require us to indemnify our officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty, wilful default or fraud of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our post-offering amended and restated memorandum and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the

 

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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 in good faith in the best interests of the company, a duty not to make a personal profit based on his position as 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 act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our post-offering amended and restated articles of association provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.

Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

Cayman Islands 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 articles of association. Our post-offering amended and restated articles of association allow our shareholders holding not less than one-third of all voting power of our share capital in issue to requisition a shareholder’s meeting. Other than this right to requisition a shareholders’ meeting, our post-offering amended and restated articles of association do not provide our shareholders other right to put proposal before a meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings.

Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our post-offering amended and restated

 

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articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our post-offering amended and restated articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders.

Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and for a proper purpose and not with the effect of constituting a fraud on the minority shareholders.

Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.

Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Law and our post-offering amended and restated articles of association, our company may be dissolved, liquidated or wound up by a special resolution of our shareholders, or by an ordinary resolution on the basis that our company is unable to pay its debts as they fall due.

Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our post-offering amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of all the holders of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a general meeting of the holders of the shares of that class.

Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote,

 

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unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our post-offering amended and restated memorandum and articles of association may only be amended with a special resolution of our shareholders.

Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our post-offering amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our post-offering amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

History of Securities Issuances

The following is a summary of our securities issuances in the past three years, which has given effect to a 1-to-10 share split effected on September 12, 2012.

Ordinary Shares

On November 23, 2011, the date of our incorporation, we issued 147,000,000 ordinary shares, to our founders, including 95,550,000 shares to Mr. Yan Tang, 29,400,000 shares to Mr. Yong Li, 11,760,000 ordinary shares to Mr. Xiaoliang Lei, and 10,290,000 ordinary shares to Mr. Zhiwei Li.

On April 3, 2014, Mr. Yan Tang transferred 96,886,370 ordinary shares to Gallant Future Holdings Limited, a BVI company wholly owned by Mr. Yan Tang, Mr, Yong Li transferred 28,954,540 ordinary shares to Joyous Harvest Holdings Limited, a BVI company wholly owned by Mr. Yong Li, Mr. Xiaoliang Lei transferred 11,359,090 ordinary shares to First Optimal Holdings Limited, a BVI company wholly owned by Mr. Xiaoliang Lei, and Mr. Zhiwei Li transferred 9,800,000 ordinary shares to Fast Prosperous Holdings Limited, a BVI company wholly owned by Mr. Zhiwei Li.

On May 15, 2014, as part of our Series D financing, Joyous Harvest Holdings Limited, a BVI company wholly owned by Mr. Yong Li, First Optimal Holdings Limited, a BVI company wholly owned by Mr. Xiaoliang Lei, and Fast Prosperous Holdings Limited, a BVI company wholly owned by Mr. Zhiwei Li, surrendered in aggregate 15,651,589 ordinary shares to our company for no consideration.

Pursuant to the third amended and restated shareholders’ agreement dated May 15, 2014 executed in connection with the private placement of our Series D preferred shares, each of our founders including Messrs. Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li agreed to subject the ordinary shares respectively held by their wholly owned BVI companies, Gallant Future Holdings Limited, Joyous Harvest Holdings Limited, First Optimal Holdings Limited and Fast Prosperous Holdings Limited, to our repurchase rights upon termination of employment of the founders with us. The shares subject to our repurchase rights include 96,886,370 ordinary shares held by Gallant Future Holdings Limited, 16,846,899 ordinary shares held by Joyous Harvest Holdings Limited, 9,587,116 ordinary shares held by First Optimal Holdings Limited and 8,028,026 ordinary shares held by Fast Prosperous Holdings Limited. If a founder terminates his employment or consulting relationship with us before April 17, 2015, we are entitled to repurchase 50% of the shares beneficially owned by such founder through the BVI holding company at a price of US$0.0001 per share or the lowest price permitted under applicable laws. If the termination takes place after April 17, 2015 but before April 17, 2016, we are entitled to repurchase 25% of such shares on the same terms. Our repurchase rights will survive the completion of this initial public offering.

Preferred Shares

On April 18, 2012, we issued and sold 22,272,730 Series A-1 preferred shares to each of Matrix Partners China II Hong Kong Limited, or Matrix Hong Kong, and an individual investor for an aggregate consideration of approximately US$1.0 million. In addition, we issued 8,909,090 Series A-2 preferred shares to Matrix Hong

 

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Kong Limited at the par value of US$0.0001 per share as consideration for services provided by Matrix Hong Kong.

On July 3, 2012, we issued and sold 19,797,980 Series A-3 preferred shares to Matrix Hong Kong for an aggregate consideration of approximately US$4.0 million.

On July 17, 2012, we issued and sold 4,588,600 Series B preferred shares to Matrix Hong Kong for an aggregate consideration of approximately US$1.5 million, 45,885,940 Series B preferred shares to Alibaba Investment Limited for an aggregate consideration of approximately US$15.0 million, and 4,588,600 Series B preferred shares to DST Team Limited for an aggregate consideration of approximately US$1.5 million.

In July 2012, 4,894,500 Series A-1 preferred shares held by an individual investor were redesignated into Series B preferred shares, and then such shares were transferred to Alibaba Investment Limited for a total consideration of approximately US$1.4 million. In January 2013, another 10,079,373 Series A-1 preferred shares held by the same individual investor were redesignated into Series B preferred shares, and then such shares were transferred to Alibaba Investment Limited for a total consideration of approximately US$4.3 million.

On October 21, 2013, we issued and sold 10,402,497 Series C preferred shares to Matrix Hong Kong for an aggregate consideration of approximately US$13.0 million, 800,192 Series C preferred shares to Gothic Partners, L.P. for an aggregate consideration of approximately US$1.0 million, 800,192 Series C preferred shares to PJF Acorn I Trust for an aggregate consideration of approximately US$1.0 million, 1,600,384 Series C preferred shares to Gansett Partners, L.L.C. for an aggregate consideration of approximately US$2.0 million, 4,801,153 Series C preferred shares to PH momo investment Ltd. for an aggregate consideration of approximately US$6.0 million, 1,600,384 Series C preferred shares to Tenzing Holding 2011 Ltd. for an aggregate consideration of approximately US$2.0 million, 8,001,920 Series C preferred shares to Alibaba Investment Limited for an aggregate consideration of approximately US$10.0 million, and 8,001,920 Series C preferred shares to DST Team Fund Limited for an aggregate consideration of approximately US$10.0 million.

On May 15, 2014, we issued and sold 2,063,441 Series D preferred shares to Sequoia Capital China Investment Holdco II, Ltd. for an aggregate consideration of US$10 million, 11,348,923 Series D preferred shares to Sequoia Capital China GF Holdco III-A, Ltd. for an aggregate consideration of US$55 million, 5,158,602 Series D preferred shares to SC China Growth III Co-Investment 2014-A, L.P. for an aggregate consideration of US$25 million, 18,570,966 Series D preferred shares to Rich Moon Limited for an aggregate consideration of US$90 million, and 6,551,424 Series D preferred shares to Tiger Global Eight Holdings for an aggregate consideration of approximately 31.8 million.

Concurrent with the issuance of Series D preferred shares, our board of directors declared a special dividend in favor of Joyous Harvest Holdings Limited, First Optimal Holdings Limited and Fast Prosperous Holdings Limited in the aggregate amount of approximately US$64.5 million. The special dividend was approved by the shareholders.

On May 15, 2014, we repurchased 7,298,857 Series A-1 preferred shares held by the individual investor for an aggregate consideration of approximately US$30.8 million. All the shares repurchased were cancelled on the same date.

Share Split

On September 12, 2012, we effected a 1-to-10 share split, in which each share of par value US$0.001 in our share capital was split into 10 shares, each of par value US$0.0001.

Option Grants

We have granted options to purchase our ordinary shares to certain of our directors, executive officers, employees and consultants.

 

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As of the date of this prospectus, the aggregate number of our ordinary shares underlying our outstanding options is 27,763,526, and none of the options has been exercised. See “Management—Share Incentive Plan.”

Registration Rights

Pursuant to the third amended and restated shareholders agreement that we entered into on May 15, 2014 with all our then shareholders in connection with our issuance of preference shares prior to our initial public offering, we have granted certain registration rights to holders of our registrable securities, which include our ordinary shares issued or to be issuable upon conversion of our preferred shares, ordinary shares issued as a dividend for our preferred shares, or any other ordinary shares thereafter owned or acquired by purchasers of our preferred shares in our pre-IPO private placements, subject to certain exceptions. Set forth below is a description of the registration rights granted under the agreement.

Demand Registration Rights. Holders of at least 10% of registrable securities have the right to demand in writing, at any time after the effectiveness of a registration statement for this initial public offering, that we file a registration statement to register their registrable securities and other holders of registrable securities who choose to participate in the offering. We, however, are not obligated to effect a demand registration if we have already effected (i) two demand registrations or (ii) one registration pursuant to the same demand registration rights or the F-3 registration rights within the six-month period preceding the date of such request. We have the right to defer the filing of a registration statement up to 90 days if our board of directors determines in good faith that the registration at such time would be materially detrimental to us and our shareholders, provided that we may not utilize this right more than twice in any 12-month period.

Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written request from the holders of at least 10% of the registrable securities then outstanding, we must file a registration statement on Form F-3 covering the offer and sale of the registrable securities by the requesting shareholders and other holders of registrable securities who choose to participate in the offering. There is no limit on the number of the registration made pursuant to this registration right. We, however, are not obligated to effect such registration if, among other things, (i) the aggregate anticipated price of such offering is less than US$1,000,000, or (ii) we have, within six months period preceding the date of such request, already effected a registration pursuant to an exercise of demand registration rights or piggyback registration rights. We may defer filing of a registration statement on Form F-3 no more than once during any twelve month period for up to 60 days if our board of directors determines in good faith that filing such registration statement will be materially detrimental to us and our shareholders.

Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities other than relating to a demand registration right, F-3 registration right, an employee benefit plan or a corporate reorganization, then we must offer holders of registrable securities an opportunity to include in this registration all or any part of their registrable securities. The underwriters of any underwritten offering may in good faith allocate the shares to be included in the registration statement first to us, and second to each requesting holder of registrable securities on a pro rata basis, subject to certain limitations.

Expenses of Registration. We will pay all registration expenses and all participating holders of registrable securities will pay the underwriting discounts and selling commissions relating to any demand, Form F-3, or piggyback registration. However, we are not obligated to pay any expenses relating to a demand registration if the registration request is subsequently withdrawn at the request of holders of a majority of the registrable securities to be registered, subject to certain exceptions.

Termination of Obligations. The registration rights set forth above shall terminate on the earlier of (i) the date that is five years after the completion of this initial public, (ii) the date of the completion of a liquidation event, or (iii) as to any holder of registrable securities, the time when all registrable securities held by such holder may be sold in any three-month period without restriction pursuant to Rule 144 under the Securities Act.

 

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Receipts

        , as depositary will issue the ADSs which you will be entitled to receive in this offering. Each ADS will represent an ownership interest in         ordinary shares which we will deposit with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary and yourself as an ADR holder. In the future, each ADS will also represent any securities, cash or other property deposited with the depositary but which they have not distributed directly to you. Unless specifically requested by you, all ADSs will be issued on the books of our depositary in book-entry form and periodic statements will be mailed to you which reflect your ownership interest in such ADSs. In our description, references to American depositary receipts or ADRs shall include the statements you will receive which reflect your ownership of ADSs.

The depositary’s office is located at         .

You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. You should consult with your broker or financial institution to find out what those procedures are.

As an ADR holder, we will not treat you as a shareholder of ours and you will not have any shareholder rights. Cayman Islands law governs shareholder rights. Because the depositary or its nominee will be the shareholder of record for the shares represented by all outstanding ADSs, shareholder rights rest with such record holder. Your rights are those of an ADR holder. Such rights derive from the terms of the deposit agreement to be entered into among us, the depositary and all registered holders from time to time of ADSs issued under the deposit agreement. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the depositary or its nominee will actually be the registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf. The deposit agreement and the ADSs are governed by New York law.

The following is a summary of what we believe to be the material terms of the deposit agreement. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. You can read a copy of the deposit agreement which is filed as an exhibit to the registration statement of which this prospectus forms apart. You may also obtain a copy of the deposit agreement at the SEC’s Public Reference Room which is located at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. You may also find the registration statement and the attached deposit agreement on the SEC’s website at http://www.sec.gov.

Share Dividends and Other Distributions

How will I receive dividends and other distributions on the shares underlying my ADSs?

We may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable, it will pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after converting any cash received into U.S. dollars and, in all cases, making any necessary deductions provided for in the deposit agreement. You will receive these distributions in proportion to the number of underlying securities that your ADSs represent.

 

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Except as stated below, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following manner:

 

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Cash. The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain registered ADR holders, and (iii) deduction of the depositary’s expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. The depositary will hold any cash amounts it is unable to distribute in a non-interest-bearing account for the benefit of the applicable holders and beneficial owners of ADSs until the distribution can be effected or the funds that the depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States. If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution.

 

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Shares. In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the ADR holders entitled thereto.

 

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Rights to Receive Additional Shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we provide evidence satisfactory to the depositary that it may lawfully distribute such rights, the depositary will distribute warrants or other instruments in the discretion of the depositary representing such rights. However, if we do not furnish such evidence, the depositary may:

 

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sell such rights if practicable and distribute the net proceeds in the same manner as cash to the ADR holders entitled thereto; or

 

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if it is not practicable to sell such rights, do nothing and allow such rights to lapse, in which case ADR holders will receive nothing.

We have no obligation to file a registration statement under the Securities Act in order to make any rights available to ADR holders.

 

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Other Distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities or property in any manner it deems equitable and practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be equitable and practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash.

If the depositary determines that any distribution described above is not practicable with respect to any specific registered ADR holder, the depositary may choose any method of distribution that it deems practicable for such ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADR holder as deposited securities, in which case the ADSs will also represent the retained items.

Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the depositary in accordance with its then current practices.

 

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The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders.

There can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified time period.

Deposit, Withdrawal and Cancellation

How does the depositary issue ADSs?

The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian and pay the fees and expenses owing to the depositary in connection with such issuance. In the case of the ADSs to be issued under this prospectus, we will arrange with the underwriters named herein to deposit such shares.

Shares deposited in the future with the custodian must be accompanied by certain delivery documentation and shall, at the time of such deposit, be registered in the name of, as depositary for the benefit of holders of ADRs or in such other name as the depositary shall direct.

The custodian will hold all deposited shares (including those being deposited by or on our behalf in connection with the offering to which this prospectus relates) for the account of the depositary. ADR holders thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as “deposited securities”.

Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs in the name or upon the order of the person entitled thereto evidencing the number of ADSs to which such person is entitled. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositary’s direct registration system, and a registered holder will receive periodic statements from the depositary which will show the number of ADSs registered in such holder’s name. An ADR holder can request that the ADSs not be held through the depositary’s direct registration system and that a certificated ADR be issued.

How do ADR holders cancel an ADS and obtain deposited securities?

When you turn in your ADR certificate at the depositary’s office, or when you provide proper instructions and documentation in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares to you or upon your written order. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request.

The depositary may only restrict the withdrawal of deposited securities in connection with:

 

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temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends;

 

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the payment of fees, taxes and similar charges; or

 

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compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities.

This right of withdrawal may not be limited by any other provision of the deposit agreement.

 

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Record Dates

The depositary may, after consultation with us if practicable, fix record dates for the determination of the registered ADR holders who will be entitled (or obligated, as the case may be):

 

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to receive any distribution on or in respect of shares,

 

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to give instructions for the exercise of voting rights at a meeting of holders of shares,

 

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to pay the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR, or

 

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to receive any notice or to act in respect of other matters

all subject to the provisions of the deposit agreement.

Voting Rights

How do I vote?

If you are an ADR holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares which underlie your ADSs. As soon as practicable after receiving notice of any meeting or solicitation of consents or proxies from us, the depositary will distribute to the registered ADR holders a notice stating such information as is contained in the voting materials received by the depositary and describing how you may instruct the depositary to exercise the voting rights for the shares which underlie your ADSs. For instructions to be valid, the depositary must receive them in the manner and on or before the date specified. No voting instructions may be deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. The depositary will try, as far as is practical, subject to the provisions of and governing the underlying shares or other deposited securities, to vote or to have its agents vote the shares or other deposited securities as you instruct. The depositary will only vote or attempt to vote as you instruct. The depositary will not itself exercise any voting discretion. Furthermore, neither the depositary nor its agents are responsible for any failure to carry out any voting instructions, for the manner in which any vote is cast or for the effect of any vote. Notwithstanding anything contained in the deposit agreement or any ADR, the depositary may, to the extent not prohibited by law or regulations, or by the requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of deposited securities, distribute to the registered holders of ADRs a notice that provides such holders with, or otherwise publicizes to such holders, instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).

Under our constituent documents the depositary would be able to provide us with voting instructions without having to personally attend meetings in person or by proxy. Such voting instructions may be provided to us via facsimile, email, mail, courier or other recognized form of delivery and we agree to accept any such delivery so long as it is timely received prior to the meeting. We will endeavor to provide the depositary with written notice of each meeting of shareholders promptly after determining the date of such meeting so as to enable it to solicit and receive voting instructions. In general, the depositary will require that voting instructions be received by the depositary no less than five business days prior to the date of each meeting of shareholders. Under the post-offering memorandum and articles of association that we expect to adopt, the minimum notice period required to convene a general meeting is seven days. The depositary may not have sufficient time to solicit voting instructions, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

Notwithstanding the above, we have advised the depositary that under the Cayman Islands law and our constituent documents, each as in effect as of the date of the deposit agreement, voting at any meeting of

 

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shareholders is by show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with our constituent documents, the depositary will refrain from voting and the voting instructions (or the deemed voting instructions, as set out above) received by the depositary from holders shall lapse. The depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by holders of ADSs.

There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

Reports and Other Communications

Will ADR holders be able to view our reports?

The depositary will make available for inspection by ADR holders at the offices of the depositary and the custodian the deposit agreement, the provisions of or governing deposited securities, and any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities.

Additionally, if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English translations or summaries) to the depositary, it will distribute the same to registered ADR holders.

Fees and Expenses

What fees and expenses will I be responsible for paying?

The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.

The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering ADSs or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADSs), whichever is applicable:

 

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a fee of $             per ADR or ADRs for transfers of certificated or direct registration ADRs;

 

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a fee of up to $             per ADS for any cash distribution made pursuant to the deposit agreement;

 

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a fee of up to $             per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision);

 

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reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of the depositary’s agents (including, without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or

 

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regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (which charge shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions);

 

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a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares and there would be a fee of five cents per ADS outstanding);

 

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stock transfer or other taxes and other governmental charges;

 

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cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares;

 

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transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; and

 

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expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars.

We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The charges described above may be amended from time to time by agreement between us and the depositary.

Our depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program, including investor relations expenses and exchange application and listing fees. Neither the depositary nor we can determine the exact amount to be made available to us because (i) the number of ADSs that will be issued and outstanding, (ii) the level of fees to be charged to holders of ADSs and (iii) our reimbursable expenses related to the ADR program are not known at this time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any further services to holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary.

Payment of Taxes

ADR holders must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If an ADR holder owes any tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell deposited securities (by public or private sale) and deduct the amount owing from the net proceeds of such sale. In either case the ADR holder remains liable for any shortfall. Additionally, if any taxes or other governmental charges (including any penalties and/or interest) shall become payable by or on behalf of the custodian or the depositary with respect to any ADR, any deposited securities represented by the ADSs evidenced thereby or any distribution thereon, including, without limitation, any Chinese Enterprise Income Tax owing if the Circular Guoshuifa [2009] No. 82 issued by the Chinese State Administration of Taxation or any other circular, edict, order or ruling, as issued and as from time to time amended, is applied or otherwise, such tax or other governmental charge shall

 

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be paid by the holder thereof to the depositary. and by holding or having held an ADR the holder and all prior holders thereof, jointly and severally, agree to indemnify, defend and save harmless each of the depositary and its agents in respect thereof. If any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited securities until such payment is made. If any tax or governmental charge is required to be withheld on any cash distribution, the depositary may deduct the amount required to be withheld from any cash distribution or, in the case of a non-cash distribution, sell the distributed property or securities (by public or private sale) to pay such taxes and distribute any remaining net proceeds to the ADR holders entitled thereto.

By holding an ADR or an interest therein, you will be agreeing to indemnify us, the depositary, its custodian and any of our or their respective directors, employees, agents and affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.

Reclassifications, Recapitalizations and Mergers

If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or (ii) any distributions not made to holders of ADRs or (iii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to:

 

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amend the form of ADR;

 

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distribute additional or amended ADRs;

 

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distribute cash, securities or other property it has received in connection with such actions;

 

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sell any securities or property received and distribute the proceeds as cash; or

 

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none of the above.

If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property.

Amendment and Termination

How may the deposit agreement be amended?

We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. ADR holders must be given at least 30 days’ notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADR holders. Such notice need not describe in detail the specific amendments effectuated thereby, but must give ADR holders a means to access the text of such amendment. If an ADR holder continues to hold an ADR or ADRs after being so notified, such ADR holder is deemed to agree to such amendment and to be bound by the deposit agreement as so amended. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit agreement or the form of ADR to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any time in accordance with such changed laws, rules or regulations, which amendment or supplement may take effect before a notice is given or within any other period of time as required for compliance. No amendment, however, will impair your right to surrender your ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law.

 

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How may the deposit agreement be terminated?

The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of ADRs at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders unless a successor depositary shall not be operating under the deposit agreement within 45 days of the date of such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders of ADRs unless a successor depositary shall not be operating under the deposit agreement on the 90th day after our notice of removal was first provided to the depositary. After termination, the depositary’s only responsibility will be (i) to deliver deposited securities to ADR holders who surrender their ADRs, and (ii) to hold or sell distributions received on deposited securities. As soon as practicable after the expiration of six months from the termination date, the depositary will sell the deposited securities which remain and hold the net proceeds of such sales (as long as it may lawfully do so), without liability for interest, in trust for the ADR holders who have not yet surrendered their ADRs. After making such sale, the depositary shall have no obligations except to account for such proceeds and other cash.

Limitations on Obligations and Liability to ADS Holders

Limits on our obligations and the obligations of the depositary; limits on liability to ADR holders and holders of ADSs

Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADRs, or the delivery of any distribution in respect thereof, and from time to time, we or the depositary or its custodian may require:

 

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payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the deposit agreement;

 

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the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADRs, as it may deem necessary or proper; and

 

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compliance with such regulations as the depositary may establish consistent with the deposit agreement.

The issuance of ADRs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADRs or the withdrawal of shares, may be suspended, generally or in particular instances, when the ADR register or any register for deposited securities is closed or when any such action is deemed advisable by the depositary; provided that the ability to withdrawal shares may only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of the depositary or our transfer books or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes, and similar charges, and (iii) compliance with any laws or governmental regulations relating to ADRs or to the withdrawal of deposited securities.

The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents. Neither we nor the depositary nor any such agent will be liable if:

 

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any present or future law, rule, regulation, fiat, order or decree of the United States, the Cayman Islands, the People’s Republic of China or any other country, or of any governmental or regulatory authority or securities exchange or market or automated quotation system, the provisions of or

 

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governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism or other circumstance beyond our, the depositary’s or our respective agents’ control shall prevent or delay, or shall cause any of them to be subject to any civil or criminal penalty in connection with, any act which the deposit agreement or the ADRs provide shall be done or performed by us, the depositary or our respective agents (including, without limitation, voting);

 

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it exercises or fails to exercise discretion under the deposit agreement or the ADR;

 

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it performs its obligations under the deposit agreement and ADRs without gross negligence or bad faith;

 

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it takes any action or refrains from taking any action in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information; or

 

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it relies upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.

Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADRs, any ADRs or otherwise related to the deposit agreement or ADRs to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators. The depositary shall not be liable for the acts or omissions made by any securities depository, clearing agency or settlement system in connection with or arising out of book-entry settlement of deposited securities or otherwise. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of         . The depositary and the custodian(s) may use third party delivery services and providers of information regarding matters such as pricing, proxy voting, corporate actions, class action litigation and other services in connection with the ADRs and the deposit agreement, and use local agents to provide extraordinary services such as attendance at annual meetings of issuers of securities. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services.

Additionally, none of us, the depositary or the custodian shall be liable for the failure by any registered holder of ADRs or beneficial owner therein to obtain the benefits of credits on the basis of non-U.S. tax paid against such holder’s or beneficial owner’s income tax liability. Neither we nor the depositary shall incur any liability for any tax consequences that may be incurred by holders or beneficial owners on account of their ownership of ADRs or ADSs.

Neither the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any such vote is cast or for the effect of any such vote. Neither the depositary nor any of its agents shall be liable to registered holders of ADRs or beneficial owners of interests in ADSs for any indirect, special, punitive or consequential damages (including, without limitation, lost profits) of any form incurred by any person or entity, whether or not foreseeable and regardless of the type of action in which such a claim may be brought.

In the deposit agreement each party thereto (including, for avoidance of doubt, each holder and beneficial owner and/or holder of interests in ADRs) irrevocably waives, to the fullest extent permitted by applicable law,

 

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any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or the company directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory).

The depositary may own and deal in any class of our securities and in ADSs.

Disclosure of Interest in ADSs

To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of deposited securities, other shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, you agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect thereof. We reserve the right to instruct you to deliver your ADSs for cancellation and withdrawal of the deposited securities so as to permit us to deal with you directly as a holder of shares and, by holding an ADS or an interest therein, you will be agreeing to comply with such instructions.

Books of Depositary

The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs, which register shall include the depositary’s direct registration system. Registered holders of ADRs may inspect such records at the depositary’s office at all reasonable times, but solely for the purpose of communicating with other holders in the interest of the business of our company or a matter relating to the deposit agreement. Such register may be closed from time to time, when deemed expedient by the depositary.

The depositary will maintain facilities for the delivery and receipt of ADRs.

Pre-release of ADSs

In its capacity as depositary, the depositary shall not lend shares or ADSs; provided, however, that the depositary may issue ADSs prior to the receipt of shares (each such transaction a “pre-release”). The depositary may receive ADSs in lieu of shares (which ADSs will promptly be canceled by the depositary upon receipt by the depositary). Each such pre-release will be subject to a written agreement whereby the person or entity (the “applicant”) to whom ADSs are to be delivered (a) represents that at the time of the pre-release the applicant or its customer owns the shares that are to be delivered by the applicant under such pre-release, (b) agrees to indicate the depositary as owner of such shares in its records and to hold such shares in trust for the depositary until such shares are delivered to the depositary or the custodian, (c) unconditionally guarantees to deliver to the depositary or the custodian, as applicable, such shares, and (d) agrees to any additional restrictions or requirements that the depositary deems appropriate. Each such pre-release will be at all times fully collateralized with cash, U.S. government securities or such other collateral as the depositary deems appropriate, terminable by the depositary on not more than five (5) business days’ notice and subject to such further indemnities and credit regulations as the depositary deems appropriate. The depositary will normally limit the number of ADSs involved in such pre-release at any one time to thirty percent (30%) of the ADSs outstanding (without giving effect to pre-released ADSs outstanding), provided, however, that the depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The depositary may also set limits with respect to the number of ADSs involved in pre-release with any one person on a case-by-case basis as it deems appropriate. The depositary may retain for its own account any compensation received by it in conjunction with the foregoing. Collateral provided in connection with pre-release transactions, but not the earnings thereon, shall be held for the benefit of the registered holders of ADRs (other than the applicant).

 

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Appointment

In the deposit agreement, each registered holder of ADRs and each person holding an interest in ADSs, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the deposit agreement will be deemed for all purposes to:

 

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be a party to and bound by the terms of the deposit agreement and the applicable ADR or ADRs, and

 

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appoint the depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the deposit agreement and the applicable ADR or ADRs, to adopt any and all procedures necessary to comply with applicable laws and to take such action as the depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the deposit agreement and the applicable ADR and ADRs, the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof.

Governing Law

The deposit agreement and the ADRs shall be governed by and construed in accordance with the laws of the State of New York. In the deposit agreement, we have submitted to the jurisdiction of the courts of the State of New York and appointed an agent for service of process on our behalf. Notwithstanding the foregoing, any action based on the deposit agreement or the transactions contemplated thereby may be instituted by the depositary and holders in any competent court in the Cayman Islands, Hong Kong, the People’s Republic of China and/or the United States or through the commencement of an English language arbitration either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).

 

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SHARES ELIGIBLE FOR FUTURE SALES

Upon completion of this offering, we will have         ADSs outstanding, representing approximately         % of our outstanding ordinary shares. All of the ADSs sold in this offering will be freely transferable by persons other than by our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs. We intend to apply to list the ADSs on the         , 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 ADSs or securities that are substantially similar to our ordinary shares or ADSs, including but not limited to any options or warrants to purchase our ordinary shares, ADSs or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ordinary shares, ADSs or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreement was executed),] without the prior written consent of the representatives of the underwriters.

Furthermore, [each of our directors, executive officers and existing shareholders] has also entered into a similar lock-up agreement for a period of 180 days from the date of this prospectus, subject to certain exceptions, with respect to our ordinary shares, ADSs and securities that are substantially similar to our ordinary shares or ADSs. [These restrictions also apply to any ADSs acquired by our directors and executive officers in the offering pursuant to the directed share program, if any.] These parties collectively own [all of] our outstanding ordinary shares, without giving effect to this offering.

The restrictions described in the preceding paragraphs will be automatically extended under certain circumstances. See “Underwriting.”

Other than this offering, we are not aware of any plans by any significant shareholders to dispose of significant numbers of our ADSs or ordinary shares. However, one or more existing shareholders or owners of securities convertible or exchangeable into or exercisable for our ADSs or ordinary shares may dispose of significant numbers of our ADSs or ordinary shares in the future. We cannot predict what effect, if any, future sales of our ADSs or ordinary shares, or the availability of ADSs or ordinary shares for future sale, will have on the trading price of our ADSs from time to time. Sales of substantial amounts of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could adversely affect the trading price of our ADSs.

Regulation S

Regulation S under the Securities Act provides an exemption from registration requirements in the United States for offers and sales of securities that occur outside the United States. Rule 903 of Regulation S provides the conditions to the exemption for a sale by an issuer, a distributor, their respective affiliates or anyone acting on their behalf, while Rule 904 of Regulation S provides the conditions to the exemption for a resale by persons other than those covered by Rule 903. In each case, any sale must be completed in an offshore transaction, as that term is defined in Regulation S, and no directed selling efforts, as that term is defined in Regulation S, may be made in the United States.

We are a foreign issuer as defined in Regulation S. As a foreign issuer, securities that we sell outside the United States pursuant to Regulation S are not considered to be restricted securities under the Securities Act, and are freely tradable without registration or restrictions under the Securities Act, unless the securities are held by our affiliates. Generally, subject to certain limitations, holders of our restricted shares who are not our affiliates

 

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or who are our affiliates solely by virtue of their status as an officer or director of us may, under Regulation S, resell their restricted shares in an “offshore transaction” if none of the seller, its affiliate nor any person acting on their behalf engages in directed selling efforts in the United States and, in the case of a sale of our restricted shares by an officer or director who is an affiliate of us solely by virtue of holding such position, no selling commission, fee or other remuneration is paid in connection with the offer or sale other than the usual and customary broker’s commission that would be received by a person executing such transaction as agent. Additional restrictions are applicable to a holder of our restricted shares who will be an affiliate of us other than by virtue of his or her status as an officer or director of us.

We are not claiming the potential exemption offered by Regulation S in connection with the offering of newly issued shares outside the United States and will register all of the newly issued shares under the Securities Act.

Rule 144

All of our ordinary shares that will be outstanding upon the completion of this offering, other than those ordinary shares sold in this offering, are “restricted securities” as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as those provided by Rule 144 and Rule 701 promulgated under the Securities Act. In general, beginning 90 days after the date of this prospectus, a person (or persons whose shares are aggregated) who at the time of a sale is not, and has not been during the three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months will be entitled to sell the restricted securities without registration under the Securities Act, subject only to the availability of current public information about us, and will be entitled to sell restricted securities beneficially owned for at least one year without restriction. Persons who are our affiliates and have beneficially owned our restricted securities for at least six months may sell a number of restricted securities within any three-month period that does not exceed the greater of the following:

 

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1% of the then outstanding ordinary shares of the same class, in the form of ADSs or otherwise, which immediately after this offering will equal         ordinary shares, assuming the underwriters do not exercise their over-allotment option; or

 

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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.

Assuming there is no change to our register of members between the date of this prospectus and the expiration of the lock-up agreements (other than to give effect to this offering), we expect that as of the date of expiration of the lock-up agreements,          ordinary shares will be available for sale under Rule 144 by our current affiliates (subject to volume and manner of sale limitations under Rule 144) and          ordinary shares will be available for sale under Rule 144 by our current non-affiliates.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our ordinary shares from us in connection with a compensatory stock plan or other written agreement executed prior to the completion of this offering is eligible to resell those ordinary shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

 

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TAXATION

The following summary of the material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this registration statement, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Maples and Calder, our special Cayman Islands counsel; to the extent it relates to PRC tax law, it is the opinion of Han Kun Law Offices, our special 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.

People’s Republic of China Taxation

Under the PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income.

On April 22, 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, on July 27, 2011, the SAT issued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, to provide more guidance on the implementation of SAT Circular 82; the bulletin became effective on September 1, 2011. SAT Bulletin 45 clarified certain issues in the areas of resident status determination, post-determination administration and competent tax authorities procedures. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered as a PRC tax resident enterprise by virtue of having its “de facto management body” in China only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT’s general position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.

We do not believe Momo Inc. meets all of the criteria described above. We believe that none of Momo Inc. and its subsidiaries outside of China is a PRC tax resident enterprise, because none of them is controlled by a

 

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PRC enterprise or PRC enterprise group, and because their records (including the resolutions of its board of directors and the resolutions of shareholders) are maintained outside the PRC. However, as 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” when applied to our offshore entities, we may be considered as a resident enterprise and may therefore be subject to PRC enterprise income tax at 25% on our global income. In addition, if the PRC tax authorities determine that our company is a PRC resident enterprise for PRC enterprise income tax purposes, dividends paid by us to non-PRC holders may be subject to PRC withholding tax, and gains realized on the sale or other disposition of ADSs or ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such dividends or gains are deemed to be from PRC sources. Any such tax may reduce the returns on your investment in the ADSs.

If we are considered a “non-resident enterprise” by the PRC tax authorities, the dividends paid to us by our PRC subsidiaries will be subject to a 10% withholding tax. The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an foreign invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where our Company is incorporated does not have such tax treaty with China. Our US subsidiary is not an immediate holding company of any of our PRC Subsidiaries. Under the Arrangement Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, the dividend withholding tax rate may be reduced to 5%, if a Hong Kong resident enterprise that receives a dividend is considered a non-PRC tax resident enterprise and holds at least 25% of the equity interests in the PRC enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong resident enterprise is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividends may remain subject to withholding tax at a rate of 10%. Accordingly, Momo Technology HK Company Limited may be able to enjoy the 5% withholding tax rate for the dividends it receives from its PRC subsidiaries if it satisfies the relevant conditions under tax rules and regulations, and obtains the approvals as required.

United States Federal Income Tax Considerations

The following discussion is a summary of United States federal income tax considerations relating to the acquisition, ownership and disposition of our ADSs or ordinary shares by a U.S. Holder (as defined below) that acquires our ADSs in this offering and holds our ADSs as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing United States federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not discuss all aspects of United States federal income taxation that may be important to particular investors in light of their individual investment circumstances, including investors subject to special tax rules (including for example, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, tax-exempt organizations (including private foundations), holders who are not U.S. Holders, holders who own (directly, indirectly or constructively) 10% or more of our voting stock, holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation, investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for United States federal income tax purposes, or investors that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those discussed below). This discussion, moreover, does not address the United States federal

 

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estate and gift tax or alternative minimum tax consequences of the acquisition or ownership of our ADSs or ordinary shares or the Medicare tax on net investment income. Each U.S. Holder is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in our ADSs or ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the law of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a United States person under the Code.

If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding an investment in our ADSs or ordinary shares.

For United States federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to United States federal income tax. The United States Treasury has expressed concerns that parties to whom American depositary shares are released before shares are delivered to the depositary (a “pre-release transaction”), or intermediaries in the chain of ownership between holders of American depositary shares and the issuer of the security underlying the American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of American depositary shares. These actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of any PRC taxes, and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries in respect of a pre-release transaction.

Passive Foreign Investment Company Considerations

A non-United States corporation, such as our company, will be classified as a PFIC, for United States federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as a passive asset and the company’s goodwill and other unbooked intangibles 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 Beijing Momo as being owned by us for United States federal income tax purposes, because we control its management decisions and we are entitled to substantially all of the economic benefits associated with this entity, and, as a result, we consolidate the results of its operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we do

 

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not own the stock of Beijing Momo for United States federal income tax purposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year.

Based upon our current and projected income and assets, including the proceeds from this offering, and projections as to the value of our assets, based in part on the market value of our ADSs immediately following this offering, we do not expect to be a PFIC for the current taxable year or in the foreseeable future. While we do not anticipate being 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. In addition, the composition of our income and our assets will be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

Furthermore, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income or assets as non-passive, or our valuation of our goodwill and other unbooked intangibles, each of which may result in our company becoming classified as a PFIC for the current or subsequent taxable years. For example, the IRS may challenge the classification of certain of our non-passive revenues as passive royalty income, which would result in a portion of our goodwill as being treated as a passive asset. Because determination of PFIC status is a fact-intensive inquiry made on an annual basis and will depend upon the composition of our assets and income, and the continued existence of our goodwill at that time, no assurance can be given that we are not or will not become classified as a PFIC. Our special United States counsel expresses no opinion with respect to our PFIC status and also expresses no opinion with respect to our expectations regarding our PFIC status. If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares.

The discussion below under “—Dividends” and “—Sale or Other Disposition of ADSs or Ordinary Shares” is written on the basis that we will not be classified as a PFIC for United States federal income tax purposes. The United States federal income tax rules that apply if we are treated as a PFIC are generally discussed below under “—Passive Foreign Investment Company Rules.”

Dividends

Subject to the discussion below under “—Passive Foreign Investment Company Rules,” any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution we pay will generally be treated as a “dividend” for United States federal income tax purposes. A non-corporate U.S. Holder will be subject to tax on dividend income from a “qualified foreign corporation” at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period requirements are met. A non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market in the United States. We intend to apply to list the ADSs on the [NASDAQ Global Market/NYSE]. Provided the listing is approved on the [NASDAQ Global Market/NYSE], which is an established securities market in the United States, the ADSs are expected to be readily tradable. Thus, the dividends we pay on our ADSs are expected to satisfy the conditions required for the

 

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reduced tax rates. Since we do not expect that our ordinary shares will be listed on an established securities market, it is unclear whether dividends that we pay on our ordinary shares that are not represented by ADSs will meet the conditions required for the reduced tax rate. There can be no assurance that our ADSs will continue to be considered readily tradable on an established securities market in later years. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations.

In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid on our ADSs or ordinary shares. We may, however, be eligible for the benefits of the United States-PRC income tax treaty. If we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by the ADSs, would be eligible for the reduced rates of taxation described in the preceding paragraph.

Dividends will generally be treated as income from foreign sources for United States foreign tax credit purposes and will generally constitute passive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit not in excess of any applicable treaty rate in respect of any foreign withholding taxes imposed on dividends received on our ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Sale or Other Disposition of ADSs or Ordinary Shares

Subject to the discussion below under “—Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term if the ADSs or ordinary shares have been held for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are currently eligible for reduced rates taxation. In the event that gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC, such gain may be treated as PRC source gain under the United States-PRC income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.

Passive Foreign Investment Company Rules

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including a pledge, of ADSs or ordinary shares. Under the PFIC rules:

 

•

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;

 

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•

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; and

 

•

the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock, provided that such stock is “regularly traded” within the meaning of applicable United States Treasury regulations. For those purposes, our ADSs, but not our ordinary shares will be treated as marketable stock upon their listing on the [NASDAQ Global Market/NYSE]. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.

Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income tax purposes.

We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.

If a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621 or such other form as is required by the United States Treasury Department. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of purchasing, holding and disposing ADSs or ordinary shares if we are or become treated as a PFIC, including the possibility of making a mark-to-market election, the “deemed sale” and “deemed dividend” elections and the unavailability of the election to treat us as a qualified electing fund.

Information Reporting

Certain U.S. Holders are required to report information to the IRS relating to an interest in “specified foreign financial assets,” including shares issued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds US$50,000 (or a higher dollar amount prescribed

 

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by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a United States financial institution). These rules also impose penalties if a U.S. Holder is required to submit such information to the IRS and fails to do so.

In addition, U.S. Holders may be subject to information reporting to the IRS with respect to dividends on and proceeds from the sale or other disposition of our ADSs or ordinary shares. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the United States information reporting rules to their particular circumstances.

 

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. International plc, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and China Renaissance Securities Hong Kong Limited are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of ADSs indicated below:

 

Name		Number of ADSs
Morgan Stanley & Co. International plc
Credit Suisse Securities (USA) LLC
J.P. Morgan Securities LLC
China Renaissance Securities (Hong Kong) 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 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, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and the independent accountants. 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. The underwriters are not required, however, to take or pay for the ADSs covered by the underwriters’ over-allotment option to purchase additional ADSs described below. Any offers or sales of the ADSs in the United States will be conducted by registered broker-dealers in the United States. China Renaissance Securities (Hong Kong) Limited will offer ADSs in the United States through its registered broker-dealer affiliate in the United States, China Renaissance Securities (US) Inc., acting as agent pursuant to a Rule 15a-6 agreement.

The underwriters initially propose to offer part of the ADSs directly to the public at the initial public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of US$             per ADS under the initial public offering price. 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 have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of              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 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 in the preceding table. If the underwriters’ option is exercised in full, the total price to the public would be US$            , the total underwriters’ discounts and commissions would be US$             and the total proceeds to us (before expenses) would be US$            .

The table below shows the per ADS and total underwriting discounts and commissions that we will pay to the underwriters. The underwriting discounts and commissions are determined by negotiations among us and the underwriters and are a percentage of the offering price to the public. Among the factors considered in determining the discounts and commissions are the size of the offering, the nature of the security to be offered and the discounts and commissions charged in comparable transactions.

 

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These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional              ADSs.

 

Underwriting Discounts and Commissions		No Exercise				Full Exercise
Per ADS		US$				US$
Total by us		US$				US$
[Total by selling shareholders]		US$				US$

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of ADSs offered by them.

The total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately US$             million. Expenses include the SEC and the Financial Industry Regulatory Authority, or FINRA, filing fees, the [NASDAQ Global Market /NYSE] listing fee, and printing, legal, accounting and miscellaneous expenses.

We have applied for approval for listing the ADSs on [NASDAQ Global Market /NYSE] under the symbol “         .”

We have agreed that, without the prior written consent of the representatives, subject to certain exceptions, we and they will not, during the period ending 180 days after the date of this prospectus:

 

•

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;

 

•

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; or

 

•

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),

whether any such transaction described above is to be settled by delivery of ordinary shares, ADSs, or such other securities, in cash or otherwise.

Our directors, executive officers, existing shareholders and [certain option holders] have agreed that, without the prior written consent of the representatives, such director, officer, shareholder or [option holder], subject to certain exceptions, will not, during the period ending 180 days after the date of this prospectus:

 

•

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; 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 delivery of ordinary shares, ADSs, or such other securities, in cash or otherwise.

The foregoing lock-up period will be extended under certain circumstances. If (1) during the last 17 days of the applicable lock-up period, we issue an earnings release or material news or a material event relating to us

 

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occurs; or (2) prior to the expiration of the applicable lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the applicable lock-up period or provide notification to the representative of any earnings release or material news or material event that may give rise to an extension of the initial lock-up period, the lock-up will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event unless the extension is waived in writing by the underwriters.

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 with one of our directors or officers, at least two business days before such release or waiver, one of the representatives will notify us of the impending release or waiver and announce the impending release or waiver through a major news service, except where the release or waiver is effected solely to permit a transfer of securities that is not for consideration and where the transferee has agreed in writing to be bound by the same lock-up agreement terms in place for the transferor. 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 addition, we have instructed         , as depositary, not to accept any deposit of any ordinary shares or issue any ADSs for 180 days after the date of this prospectus (other than in connection with this offering), unless we instruct the depositary otherwise.]

To facilitate this 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. In addition, to stabilize the price of the ADSs, the underwriters may bid for, and purchase, ADSs in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the ADSs in this offering, if the syndicate repurchases previously distributed ADSs to cover syndicate short positions or to stabilize the price of the ADSs. Any of 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.

From time to time, the underwriters may have provided, and may continue to provide, investment banking and other financial advisory services to us, our officers or our directors for which they have received or will receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities incurred in connection with the directed share program referred to below. If we are unable to provide this indemnification, we will contribute to payments that the underwriters may be required to make for these liabilities.

 

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[At our request, the underwriters have reserved for sale, at the initial public offering price, up to              ADSs offered by this prospectus to our directors, officers, employees, business associates and related persons. We will pay all fees and disbursements of counsel incurred by the underwriters in connection with offering the ADSs to such persons. Any sales to these persons will be made through a directed share program. 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 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.]

The address of Morgan Stanley & Co. International plc is 25 Cabot Square, Canary Wharf, London E14 4QA, United Kingdom. The address of Credit Suisse Securities (USA) LLC is Eleven Madison Avenue, New York, NY 10010, United States. The address of J.P. Morgan Securities LLC is 383 Madison Avenue, New York, New York 10179, United States of America. The address of China Renaissance Securities (Hong Kong) Limited is Unit 901, Agricultural Bank of China Tower, 50 Connaught Road Central, Central, Hong Kong.

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.

Pricing of the Offering

Prior to this offering, there has been no public market for the ordinary shares or ADSs. The initial public offering price is determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price are our future prospects and those of our industry in general, our sales, earnings, certain other financial and operating information in recent periods, the price-earnings ratios, price-sales ratios and 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.

Selling Restrictions

No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the ADSs, or the possession, circulation or distribution of this prospectus or any other material relating to us or the ADSs in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material relating to the ADSs may be distributed or published, in or from any jurisdiction except under circumstances that will result in compliance with the applicable laws and regulations thereof.

[Australia. This prospectus is not a formal disclosure document and has not been, nor will be, lodged with the Australian Securities and Investments Commission. It does not purport to contain all information that an

 

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investor or their professional advisers would expect to find in a prospectus or other disclosure document (as defined in the Corporations Act 2001 (Australia)) for the purposes of Part 6D.2 of the Corporations Act 2001 (Australia) or in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia), in either case, in relation to the ADSs.

The ADSs are not being offered in Australia to “retail clients” as defined in sections 761G and 761GA of the Corporations Act 2001 (Australia). This offering is being made in Australia solely to “wholesale clients” for the purposes of section 761G of the Corporations Act 2001 (Australia) and, as such, no prospectus, product disclosure statement or other disclosure document in relation to the ADSs has been, or will be, prepared.

This prospectus does not constitute an offer in Australia other than to wholesale clients. By submitting an application for the ADSs, you represent and warrant to us that you are a wholesale client for the purposes of section 761G of the Corporations Act 2001 (Australia). If any recipient of this prospectus is not a wholesale client, no offer of, or invitation to apply for, the ADSs shall be deemed to be made to such recipient and no applications for the ADSs will be accepted from such recipient. Any offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted by the recipient. In addition, by applying for the ADSs you undertake to us that, for a period of 12 months from the date of issue of the ADSs, you will not transfer any interest in the ADSs to any person in Australia other than to a wholesale client.

Cayman Islands. This prospectus does not constitute a public offer of the ADSs or ordinary shares, whether by way of sale or subscription, in the Cayman Islands. Each underwriter has represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any ADSs or ordinary shares in the Cayman Islands.

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 ADS may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any ADS may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

(a)

to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

(b)

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 representatives for any such offer; or

 

(c)

in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of ADS shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of ADSs to the public” in relation to any ADS 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 ADS to be offered so as to enable an investor to decide to purchase any ADS, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Japan. The underwriters will not offer or sell any of the ADSs directly or indirectly in Japan or to, or for the benefit of any Japanese person or to others, for re-offering or re-sale directly or indirectly in Japan or to any

 

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Japanese person, except in each case pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law of Japan and any other applicable laws and regulations of Japan. For purposes of this paragraph, “Japanese person” means any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

Hong Kong. The underwriters and each of their affiliates have not (i) offered or sold, and will not offer or sell, in Hong Kong, by means of any document, the ADSs other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32 of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance or (ii) issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere any advertisement, invitation or document relating to the ADSs 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 securities laws of Hong Kong) other than with respect to the ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance or any rules made under that Ordinance.

Singapore. This prospectus or any other offering material relating to the ADSs has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore, or the SFA. Accordingly, the underwriters have severally represented, warranted and agreed that (a) they have not offered or sold any of the ADSs or caused the ADSs to be made the subject of an invitation for subscription or purchase and it will not offer or sell any of the ADSs or cause the ADSs to be made the subject of an invitation for subscription or purchase, and (b) they have not circulated or distributed, and they will not circulate or distribute, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor as specified in Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275 of the SFA) and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

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 (“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.

People’s Republic of China. This prospectus may not be circulated or distributed in the PRC and the ADSs may not be offered or sold, and will not offer or sell 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. ]

 

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EXPENSES RELATED TO THIS OFFERING

Set forth below is an itemization of the total expenses, excluding underwriting discount, 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 [NASDAQ Global Market/NYSE] market entry and listing fee, all amounts are estimates.

 

SEC Registration Fee		$
FINRA Fee
[NASDAQ Global Market/NYSE] Market Entry and Listing Fee
Printing and Engraving Expenses
Legal Fees and Expenses
Accounting Fees and Expenses
Miscellaneous
Total		$

 

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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 Kirkland & Ellis International LLP with respect to certain legal matters as to United States federal securities and New York State law. The validity of the ordinary shares represented by the ADSs offered in this offering will be passed upon for us by Maples and Calder. Certain legal matters as to PRC law will be passed upon for us by Han Kun Law Offices and for the underwriters by King & Wood Mallesons. Skadden, Arps, Slate, Meagher & Flom LLP may rely upon Maples and Calder with respect to matters governed by Cayman Islands law and Han Kun Law Offices with respect to matters governed by PRC law. Kirkland & Ellis International LLP may rely upon King & Wood Mallesons with respect to matters governed by PRC law.

 

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EXPERTS

The financial statements as of December 31, 2012 and 2013, and for each of the two years in the period ended December 31, 2013, included in this prospectus and the related financial statement schedule included elsewhere in the Registration Statement, have been audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the Registration Statement. Such financial statements and financial statement schedule have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

The office of Deloitte Touche Tohmatsu Certified Public Accountants LLP is located at 8/F, W2 Tower, The Towers, Oriental Plaza, 1 East Chang An Avenue, Beijing 100738, the People’s Republic of China.

 

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed a registration statement, including relevant exhibits, with the SEC on Form F-1 under the Securities Act with respect to the underlying ordinary shares represented by the ADSs to be sold in this offering. We have also filed a related registration statement on Form F-6 with the SEC to register the ADSs. This prospectus, which constitutes a part of the registration statement on Form F-1, does not contain all of the information contained in the registration statement. You should read our registration statements and their exhibits and schedules for further information with respect to us and our ADSs.

Immediately upon the effectiveness of the registration statement on Form F-1 of which this prospectus forms a part, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov or inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of documents, upon payment of a duplicating fee, by writing to the SEC.

 

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MOMO TECHNOLOGY COMPANY LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

CONTENTS		PAGE(S)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2012 AND 2013		F-3 - F-4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013		F-5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013		F-6
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013		F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013		F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-9 - F-40
ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I		F-41 - F-46

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2013 AND JUNE 30, 2014		F-47 - F-48
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIODS ENDED JUNE  30, 2013 AND 2014		F-49
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE SIX-MONTH PERIODS ENDED JUNE  30, 2013 AND 2014		F-50
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014		F-51
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS ENDED JUNE  30, 2013 AND 2014		F-52
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		F-53 - F-73

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND

SHAREHOLDERS OF MOMO TECHNOLOGY COMPANY LIMITED

We have audited the accompanying consolidated balance sheets of Momo Technology Company Limited (the “Company”), its subsidiaries, its variable interest entity (“VIE”), and its VIE’s subsidiary (collectively, the “Group”) as of December 31, 2012 and 2013 and the related consolidated statements of operations, comprehensive loss, changes in equity (deficit) and cash flows for the two years in the period ended December 31, 2013, and the related financial statement schedule included in Schedule I. These financial statements and financial statement schedule are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2012 and 2013, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Beijing, the People’s Republic of China

June 13, 2014

 

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MOMO TECHNOLOGY COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

		As of December 31
		2012				2013
Assets
Current assets
Cash and cash equivalents		$	18,539			$	55,374
Accounts receivable, net of allowance for doubtful accounts of $nil and $nil as of December 31, 2012 and 2013, respectively			—				1,935
Amount due from a related party			951				198
Prepaid expenses and other current assets			335				1,204
Total current assets			19,825				58,711
Property and equipment, net			959				3,363
Cost-method investment			—				951
Total assets			20,784				63,025
Liabilities, mezzanine equity and equity
Current liabilities
Accounts payable (including accounts payable of the consolidated VIE without recourse to the Company of $nil and $125 as of December 31, 2012 and 2013, respectively)			—				344
Deferred revenue (including deferred revenue of the consolidated VIE without recourse to the Company of $nil and $3,714 as of December 31, 2012 and 2013, respectively)			—				3,714
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIE without recourse to the Company of $73 and $684 as of December 31, 2012 and 2013, respectively)			143				1,508
Total current liabilities			143				5,566
Total liabilities			143				5,566

 

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MOMO TECHNOLOGY COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS - continued

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

		As of December 31
		2012				2013
Commitments and contingencies (Note14)
Mezzanine equity
Series A-1 and Series A-2 convertible redeemable participating preferred shares ($0.0001 par value; 48,560,050 and 38,480,677 shares authorized as of December 31, 2012 and 2013, respectively, 48,560,050 and 38,480,677 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $4,781 and $4,260 as of December 31, 2012 and 2013, respectively)			2,224				2,218
Series A-3 convertible redeemable participating preferred shares ($0.0001 par value; 19,797,980 shares authorized as of December 31, 2012 and 2013, 19,797,980 and 19,797,980 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $4,231 and $4,512 as of December 31, 2012 and 2013, respectively)			4,265				4,774
Series B convertible redeemable participating preferred shares ($0.0001 par value; 59,957,640 and 70,037,013 shares authorized as of December 31, 2012 and 2013, respectively; 59,957,640 and 70,037,013 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $20,341 and $25,661 as of December 31, 2012 and 2013, respectively)			20,710				26,892
Series C convertible redeemable participating preferred shares ($0.0001 par value; nil and 36,008,642 shares authorized as of December 31, 2012 and 2013, nil and 36,008,642 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $nil and $59,240 as of December 31, 2012 and 2013, respectively)			—				46,435
Equity
Ordinary shares ($0.0001 par value; 371,684,330 and 835,675,688 shares authorized as of December 31, 2012 and 2013, respectively, 147,000,000 and 147,000,000 shares issued and outstanding as of December 31, 2012 and 2013, respectively)			15				15
Additional paid-in capital			747				1,710
Subscription receivable			(15	)			(15	)
Accumulated deficit			(7,282	)			(24,728	)
Accumulated other comprehensive income (loss)			(23	)			158
Total equity (deficit)			(6,558	)			(22,860	)
Total liabilities, mezzanine equity and equity		$	20,784			$	63,025

The accompanying notes are an integral part of these consolidated financial statements.

 

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MOMO TECHNOLOGY COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

		For the years ended December 31,
		2012				2013
Net revenues		$	—			$	3,129
Cost and expenses:
Cost of revenues (including share-based compensation of $nil and $34 in 2012 and 2013, respectively)			—				(2,927	)
Research and development (including share-based compensation of $39 and $269 in 2012 and 2013, respectively)			(1,454	)			(3,532	)
Sales and marketing (including share-based compensation of $11 and $128 in 2012 and 2013, respectively)			(419	)			(3,018	)
General and administrative (including share-based compensation of $542 and $532 in 2012 and 2013, respectively)			(1,969	)			(3,010	)
Total cost and expenses			(3,842	)			(12,487	)
Loss from operations			(3,842	)			(9,358	)
Interest income			3				32
Loss before income tax provision			(3,839	)			(9,326	)
Income tax expenses			—				—
Net loss attributable to Momo Technology Company Limited			(3,839	)			(9,326	)
Deemed dividend to preferred shareholders			(3,093	)			(8,120	)
Net loss attributable to ordinary shareholders		$	(6,932	)		$	(17,446	)
Net loss per share attributable to ordinary shareholders
Basic		$	(0.05	)		$	(0.12	)
Diluted		$	(0.05	)		$	(0.12	)
Weighted average shares used in calculating net loss per ordinary share
Basic			147,000,000				147,000,000
Diluted			147,000,000				147,000,000

The accompanying notes are an integral part of these consolidated financial statements.

 

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MOMO TECHNOLOGY COMPANY LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of U.S. dollars, except share and share related data)

 

		For the years ended December 31,
		2012				2013
Net loss		$	(3,839	)		$	(9,326	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment			(18	)			181
Comprehensive loss attributable to Momo Technology Company Limited shareholders		$	(3,857	)		$	(9,145	)

The accompanying notes are an integral part of these consolidated financial statements.

 

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MOMO TECHNOLOGY COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

(In thousands of U.S. dollars, except share and share related data)

 

		Ordinary shares								Additional paid-in capital				Subscription receivable				Accumulated deficit				Accumulated other comprehensive income (loss)				Total shareholders’ deficit
		Shares				Amount
Balance as of January 1, 2012			147,000,000			$	15			$	155			$	(15	)		$	(350	)		$	(5	)		$	(200	)
Net loss			—				—				—				—				(3,839	)			—				(3,839	)
Share-based compensation			—				—				592				—				—				—				592
Deemed dividend to preferred shareholders			—				—				—				—				(3,093	)			—				(3,093	)
Foreign currency translation adjustment			—				—				—				—				—				(18	)			(18	)
Balance as of December 31, 2012			147,000,000				15				747				(15	)			(7,282	)			(23	)			(6,558	)
Net loss			—				—				—				—				(9,326	)			—				(9,326	)
Share-based compensation			—				—				963				—				—				—				963
Deemed dividend to preferred shareholders			—				—				—				—				(8,120	)			—				(8,120	)
Foreign currency translation adjustment			—				—				—				—				—				181				181
Balance as of December 31, 2013			147,000,000			$	15			$	1,710			$	(15	)		$	(24,728	)		$	158			$	(22,860	)

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars, except share and share related data)

 

		For the years ended December 31,
		2012				2013
Cash flows from operating activities
Net loss		$	(3,839	)		$	(9,326	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation			147				842
Share-based compensation			592				963
Changes in operating assets and liabilities
Accounts receivable			—				(1,906	)
Prepaid expenses and other current assets			(304	)			(846	)
Amount due from a related party			—				(198	)
Accounts payable			—				338
Deferred revenue			—				3,657
Accrued expenses and other current liabilities			(700	)			1,341
Net cash used in operating activities			(4,104	)			(5,135	)
Cash flows from investing activities
Purchase of property and equipment			(1,041	)			(3,181	)
Advance to a related party for a cost-method investment			(951	)			—
Net cash used in investing activities			(1,992	)			(3,181	)
Cash flows from financing activities
Proceeds from issuance of convertible redeemable participating preferred shares			23,551				45,000
Effect of exchange rate on cash and cash equivalents			(34	)			151
Net increase in cash and cash equivalents			17,421				36,835
Cash and cash equivalents at the beginning of year			1,118				18,539
Cash and cash equivalents at the end of year		$	18,539			$	55,374

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

Momo Technology Company Limited (the “Company”) is the holding company for a group of companies, which is incorporated in the British Virgin Islands on November 23, 2011. The Company, its subsidiaries, its consolidated variable interest entity (“VIE”) and VIE’s subsidiary (collectively the “Group”) are principally engaged in providing mobile-based social networking services. The Group started its operation in July 2011. The Group started its monetization by introducing fee based membership subscription services and emoticons in the third quarter of 2013 as well as by offering the platform for mobile games in the fourth quarter of 2013.

As of December 31, 2013, details of the Company’s subsidiaries, VIE and VIE’s subsidiary are as follows:

 

		Date of Incorporation		Place of Incorporation		Percentage of economic ownership
Subsidiaries
Momo Technology HK Company Limited (“Momo HK”)		December 5, 2011		Hong Kong		100%
Beijing Momo Information Technology Company Limited (“Beijing Momo IT”)		March 9, 2012		PRC		100%
VIE
Beijing Momo Technology Co., Ltd. (“Beijing Momo”)		July 7, 2011		PRC		N/A*
VIE’s subsidiary
Chengdu Momo Technology Co., Ltd. (“Chengdu Momo”)		May 9, 2013		PRC		N/A*

 

*

These entities are controlled by the Company pursuant to the contractual arrangements disclosed below.

The Company was established on November 23, 2011 with share capital of $15, which is 65% owned by Mr. Yan Tang, 20% owned by Mr. Yong Li, 8% owned by Mr. Xiaoliang Lei, and 7% owned by Mr. Zhiwei Li, (Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li are collectively referred to “Founders”) as a vehicle for the group reorganization.

The Group commenced its business in China in July 2011 through Beijing Momo which has subsequently become the Group’s VIE through the contractual arrangements described below in “the VIE arrangements”.

Beijing Momo was established by Founders in Beijing, the People’s Republic of China (“PRC”), as a limited liability company on July 7, 2011, which is 65% owned by Mr. Yan Tang, 20% owned by Mr. Yong Li, 8% owned by Mr. Xiaoliang Lei, and 7% owned by Mr. Zhiwei Li. Beijing Momo and its subsidiary principally engaged in the provision of substantially all of the Group’s services in the PRC.

The Company owns 100% of the equity interests in Momo HK, an intermediate holding company incorporated in Hong Kong on December 5, 2011, which owns 100% of the equity interests in Beijing Momo IT, a wholly foreign-owned enterprise (“WFOE”), incorporated in the PRC by the Company on March 9, 2012.

The Company entered into group reorganization by way of entering into a series of contractual arrangements between its WFOE, VIE and the Company on April 18, 2012. Immediately after the reorganization,

 

F-9

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

 

The VIE arrangements - continued

 

Agreements that provide the Company effective control over the VIE - continued

 

(1)

Power of Attorney - continued

 

 

F-11

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

 

The VIE arrangements - continued

 

Agreements that transfer economic benefits to the Company - continued

 

(1)

Exclusive Technology Consulting and Management Services Agreement - continued

 

 

F-12

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

 

The VIE arrangements - continued

 

Agreements that transfer economic benefits to the Company - continued

 

(3)

Business Operations Agreement - continued

 

 

F-13

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

 

Risk in relation to the VIE structure - continued

 

 

F-14

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

 

Risk in relation to the VIE structure - continued

 

 

F-15

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Use of estimates - continued

 

 

F-16

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Concentration of credit risk - continued

 

 

F-17

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Fair value - continued

 

 

F-18

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Revenue recognition - continued

 

 

F-19

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Cost of revenues - continued

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Income taxes - continued

 

 

F-21

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

 

F-22

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Recent accounting pronouncements adopted - continued

 

 

F-23

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Recent accounting pronouncements not yet adopted - continued

 

 

F-24

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

6.	PROPERTY AND EQUIPMENT, NET - continued

 

 

F-26

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

9.	INCOME TAXES - continued

 

PRC - continued

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

9.	INCOME TAXES - continued

 

PRC - continued

 

 

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

10.	ORDINARY SHARES - continued

 

 

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

11.	CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED SHARES - continued

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

11.	CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED SHARES - continued

 

 

F-31

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

11.	CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED SHARES - continued

 

 

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

 

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

12.	SHARE-BASED COMPENSATION - continued

 

I. Share options - continued

 

 

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

12.	SHARE-BASED COMPENSATION - continued

 

II. Non-vested restricted shares - continued

 

 

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

13.	NET LOSS PER SHARE - continued

 

 

F-36

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

13.	NET LOSS PER SHARE - continued

 

 

F-37

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

16.	SEGMENT INFORMATION - continued

 

 

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MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

18.	STATUTORY RESERVES AND RESTRICTED NET ASSETS - continued

 

 

F-39

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

(In U.S. dollars in thousands, except share data)

 

19.	SUBSEQUENT EVENTS - continued

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

CONDENSED BALANCE SHEETS

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

		As of December 31
		2012				2013
Assets
Current assets
Cash and cash equivalents		$	17,829			$	51,576
Amount due from related parties			5,756				6,955
Total current assets			23,585				58,531
Investment in subsidiaries, VIE and VIE’s subsidiary			(2,944	)			(1,072	)
Total assets			20,641				57,459
Liabilities, mezzanine equity and equity
Mezzanine equity
Series A-1 and Series A-2 convertible redeemable participating preferred shares ($0.0001 par value; 48,560,050 and 38,480,677 shares authorized as of December 31, 2012 and 2013, respectively, 48,560,050 and 38,480,677 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $4,781 and $4,260 as of December 31, 2012 and 2013, respectively)			2,224				2,218
Series A-3 convertible redeemable participating preferred shares ($0.0001 par value; 19,797,980 shares authorized as of December 31, 2012 and 2013, 19,797,980 and 19,797,980 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $4,231 and $4,512 as of December 31, 2012 and 2013, respectively)			4,265				4,774
Series B convertible redeemable participating preferred shares ($0.0001 par value; 59,957,640 and 70,037,013 shares authorized as of December 31, 2012 and 2013, respectively; 59,957,640 and 70,037,013 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $20,341 and $25,661 as of December 31, 2012 and 2013, respectively)			20,710				26,892
Series C convertible redeemable participating preferred shares ($0.0001 par value; nil and 36,008,642 shares authorized as of December 31, 2012 and 2013, nil and 36,008,642 shares issued and outstanding as of December 31, 2012 and 2013, respectively, liquidation value of $nil and $59,240 as of December 31, 2012 and 2013, respectively)			—				46,435
Equity
Ordinary shares ($0.0001 par value; 371,684,330 and 835,675,688 shares authorized as of December 31, 2012 and 2013, respectively, 147,000,000 and 147,000,000 shares issued and outstanding as of December 31, 2012 and 2013, respectively)			15				15
Additional paid-in capital			747				1,710
Subscription receivable			(15	)			(15	)
Accumulated deficit			(7,282	)			(24,728	)
Accumulated other comprehensive income (loss)			(23	)			158
Total equity (deficit)			(6,558	)			(22,860	)
Total liabilities, mezzanine equity and equity		$	20,641			$	57,459

 

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MOMO TECHNOLOGY COMPANY LIMITED

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY - continued

CONDENSED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY - continued

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of U.S. dollars, except share and share related data)

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY - continued

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands of U.S. dollars, except share and share related data)

 

 

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY - continued

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars, except share and share related data)

 

 

F-45

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Table of Contents

MOMO TECHNOLOGY COMPANY LIMITED

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

NOTE TO THE FINANCIAL STATEMENT

(In thousands of U.S. dollars, except share and share related data)

 

1.	BASIS FOR PREPARATION

The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Group’s consolidated financial statement except that the parent company used the equity method to account for investments in its subsidiaries, VIE and VIE’s subsidiary.

 

2.	INVESTMENTS IN SUBSIDIARIES, VIE AND VIE’S SUBSIDIARY

The parent company and its subsidiaries, VIE and VIE’s subsidiary were included in the consolidated financial statements where inter-company balances and transactions were eliminated upon consolidation. For purpose of the parent company’s stand-alone financial statements, its investments in subsidiaries, VIE and VIE’s subsidiary were reported using the equity method of accounting. The parent company’s share of loss from its subsidiaries, VIE and VIE’s subsidiary were reported as share of loss of subsidiaries, VIE and VIE’s subsidiary in the accompanying parent company financial statements. Ordinarily under the equity method, an investor in an equity method investee would cease to recognize its share of the losses of an investee once the carrying value of the investment has been reduced to nil absent an undertaking by the investor to provide continuing support and fund losses. For the purpose of this Schedule I, the parent company has continued to reflect its share, based on its proportionate interest, of the losses of subsidiaries, VIE and VIE’s subsidiary regardless of the carrying value of the investment even though the parent company is not obligated to provide continuing support or fund losses.

 

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MOMO INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

		As of December 31, 2013				As of June 30, 2014				As of June 30, 2014
										(Pro forma)
Assets
Current assets
Cash and cash equivalents		$	55,374			$	176,220			$	176,220
Accounts receivable, net of allowance for doubtful accounts of $nil and $nil as of December 31, 2013 and June 30, 2014, respectively			1,935				4,346				4,346
Amount due from a related party			198				—				—
Prepaid expenses and other current assets			1,204				6,019				6,019
Total current assets			58,711				186,585				186,585
Property and equipment, net			3,363				7,155				7,155
Rental deposits			—				731				731
Cost-method investment			951				951				951
Total assets			63,025				195,422				195,422
Liabilities, mezzanine equity and equity
Current liabilities
Accounts payable (including accounts payable of the consolidated VIE without recourse to the Company of $125 and $2,936 as of December 31, 2013 and June 30, 2014, respectively)			344				4,843				4,843
Deferred revenue (including deferred revenue of the consolidated VIE without recourse to the Company of $3,714 and $10,160 as of December 31, 2013 and June 30, 2014, respectively)			3,714				10,160				10,160
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIE without recourse to the Company of $684 and $1,174 as of December 31, 2013 and June 30, 2014, respectively)			1,508				6,413				6,413
Amount due to related parties (including amount due to related parties of the consolidated VIE without recourse to the Company of $nil and $nil as of December 31, 2013 and June 30, 2014, respectively)			—				6,450				6,450
Total current liabilities			5,566				27,866				27,866
Total liabilities			5,566				27,866				27,866

 

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MOMO INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - continued

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

		As of December 31, 2013				As of June 30, 2014				As of June 30, 2014
										(Pro forma)
Commitments and contingencies (Note12)
Mezzanine equity
Series A-1 and Series A-2 convertible redeemable participating preferred shares ($0.0001 par value; 38,480,677 and 31,181,820 shares authorized as of December 31, 2013 and June 30, 2014, respectively; 38,480,677 and 31,181,820 shares issued and outstanding as of December 31, 2013 and June 30, 2014, respectively; liquidation value of $4,260 and $3,795 as of December 31, 2013 and June 30, 2014, respectively)			2,218				2,065				—
Series A-3 convertible redeemable participating preferred shares ($0.0001 par value; 19,797,980 shares authorized as of December 31, 2013 and June 30, 2014, respectively; 19,797,980 shares issued and outstanding as of December 31, 2013 and June 30, 2014, respectively; liquidation value of $4,512 and $4,685 as of December 31, 2013 and June 30, 2014, respectively)			4,774				5,042				—
Series B convertible redeemable participating preferred shares ($0.0001 par value; 70,037,013 shares authorized as of December 31, 2013 and June 30, 2014; respectively; 70,037,013 shares issued and outstanding as of December 31, 2013 and June 30, 2014, respectively; liquidation value of $25,661 and $26,643 as of December 31, 2013 and June 30, 2014, respectively)			26,892				28,432				—
Series C convertible redeemable participating preferred shares ($0.0001 par value; 36,008,642 shares authorized as of December 31, 2013 and June 30, 2014; 36,008,642 shares issued and outstanding as of December 31, 2013 and June 30, 2014, respectively; liquidation value of $59,240 and $61,114 as of December 31, 2013 and June 30, 2014, respectively)			46,435				49,258				—
Series D convertible redeemable participating preferred shares ($0.0001 par value; nil and 43,693,356 shares authorized as of December 31, 2013 and June 30, 2014, respectively; nil and 43,693,356 shares issued and outstanding as of December 31, 2013 and June 30, 2014, respectively; liquidation value of $nil and $278,477 as of December 31, 2013 and June 30, 2014, respectively)			—				216,545				—
Equity
Ordinary shares ($0.0001 par value; 835,675,688 and 799,281,189 shares authorized as of December 31, 2013 and June 30, 2014, respectively, 147,000,000 and 131,348,411 shares issued and outstanding as of December 31, 2013 and June 30, 2014, respectively)			15				15				35
Treasury stock			—				(64,494	)			(64,494	)
Additional paid-in capital			1,710				4,335				305,657
Subscription receivable			(15	)			—				—
Accumulated deficit			(24,728	)			(73,293	)			(73,293	)
Accumulated other comprehensive income (loss)			158				(349	)			(349	)
Total equity (deficit)			(22,860	)			(133,786	)			167,556
Total liabilities, mezzanine equity and equity		$	63,025			$	195,422			$	195,422

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MOMO INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share and share related data, or otherwise noted)

 

		For the six-month periods ended June 30,
		2013				2014
Net revenues		$	—			$	13,886
Cost and expenses:
Cost of revenues (including share-based compensation of $nil and $50 in the six-month periods ended June 30, 2013 and 2014, respectively)			—				(6,037	)
Research and development (including share-based compensation of $118 and $189 in the six-month periods ended June 30, 2013 and 2014, respectively)			(1,487	)			(2,890	)
Sales and marketing (including share-based compensation of $32 and $204 in the six-month periods ended June 30, 2013 and 2014, respectively)			(733	)			(9,071	)
General and administrative (including share-based compensation of $208 and $2,182 in the six-month periods ended June 30, 2013 and 2014, respectively)			(1,639	)			(4,333	)
Total cost and expenses			(3,859	)			(22,331	)
Loss from operations			(3,859	)			(8,445	)
Interest income			19				181
Loss before income tax provision			(3,840	)			(8,264	)
Income tax expenses			—				—
Net loss attributable to Momo Inc.			(3,840	)			(8,264	)
Deemed dividend to preferred shareholders			(4,604	)			(40,301	)
Net loss attributable to ordinary shareholders		$	(8,444	)		$	(48,565	)
Net loss per share attributable to ordinary shareholders
Basic		$	(0.06	)		$	(0.34	)
Diluted		$	(0.06	)		$	(0.34	)
Weighted average shares used in calculating net loss per ordinary share
Basic			147,000,000				141,033,372
Diluted			147,000,000				141,033,372

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MOMO INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of U.S. dollars, except share and share related data)

 

		For the six-month periods ended June 30,
		2013				2014
Net loss		$	(3,840	)		$	(8,264	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment			174				(507	)
Comprehensive loss attributable to Momo Technology Company Limited shareholders		$	(3,666	)		$	(8,771	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MOMO INC.

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

(In thousands of U.S. dollars, except share and share related data)

 

		Ordinary shares								Additional paid-in capital				Treasury stock				Subscription receivable				Accumulated deficit				Accumulated other comprehensive income (loss)				Total shareholders’ deficit
		Shares				Amount
Balance as of January 1, 2013			147,000,000			$	15			$	747			$	—			$	(15	)		$	(7,282	)		$	(23	)		$	(6,558	)
Net loss			—				—				—				—				—				(3,840	)			—				(3,840	)
Share-based compensation			—				—				358				—				—				—				—				358
Deemed dividend to preferred shareholders			—				—				—				—				—				(4,604	)			—				(4,604	)
Foreign currency translation adjustment			—				—				—				—				—				—				174				174
Balance as of June 30, 2013			147,000,000			$	15			$	1,105			$	—			$	(15	)		$	(15,726	)		$	151			$	(14,470	)
Balance as of January 1, 2014			147,000,000				15				1,710				—				(15	)			(24,728	)			158				(22,860	)
Net loss			—				—				—				—				—				(8,264	)			—				(8,264	)
Share-based compensation			—				—				2,625				—				—				—				—				2,625
Repurchase of ordinary shares			(15,651,589	)			—				—				(64,494	)			—				—				—				(64,494	)
Deemed dividend to preferred shareholders			—				—				—				—				—				(40,301	)			—				(40,301	)
Subscription Receivable			—				—				—				—				15				—				—				15
Foreign currency translation adjustment			—				—				—				—				—				—				(507	)			(507	)
Balance as of June 30, 2014			131,348,411			$	15			$	4,335			$	(64,494	)		$	—			$	(73,293	)		$	(349	)		$	(133,786	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MOMO INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars, except share and share related data)

 

		For the six-month periods ended June 30,
		2013				2014
Cash flows from operating activities
Net loss		$	(3,840	)		$	(8,264	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation on property and equipment			239				1,029
Share-based compensation			358				2,625
Loss on disposal of property and equipment			—				64
Changes in operating assets and liabilities
Accounts receivable			—				(2,488	)
Prepaid expenses and other current assets			(364	)			(4,611	)
Amount due from a related party			(198	)			198
Accounts payable			—				4,527
Deferred revenue			—				6,586
Rental deposit			—				(731	)
Accrued expenses and other current liabilities			602				4,653
Net cash (used in) provided by operating activities			(3,203	)			3,588
Cash flows from investing activities
Purchase of property and equipment			(639	)			(5,063	)
Net cash used in investing activities			(639	)			(5,063	)
Cash flows from financing activities
Proceeds from issuance of convertible redeemable participating preferred shares			—				211,750
Repurchase of convertible redeemable participating preferred shares			—				(30,750	)
Capital contribution from shareholders			—				15
Repurchase of ordinary shares			—				(58,044	)
Payment for IPO costs			—				(165	)
Net cash provided by financing activities			—				122,806
Effect of exchange rate on cash and cash equivalents			153				(485	)
Net (increase in) decreased by cash and cash equivalents			(3,689	)			120,846
Cash and cash equivalents at the beginning of the period			18,539				55,374
Cash and cash equivalents at the end of the period		$	14,850			$	176,220
Non-cash investing and financing activities
Payable for leasehold improvement			—			$	723
Payable and deferred IPO cost			—			$	737
Payable for repurchase of ordinary shares			—			$	6,450

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

1.	BASIS OF PREPARATION

The accompanying unaudited condensed consolidated financial statements include the financial information of Momo Inc. (the “Company”, formerly known as Momo Technology Company Limited), its subsidiaries, its consolidated variable interest entity (“VIE”) and VIE’s subsidiary (collectively the “Group”). All intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Security and Exchange Commission and U.S. generally accepted accounting standards for interim financial reporting. The results of operations for the six-month periods ended June 30, 2013 and 2014 are not necessarily indicative of the results for the full years.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, accounting policies and notes thereto included in the Group’s audited consolidated financial statements for each of the two years in the period ended December 31, 2013. In the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The Group believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Group’s consolidated financial statements for each of the two years in the period ended December 31, 2013.

The financial information as of December 31, 2013 presented in the unaudited condensed consolidated financial statements is derived from our audited consolidated financial statements for the year ended December 31, 2013.

In July 2014, the Company was redomiciled in the Cayman Islands as an exempted company registered under the laws of the Cayman Islands, and was renamed to Momo Inc.

The VIE arrangements

To further strengthen the Company’s corporate structure, the Group amended its Power of Attorney, Exclusive Call Option Agreement and Equity Interest Pledge Agreement with the Nominee Shareholders and also entered into the Spousal Consent letters with the Nominee Shareholders in April 2014. There was no substantial change to the term and condition of the VIE agreements and has no effect to the Company’s VIE consolidation.

The following is the summary of the VIE agreements, as amended and entered into on April 18, 2014:

Power of attorney

Pursuant to the Power of Attorney, the Nominee Shareholders of Beijing Momo each irrevocably appointed Beijing Momo IT as the attorney-in-fact to act on their behalf on all matters pertaining to Beijing Momo and to exercise all of their rights as a shareholder of Beijing Momo, including but not limited to convene, attend and vote on their behalf at shareholders’ meetings, designate and appoint directors and senior management members. Beijing Momo IT may authorize or assign its rights under this appointment to a person as approved by its board of directors at its sole discretion. Each power of attorney will remain in force until the shareholder ceases to hold any equity interest in Beijing Momo. The Company believes the Powers of Attorney can demonstrate the power of its PRC subsidiary (Beijing Momo IT) to direct how the VIE should conduct its daily operations.

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

1.	BASIS OF PREPARATION - continued

 

The VIE arrangements - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

1.	BASIS OF PREPARATION - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Revenue recognition - continued

 

(b)

Mobile games - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

2.	SIGNIFICANT ACCOUNTING POLICIES - continued

 

Recent accounting pronouncements not yet adopted - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

7.	INCOME TAXES - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

9.	CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED SHARES - continued

 

Liquidation preference - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

9.	CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED SHARES - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

9.	CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED SHARES - continued

 

Conversion - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

10.	SHARE-BASED COMPENSATION - continued

 

I. Share options - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

10.	SHARE-BASED COMPENSATION - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

10.	SHARE-BASED COMPENSATION - continued

 

II. Non-vested restricted shares - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

11.	NET LOSS PER SHARE - continued

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

 

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MOMO INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - continued

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2014

(In U.S. dollars in thousands, except share data)

 

16.	STATUTORY RESERVES AND RESTRICTED NET ASSETS - continued

 

 

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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 articles of association that we expect to adopt to become effective upon 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, wilful 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 for indemnification by the underwriters of us and our officers and directors for certain liabilities, including liabilities arising under the Securities Act, but only to the extent that such liabilities are caused by information relating to the underwriters furnished to us in writing expressly for use in this registration statement and certain other disclosure documents.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES.

During the past three years, we have issued and sold the securities described below without registering the securities under the Securities Act. None of these transactions involved any underwriters’ underwriting discounts or commissions, or any public offering. We believe that each of the following issuances to private placement investors was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act or pursuant to Section 4(2) of the Securities Act regarding transactions not involving a public offering. We believe that our issuances of options to our employees, directors, officers and consultants were exempt from registration under the Securities Act in reliance on Rule 701 under the Securities Act.

 

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On September 12, 2012, we effected a 1:10 share split, in which each share of par value US$0.001 in our share capital was split into 10 shares, each of par value US$0.0001. The following share numbers have been adjusted to reflect the share split.

 

Purchaser		Date of Sale or Issuance		Number of  Securities		Consideration (US$)				Securities Act Exemption
Yan Tang		November 23, 2011		95,550,000 ordinary shares			9,555			Regulation S under the Securities Act(1)
Yong Li		November 23, 2011		29,400,000 ordinary shares			2,940			Regulation S under the Securities Act(1)
Xiaoliang Lei		November 23, 2011		11,760,000 ordinary shares			1,176			Regulation S under the Securities Act(1)
Zhiwei Li		November 23, 2011		10,290,000 ordinary shares			1,029			Regulation S under the Securities Act(1)
Matrix Partners China II Hong Kong Limited		April 18, 2012		22,272,730 Series A-1 preferred shares			1,049,936.49			Regulation S under the Securities Act(1)
Matrix Partners China II Hong Kong Limited		April 18, 2012		8,909,090 Series A-2 preferred shares			Services provided by the purchaser			Regulation S under the Securities Act(1)
An individual investor		April 18, 2012		22,272,730 Series A-1 preferred shares			1,049,936.49			Section 4(2) of the Securities Act(2)
Matrix Partners China II Hong Kong Limited		July 3, 2012		19,797,980 Series A-3 preferred shares			3,999,983.88			Regulation S under the Securities Act(1)
Matrix Partners China II Hong Kong Limited		July 17, 2012		4,588,600 Series B preferred shares			1,500,472.20			Regulation S under the Securities Act(1)
Alibaba Investment Limited		July 17, 2012		45,885,940 Series B preferred shares			15,004,702.38			Regulation S under the Securities Act(1)
DST Team Limited		July 17, 2012		4,588,600 Series B preferred shares			1,500,472.20			Regulation S under the Securities Act(1)
Matrix Partners China II Hong Kong Limited		October 21, 2013		10,402,497 Series C preferred shares			13,000,000.50			Regulation S under the Securities Act(1)
Gothic Partners, L.P.		October 21, 2013		800,192 Series C preferred shares			999,999.94			Section 4(2) of the Securities Act(2)
PJF Acorn I Trust		October 21, 2013		800,192 Series C preferred shares			999,999.94			Section 4(2) of the Securities Act(2)
Gansett Partners, L.L.C.		October 21, 2013		1,600,384 Series C preferred shares			1,999,999.88			Section 4(2) of the Securities Act(2)
PH momo investment Ltd.		October 21, 2013		4,801,153 Series C preferred shares			6,000,000.90			Regulation S under the Securities Act(1)
Tenzing Holding 2011 Ltd.		October 21, 2013		1,600,384 Series C preferred shares			1,999,999.88			Regulation S under the Securities Act(1)
Alibaba Investment Limited		October 21, 2013		8,001,920 Series C preferred shares			9,999,999.42			Regulation S under the Securities Act(1)
DST Team Fund Limited		October 21, 2013		8,001,920 Series C preferred shares			9,999,999.42			Regulation S under the Securities Act(1)
Sequoia Capital China Investment Holdco II, Ltd.		May 15, 2014		2,063,441 Series D preferred shares			10,000,000			Regulation S under the Securities Act(1)
Sequoia Capital China GF Holdco III-A, Ltd.		May 15, 2014		11,348,923 Series D preferred shares			55,000,000			Regulation S under the Securities Act(1)
SC China Growth III Co-Investment 2014-A, L.P.		May 15, 2014		5,158,602 Series D preferred shares			25,000,000			Regulation S under the Securities Act(1)
Rich Moon Limited		May 15, 2014		18,570,966 Series D preferred shares			90,000,000			Regulation S under the Securities Act(1)
Tiger Global Eight Holdings		May 15, 2014		6,551,424 Series D preferred shares			31,750,000			Regulation S under the Securities Act(1)

 

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Purchaser		Date of Sale or Issuance		Number of  Securities		Consideration (US$)				Securities Act Exemption
Certain employees, directors and officers and consultants		Various dates		Outstanding options to purchase 27,763,526 ordinary shares			Past and future services to our company			Rule 701 under the Securities Act(3)

 

(1)

in reliance on the exemption under Regulation S because we offered and sold the ordinary shares or preferred shares to non-U.S. persons outside the United States without any “directed selling efforts” in the United States, as such term is defined under Regulation S. We are a foreign issuer incorporated in the British Virgin Islands continued into existence under the laws of Cayman Islands. We believe there was no substantial U.S. market interest in the ordinary shares and preferred shares at the commencement of the offer of shares.

(2)

in reliance on Section 4(2) of the Securities Act for transactions by an issuer not involving any public offering, as we believe, at the time of the issuance of the preferred shares, each of the individual investor, Gothic Partners, L.P., PJF Acorn I Trust and Gansett Partners, L.L.C. (i) had enough knowledge and experience in finance and business matters to evaluate the risks and merits of the investment; (ii) had access to the type of information normally provided in a prospectus; and (iii) had acquired the preferred shares for investment purposes for the investor’s own account or for the account of an affiliate, and not with a view to resell or distribute any of part of the acquired shares. In addition, we did not use any form of public solicitation or general advertising in connection with the private placements.

(3)

in reliance on the exemption of Rule 701 under the Securities Act as all the options were granted by our company under the share incentive plan that we adopted in November 2012, as amended. At the time of each option grant, we were not a reporting company under section 13 or 15(d) of the Exchange Act of 1934 or an investment company registered or required to be registered under the Investment Company Act of 1940. The share incentive plan is a “compensatory benefit plan” as defined under Rule 701 that we established to provide share incentives to our officers, directors and employees, as well as consultants and advisors who render to our company or one of our affiliates bona fide services, other than services in connection with the offer or sale of securities of our company or any of our affiliates, as applicable, in a capital raising transaction or as a market maker or promoter of that entity’s securities.

ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

(a)

Exhibits

See Exhibit Index beginning on page II-8 of this registration statement.

The agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosure that was made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosure of material information regarding material contractual provisions is required to make the statements in this registration statement not misleading.

 

(b)	Financial Statement Schedules

Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.

ITEM 9. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

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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.

(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.

 

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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 Beijing, China, on            , 2014.

 

 

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POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints each of             and             as attorneys-in-fact with full power of substitution for him or her in any and all capacities to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended (the “Securities Act”), and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the “Shares”), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the “Registration Statement”) to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature		Title		Date
		Chief Executive Officer and Director (principal executive officer)		, 2014
Yan Tang
		Chief Financial Officer (principal financial and accounting officer)		, 2014
Jonathan Xiaosong Zhang
		Director		, 2014
Yong Li
		Director		, 2014
Sichuan Zhang
		Director		, 2014
David Ying Zhang
		Director		, 2014
Hongping Zhang
		Director		, 2014
Yongming Wu
		Director		, 2014
Ho Kee Harry Man
		Director		, 2014
Neil Nanpeng Shen
		Director		, 2014
Feng Yu

 

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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 Momo Inc. has signed this registration statement or amendment thereto in New York on             , 2014.

 

 

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MOMO INC.

EXHIBIT INDEX

 

Exhibit Number		Description of Document
1.1*		Form of underwriting agreement
3.1†		Memorandum and articles of association of the Registrant, as currently in effect
3.2*		Form of amended and restated memorandum and articles of association of the Registrant, effective upon 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 ordinary shares
4.3*		Form of deposit agreement, among the Registrant, the depositary and holder of the American Depositary Receipts
4.4†		Third amended and restated shareholders agreement among the Registrant, shareholders of the Registrant and other parties thereto, dated May 15, 2014
4.5*		Shareholder proxy agreements between Yan Tang and each of Yong Li, Zhiwei Li and Xiaoliang Lei, dated June 11, 2012
5.1*		Opinion of Maples and Calder regarding the validity of the ordinary shares being registered
8.1*		Opinion of Maples and Calder 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†		Amended and restated 2012 share incentive plan
10.2		Series C preferred share purchase agreement by and among the Registrant, Matrix Partners China II Hong Kong Limited, Gothic Partners, L.P., PJF Acorn I Trust, Gansett Partners, L.L.C, PH momo investment Ltd., Tenzing Holding 2011 Ltd., Alibaba Investment Limited and DST Team Fund Limited, as investors, and other parties thereto, dated October 8, 2013
10.3		Series D preferred share purchase agreement by and among the Registrant, Sequoia Capital China Investment Holdco II, Ltd., Sequoia Capital China GF Holdco III-A, Ltd., SC China Growth III Co-Investment 2014-A, L.P., Rich Moon Limited and Tiger Global Eight Holdings, as investors, and other parties thereto, dated April 22, 2014
10.4*		Form of indemnification agreement between the Registrant and each of its directors and executive officers
10.5*		Form of employment agreement between the Registrant and each of its executive officers
10.6†		English translation of business operation agreement by and among Beijing Momo IT, Beijing Momo and its shareholders, dated April 18, 2012, and confirmation letter by Yan Tang, dated June 9, 2014
10.7		English translation of exclusive cooperation agreement by and between Beijing Momo IT and Beijing Momo, and a supplemental agreement thereto dated August 31, 2014
10.8		English translation of exclusive cooperation agreement by and between Beijing Momo IT and Chengdu Momo, and a supplemental agreement thereto, dated August 31, 2014
10.9†		Exclusive call option agreement by and among Beijing Momo IT, Beijing Momo and each of its shareholders, dated April 18, 2014
10.10†		Power of attorney by each shareholder of Beijing Momo, dated April 18, 2014
10.11†		Equity interest pledge agreement by and among Beijing Momo IT, Beijing Momo and each of its shareholders, dated April 18, 2014

 

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Exhibit Number		Description of Document
10.12†		Spousal consent letter by the spouse of each of Yong Li, Zhiwei Li and Yan Tang
10.13†		Shareholder confirmation letter by each of the shareholders of Beijing Momo, dated April 18, 2014
21.1†		List of principal subsidiaries and consolidated entities of the Registrant
23.1*		Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm
23.2*		Consent of Maples and Calder (included in Exhibit 5.1)
23.3*		Consent of Han Kun Law Offices (included in Exhibit 99.2)
24.1*		Powers of attorney (included on the 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 Analysys International

 

*	To be filed by subsequent filings.

†	Previously submitted.

 

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Exhibit 10.2

EXECUTION

SERIES C PREFERRED SHARE PURCHASE AGREEMENT

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SERIES C PREFERRED SHARE PURCHASE AGREEMENT

THIS SERIES C PREFERRED SHARE PURCHASE AGREEMENT (this “Agreement”) is entered into as of October 8, 2013, by and among:

 

(1)	Momo Technology Company Limited, a company duly incorporated and validly existing under the Laws of the British Virgin Islands (the “Company”),

 

(2)	Momo Technology HK Company Limited , a company organized and existing under the Laws of Hong Kong S.A.R. (the “HK Co”),

 

(3)	Beijing Momo Information Technology Co., Ltd. , a company organized and existing under the Laws of the People’s Republic of China (the “WFOE”),

 

(4)	Beijing Momo Technology Co., Ltd. , a limited liability company organized and existing under the Laws of the People’s Republic of China (the “Domestic Company”),

 

(5)	the individuals listed in Schedule I attached hereto (the “Founders,” and each a “Founder”),

 

(6)	the investors listed in Schedule II attached hereto (the “Investors,” and each an “Investor”).

Each of the Company, the WFOE, the Domestic Company, the Founders, and the Investors is referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

A. The Investors wish to invest in the Company by subscribing for Series C Preferred Shares (as defined below), to be issued by the Company pursuant to the terms and subject to the conditions of this Agreement.

B. The Company wishes to issue and sell Series C Preferred Shares to the Investors pursuant to the terms and subject to the conditions of this Agreement.

C. The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein.

 

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WITNESSETH

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:

1. Definitions. The following terms shall have the meanings ascribed to them below:

“AIL” means Alibaba Investment Limited.

“Applicable Accounting Principles” means, in the case of the WFOE and the Domestic Company, PRC GAAP, and, in the case of all other Group Companies, US GAAP or IFRS.

“Affiliate” means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person.

“Agreement” means this Series C Preferred Share Purchase Agreement.

“Ancillary Agreements” means, collectively, the Shareholders Agreement, Management Rights Letter, Employment Agreements, and the Indemnification Agreement (as amended from time to time), each as defined herein.

“Approval” means any approval, authorization, license, permit, release, order, or consent required to be obtained from, or any registration, qualification, designation, declaration, filing, notice, statement or other communication required to be filed with or delivered to, any Governmental Authority or any other Person, or any waiver of any of the foregoing.

“Board” or “Board of Directors” means the board of directors of the Company.

“Charter Documents” means, as to a Person, such Person’s certificate of incorporation, formation or registration (including, if relevant, certificates of change of name), memorandum of association, articles of association or incorporation, charter, by-laws, trust deed, trust instrument, partnership, operating agreement, limited liability company, joint venture or Shareholders Agreement or equivalent documents, and business license, in each case as amended.

“Circular 75” means Circular 75 issued by the SAFE on October 21, 2005 (as supplemented by implementing rules and regulations, including without limitation the implementing rule issued by SAFE on May 31, 2007 and known as Notice 106, and by any successor rule or regulation under PRC Law, including but not limited to any rule or regulation interpreting or setting forth provisions for implementation of any of the foregoing.

“Closing” has the meaning set forth in Section 2.2(i) hereof.

“Closing Account” has the meaning set forth in Section 2.2(ii) hereof.

“Closing Account Signatories” has the meaning set forth in Section 2.2(ii) hereof.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” has the meaning set forth in the Preamble of this Agreement.

“Contract” means, as to any Person, any Contract, agreement, undertaking, understanding, indenture, note, bond, loan, instrument, lease, mortgage, deed of trust, franchise, or license to which such Person is a party or by which such Person or any of its property is bound, whether oral or written.

 

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“Control” of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise, which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person; the term “Controlled” has the meaning correlative to the foregoing.

“Control Documents” means the following Contracts collectively: (a) the Exclusive Technology Consulting and Service Agreement by and between the WFOE and the Domestic Company, (b) the Equity Pledge Agreement by and among the WFOE, the Founders, , and dated April 18, 2012, (c) the Share Option Agreements by and between each of the Founders, , , respectively, and the WFOE dated April 18, 2012, (d) the Operating Agreement by and among the WFOE, the Domestic Company, the Founders, , dated April 18, 2012, and (e) the Power of Attorney issued by each of the Founders, , and respectively of the Domestic Company to the WFOE dated April 18, 2012.

“Conversion Shares” means Ordinary Shares issuable upon conversion of any Preferred Shares.

“Disclosing Party” has the meaning set forth in Section 8.4 hereof.

“Disclosure Schedule” has the meaning set forth in Section 3 hereof.

“Domestic Company” has the meaning set forth in the Preamble of this Agreement.

“DST” means DST Teams Fund Limited.

“Employment Agreement” has the meaning set forth in Section 5.9 hereof.

“Equity Securities” means, with respect to a Person, any shares, share capital, registered capital, ownership interest, equity interest, or other securities of such Person, and any option, warrant, or right to subscribe for, acquire or purchase any of the foregoing, or any other security or instrument convertible into or exercisable or exchangeable for any of the foregoing, or any equity appreciation, phantom equity, equity plans or similar rights with respect to such Person, or any Contract of any kind for the purchase or acquisition from such Person of any of the foregoing, either directly or indirectly.

“Financial Statements” has the meaning set forth in Section 3.14 hereof.

“Financing Terms” has the meaning set forth in Section 8.1 hereof.

“Founders” has the meaning set forth in the Preamble of this Agreement.

 

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“Governmental Authority” means any nation or government or any federation, province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC, the British Virgin Islands or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

“Governmental Order” means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.

“Group Company” means each of the Company, the HK Co., the WFOE and the Domestic Company, together with each Subsidiary of any of the foregoing, and each Person (other than a natural person) that is, directly or indirectly, Controlled by any of the foregoing, including but not limited to each joint venture in which any of the foregoing holds more than fifty percent (50%) of the voting power, and “Group” refers to all of Group Companies collectively. The particulars of the Company and Group Companies are set forth on Exhibit A attached hereto.

“Hong Kong” means the Hong Kong Special Administrative Region of the PRC.

“IFRS” means the International Financial Reporting Standards in effect from time to time.

“Indemnifiable Loss” has the meaning set forth in Section 9.1 hereof.

“Indemnification Agreement” has the meaning set forth in Section 5.9 hereof.

“Indemnitee” has the meaning set forth in Section 9.1 hereof.

“Investor” has the meaning set forth in the Preamble of this Agreement.

“Intellectual Property” means any and all (i) patents, all patent rights and all applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), (iv) URLs, domain names, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (vi) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (vii) trade names, trade dress, trademarks, domain names, and service marks, and registrations and applications therefor, and (viii) the goodwill of the business symbolized or represented by the foregoing, customer lists and other proprietary information and common-law rights.

 

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“Key Employee” means each of the Persons listed on Schedule III and Key Employees mean such Persons collectively.

“Knowledge” means, with respect to any of the Warrantors, the actual knowledge of any of the Founders and the Key Employees, and that knowledge which should have been acquired by each such individual after making such due inquiry and exercising such due diligence as a prudent business person would have made or exercised in the management of his or her business affairs, including but not limited to due inquiry of all officers, directors, employees, consultants and professional advisers (including attorneys, accountants and auditors) of the Group and of its Affiliates who could reasonably be expected to have knowledge of the matters in question, and where any statement in the representations and warranties hereunder is expressed to be given or made to a Person’s Knowledge, or so far as a Party is aware, or is qualified in some other manner having a similar effect, the statement shall be deemed to be supplemented by the additional statement that such Party has made such due inquiry and due diligence.

“Law” or “Laws” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any Governmental Order.

“Liabilities” means, with respect to any Person, all debts, obligations, liabilities owed by such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

“Lien” means any mortgage, pledge, claim, security interest, encumbrance, title defect, lien, charge, easement, adverse claim, restrictive covenant, or other restriction or limitation of any kind whatsoever, including any restriction on the use, voting, transfer, receipt of income, or exercise of any attributes of ownership.

“Material Adverse Effect” means any (i) event, occurrence, fact, condition, change or development that has had, has, or could reasonably be expected to have, either alone or together with other events, occurrences, facts, conditions, changes or developments, a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects, assets or liabilities of the Group or any Group Company, individually or in the aggregate, (ii) material impairment of the ability of any Group Company or Founder to perform the material obligations of such Person hereunder or under any other Transaction Documents, as applicable, or (iii) material impairment of the validity or enforceability of this Agreement or any Transaction Document against any Group Company or Founder.

“Matrix” means Matrix Partners China II Hong Kong Limited, Matrix Affiliates and its affiliated or successor funds, companies or entities.

 

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“Matrix Affiliates” means Gothic Partners, L.P., PJF Acorn I Trust, Gansett Partners, L.L.C, PH momo investment Ltd. and Tenzing Holding 2011 Ltd.

“Memorandum and Articles” means the sixth amended and restated memorandum of association of the Company and the sixth amended and restated articles of association of the Company attached hereto as Exhibit B, to be adopted in accordance with applicable Law on or before the Closing and which shall be in full force and effect as of the Closing.

“Ordinary Shares” means the Company’s ordinary shares, par value US$0.0001 per share.

“Party” or “Parties” has the meaning set forth in the Preamble of this Agreement.

“Person” means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

“PRC” means the People’s Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.

“PRC GAAP” means generally accepted accounting principles as adopted by the PRC.

“Preferred Shares” means, collectively, the Series A Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares of the Company.

“Public Official” means any employee of a Governmental Authority, an active member of a political party engaged in political or governmental activities, a political candidate, officer of a public international organization, or officer or employee of a state-owned enterprise, including a PRC state-owned enterprise.

“Qualified IPO” has the meaning set forth in the Company’s Memorandum and Articles.

“Related Party” means an officer, director or employee of any Group Company or any “affiliate” or “associate” (as those terms are defined in Rule 405 promulgated under the Securities Act) of any of them.

“SAFE” means the State Administration of Foreign Exchange of the PRC.

“SAFE Rules and Regulations” means any applicable reporting and/or registration requirements under Circular 75 and any other applicable SAFE rules and regulations.

“Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Series A Preferred Shares” means, collectively, the Series A-1 Preferred Shares of the Company, par value US$0.0001 per share, the Series A-2 Preferred Shares of the Company, par value US$0.0001 per share, and the Series A-3 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Memorandum and Articles.

 

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“Series B Preferred Shares” means the Series B Preferred Shares of the Company, par value US$0.0001 per share.

“Series C Preferred Shares” means the Series C Preferred Shares of the Company, par value US$0.0001 per share.

“Share Plan” means the Company’s share incentive option plan adopted by the Board and approval by the Company’s shareholders.

“Shareholders Agreement” means the Second Amended and Restated Shareholders Agreement entered into by and among the parties thereto on or prior to the Closing, in the form attached hereto as Exhibit C.

“Statement Date” has the meaning set forth in Section 3.14 hereof.

“Subsidiary” means, with respect to any specified Person, any Person of which the specified Person, directly or indirectly, owns or Controls more than fifty percent (50%) of the issued and outstanding share capital, voting interests or registered capital.

“Tax” means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Government Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Government Authority in connection with any item described in clauses (a) and (b) above, and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i) above.

“Tax Return” means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax.

“Transaction Documents” means this Agreement, the Ancillary Agreements, the Memorandum and Articles, the exhibits attached to any of the foregoing and each of the agreements and other documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.

 

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“U.S.” means the United States of America.

“U.S. GAAP” means generally accepted accounting principles in the United States of America.

“Warrantors” has the meaning set forth in Section 3 hereof.

“WFOE” has the meaning set forth in the Preamble of this Agreement.

2. Purchase and Sale of Series C Preferred Shares.

2.1 Sale and Issuance of the Series C Preferred Shares. Subject to the terms and conditions of this Agreement, at the Closing, each Investor, severally and not jointly, agrees to subscribe for and purchase, and the Company agrees to issue and sell to each Investor, that number of Series C Preferred Shares set forth opposite such Investor’s name on Schedule II attached hereto, with each Investor to pay as consideration for such Series C Preferred Shares the aggregate purchase price set forth opposite such Investor’s name on Schedule II attached hereto.

2.2 Closing

(i) Closing. The consummation of the sale and issuance of the Series C Preferred Shares pursuant to Section 2.1 (the “Closing”) shall take place remotely via the exchange of documents and signatures as soon as practicable, but in no event later than five (5) business days following the satisfaction or waiver of all of the conditions set forth in Section 5 and Section 6, as confirmed in writing by the Investors and the Company, or at such other place or at such other time or on such other date as the Company and the Investors may mutually agree.

(ii) Closing Account. Payment of the aggregate purchase price by the Investors to the Company shall be made by remittance of immediately available funds to a bank account of the Company acceptable to the Investors (the “Closing Account”). All bank charges and related expenses for remittance and receipt of funds shall be for the account of the Company. The Company and the representative designated by Matrix (the “Representative”, initially to be Huadong Wang) shall be co-signatories to the Closing Account (the “Closing Account Signatories”). No disbursement shall be made from the Closing Account without the signatures of the Closing Account Signatories designated by the Company and the Representative.

(iii) Closing Deliveries. At the Closing, the Company shall deliver to each Investor (a) a copy of the updated register of members of the Company, certified by the registered agent of the Company, reflecting the issuance to the Investor of the Series C Preferred Shares being purchased by such Investor at the Closing, (b) share certificate or certificates representing the Series C Preferred Shares being purchased by such Investor at the Closing against payment of the purchase price therefor by wire transfer of U.S. funds by such Investor to the Closing Account.

 

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3. Representations and Warranties of the Warrantors. Subject to such exceptions as may be specifically set forth in the Disclosure Schedule attached to this Agreement as Exhibit D (the “Disclosure Schedule”), each of the Company, the HK Co., the WFOE, the Domestic Company, and the Founders (collectively, the “Warrantors”), jointly and severally, represents and warrants to the Investors that each of the statements contained in this Section 3 is true and complete as of the date of this Agreement and the date of the Closing (with the same effect as if made on and as of the date of the Closing) as follows:

3.1. Organization, Good Standing; Corporate Power and Qualification. Each Group Company is a corporation duly organized, validly existing and in good standing under the Laws of their jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as presently conducted and as proposed to be conducted. Each Group Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect.

3.2. Capitalization of the Company. The authorized capital of the Company consists, immediately prior to the Closing, of:

(a) 835,675,688 Ordinary Shares, of which 147,000,000 shares are issued and outstanding, immediately prior to the Closing. All of the outstanding Ordinary Shares have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable securities Laws. The Company holds no treasury shares.

(b) 58,278,657 Series A Preferred Shares, of which 29,571,587 are designated as Series A-1 Preferred Shares, 8,909,090 are designated as Series A-2 Preferred Shares, and 19,797,980 are designated as Series A-3 Preferred Shares, all of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series A Preferred Shares are as stated in the Memorandum and Articles and as provided by the Companies Act.

(c) 70,037,013 Series B Preferred Shares, all of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series B Preferred Shares are as stated in the Memorandum and Articles and as provided by the Companies Act.

(d) 36,008,642 Series C Preferred Shares, none of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series C Preferred Shares are as stated in the Memorandum and Articles and as provided by the Companies Act.

(e) The Company will have reserved 44,758,220 Ordinary Shares for issuance to officers, directors, employees and consultants of the Company pursuant to its Share Plan. Of such reserved Ordinary Shares, by the Closing, 9,150,000 options to purchase shares have been granted or are currently outstanding, and 35,608,220 Ordinary Shares remain available for issuance to officers, directors, employees and consultants pursuant to the Share Plan.

(f) Schedule IV sets forth the capitalization of the Company immediately following the Closing including the number of shares of the following: (i) issued and outstanding Ordinary Shares, including, with respect to restricted Ordinary Shares, vesting schedule and repurchase price; (ii) issued and granted stock options; (iii) stock options not yet issued but reserved for issuance, including vesting schedule and exercise price; (iv) each series of Preferred Shares; and (v) warrants or stock purchase rights, if any. Except for (A) the conversion privileges of the Preferred Shares to be issued under this Agreement, (B) the rights provided in the Shareholders Agreement, and (C) the securities and rights described this Section 3.2(f), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company any Ordinary Share or Preferred Share, or any securities convertible into or exchangeable for Ordinary Shares or Preferred Shares.

 

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(g) The Company is the sole legal and beneficial owner of one hundred percent (100%) of the equity interest of the HK Co and the HK Co is the sole legal and beneficial owner of one hundred percent (100%) of the equity interest of the WFOE.

(h) The Founders are the sole legal and beneficial owners of the issued and outstanding Ordinary Shares of the Company.

(i) Section 3.2(i) of the Disclosure Schedule sets forth the capitalization and equity holders of the Domestic Company, including all issued and outstanding equity capital of the Domestic Company. Except for the Control Documents, there are no outstanding options, warrants, rights (including conversion or, preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire any equity interest or share capital, or any securities convertible into or exchangeable for an equity interest or share capital, of the Domestic Company.

3.3. Subsidiaries.

(a) Except as set forth in Section 3.3(a) of the Disclosure Schedule, the Company and each Group Company do not currently own or control, directly or indirectly, any interest in any other company, corporation, partnership, trust, joint venture, association, or other business entity. Neither the Company nor any Group Company is a participant in any joint venture, partnership or similar arrangement.

(b) The equity interests of the Domestic Company were duly and validly issued and were issued in accordance with all applicable Laws, rules and regulations or pursuant to exemptions therefrom. The equity interests in the Domestic Company are not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any PRC Law, the articles of association or any Contract to which any of the Domestic Company is a party or otherwise bound. There are not any bonds, debentures, notes or other indebtedness of any of the Domestic Company having the right to vote (or convertible) into, or exchangeable for, securities having the right to vote) on any matters on which holders of equity interests of any Domestic Company may vote. There are no voting trusts, shareholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the equity interests to which any Domestic Company is a party or is otherwise bound.

(c) There are no options, warrants, convertible securities, subscriptions or other rights, agreements, arrangements or commitments of any character relating to the equity interests of any Subsidiary of any of the Group Companies or obligating any of the Group Companies to issue or sell any portion of the equity interests of, or any other interest in, any such Subsidiary.

 

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(d) No order has been made or petition presented or resolution passed for the winding up of any of the Group Companies, and no distress, execution or process has been levied against any of the Group Companies or any of its property.

3.4. Authorization.

(a) All corporate action required to be taken by each Group Company’s board of directors and shareholders in order to authorize each respective Group Company to enter into the Transaction Documents to which each such Group Company is a party, and to issue the Series C Preferred Shares at the Closing and the Conversion Shares, has been taken or will be taken prior to the Closing. All action on the part of the officers of each Group Company necessary for the execution and delivery of the Transaction Documents, the performance of all obligations of such Group Company under the Transaction Documents to be performed as of the Closing, and the issuance and delivery of the Series C Preferred Shares has been taken or will be taken prior to the Closing. All action on the part of the officers of each Group Company necessary for the performance of all obligations of such Group Company under the Transaction Documents to be performed as of the Closing has been taken or will be taken prior to the Closing. The Transaction Documents, when executed and delivered by each Group Company, shall constitute valid and legally binding obligations of each Group Company, enforceable against each Group Company in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other Laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (iii) to the extent the indemnification provisions contained in the Shareholders Agreement and the Indemnification Agreement may be limited by applicable securities Laws. The issuance of any Series C Preferred Shares or Conversion Shares is not subject to any preemptive rights or rights of first refusal, or if any such preemptive rights or rights of first refusal exist, waiver of such rights has been obtained from the holders thereof. For the purpose only of this Agreement, “reserve,” “reservation” or similar words with respect to a specified number of Ordinary Shares or Preferred Shares of the Company shall mean that the Company shall, and the Board of Directors of the Company shall procure that the Company shall, refrain from issuing such number of shares so that such number of shares will remain in the authorized but unissued share capital of the Company until the conversion rights of the holders of any convertible securities exercisable for such shares are exercised in accordance with the Memorandum and Articles or otherwise.

(b) Each of Group Companies has all franchises, permits, licenses, and any similar authority necessary for the conduct of its respective business as now being conducted by it.

3.5. Valid Issuance of Shares.

(a) The Series C Preferred Shares, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of any Lien or restrictions on transfer other than restrictions on transfer under this Agreement, the Shareholders Agreement, applicable securities Laws and Liens or encumbrances created by or imposed by the Investors. Subject in part to the accuracy of the representations of the Investors in Section 4 of this Agreement, the Series C Preferred Shares will be issued in compliance with all applicable securities Laws. The Conversion Shares have been duly reserved for issuance, and upon issuance in accordance with the terms of the Memorandum and Articles, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Transaction Documents, applicable securities Laws and Liens created by or imposed by the Investors. The Conversion Shares will be issued in compliance with all applicable securities Laws.

 

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(b) All presently outstanding Ordinary Shares of the Company were duly and validly issued, fully paid and non-assessable, and are free and clear of any Liens and free of restrictions on transfer (except for any restrictions on transfer under applicable securities Laws) and have been issued in compliance in all material respects with the requirements of all applicable securities Laws and regulations, including, to the extent applicable, the Securities Act.

3.6. Governmental Consents and Filings. Except as set forth in Section 3.6 of the Disclosure Schedule, no consent, approval, order or authorization of or registration, qualification, designation, declaration or filing with, any Governmental Authority is required on the part of any Warrantor in connection with the valid execution, delivery and consummation of the transactions contemplated by this Agreement, Shareholders Agreement or the offer, sale, issuance or reservation for issuance of the Series C Preferred Shares and the Ordinary Shares.

3.7. Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to the Warrantors’ Knowledge, currently threatened (i) against any Group Company or any officer, director or Key Employee of any Group Company that would either individually or in aggregate, reasonably be expected to have a Material Adverse Effect; or (ii) to the Warrantors’ Knowledge, that questions the validity of the Transaction Documents or the right of any Group Company to enter into them, or to consummate the transactions contemplated by the Transaction Documents. None of the Group Companies, its officers or directors, is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or Governmental Authority which would either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. There is no action, suit, proceeding or investigation by any Group Company pending or which any Group Company intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to the Warrantors) involving the prior employment of any of the Group Company’s employees, their services provided in connection with Group Company’s business, or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.

3.8. Intellectual Property. Each Group Company owns or possesses sufficient legal rights to (i) all trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes and (ii) to the Warrantors’ Knowledge, all patents and patent rights, as are necessary to the conduct of such Group Company’s business as now conducted and as presently proposed to be conducted, without any known conflict with, or infringement of, the rights of others. Section 3.8 of the Disclosure Schedule contains a complete and accurate list of all Intellectual Property owned, licensed to or used by each Group Company, whether registered or not, and a complete and accurate list of all licenses granted by such Group Company to any third party with respect to any Intellectual Property. Except as set forth in Section 3.8 of the Disclosure Schedule, no product or service marketed or sold (or proposed to be marketed or sold) by any Group Company violates or will violate any license or infringes or will infringe any Intellectual Property rights of any other party.

 

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(a) No Group Company has received any communications alleging that any Group Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. Except as set forth in Section 3.8(a) of the Disclosure Schedule, each Group Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with such Group Company’s business. To the Warrantors’ Knowledge, it will not be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by a Group Company. Each Key Employee has assigned to the Group Companies all Intellectual Property rights he or she owns that are related to the Group Companies’ business as now conducted.

(b) Other than with respect to commercially available software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the foregoing, nor is any Group Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity.

(c) No proceedings or claims in which any Group Company alleges that any Person is infringing upon, or otherwise violating, its Intellectual Property rights are pending, and none has been served, instituted or asserted by any Group Company.

(d) None of the employees of any Group Company or the Founders is obligated under any Contract (including a Contract of employment), or subject to any judgment, decree or order of any court or administrative agency, 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. To the Knowledge of the Warrantors, it will not be necessary to utilize in the course of any Group Company’s business operations any inventions of any of the employees of any Group Company made prior to their employment by the such Group Company, except for inventions that have been validly and properly assigned or licensed to such Group Company as of the date hereof.

(e) Each Group Company has taken all security measures that in the judgment of such Person are commercially prudent in order to protect the secrecy, confidentiality, and value of its material Intellectual Property.

(f) No Public Software (as defined below) forms part of any product or service provided by any Group Company (“GC Product or Service”), and no Public Software was or is used in connection with the development of any GC Product or Service or is incorporated into, in whole or in part, or has been distributed with, in whole or in part, any GC Product or Service. As used in this Section 3.8(f), “Public Software” means any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software (as defined by the Free Software Foundation), open source software (e.g., Linux or software distributed under any license approved by the Open Source Initiative as set forth www.opensource.org) or similar licensing or distribution models which require the distribution or making available of source code as well as object code of the software to licensees without charge (except for the cost of the medium) and (b) the right of the licensee to modify the software and redistribute both the modified and unmodified versions of the software, including software licensed or distributed under any of the following licenses: (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv) the Netscape Public License; (v) the BSD License; or (vi) the Apache License.

 

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3.9. Compliance with Other Instruments. The Group Companies and the Founders are not in violation or default (i) of any provisions of its Charter Document, (ii) of any instrument, judgment, order, writ or decree, (iii) under any note, indenture or mortgage, or (iv) under any lease, agreement, Contract or purchase order to which it is a party or by which it is bound that is required to be listed on the Disclosure Schedule, or (v) of any provision of statute, rule or regulation applicable to such Group Company, the violation of which would either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated by the Transaction Documents will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any such provision, instrument, judgment, order, writ, decree, Contract or agreement or (ii) an event which results in the creation of any Lien, charge or encumbrance upon any assets of any Group Company or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to any Group Company, which would either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.10. Agreements; Actions.

(a) Save for the agreements set out in Section 3.10(a) of the Disclosure Schedule (the “Material Agreements”) and the Transaction Documents, there are no other agreements, understandings, instruments, contracts or proposed transactions to which any Group Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, any Group Company in excess of US$10,000 per annum or in excess of US$25,000 in the aggregate, (ii) the transfer or license of any Intellectual Property rights to or from any Group Company, other than from or to another Group Company or from a Founder to a Group Company, (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other Person or affect any Group Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products, or (iv) indemnification by any Group Company with respect to infringements of proprietary rights. All the Material Agreements are valid, binding and enforceable obligations of the parties thereto and the terms thereof have been complied with by the relevant Group Company, and to the Knowledge of the Warrantors, by all the other parties thereto. There are, to the Knowledge of the Warrantors, no circumstances likely to give rise to any material breach of such terms, no grounds for rescission, avoidance or repudiation of any of the Material Agreements which would have a Material Adverse Effect and no notice of termination or of intention to terminate has been received in respect of any Material Agreement.

 

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(b) The Company has not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class of its share capital, and no Group Company has (i) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of US$10,000 or in excess of US$25,000 in the aggregate, (ii) made any loans or advances to any Person, other than ordinary advances for travel expenses and trade receivables in the ordinary course of business, or (iii) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business or otherwise envisaged in this Agreement. For the purposes of this Section 3.10, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsection.

(c) No Group Company is a guarantor or indemnitor of any indebtedness of any other Person, firm or corporation that is not a Group Company.

(d) In connection with this Agreement and the other Transaction Documents, no Group Company has engaged in the past three (3) months in any discussion with any representative of any corporation, partnership, trust, joint venture, limited liability company, association or other entity, or any individual, regarding (i) a sale of all or substantially all of such Group Company’s assets, or (ii) any merger, consolidation or other business combination transaction of such Group Company with or into another corporation, entity or Person.

3.11. Conflict of Interest.

(a) Other than (i) standard employee benefits generally made available to all employees, (ii) standard director and officer indemnification agreements approved by the Board of Directors, and (iii) the purchase of the Company’s share capital in accordance with applicable Law, and the issuance of options to purchase the Company’s Ordinary Shares, in each instance, disclosed in Section 3.11(a) of the Disclosure Schedule, there are no agreements, understandings or proposed transactions between any Group Company and any of its officers, directors, consultants or Key Employees, or any Affiliate thereof, respectively.

(b) No Group Company is indebted, directly or indirectly, to any of its directors, officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or employee relocation expenses. None of the Group Companies’ directors, officers or employees, or any members of their immediate families, or any Affiliate of the foregoing (i) are, directly or indirectly, indebted to any Group Company or, (ii) to the Warrantors’ Knowledge, have any direct or indirect ownership interest in any firm or corporation with which any Group Company is affiliated or with which any Group Company has a business relationship, or any firm or corporation which competes with any Group Company except that directors, officers or employees or shareholders of the Company may own shares in (but not exceeding one percent (1%) of the outstanding shares of) publicly traded companies that may compete with any Group Company. To the Warrantors’ Knowledge, none of the Group Companies’ employees or directors or any members of their immediate families or any Affiliate of any of the foregoing are, directly or indirectly, interested in any Contract with any Group Company. None of the directors or officers, or any members of their immediate families, has any material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any of the Group Companies’ five (5) largest business relationship partners, service providers, joint venture partners, licensees and competitors.

 

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(c) Except as set forth in Section 3.11(c) of the Disclosure Schedule, there are no corporations, partnerships, trusts, joint ventures, limited liability companies or other business entities in which any Founder owns or controls, directly or indirectly, 10% or more of the outstanding voting interests.

3.12. Rights of Registration and Voting Rights. Except as provided in the Shareholders Agreement and as set forth in Section 3.12 of the Disclosure Schedule, no Group Company is under any obligation to register under the Securities Act or any other applicable securities Laws, any of its currently outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding securities. To the Warrantors’ Knowledge, except as contemplated in the Shareholders Agreement, no shareholder of any Group Company has entered into any agreements with respect to the voting of shares in the capital of the Company. Except as contemplated by or disclosed in the Transaction Documents, no Founder is a party to or has any Knowledge of any agreements, written or oral, relating to the acquisition, disposition, registration under the Securities Act, or voting of the shares or securities of any Group Company.

3.13. Absence of Liens. The property and assets owned by the Group Companies are free and clear of all Liens, except for statutory Liens for the payment of current Taxes that are not yet delinquent and Liens that arise in the ordinary course of business and do not materially impair the Group Companies’ ownership or use of such property or assets. With respect to the property and assets it leases, each Group Company is in compliance with such leases and, to the Warrantors’ knowledge, holds a valid leasehold interest free of any Liens, claims or encumbrances other than those of the lessors of such property or assets.

3.14. Financial Statements. The Domestic Company has delivered to the Investors its consolidated balance sheet, income statement and statement of cash flows, prepared in accordance with the Applicable Accounting Principles and applied on a consistent basis, for the fiscal year ended December 31, 2012, and an unaudited balance sheet and statements of operations and cash flow for the eight (8) months period from January 1, 2013 to August 31, 2013 (the “Statement Date”). The financial statements referred to above are collectively referred herein as the “Financial Statements”. The Financial Statements fairly present in all material respects the financial condition and operating results of the Domestic Company as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Financial Statements to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Domestic Company does not have material Liabilities or obligations, contingent or otherwise, as of the Statement Date, other than (i) Liabilities incurred in the ordinary course of business subsequent to the Statement Date (ii) obligations under Contracts and commitments incurred in the ordinary course of business and (iii) Liabilities and obligations of a type or nature not required under PRC GAAP to be reflected in the Financial Statements, which, in all such cases, individually and in the aggregate would not have a Material Adverse Effect. The Domestic Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with PRC GAAP.

 

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3.15. Changes. Since the Statement Date in the case of the Domestic Company and since its inception for each other Group Company, except as set forth in Section 3.15 of the Disclosure Schedule or as contemplated by the Transaction Documents, there has not been:

(a) any change in the assets, Liabilities, financial condition or operating results of any Group Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not caused, in the aggregate, a Material Adverse Effect on a Group Company;

(b) any damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect on a Group Company;

(c) any waiver or compromise by any Group Company of a valuable right or of a material debt owed to it;

(d) any satisfaction or discharge of any Lien or payment of any obligation by any Group Company, except in the ordinary course of business and the satisfaction or discharge of which would not have a Material Adverse Effect;

(e) any material change to a material Contract or agreement by which any Group Company or any of its assets is bound or subject;

(f) any material change in any compensation arrangement or agreement with any employee, officer, director or shareholder;

(g) any resignation or termination of employment of any officer or Key Employee of any Group Company;

(h) any mortgage, pledge, transfer of a security interest in, or Lien, created by any Group Company, with respect to any of its material properties or assets, except Liens for Taxes not yet due or payable and Liens that arise in the ordinary course of business and do not materially impair such Group Company’s ownership or use of such property or assets;

(i) any dividend, loans or guarantees made by any Group Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

(j) any declaration, setting aside or payment or other distribution in respect of any Group Company’s share capital, or any direct or indirect redemption, purchase, or other acquisition of any of such shares by any Group Company;

(k) any sale, assignment or transfer of any Group Company Intellectual Property that could reasonably be expected to result in a Material Adverse Effect;

(l) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of any Group Company;

 

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(m) to the Warrantors’ Knowledge, any other event or condition of any character, other than events affecting the economy or the Company’s industry generally, that could reasonably be expected to result in a Material Adverse Effect; or

(n) any arrangement or commitment by the Company to do any of the things described in this Section 3.15.

3.16. Employee Matters.

(a) As of the date hereof, the Group Companies employ around 163 full-time employees. Section 3.16(a) of the Disclosure Schedule sets forth a detailed description of all compensation, including salary, bonus, severance obligations and deferred compensation paid or payable for each officer, employee, consultant and independent contractor of any Group Company who received compensation in excess of US$10,000 for the fiscal year ending December 31, 2012 and who is anticipated to receive compensation in excess of US$ 40,000 for the fiscal year ending December 31, 2013.

(b) To the Warrantors’ Knowledge, no employee of any Group Company is obligated under any Contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Group Companies or that would conflict with the Group Companies’ business. Neither the execution or delivery of the Transaction Documents, nor the carrying on of any Group Company’s business by the employees of the Group Companies, nor the conduct of the business as now conducted and as presently proposed to be conducted, will, to the Warrantors’ Knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any Contract, covenant or instrument under which any such employee is now obligated.

(c) Except as set forth in Section 3.16(c) of the Disclosure Schedule, no Group Company is delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants, or independent contractors. Each Group Company has complied in all material respects with all applicable Laws related to employment, including those related to wages, hours, worker classification, and collective bargaining, and the payment and withholding of Taxes and other sums as required by Law except where noncompliance with any applicable Law would not result in a Material Adverse Effect. Each Group Company has withheld and paid to the appropriate Governmental Authority or is holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of such Group Company and is not liable for any arrears of wages, Taxes, penalties, or other sums for failure to comply with any of the foregoing.

(d) To the Warrantors’ Knowledge, no Key Employee intends to terminate employment with any Group Company or is otherwise likely to become unavailable to continue as a Key Employee, nor does any Group Company have a present intention to terminate the employment of any of the foregoing. The employment of each employee of the Company is terminable at the will of the Company. Except as set forth in Section 3.16(d) of the Disclosure Schedule or as required by Law, upon termination of the employment of any such employees, no severance or other payments will become due. Except as set forth in Section 3.16(d) of the Disclosure Schedule, no Group Company has any policy, practice, plan, or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.

 

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(e) The Company has not made any representations regarding equity incentives to any officer, employees, director or consultant that are inconsistent with the share amounts and terms set forth in the Company’s board minutes.

(f) Each former Key Employee whose employment was terminated by any Group Company has entered into an agreement with such Group Company providing for the full release of any claims against the Company or any Related Party arising out of such employment.

(g) Section 3.16(g) of the Disclosure Schedule sets forth each and every employee benefit plan maintained, established or sponsored by any Group Company, or in which any Group Company participates in or contributes to in any jurisdiction, including without limitation, the PRC (the “Employee Benefit Plans”). Save as set out in Section 3.16(g) of the Disclosure Schedule, there is no other pension, retirement, profit-sharing, deferred compensation, bonus, incentive or other employee benefit program, arrangement, agreement or understanding to which any Group Company contributes, is bound, or under which any employees or former employees (or their beneficiaries) are eligible to participate or derive a benefit. Each Group Company has made all required contributions under all the Employee Benefit Plans including without limitation all contributions required to be made under the PRC social insurance and housing schemes, and has complied in all material respects with all applicable Laws of any jurisdiction, in relation to the Employee Benefit Plans.

(h) 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, to the Warrantors’ Knowledge, has sought to represent any of the employees, representatives or agents of any Group Company. There is no strike or other labor dispute involving any Group Company pending, or to the Warrantors’ Knowledge, threatened, which could have a Material Adverse Effect, nor is the Company aware of any labor organization activity involving its employees.

(i) To the Warrantors’ Knowledge, none of the Key Employees or directors of any Group Company during the previous four (4) years, has been (a) subject to voluntary or involuntary petition under any applicable bankruptcy Laws or any state insolvency Laws or the appointment of manager, a receiver or similar officer by a court for his business or property; (b) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (c) subject to any order, judgment, or decree (not subsequently reversed, suspended, or vacated) of any court of competent jurisdiction permanently or temporarily enjoining him from engaging, or otherwise imposing limits or conditions on his engagement in any securities, investment advisory, banking, insurance, or other type of business or acting as an officer or director of a public company; or (d) found by a court of competent jurisdiction in a civil action or by any relevant regulatory organization to have violated any applicable securities, commodities, or unfair trade practices Law, which such judgment or finding has not been subsequently reversed, suspended, or vacated.

 

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(j) Each Key Employee has executed a Letter of Commitment and Non-Competition with the Company dated April 18, 2012, pursuant to which, among other things, each Key Employee must (A) devote all work effort exclusively to the Group Companies until at least one (1) year after the closing of a Qualified IPO, (B) not directly or indirectly compete with any business activities of any Group Company during or for two (2) years after the employment period, and (C) not directly or indirectly induce any employees, consultants, or directors of any Group Company to terminate their employment with or services to any Group Company.

3.17. Tax Matters.

(a) The provisions for Taxes as shown on the balance sheet included in the Financial Statements are sufficient in all material respects for the payment of all accrued and unpaid applicable Taxes of the Group Companies as of the date of each such balance sheet, whether or not assessed or disputed as of the date of each such balance sheet. There have been no extraordinary examinations or audits of any Tax Returns or reports by any applicable Governmental Authority. Each Group Company has filed or caused to be filed on a timely basis all Tax Returns that are or were required to be filed (to the extent applicable), all such returns are correct and complete, and each Group Company has paid all Taxes that have become due, or have reflected such Taxes in accordance with the Applicable Accounting Principles as a reserve for Taxes on the Financial Statements. There are in effect no waivers of applicable statutes of limitations with respect to Taxes for any year.

(b) No Group Company is treated as a resident for Tax purposes of, or is otherwise subject to income Taxation in, a jurisdiction other than the jurisdiction in which such Group Company is established. No written claim has been made by a Governmental Authority in a jurisdiction where the Group Companies do not file Tax Returns that any Group Company is or may be subject to taxation by that jurisdiction.

(c) The Company has never been, and, to the best of its Knowledge after consultation with its tax advisors, will not be with respect to its taxable year during which the Closing occurs, a “passive foreign investment company” within the meaning of Section 1297 of the Internal Revenue Code of 1986, as amended (or any successor thereto). The Company shall use its best efforts to avoid being a “passive foreign investment company” within the meaning of Section 1297 of the Internal Revenue Code of 1986, as amended (or any successor thereto). In connection with a “Qualified Electing Fund” election made by any of the Investors’ partners pursuant to Section 1295 of the Internal Revenue Code of 1986 or a “Protective Statement” filed by any of a Investors’ Partners pursuant to Treasury Regulation Section 1.1295-3, as amended (or any successor thereto), the Company shall provide annual financial information to the Investors in such form as may be required by the Investors in accordance with applicable Law as soon as reasonably practicable following the end of each taxable year of the Company (but in no event later than 90 days following the end of each such taxable year), and shall provide the Investors with access to such other Company information as may be required for purposes of filing U.S. federal income Tax Returns of the Investors’ partners in connection with any such Qualified Electing Fund election or Protective Statement. In the event that an Investor’s partner who has made a “Qualified Electing Fund” election must include in its gross income for a particular taxable year its pro rata share of the Company’s earnings and profits pursuant to Section 1293 of the United States Internal Code of 1986, as amended (or any successor thereto), the Company agrees to make a dividend distribution to the Investors (no later than 90 days following the end of the Company’s taxable year or, if later, 90 days after the Company is informed by Investors that the Investors’ partner has been required to recognize such an income inclusion) in an amount equal to 50% of the amount that would be included by the Investors if the Investors were a “United States person” as such term is defined in Section 7701(a)(30) of the Code and had Investors made a valid and timely “Qualified Electing Fund” election which was applicable to such taxable year.

 

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3.18. Insurance. Section 3.18 of the Disclosure Schedule provides a complete list of each Group Company’s insurance policies currently in effect. No Group Company has done or omitted to do or suffered anything to be done or not to be done other than any acts in the ordinary course of business which has or would render any policies of insurance taken out by it or by any other Person in relation to any such Group Company’s assets void or voidable or which would result in an increase in the rate of premiums on the said policies and there are no claims outstanding and no circumstances which would give rise to any claim under any such policies of insurance.

3.19. Confidential Information and Invention Assignment Agreements. Except as set forth in Section 3.19 of the Disclosure Schedule, each current and former employee, consultant, contractor, director, and officer of the Company or any Group Company has executed an agreement with the Company or such Group Company regarding confidentiality, proprietary information, non-competition, non-solicitation, and invention assignment substantially in the form or forms delivered to the counsel for the Investors (the “Confidential Information Agreements”). No current or former Key Employee has excluded works or inventions from his or her assignment of inventions pursuant to such Key Employee’s Confidential Information Agreement. The Company and any Group Company are not aware that any of the Key Employees is in violation thereof.

3.20. Governmental and Other Permits. Except as set forth in Section 3.20 of the Disclosure Schedule, each Group Company has all franchises, governmental permits, licenses and any similar authority necessary for the conduct of its business. No Group Company is in default in any material respect under any of such franchises, governmental permits, licenses or other similar authority.

(a) The Domestic Company and the WFOE have applied and obtained all requisite licenses, clearance and permits required under PRC Laws as necessary for the conduct of its businesses, and the Domestic Company and the WFOE have complied in all material respects with all PRC Laws in connection with foreign exchange, including without limitation, carrying out all relevant filings, registrations and applications for relevant permits with the SAFE and any other relevant authorities, and all such permits are validly subsisting.

(b) Except as set forth in Section 3.20(b) of the Disclosure Schedule, the registered capital of the Domestic Company and the WFOE has been fully paid up in accordance with the schedule of payment stipulated in its respective Charter Documents and in compliance with PRC Laws and regulations, and there is no outstanding capital contribution commitment.

 

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(c) The Charter Documents of the Domestic Company and the WFOE have been duly approved and filed in accordance with the Laws of the PRC and are valid and enforceable.

(d) The business scope specified in the Charter Documents of the Domestic Company complies with the requirements of all relevant PRC Laws. The operation and conduct of the business by and the term of operation of the Domestic Company in accordance with the Charter Documents is in compliance with the Laws of the PRC.

(e) Section 3.20(e) of the Disclosure Schedule sets out full and accurate details of all loan agreements entered into between any one Group Company regarding any inter-company loan, shareholders loan or foreign exchange loan obtained by them. Such loan agreements have been duly registered in accordance with the Laws of the PRC (where necessary) and all such registrations are validly subsisting under the Laws of the PRC.

3.21. Corporate Documents. The Memorandum and Articles and all other Charter Documents (or analogous constitutional documents) of each Group Company are in the form provided to the Investors. The copy of the minute books of the Company provided to the Investors contains minutes of all meetings of directors and shareholders and all actions by written consent without a meeting by the directors and shareholders since the date of incorporation and accurately reflects in all material respects all actions by the directors (and any committee of directors) and shareholders with respect to all transactions referred to in such minutes.

3.22. Liabilities. Except as set forth in Section 3.22 of the Disclosure Schedule, no Group Company has Liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, except for (i) Liabilities set forth in the Financial Statements, (ii) trade or business liabilities incurred in the ordinary course of business, and (iii) other Liabilities that do not exceed US$20,000 in the aggregate.

3.23. Compliance with Laws.

(a) Except as set forth in Section 3.23(a) of the Disclosure Schedule, each Group Company is in material compliance with all applicable Laws applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets or properties;

(b) No event has occurred and no circumstance exists that to the Warrantors’ Knowledge (i) may constitute or result in a violation by any Group Company, or a failure on the part of any Group Company to comply with any Law, 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, except for such violations or failures by a Group Company that, individually or in the aggregate, would not result in any Material Adverse Effect;

(c) No Group Company has received any written notice from any Governmental Authority regarding (i) any actual, alleged or likely material violation of, or material failure to comply with, any Law, or (ii) any actual, alleged or likely material obligation on the part of any Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature;

 

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(d) No Group Company, nor any director, agent, employee or any other person acting for or on behalf of any Group Company, has directly or indirectly (i) made any contribution, gift, bribe, payoff, influence payment, kickback, or any other fraudulent payment in any form, whether in money, property, or services to any public official or otherwise (A) to obtain favorable treatment in securing business for a Group Company, (B) to pay for favorable treatment for business secured, or (C) to obtain special concessions or for special concessions already obtained, for or in respect of any Group Company, in each case which would have been in violation of any applicable Law or (ii) established or maintained any fund or assets in which any Group Company shall have proprietary rights that have not been recorded in the books and records of a Group Company.

3.24. Disclosure; Projections. The Company has made available to the Investors all the information reasonably available to the Company that the Investors has requested for deciding whether to acquire the Series C Preferred Shares, including certain of financial projections with respect to the Company (the “Projections”), each of which were prepared in good faith. To the Warrantors’ Knowledge, no representation or warranty of any Warrantor contained in this Agreement, as qualified by the Disclosure Schedule, and no certificate furnished or to be furnished to the Investors at the Closing contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

3.25. Entire Business. There are no material facilities, services, assets or properties shared with any entity other than the Group Company which are used in connection with the business of the Domestic Company.

4. Representations and Warranties of the Investors. Each Investor hereby represents and warrants to the Company, severally and not jointly, that each of the statements contained in this Section 4 is true and complete as of the date of this Agreement and the date of the Closing as follows:

4.1 Status. To the extent that such Investor is not a natural person, such Investor is an entity duly organized validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation.

4.2 Authorization. Such Investor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All action on the part of such Investor (and, as applicable, its officers, directors and shareholders) necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, and the performance of all obligations of such Investor thereunder, has been taken or will be taken prior to the Closing. This Agreement has been duly executed and delivered by such Investor. This Agreement and each of the Transaction Documents are, or when executed and delivered by such Investor will be, valid and legally binding obligations of such Investor, enforceable against such Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

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4.3 Purchase for Own Account. The Series C Preferred Shares purchased hereunder, and to be received by such Investor, if any, will be acquired for investment purposes for such Investor’s own account or the account of one or more of such Investor’s Affiliates, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and such Investor does not have any present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that it does not have any Contract with any Person to, directly or indirectly, sell, transfer or grant participations, with respect to any of the Series C Preferred Shares, and has not solicited any Person for such purpose, and if such Investor is not a natural person then it further represents that it has not been organized for the purpose of acquiring the Series C Preferred Shares.

4.4 Investment Experience. Such Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series C Preferred Shares.

4.5 Status of Investor. Such Investor is either (i) an “accredited investor” within the meaning of U.S. Securities and Exchange Commission (“SEC”) Rule 501 of Regulation D, as presently in effect, under the Securities Act, or (ii) not a “U.S. person” as defined in Rule 902 of Regulation S of the Securities Act and that any transfer or resale of the Series C Preferred Shares and the underlying Ordinary Shares will be in accordance with the provisions of said Regulation S or pursuant to an available exemption therefrom.

4.6 Foreign Investors. If such Investor is not a “U.S. person” (as defined in Rule 902 of Regulation S of the Securities Act), such Investor hereby represents that it has satisfied itself as to the full observance of the Laws of its jurisdiction in connection with the issuance of the Series C Preferred Shares or any use of this Agreement, including (i) the legal exchange requirements within its jurisdiction for the purchase of the Series C Preferred Shares, (ii) any foreign consents that may need to be obtained, and (iii) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Series C Preferred Shares. Such Investor’s subscription and payment for, and continued beneficial ownership of, the Series C Preferred Shares will not violate any applicable securities or other Laws of such Investor’s jurisdiction.

4.7 Restricted Securities. Such Investor understands that the Series C Preferred Shares are characterized as “restricted securities” under U.S. federal securities Laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such Laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. Such Investor understands that the Series C Preferred Shares have not been qualified or registered under the Laws of any other jurisdiction and therefore may be viewed as restricted securities under any or all of such other applicable securities Laws.

 

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4.8 Legends. Such Investor understands that the certificates evidencing the Series C Preferred Shares issued pursuant to this Agreement may bear the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE U.S. SECURITIES ACT OF 1933.”

5. Conditions of the Investors’ Obligations at the Closing. The obligations of the Investors to consummate the Closing under Section 2 of this Agreement, unless otherwise waived in writing by the Investors, are subject to the fulfillment on or before the Closing of each of the following conditions:

5.1 Representations and Warranties. Each of the representations and warranties of the Warrantors contained in Section 3 shall be true, correct and complete when made and shall be true, correct and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true, correct and complete as of such particular date.

5.2 Performance. Each Warrantor shall have performed and complied with all agreements, obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by them, on or before the Closing.

5.3 Authorizations. All Approvals of any competent Governmental Authority or of any other Person that are required to be obtained by any Group Company or Founder in connection with the consummation of the transactions contemplated by this Agreement and other Transaction Documents (including but not limited to those related to the lawful issuance and sale of the Series C Preferred Shares, any waivers of rights of first refusal, preemptive rights, put or call rights, transactions contemplated by the Control Documents, or other rights triggered by the Transaction Documents, if any) shall have been duly obtained and effective as of the Closing.

5.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions to be completed at the Closing and all documents incident thereto, including without limitation written approval from all of the then current holders of equity interests of each Group Company, as applicable, with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, shall have been completed in form and substance reasonably satisfactory to the Investors, and each Investor shall have received all such counterpart original or other copies of such documents as it may reasonably request.

5.5 Memorandum and Articles. The Memorandum and Articles shall have been duly adopted by all necessary actions of the Board of Directors and/or the members of the Company, and shall have been duly filed with the registration authority of the British Virgin Islands.

 

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5.6 Closing Certificate. The chief executive officer of the Company shall have executed and delivered to the Investors at the Closing a certificate dated as of the Closing (i) stating that the conditions specified in this Section 5 have been fulfilled as of the Closing, and (ii) attaching thereto (a) the Charter Documents of the Group Companies as then in effect, (b) copies of all resolutions approved by the shareholders and boards of directors of each Group Company related to the transactions contemplated hereby, and (c) good standing or equivalent certificates with respect to the Company from the applicable authorities in the British Virgin Islands dated no more than five (5) days prior to the Closing.

5.7 Ancillary Agreements. Each of the parties to the Shareholders Agreement and all other Ancillary Agreements (other than the Investors) shall have executed and delivered such agreements to the Investors.

5.8 Opinions of Counsel. The Investors shall have received:

(i) from Concord & Partners, PRC counsel for the Company, an opinion, dated as of the Closing, in substantially the form attached hereto as Exhibit E-1; and

(ii) from Appleby, British Virgin Islands counsel for the Company, an opinion, dated as of the Closing, in substantially the form attached hereto as Exhibit E-2.

5.9 Indemnification Agreement. The Company shall have delivered to the Investors copy of indemnification agreement between the Company and the additional directors of the Company designated by the Investors, in each case duly executed by the Company (an “Indemnification Agreement”) in form and substance attached hereto as Exhibit F.

5.10 Employment Agreements. The Company shall have delivered to the Investors copies of duly executed employment agreements and non-solicitation agreements with each of the Key Employees, respectively (each, an “Employment Agreement”), each in form and substance attached hereto as Exhibit G.

5.11 Board of Directors. The Board of Directors shall have been constituted in accordance with the Shareholders Agreement and the Company shall have delivered to the Investors a copy of the Company’s register of directors, certified by its registered agent and evidencing the same.

5.12 SAFE Compliance. Each holder of the Equity Securities of the Company shall have complied with all applicable reporting and/or registration requirements under the SAFE Rules and Regulations to the reasonable satisfaction of the Investors.

5.13 Due Diligence. The Investors shall have satisfactorily completed their due diligence review concerning the business, legal, financial, management, technology, intellectual property, process, licenses, and government regulations of each Group Company, including but not limited to the receipt by the Investors of the Financial Statements with respect to each Group Company hereof at the Company’s expense.

5.14 No Material Adverse Effect. Since the date of this Agreement, no event, circumstance or change shall have occurred that, individually or in the aggregate with one or more other events, circumstances or changes, have had or reasonably could be expected to have a Material Adverse Effect on the Company or any other Group Company.

 

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5.15 Management Rights Letter. The Company shall have executed and delivered to each Investor a Management Rights Letter in the form attached hereto as Exhibit H.

5.16 Delivery of Budget. The Company shall have delivered to the Investors its budget for the third and fourth quarters of 2013 and the calendar year of 2014 in the form and substance reasonably satisfactory to the Investors.

6. Conditions of the Company’s Obligations at Closing. The obligations of the Company to consummate the Closing under Section 2 of this Agreement, unless otherwise waived in writing by the Company, are subject to the fulfillment on or before the Closing of each of the following conditions:

6.1 Representations and Warranties. The representations and warranties of each Investor contained in Section 4 shall be true and complete when made and shall be true and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.

6.2 Performance. Each Investor shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by such Investor on or before the Closing.

6.3 Ancillary Agreements. Each Investor shall have executed the Shareholders Agreement and all other Ancillary Agreements to which it is a party and delivered the same to the other parties thereto.

7. Covenants and Other Agreements.

7.1 Use of Proceeds. In accordance with the directions of the Company’s Board of Directors, as it shall be constituted in accordance with the Shareholders Agreement, the Company will use the proceeds from the sale of the Series C Preferred Shares for business expansion, general working capital, merger and acquisition and other general corporate purposes for the Group Companies in accordance with the approved budget and business plan.

7.2 Executory Period Covenants. Between the date of this Agreement and the Closing, unless the Investors consent in writing otherwise:

(i) Pre-Closing Actions. As promptly as practicable, each Warrantor shall: (a) use best efforts to take all actions required of such party and to do all other things reasonably necessary, proper or advisable to consummate the transactions contemplated under the Transaction Documents; (b) file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by such Warrantor pursuant to Law in connection with the Transaction Documents and the issuance of the Series C Preferred Shares pursuant hereto and the consummation of the other transactions contemplated under the Transaction Documents; (c) use reasonable best efforts to obtain, or cause to be obtained, all consents (including any consents required under any Contract) necessary to be obtained by such party in order to consummate the transactions contemplated pursuant to the Transaction Documents; and (d) coordinate and cooperate with the other Parties in exchanging such information and supplying such assistance as may be reasonably requested by the other Parties in connection with any filings and other actions to be made or taken in order to consummate the transactions contemplated pursuant to the Transaction Documents.

 

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(ii) Non-Violation. Pending the Closing, none of the Warrantors, without the prior written consent of the Investors, shall take any action which (a) would render any of the representations or warranties made by the Warrantors in this Agreement untrue in any material respect if given with reference to the facts and circumstances then existing or (b) would result in any of the covenants contained in this Agreement becoming incapable of performance. Each Warrantor shall promptly advise the Investors of any action or event of which such Warrantor becomes aware which would have the effect of making incorrect in any material respect any such representations or warranties if given with reference to facts and circumstances then existing or which has the effect of rendering any such covenants incapable of performance.

(iii) Conduct of Business. Except as otherwise permitted by this Agreement or with the written consent of the Investors, from the date hereof to the date of the Closing, the Warrantors shall: (a) carry on the Group’s business in the ordinary course consistent with past practice and in substantially the same manner as conducted prior to the date hereof and use best efforts to preserve its relationships with customers, suppliers and others having business dealings with the Group; and (b) not do any act or thing which would require the consent of the Investors under the Shareholders Agreement had the transactions contemplated hereunder been consummated.

(iv) Negative Covenants. No Warrantor shall (a) waive, release or assign any material right or claim, (b) take any action that would reasonably be expected to materially impair the value of any Group Company, (c) sell, purchase, assign, lease, transfer, pledge, encumber or otherwise dispose of any material asset, (d) issue, sell, or grant any Equity Security, (e) declare, issue, make, or pay any dividend or other distribution with respect to any Equity Security, (f) incur any indebtedness for borrowed money or capital lease commitments or assume or guarantee for any indebtedness of any Person, (g) make any material change in any method of accounting or accounting practice used by any Group Company, other than any such changes required by Applicable Accounting Principles, (h) enter into any Contract or other transaction with an Affiliate, or (i) authorize or commit to do any of the foregoing.

(v) Exclusivity. From the date hereof until the Closing, the Warrantors shall not, and they shall not permit any of their representatives or any member of the Group to, solicit, initiate, facilitate, engage in any discussions or negotiations with respect to, adopt, approve, commit to, or conclude any investment transaction with, or any sale of any member of the Group or the business or equity thereof to, any third party, whether directly or indirectly. The Warrantors shall, and shall cause their representatives and the other members of the Group to, immediately terminate all existing activities, discussions and negotiations with any third parties with respect to the foregoing, and if any of them hereafter receives any correspondence or communication that constitutes, or could reasonably be expected to lead to, any such transaction they shall immediately give notice thereof (including the third party and the material terms of such transaction) to the Investors.

 

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(vi) Access and Information. From the date hereof until the Closing, the Warrantors shall permit each Investor, or any representative thereof, at its own expense, to (a) visit and inspect the properties of the Group Companies, (b) inspect the contracts, books of account, records, ledgers, and other documents and data of the Group Companies, (c) discuss the business, affairs, finances and accounts of the Group Companies with officers and employees of the Group Companies, and (d) review such other information as such Investor reasonably requests, in each case during normal business hours and in such a manner so as not to unreasonably interfere with the normal operations of the Group Companies. No information or knowledge obtained pursuant to this Section or otherwise by an Investor in connection with its due diligence will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the transactions.

(vii) Financial Statements. Each Warrantor shall furnish to the Investors as soon as practicable after the end of each month between the date hereof and the Closing, and in any event within 15 business days after each such month, the unaudited financial statements of each such entity for the month then ended, which shall present fairly, in all material respects, the unaudited financial position of such entity as of the end of such month and the consolidated results of such entity’s operations and cash flows for the month then ended, in conformity with Applicable Accounting Principles consistently applied with the Financial Statements, except for noncompliance with the footnote disclosure requirements under Applicable Accounting Principles and for year-end adjustments, and subject to such other exceptions as may be indicated in the notes thereto.

7.3 Compliance with Circular 75. The Company (and/or any other Group Company and/or Founders, as the case may be) shall, as promptly as practicable after the Closing, to the satisfaction of the Investors, take all requisite action to apply for and complete any necessary filing under the SAFE Rules and Regulations.

7.4 Equity Transfer of Domestic Company. As soon as practical after the Closing, Matrix shall cause its nominee to transfer all of its equity interest in the Domestic Company to Tang Yan for a minimum consideration as permitted under applicable laws and regulations in the PRC. All the consideration (if any) required for such transfer shall be borne by the Group Company and all such consideration received by the nominee of Matrix shall be refunded to the Group Company. Any fees and taxes incurred in connection with the aforesaid equity transfer shall be borne by the Group Company.

7.5 Restated Control Documents. Within fifteen (15) days following the completion of the equity transfer contemplated in Section 7.4 above, the Founders, the Domestic Company and the WOFE shall, and each of the Group Companies shall cause the Founders, the Domestic Company and the WOFE to, amend and restate the Control Documents in accordance with the updated shareholding structure of the Domestic Company (the “Restated Control Documents”).

7.6 Equity Pledge Registration. Within thirty (30) days following the execution of the Restated Control Documents, the Founders, the Domestic Company and the WFOE shall register the equity pledge contemplated under the Restated Control Documents with the competent PRC authority.

7.7 Permit and License. As soon as practicable after the Closing, the Domestic Company shall, and the Founders and other Group Companies shall cause the Domestic Company to, obtain all the permits and licenses and necessary governmental authorizations for the conduct of their business as currently conducted and as proposed to be conducted in full compliance with applicable laws, including but not limited to, the Value Added Telecommunication Operation License and the Internet Culture Operation License, as applicable.

 

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7.8 Registration of Other Intellectual Property Rights. As soon as practically possible following the Closing and to the extent permitted under applicable PRC Laws, the WFOE shall, and the Founders shall cause the WFOE to have all the intellectual property rights, including without limitation software copyrights and domain names necessary for the operation of the Group Companies registered under the name of the WFOE.

7.9 No Investment in Competition. AIL and its Affiliates shall not, within eighteen (18) months since 13 July 2012, (i) invest in any company, the principal business of which is the provision of social networking service using location-based and global positioning system technology or (ii) promote any new products that are the same as the current Momo smart phone application. Notwithstanding the foregoing, nothing in this Section shall prohibit AIL and/or any of its Affiliate from holding or increasing any investment either AIL and/or any of its Affiliate has made in any entity, or otherwise carrying out such business as currently conducted by either AIL, any of its Affiliate and/or their investees.

7.10 Statistical Registration Certificate. The Domestic Company shall, and the Founders and the Group Companies shall cause the Domestic Company to, have duly obtained and maintained the Statistical Registration Certificate within sixty (60) days after the Closing.

7.11 Cancellation of Instruments of Transfer. Within thirty (30) days of the Closing, the Company and the Founders shall take all actions necessary to cancel the Instruments of Transfer from each Founder to Matrix dated March 20, 2012, and evidence of such cancellation shall be delivered to the reasonable satisfaction of the Investors.

8. Confidentiality.

8.1 Disclosure of Terms. The terms and conditions of the Transaction Documents (collectively, the “Financing Terms”), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except in accordance with the provisions set forth below.

8.2 Permitted Disclosures. Notwithstanding the foregoing, (i) each member of the Group and each Investor, as appropriate, may disclose any of the Financing Terms to its current or bona fide prospective investors, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; and (ii) each Investor may disclose any of the Financing Terms to its fund manager and the employees thereof so long as such Persons are under appropriate nondisclosure obligations.

8.3 Announcements. Each Party to this Agreement hereby acknowledges, affirms and agrees that it shall not and shall procure its Affiliates not to make any announcement or other publicity in connection with the Financing Terms without approval of the Board as to its content, form and manner of publication. Subject to the other obligations of the Company under the Transaction Documents, the Company shall not be bound by this Section 8.3.

 

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8.4 Legally Compelled Disclosure. In the event that any Party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws) to disclose the existence or content of any of the Financing Terms hereof in contravention of the provisions of this Section 8, such Party (the “Disclosing Party”) shall promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be given to such information to the extent reasonably requested by the other Parties.

8.5 Other Exceptions. Notwithstanding any other provision of this Section 8, the confidentiality obligations of the Parties shall not apply to: (i) information which a restricted Party learns from a third party having the right to make the disclosure, provided the restricted Party complies with any restrictions imposed by the third party; (ii) information which is in the restricted Party’s possession prior to the time of disclosure by the protected Party and not acquired by the restricted Party under a confidentiality obligation; (iii) information which enters the public domain without breach of confidentiality by the restricted Party; or (iv) disclosures to a Party’s accountants, attorneys or other professional advisors so long as they agree to keep such disclosures confidential.

9. Indemnity.

9.1 General Indemnity. In the event of: (a) any breach or violation of, or inaccuracy or misrepresentation in, any representation or warranty made by the Warrantors contained herein or any of the other Transaction Documents, or (b) any breach or violation of any covenant or agreement contained herein or any of the other Transaction Documents (each of (a) or (b), a “Breach”), the Warrantors shall, jointly and severally, or cause the other Warrantors to, cure such Breach (to the extent that such Breach is curable) to the satisfaction of the Investors (it being understood that any cure shall be without recourse to cash or assets of any of the Group Companies). Notwithstanding the foregoing, each Warrantor shall also, jointly and severally, indemnify the Investors and its Affiliates, limited partners, members, stockholders, employees, agents and representatives (each, an “Indemnitee”) for any and all losses, liabilities, damages, liens, claims, obligations, penalties, settlements, deficiencies, costs and expenses, including without limitation reasonable advisor’s fees and other reasonable expenses of investigation, defense and resolution of any Breach paid, suffered, sustained or incurred by the Indemnitees (each, an “Indemnifiable Loss”), resulting from, or arising out of, or due to, directly or indirectly, any Breach.

9.2 Specific Indemnity. Without limiting the generality of Section 9.1, each Warrantor hereby agrees to jointly and severally indemnify and hold harmless each Indemnified Party, from and against any and all Indemnifiable Losses suffered by such Indemnified Party, directly or indirectly, as a result of, or based upon or arising from the failure of the Group Companies and the Founders (i) to timely register certain equity pledges made by each individual equity holder of the Domestic Company, to timely obtain the Statistical Registration Certificate , and to cancel certain instruments of transfer from each Founder to Matrix dated March 20, 2012; and (ii) to obtain any governmental permits, licenses, certificates, or any similar authority necessary for the conduct of the business of the Group Companies. Such indemnification shall not be prejudiced by or be otherwise subject to any disclosure (in the Disclosure Schedule or otherwise) and shall apply regardless of whether the Indemnified Parties have any knowledge, actual or constructive, with respect thereto.

 

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9.3 Tax Indemnity. Notwithstanding the foregoing, the Founders shall, jointly and severally, indemnify and keep indemnified the Indemnitees at all times and hold them harmless against any and all Indemnifiable Losses resulting from, or arising out of, or due to, directly or indirectly, any claim for Tax which has been made or may hereafter be made against the Domestic Company and any other Group Company wholly or partly in respect of or in consequence of any event occurring or any income, profits or gains earned, accrued or received by the Domestic Company and any other Group Company on or before the Closing and any reasonable costs, fees or expenses incurred and other liabilities which the Domestic Company and any other Group Company may properly incur in connection with the investigation, assessment or the contesting of any claim, the settlement of any claim for Tax, any legal proceedings in which the Domestic Company or any other Group Company claims in respect of the claim for Tax and in which an arbitration award or judgment is given for the Domestic Company or any other Group Company and the enforcement of any such arbitration award or judgment whether or not such Tax is chargeable against or attributable to any other person, provided, however, that the Founders shall be under no liability in respect of taxation:

(a) that is promptly cured without recourse to cash or other assets of any Group Company;

(b) to the extent that provision, reserve or allowance has been made for such Tax in the audited consolidated financial statement of the Company;

(c) if it has arisen in and relates to the ordinary course of business of the Domestic Company since the Statement Date;

(d) to the extent that the liability arises as a result only of a provision or reserve in respect of the liability made in the Financial Statement being insufficient by reason of any increase in rates of Tax announced after the Closing with retrospective effect; or

(e) to the extent that the liability arises as a result of legislation which comes into force after the Closing and which is retrospective in effect.

The survival period for any indemnity obligation relating to claims for Tax matters arising under this Section 9.3 shall be the applicable statute of limitations for Tax claims.

9.4 Survival of Warranties. Unless otherwise set forth in this Agreement, the representations and warranties contained in Section 3 to this Agreement shall survive the execution and delivery of this Agreement and the Closing until the expiration of the applicable statue of limitations, and such representations and warranties shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on behalf of the Investors or any Group Company.

10. Miscellaneous.

10.1 Further Assurances. Upon the terms and subject to the conditions herein, each of the Parties agrees to use its reasonable best efforts to take or cause to be taken all action, to do or cause to be done, to execute such further instruments, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the other Transaction Documents and, to the extent reasonably requested by another Party, to enforce rights and obligations pursuant hereto or thereto.

 

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10.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties whose rights or obligations hereunder are affected by such terms and conditions. This Agreement, and the rights and obligations hereunder, shall not be assigned without the mutual written consent of the Investors and the Company, provided that each Investor may assign its rights and obligations to an Affiliate of such Investor without consent of the other Parties under this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

10.3 Governing Law. This Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflict of Laws thereunder.

10.4 Dispute Resolution.

(i) Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall first be subject to resolution through consultation of the parties to such dispute, controversy or claim. Such consultation shall begin within seven (7) days after one Party hereto has delivered to the other Parties involved a written request for such consultation. If within thirty (30) days following the commencement of such consultation the dispute cannot be resolved, the dispute shall be submitted to arbitration upon the request of any Party with notice to the other Parties.

(ii) The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “HKIAC”). There shall be three arbitrators. The complainant and the respondent to such dispute shall each select one arbitrator within thirty (30) days after giving or receiving the demand for arbitration. Such arbitrators shall be freely selected, and the Parties shall not be limited in their selection to any prescribed list. The Chairman of the HKIAC shall select the third arbitrator, who shall be qualified to practice Law in Hong Kong. If either party to the arbitration does not appoint an arbitrator who has consented to participate within thirty (30) days after selection of the first arbitrator, the relevant appointment shall be made by the Chairman of the HKIAC.

(iii) The arbitration proceedings shall be conducted in Chinese. The arbitration tribunal shall apply the Arbitration Rules of the HKIAC in effect at the time of the arbitration. However, if such rules are in conflict with the provisions of this Section 10.4, including the provisions concerning the appointment of arbitrators, the provisions of this Section 10.4 shall prevail.

(iv) The arbitrators shall decide any dispute submitted by the parties to the arbitration strictly in accordance with the substantive Law of Hong Kong and shall not apply any other substantive law.

 

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(v) Each Party hereto shall cooperate with any party to the dispute in making full disclosure of and providing complete access to all information and documents requested by such party in connection with such arbitration proceedings, subject only to any confidentiality obligations binding on the Party receiving the request.

(vi) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and any party to the dispute may apply to a court of competent jurisdiction for enforcement of such award.

(vii) Any party to the dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal.

10.5 Notices. Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by courier service, fax, electronic mail or similar means to the address as set out in Schedule V (or at such other address as such Party may designate by fifteen (15) days’ advance written notice to the other Parties given in accordance with this Section 10.5). Where a notice is given personally, delivery shall be deemed to have been effected on receipt (or when delivery is refused). Where a notice is sent by courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending through an internationally-recognized courier the notice, with a confirmation of delivery, and to have been effected on receipt (or when delivery is refused). Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid if sent during normal business hours of the recipient on a business day thereof and otherwise on the next business day thereof.

10.6 Rights Cumulative. Each and all of the various rights, powers and remedies of a Party will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party.

10.7 Fees and Expenses. The Company shall pay all of its own costs and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby. The Company shall pay or reimburse all reasonable costs and expenses incurred or to be incurred by the Investors incurred in connection with the transactions contemplated by the Transaction Documents up to a maximum of US$60,000. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled.

10.8 Finder’s Fee. Each Warrantor agrees, jointly and severally, to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible; provided, however, that if such liability was incurred in connection with the transaction contemplated by this Agreement, then each Warrantor agrees, jointly and severally, to indemnify and hold harmless each Investor from any such liability up to an aggregate amount of US$200,000.

 

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10.9 Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.

10.10 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of (i) the Company, (ii) the Founders, and (iii) the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each of the Parties.

10.11 No Waiver. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.

10.12 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by Law or otherwise afforded to any Party, shall be cumulative and not alternative.

10.13 No Presumption. The Parties acknowledge that each Party has been represented by counsel in connection with this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it, has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.

10.14 Headings and Subtitles; Interpretation. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Unless a provision hereof expressly provides otherwise: (i) the term “or” is not exclusive; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) the terms “herein”, “hereof”, and other similar words refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause, or other subdivision; (iv) the term “including” will be deemed to be followed by “, but not limited to,”; (v) the masculine, feminine, and neuter genders will each be deemed to include the others; (vi) the terms “shall”, “will”, and “agrees” are mandatory, and the term “may” is permissive; (vii) the term “day” means “calendar day”, and (viii) all references to dollars or to “US$” are to currency of the United States of America (and shall be deemed to include reference to the equivalent amount in other currencies).

 

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10.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.

10.16 Entire Agreement. This Agreement and the Transaction Documents, together with all schedules and exhibits hereto and thereto, constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof, and supersede all other agreements between or among all of the Parties with respect to the subject matters hereof and thereof, and no Party shall be liable or bound to any other Party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.

10.17 Third Party Beneficiaries. Each of the Indemnitees shall be a third party beneficiary of this Agreement with the full ability to enforce Section 9 of this Agreement as if it were a Party hereto.

[The remainder of this page has been left intentionally blank]

 

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IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

COMPANY:				MOMO TECHNOLOGY COMPANY LIMITED
				By:		/s/ Yan Tang
				Name:		Yan Tang
				Title:		Director
HK CO:				MOMO TECHNOLOGY HK COMPANY LIMITED
				By:		/s/ Yan Tang
				Name:		Yan Tang
				Title:		Director
DOMESTIC COMPANY:				BEIJING MOMO TECHNOLOGY CO., LTD.
				By:		/s/ Yan Tang
				Name:		Yan Tang
				Title:		Legal Representative
				Affix Seal:
WFOE:				BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.
				By:		/s/ Yan Tang
				Name:		Yan Tang
				Title:		Legal Representative
				Affix Seal:

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

FOUNDERS:
				By:		/s/ Yan Tang
				Name:		Yan Tang
				By:		/s/ Yan Tang
				Name:		Yong Li
				By:		/s/ Xiaoliang Lei
				Name:		Xiaoliang Lei
				By:		/s/ Zhiwei Li
				Name:		Zhiwei Li

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				MATRIX PARTNERS CHINA II HONG KONG LIMITED
				c/o Suite 2008 20/F Jardine House
				1 Connaught Place
				Central, Hong Kong
				/s/ Yibo Shao
				Name:
				Title:

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				GOTHIC PARTNERS, L.P.
				/s/ Paul J. Ferri
				Name:		Paul J. Ferri
				Title:		Partner

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				PJF ACORN I TRUST
				/s/ Jessica A. Ferri
				Name:		Jessica A. Ferri
				Title:		Trustee

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				GANSETT PARTNERS, L.L.C
				/s/ Timothy A. Barrows
				Name:		Timothy A. Barrows
				Title:		Manager

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				PH MOMO INVESTMENT LTD
				/s/ Guoxiong Cao
				Name:		Guoxiong Cao
				Title:

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				TENZING HOLDING 2011 LTD.
				/s/ Yibo Shao
				Name:		Yibo Shao
				Title:

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				ALIBABA INVESTMENT LIMITED
				26/F, Tower One, Times Square
				1 Matheson Street, Causeway Bay
				Hong Kong
				Attention: Mr. Tim Steinert
				Tel: (852) 2215 5100
				Fax: (852) 2215 5200
				Email: tim.steinert@hk.alibaba-inc.com
				/s/ Joe Tsai
				Name:		Joe Tsai
				Title:

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the Parties have executed this Series C Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				DST TEAM FUND LIMITED
				c/o Tulloch & Co
				4 Hill Street
				London W1J 5NE
				United Kingdom
				/s/ Sean Hogan
				Name:		Sean Hogan
				Title:		Director

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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EXECUTION

 

SCHEDULE I

LIST OF FOUNDERS

 

Founders		Number of Ordinary Shares of the Company				%
Yan Tang			96,886,370				65.90	%
Yong Li			28,954,540				19.70	%
Xiaoliang Lei			11,359,090				7.73	%
Zhiwei Li			9,800,000				6.67	%
Total			147,000,000				100.00	%

 

Schedule I

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EXECUTION

 

SCHEDULE II

SCHEDULE OF INVESTORS

 

Name		Number of Series C Preferred Shares of the Company				Total Purchase Price (US$)
Matrix Partners China II Hong Kong Limited			10,402,497			$	13,000,000.50
Gothic Partners, L.P.			800,192			$	999,999.94
PJF Acorn I Trust			800,192			$	999,999.94
Gansett Partners, L.L.C			1,600,384			$	1,999,999.88
PH momo investment Ltd.			4,801,153			$	6,000,000.90
Tenzing Holding 2011 Ltd.			1,600,384			$	1,999,999.88
Alibaba Investment Limited			8,001,920			$	9,999,999.42
DST Team Fund Limited			8,001,920			$	9,999,999.42

 

Schedule II

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EXECUTION

 

SCHEDULE III

LIST OF KEY EMPLOYEES

 

Name		Title
Yan Tang		CEO
Sichuan Zhang		Design Director
Zhiwei Li		CTO
Hanhui Liu		Senior Engineer
Xiaoliang Lei		Product Director
Li Wang		Operation Director
Ying Zhang		Legal Counsel

 

Schedule III

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EXECUTION

 

SCHEDULE IV

CAPITALIZATION TABLE

 

Shareholder		Common Shares				Preferred Shares Series A-1/A-2				Preferred Shares Series A-3				Preferred Shares Series B				Preferred Shares Series C				Total Issued and Outstanding Shares				% (Issued and Outstanding Shares)				Options (Common Stock)				Fully Diluted Shares				% Fully Diluted Shares
Yan TANG			96,886,370				—				—				—				—				96,886,370				31.12	%			—				96,886,370				27.21	%
Yong LI			28,954,540				—				—				—				—				28,954,540				9.30	%			—				28,954,540				8.13	%
Xiaoliang LEI			11,359,090				—				—				—				—				11,359,090				3.65	%			—				11,359,090				3.19	%
Zhiwei LI			9,800,000				—				—				—				—				9,800,000				3.15	%			—				9,800,000				2.75	%
Matrix			—				31,181,820				19,797,980				4,588,600				10,402,497				65,970,897				21.19	%			—				65,970,897				18.52	%
Matrix Affiliates			—				—				—				—				9,602,305				9,602,305				3.08	%			—				9,602,305				2.70	%
Zheng Feini			—				7,298,857				—				—								7,298,857				2.35	%			—				7,298,857				2.05	%
Alibaba			—				—				—				60,859,813				8,001,920				68,861,733				22.12	%			—				68,861,733				19.34	%
DST			—				—				—				4,588,600				8,001,920				12,590,520				4.04	%			—				12,590,520				3.54	%
Option pool			—				—				—				—				—				—				0.00	%			44,758,220								12.57	%
Total			147,000,000				38,480,677				19,797,980				70,037,013				36,008,642				311,324,312				100.00	%			44,758,220				356,082,532				100.00	%

 

Total Options: 12.57%
Purchase Price Per Share (Series C): $1.2497		Total Purchase Price (Series C): $44,999,999.91		Post-Money Valuation: $444,996,340.24

 

Schedule IV

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EXECUTION

 

SCHEDULE V

NOTICE ADDRESSES

For the purpose of the notice provisions contained in this Agreement, the following are the initial addresses of each Party:

If to the Company, the WFOE, the Domestic Company, the Founder:

Level 8 Tower D, Vantone Center, No. 6 Chaoyangmen Outer Ave.,

Chaoyang District, Beijing, P. R. China 100020

If to the Investors:

Matrix and Matrix Affiliates:

Matrix Partners China II Hong Kong Limited

C/O Suite 2008, 20/F, Jardine House

1 Connaught Place, Central, Hong Kong

Alibaba:

ATTN: Mr. Tim Steinert

C/O Alibaba Group Services Limited

26/F Tower One, Times Square, 1 Matheson Street

Causeway Bay, Hong Kong

Fax: (852) 2215-5200

With a copy to: tim.steinert@hk.alibaba-inc.com

DST:

C/O Tulloch & Co.

4 Hill Street

London W1J 5NE

United Kingdom

 

Schedule V

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EXECUTION

 

EXHIBIT A

PARTICULARS OF GROUP COMPANIES

(A) Momo Technology Company Limited

 

Registered Company Name		:		Momo Technology Company Limited
Registered Address		:		P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands
Date of Incorporation		:		November 23, 2011
Company Number		:		1682215
Place of Incorporation		:		British Virgin Islands
Director(s) (as of the date of this Agreement)		:		Hongping Zhang, David Ying Zhang, Yan Tang, Yong Li, and Sichuan Zhang
Authorized Shares		:		500,000,000 with a par value of US$0.0001
Issued Shares (as of the date of this Agreement)		:		311,324,312
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		Momo Technology HK Company Limited (100%)
Shareholders (and percentage of fully-diluted shareholding) as of the date of this Agreement		:		Founders (48.05%) Matrix Partners China II Hong Kong Limited (18.17%) Feini Zheng (2.39%) AIL (19.89%) DST (1.50%)

 

Exhibit A - 1

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EXECUTION

 

(B) Momo Technology HK Company Limited

 

Registered Company Name		:		Momo Technology HK Company Limited
Registered Address		:
Date of Incorporation		:		December 5, 2011
Company Number		:		1687335
Place of Incorporation		:		Hong Kong
Director(s)		:		Yan Tang, Yong Li, Sichuan Zhang, David Ying Zhang and Gang Zheng
Share Capital		:		HK$10,000
Issued Shares				10,000
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		Beijing Momo Information Technology Co. Ltd. (100%)
Shareholder (and percentage of shareholding) as of the date of this Agreement		:		Momo Technology Company Limited (100%)

 

Exhibit A - 2

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EXECUTION

 

(C) Beijing Momo Information Technology Co. Ltd.

 

Registered Company Name		:		Beijing Momo Information Technology Co. Ltd.
Registered Address		:
Date of Incorporation		:		March 9, 2012
Company Number		:		110000450200208
Place of Incorporation		:		PRC
Director(s)		:		Yan Tang, Yong Li, Sichuan Zhang, David Ying Zhang and Xiaoliang Lei
Total Investment		:		US$25,750,000
Registered Capital		:		US$10,300,000
Paid Up Capital (as of the date of this Agreement)		:		US$10,300,000
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		None
Shareholder (and percentage of shareholding) as of the date of this Agreement		:		Momo Technology HK Company Limited (100%)

 

Exhibit A - 3

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EXECUTION

 

(D) Beijing Momo Technology Co. Ltd.

 

Registered Company Name		:		Beijing Momo Technology Co. Ltd.
Registered Address		:
Date of Incorporation		:		July 7, 2011
Company Number		:		110105014033048
Place of Incorporation		:		PRC
Director(s)		:		Yan Tang, Yong Li and Sichuan Zhang
Registered Capital		:		RMB 1,111,100
Paid Up Capital		:		RMB 1,111,100
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		Chengdu Momo Technology Co. Ltd. (100%)
Shareholder (and percentage of shareholding) as of the date of this Agreement		:		Yan Tang (52%) Yong Li (16%) Beijing Matrix Venture Technology Co. Ltd. (10%) Shanghai ButtonWood Capital Limited (10%) Xiaoliang Lei (6.4%) Zhiwei Li (5.6%)

 

Exhibit A - 4

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EXECUTION

 

EXHIBIT B

FORM OF SIXTH AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION

 

Exhibit B

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TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

(the “Act”)

SIXTH AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION

OF

Momo Technology Company Limited

(Adopted by Resolution of Shareholders passed on             , 2013)

 

1

NAME

The name of the Company is Momo Technology Company Limited.

 

2	COMPANY LIMITED BY SHARES

The Company is a company limited by shares. The liability of each member is limited to the amount from time to time unpaid on such member’s shares.

 

3	REGISTERED OFFICE

The first registered office of the Company will be situated at the office of the registered agent which is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands or such other place as the directors or members may from time to time decide, being the office of the registered agent.

 

4	REGISTERED AGENT

The first registered agent of the Company will be Offshore Incorporations Limited of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands or such other registered agent as the directors or members may decide from time to time.

 

5	GENERAL OBJECTS AND POWERS

Subject to Clause 6 below 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 BVI Business Companies Act, 2004 or as the same may be revised from time to time, or any other law of the British Virgin Islands.

 

6	LIMITATIONS ON THE COMPANY’S BUSINESS

For the purposes of section 9(4) of the Act the Company has no power to:

 

(a)

carry on banking or trust business, unless it is licensed under the Banks and Trust Companies Act, 1990;

 

(b)

carry on business as an insurance or as a reinsurance company, insurance agent or insurance broker, unless it is licensed under an enactment authorising it to carry on that business;

 

(c)

carry on the business of company management unless it is licensed under the

 

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Companies Management Act, 1990;

 

(d)

carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands; or

 

(e)

carry on the business as a mutual fund, mutual fund manager or mutual fund administrator unless it is licensed under the Mutual Funds Act, 1996.

 

7	AUTHORISED SHARES

 

7.1

The Company is authorised to issue a maximum of 1,000,000,000 shares, divided into (i) 835,675,688 Ordinary Shares of US$0.0001 par value each (the “Ordinary Shares”), (ii) 29,571,587 redeemable Series A-1 Preferred Shares of US$0.0001 par value each (the “Series A-1 Preferred Shares”), (iii) 8,909,090 redeemable Series A-2 Preferred Shares of US$0.0001 par value each (the “Series A-2 Preferred Shares”), (iv) 19,797,980 redeemable Series A-3 Preferred Shares of US$0.0001 par value each (the “Series A-3 Preferred Shares”), (v) 70,037,013 redeemable Series B Preferred Shares of US$0.0001 par value each (the “Series B Preferred Shares”) and (vi) 36,008,642 redeemable Series C Preferred Shares of US$0.0001 par value each (the “Series C Preferred Shares”) (the Ordinary Shares, the Series A-1 Preferred Shares, the Series A-2 Preferred Shares, the Series A-3 Preferred Shares Series B Preferred Shares and Series C Preferred Shares are collectively referred to herein as the “Shares”), with power for the Company insofar as is permitted by applicable law and the Articles, to redeem or purchase any of its shares and to increase or reduce the said capital and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained.

 

7.2	The shares in the Company shall be issued in the currency of the United States of America.

 

7.3	Subject to Clause 9 of this Memorandum, each Ordinary Share in the Company confers on the holder:

 

(i)

the right to one vote at a meeting of the members of the Company or on any resolution of the members of the Company;

 

(ii)

the right to an equal share in any dividend paid by the Company in accordance with the Act; and

 

(iii)

the right to an equal share in the distribution of the surplus assets of the Company.

 

7.4	Each Ordinary Share in the Company shall be junior and subordinate to the rights of the Preferred Shares pursuant to this Memorandum and the Articles.

 

8	REGISTERED SHARES ONLY

Shares in the Company may only be issued as registered shares and the Company is not authorised to issue bearer shares. Registered shares may not be exchanged for bearer

 

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shares or converted to bearer shares.

 

9	DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES

The Ordinary Shares and the Preferred Shares shall have the following rights and be subject to the following restrictions:

 

(a)

Dividends

 

(i)

Subject to the provisions of the Act and the Memorandum and the Articles, no dividends shall be declared or paid on the Ordinary Shares or any future series of preference shares, unless and until approved by all board members and a dividend in like amount is declared and paid on each outstanding Preferred Share (on an as-if-converted basis).

 

(ii)

Each holder of a Preferred Share shall be entitled to receive on a pari passu basis in preference to any payment to the Ordinary Shares, on an annual basis, preferential, cumulative dividends at the rate of 8% of the Original Series A-1 Issue Price, the Original Series A-2 Issue Price, the Original Series A-3 Issue Price, the Original Series B Issue Price or the Original Series C Issue Price (as the case may be) (as adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions) payable in cash when and as such cash becomes legally available therefor on parity with each other, prior and in preference to any dividend on any other Shares; provided that such dividends shall be payable only when, as, and if declared by the Board. All declared but unpaid dividends shall be paid in cash when and as such cash becomes legally available to the holders of Preferred Shares immediately prior to the closing of a Qualified IPO.

 

(iii)

In addition to any dividend pursuant to Clause 9(a)(ii) above, the holders of Preferred Shares shall be entitled to receive on a pari passu basis, when, as and if declared at the sole discretion of the Board, but only out of funds that are legally available therefor, cash dividends at the rate or in the amount as the Board considers appropriate.

 

(b)

Liquidation Preference

 

(i)

Liquidation Preferences. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary:

 

(1)

Before any distribution or payment shall be made to the holders of any Ordinary Shares, Series A Preferred Shares or Series B Preferred Shares, each holder of Series C Preferred Shares shall be entitled to receive on a pari passu basis an amount equal to one hundred and thirty percent (130%) of the Original Series C Issue Price (adjusted

 

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for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series C Preferred Share then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series C Preferred Shares, then such assets shall be distributed among the holders of Series C Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(2)

After distribution or payment in full of the amount distributable or payable on the Series C Preferred Shares pursuant to Clause 9(b)(i)(1) and before any distribution or payment shall be made to the holders of any Ordinary Shares or Series A Preferred Shares, each holder of Series B Preferred Shares shall be entitled to receive an amount equal to one hundred percent (100%) of the Original Series B Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series B Preferred then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series B Preferred Shares, then such assets shall be distributed among the holders of Series B Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(3)

After distribution or payment in full of the amount distributable or payable on the Series C Preferred Shares and Series B Preferred Shares pursuant to Clause 9(b)(i)(1) and 9(b)(i)(2) and before any distribution or payment shall be made to the holders of any Ordinary Shares, Series A-1 Preferred Shares or Series A-2 Preferred Shares, each holder of Series A-3 Preferred Shares shall be entitled to receive an amount equal to one hundred percent (100%) of the Original Series A-3 Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series A-3 Preferred then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the

 

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foregoing amounts in full on all Series A-3 Preferred Shares, then such assets shall be distributed among the holders of Series A-3 Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(4)

After distribution or payment in full of the amount distributable or payable on the Series C Preferred Shares, Series B Preferred Shares and Series A-3 Preferred Shares pursuant to Clause 9(b)(i)(1), 9(b)(i)(2) and 9(b)(i)(3) and before any distribution or payment shall be made to the holders of any Ordinary Shares, each holder of Series A-1 Preferred Shares and each holder of Series A-2 Preferred Shares shall be entitled to receive on a pari passu basis an amount equal to one hundred fifty percent (150%) of the Original Series A-1 Issue Price or the Original Series A-2 Issue Price (as the case may be) (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series A-1 Preferred Share or Series A-2 Preferred Share, as the case may be, then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series A-1 Preferred Shares and Series A-2 Preferred Shares, then such assets shall be distributed among the holders of Series A-1 Preferred Shares and Series A-2 Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(5)

After distribution or payment in full of the amount distributable or payable on the Preferred Shares pursuant to Clause 9(b)(i)(1), Clause 9(b)(i)(2), Clause 9(b)(i)(3) and Clause 9(b)(i)(4), the remaining assets of the Company available for distribution to Shareholders shall first be used to pay any accrued but unpaid dividends on other shares and then be distributed ratably among the holders of outstanding Ordinary Shares and holders of Preferred Shares on an as-converted basis.

 

(ii)

Liquidation on Sale or Merger. The following events shall be treated as a liquidation (each, a “Liquidation Event”) under this Clause 9(b)(ii) unless waived by the holders of at least fifty-one percent (51%) of the then outstanding Series A Preferred Shares, the holders of at least fifty-one percent (51%) of the then outstanding Series B Preferred Shares and the holders of at least fifty-one percent (51%) of the then outstanding Series C Preferred Shares, each voting as a separate series, on an as-converted basis:

 

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(1)

any consolidation, amalgamation or merger of any Group Company with or into any Person, or any other corporate reorganization, including a sale or acquisition of Equity Securities of the Company or of shares or equity of any other Group Company, in which the shareholders of such Group Company immediately before such transaction own less than 50% of such Group Company’s voting power immediately after such transaction (excluding any transaction effected solely for tax purposes or to change such Group Company’s domicile);

 

(2)

a sale of all or substantially all of the assets of the Company or any Group Company; or

 

(3)

the exclusive licensing of all or substantially all of the intellectual property of the Company (or of all of the Group Companies taken as a whole) to a third party;

 

(4)

termination of, or making any unilateral amendments to the Control Documents; or

 

(5)

a liquidation, dissolution or winding up of the Company or any Group Company.

and upon any such event, any proceeds resulting to the shareholders of the Company therefrom shall be distributed in accordance with the terms of Clause 9(b)(i).

 

(iii)

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 Preferred Shares and Ordinary Shares shall be determined in good faith by the Board, 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:

 

(1)

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;

 

(2)

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

 

(3)

If there is no active public market, the value shall be the fair market value thereof as determined in good faith by the Board.

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 clauses (1), (2) or (3) to

 

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reflect the fair market value thereof as determined in good faith by the Board, or by a liquidator if one is appointed. The holders of at least twenty percent (20%) of the then outstanding Preferred Shares shall have the right to challenge any determination by the Board of fair market value pursuant to this Clause 9(b)(iii), in which case the determination of fair market value shall be made by an independent appraiser selected jointly by the Board and the challenging parties, the cost of such appraisal to be borne by the Company if the independent appraiser determines that the fair market value of the securities is less than that determined by the Board by a factor of more than 5%. Such costs shall be borne by the challenging parties if the independent appraiser determines that the fair market value of the securities is equal to at least 95% of the fair market value determined by the Board.

 

(c)

Voting Rights

Subject to the provisions of this Memorandum and the Articles, at all general meetings of the Company: (i) the holder of each Ordinary Share issued and outstanding shall have one (1) vote in respect of each Ordinary Share held, provided however that Ordinary Shares held by the Founders and the Employee Compensation Shares shall have five (5) votes (“Super Voting Rights”) in respect of each such Share (“Super Voting Shares”) (in the event a holder of Super Voting Shares transfers any of the Super Voting Shares to any person or entity which is not an existing holder of Super Voting Shares and is not an Affiliate of such holder, or any holder of the Super Voting Shares elects to give up the Super Voting Rights by giving a written notice to the Company, such Shares shall no longer be entitled to any Super Voting Rights any more and shall only have one (1) vote in respect of each Ordinary Share), and (ii) the holder of each Preferred Share shall be entitled to such number of votes as equals the whole number of Ordinary Shares into which such holder’s collective Preferred Shares are convertible immediately after the close of business on the record date of the determination of the Company’s shareholders entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Company’s shareholders is first solicited. Subject to provisions to the contrary elsewhere in this Memorandum and the Articles, or as required by the Act, the holders of Preferred Shares shall vote together with the holders of Ordinary Shares, and not as a separate class or series, on all matters put before the Shareholders.

 

(d)

Conversion Rights

The holders of the Preferred Shares shall have the following rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares. Subject to the provisions of Clause 9(d)(v), (1) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series A-1 Preferred Share shall be the quotient of the Original Series A-1 Issue Price divided by the then-effective Series A-1 Conversion Price; (2) the number of

 

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Ordinary Shares to which a holder shall be entitled upon conversion of any Series A-2 Preferred Share shall be the quotient of the Original Series A-2 Issue Price divided by the then-effective Series A-2 Conversion Price; (3) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series A-3 Preferred Share shall be the quotient of the Original Series A-3 Issue Price divided by the then-effective Series A-3 Conversion Price; (4) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series B Preferred Share shall be the quotient of the Original Series B Issue Price divided by the then-effective Series B Conversion Price; and (5) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series C Preferred Share shall be the quotient of the Original Series C Issue Price divided by the then-effective Series C Conversion Price. For the avoidance of doubt, subject to the provisions of Clause 9(d)(v), the initial conversion ratio for Series A-1 Preferred Shares to Ordinary Shares shall be 1:1, the initial conversion ratio for Series A-2 Preferred Shares to Ordinary Shares shall be 1:1, the initial conversion ratio for Series A-3 Preferred Shares to Ordinary Shares shall be 1:1; the initial conversion ratio for Series B Preferred Shares to Ordinary Shares shall be 1:1; and the initial conversion ratio for Series C Preferred Shares to Ordinary Shares shall be 1:1, each subject to adjustment based on adjustments of the Series A-1 Conversion Price, Series A-2 Conversion Price, Series A-3 Conversion Price, Series B Conversion Price or Series C Conversion Price, as applicable (the “Applicable Conversion Price” and each a “Conversion Price”), as set forth below:

 

(i)

Optional Conversion.

 

(1)

Subject to and in compliance with the provisions of this Clause 9(d)(i), and subject to compliance with the requirements of the Act, 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 Applicable Conversion Price.

 

(2)

The holder of any Preferred Shares who desires to convert such shares into Ordinary Shares shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Preferred Shares, and shall give written notice to the Company at such office that such holder has elected to convert such shares. Such notice shall state the number of Preferred Shares being converted. Thereupon, the Company shall promptly issue and deliver to such holder at such office a certificate or certificates for the number of Ordinary Shares to which the holder is entitled. No fractional Ordinary Shares shall be issued upon conversion of the Preferred Shares, and the number of Ordinary Shares to be so issued to a holder of Preferred Shares upon the conversion of such Preferred Shares (after aggregating all fractional Ordinary Shares that would be issued to such holder) shall be

 

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rounded to the nearest whole share (with one-half being rounded upward). Such conversion shall be deemed to have been made at the close of business on the date of the surrender of the certificates representing the Preferred Shares to be converted, and the person entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Ordinary Shares on such date.

 

(ii)

Automatic Conversion.

 

(1)

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, the Preferred Share shall automatically be converted into Ordinary Shares upon the closing of a Qualified IPO, based on the then-effective Applicable Conversion Price.

 

(2)

The Company shall not be obligated to issue certificates for any Ordinary Shares issuable upon the automatic conversion of any Preferred Shares unless the certificate or certificates evidencing such Preferred Shares is either delivered as provided below to the Company or any transfer agent for the Preferred Shares, or the holder notifies the Company or its transfer agent that such certificate has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificate. The Company shall, as soon as practicable after receipt of certificates for Preferred Share, or satisfactory agreement for indemnification in the case of a lost certificate, promptly issue and deliver at its office to the holder thereof a certificate or certificates for the number of Ordinary Shares to which the holder is entitled. No fractional Ordinary Shares shall be issued upon conversion of the Preferred Shares, and the number of Ordinary Shares to be so issued to a holder of converting Preferred Share (after aggregating all fractional Ordinary Shares that would be issued to such holder) shall be rounded to the nearest whole share (with one-half being rounded upward). Any person entitled to receive Ordinary Shares issuable upon the automatic conversion of the Preferred Shares shall be treated for all purposes as the record holder of such Ordinary Shares on the date of such conversion.

 

(iii)

Mechanics of Conversion. The conversion hereunder of any Preferred Share (the “Conversion Share”) shall be effected in the following manner:

 

(1)

The Company shall redeem the Conversion Share for aggregate consideration (the “Redemption Amount”) equal to (a) the aggregate par value of any capital shares of the Company to be issued upon

 

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such conversion and (b) the aggregate value, as determined by the Board, of any other assets which are to be distributed upon such conversion.

 

(2)

Concurrent with the redemption of the Conversion Share, the Company shall apply the Redemption Amount for the benefit of the holder of the Conversion Share to pay for any capital shares of the Company issuable, and any other assets distributable, to such holder in connection with such conversion.

 

(3)

Upon application of the Redemption Amount, the Company shall issue to the holder of the Conversion Share all capital shares issuable, and distribute to such holder all other assets distributable, upon such conversion.

 

(iv)

Initial Conversion Price. The “Series A-1 Conversion Price” shall initially equal the Original Series A-1 Issue Price, the “Series A-2 Conversion Price” shall initially equal the Original Series A-2 Issue Price, the “Series A-3 Conversion Price” shall initially equal the Original Series A-3 Issue Price, the “Series B Conversion Price” shall initially equal the Original Series B Issue Price and the “Series C Conversion Price” shall initially equal the Original Series C Issue Price, each of which shall be adjusted from time to time as provided below in Clause 9(d)(v).

 

(v)

Adjustments to Conversion Price.

 

(1)

Adjustment for Share Splits and Combinations. If the Company shall at any time, or from time to time, effect a subdivision of the outstanding Ordinary Shares, the Applicable Conversion Price in effect immediately prior to such subdivision shall be proportionately decreased. Conversely, if the Company shall at any time, or from time to time, combine the outstanding Ordinary Shares into a smaller number of shares, the Applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(2)

Adjustment for Ordinary Share Dividends and Distributions. If the Company makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution to the holders of Ordinary Shares payable in Additional Ordinary Shares, the Applicable Conversion Price then in effect shall be decreased as of the time of such issuance (or in the event such record date is fixed, as of the close of business on such record date) by multiplying such Applicable Conversion Price then in effect by a

 

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fraction (i) the numerator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Ordinary Shares issuable in payment of such dividend or distribution.

 

(3)

Adjustments for Other Dividends. If the Company at any time, or from time to time, makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution payable in securities of the Company other than Ordinary Shares or Ordinary Share Equivalents, then, and in each such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive, in addition to the number of Ordinary Shares issuable thereon, the amount of securities of the Company which the holder of such share would have received had the Preferred Shares been converted into Ordinary Shares immediately prior to such event, all subject to further adjustment as provided herein.

 

(4)

Reorganizations, Mergers, Consolidations, Reclassifications, Exchanges, Substitutions. If at any time, or from time to time, any capital reorganization or reclassification of the Ordinary Shares (other than as a result of a share dividend, subdivision, split or combination otherwise treated above) occurs or the Company is consolidated, merged or amalgamated with or into another Person (other than a consolidation, merger or amalgamation treated as a Liquidation Event), then in any such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive the kind and amount of shares and other securities and property which the holder of such share would have received had the Preferred Shares been converted into Ordinary Shares on the date of such event, all subject to further adjustment as provided herein, or with respect to such other securities or property, in accordance with any terms applicable thereto.

 

(5)

Sale of Shares below the Conversion Price.

 

(A)

Adjustment of Conversion Price Upon Issuance of Additional Ordinary Shares.

 

•

In the event the Company shall at any time after the Series C Original Issue Date issue Additional Ordinary Shares, without consideration or for a

 

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consideration per share less than the Series C Conversion Price in effect immediately prior to such issue (the “New Subscription Price”), then the Applicable Conversion Price shall be reduced, concurrently with such issue, to the New Subscription Price.

 

•

In the event the Company shall at any time after the Series A-1 Original Issue Date, the Series A-2 Original Issue Date, the Series A-3 Original Issue Date or the Series B Original Issue Date, as the case may be, issue Additional Ordinary Shares, without consideration or for a consideration per share less than the Series A-1 Conversion Price, the Series A-2 Conversion Price, the Series A-3 Conversion Price or the Series B Conversion Price, as the case may be, in effect immediately prior to such issue, then the Applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

 

CP2 = CP1 * (A + B) / (A + C).

 

•

For purposes of the foregoing formula, the following definitions shall apply:

 

(aa)

CP2 shall mean the Series A-1 Conversion Price, the Series A-2 Conversion Price, the Series A-3 Conversion Price, or the Series B Conversion Price, as the case may be in effect immediately after such issue of Additional Ordinary Shares;

 

(bb)

CP1 shall mean the Series A-1 Conversion Price, the Series A-2 Conversion Price, the Series A-3 Conversion Price, or the Series B Conversion Price, as the case may be in effect immediately prior to such issue of Additional Ordinary Shares;

 

(cc)

“A” shall mean the number of Ordinary Shares outstanding immediately prior to such issue of Additional Ordinary Shares, treating for this purpose as outstanding all Ordinary Shares issuable upon exercise of Options outstanding

 

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immediately prior to such issue or upon conversion or exchange of Equity Securities (including the Preferred Shares) outstanding (assuming exercise of any outstanding Ordinary Share Equivalents therefor) immediately prior to such issue;

 

(dd)

“B” shall mean the number of Ordinary Shares that would have been issued if such Additional Ordinary Shares had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Company in respect of such issue by CP1); and

 

(ee)

“C” shall mean the number of such Additional Ordinary Shares issued in such transaction.

 

(B)

Determination of Consideration. For the purpose of making any adjustment to any Conversion Price or the number of Ordinary Shares issuable upon conversion of the Preferred Shares, as provided above:

 

•

To the extent it consists of cash, the consideration received by the Company for any issue or sale of securities shall be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensations, discounts or concessions paid or allowed by the Company in connection with such issue or sale;

 

•

To the extent it consists of property other than cash, consideration other than cash received by the Company for any issue or sale of securities shall be computed at the fair market value thereof (as determined in good faith by a majority of the Board, including the affirmative vote of at least one (1) AIL Director and one (1) Matrix Director), as of the date of the adoption of the resolution specifically authorizing such issue or sale, irrespective of any accounting treatment of such property; and

 

•

If Additional Ordinary Shares or Ordinary Share Equivalents exercisable, convertible or exchangeable for Additional Ordinary Shares are

 

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issued or sold together with other stock or securities or other assets of the Company for consideration which covers both, the consideration received for the Additional Ordinary Shares or such Ordinary Share Equivalents shall be computed as that portion of the consideration received (as determined in good faith by a majority of the Board, including the affirmative vote of at least one (1) AIL Director and one (1) Matrix Director) to be allocable to such Additional Ordinary Shares or Ordinary Share Equivalents.

 

(C)

No Exercise. If all of the rights to exercise, convert or exchange any Ordinary Share Equivalents shall expire without any of such rights having been exercised, the Applicable Conversion Price as adjusted upon the issuance of such Ordinary Share Equivalents shall be readjusted to the Applicable Conversion Price which would have been in effect had such adjustment been made.

 

(6)

Other Dilutive Events. In case any event shall occur as to which the other provisions of this Clause 9(d) are not strictly applicable, but the failure to make any adjustment to any Conversion Price would not fairly protect the conversion rights of the applicable series of Preferred Shares in accordance with the essential intent and principles hereof, then, in each such case, the Company, in good faith, shall determine the appropriate adjustment to be made, on a basis consistent with the essential intent and principles established in this Clause 9(d) necessary to preserve, without dilution, the conversion rights of such series of Preferred Shares.

 

(7)

Certificate of Adjustment. In the case of any adjustment or readjustment of a Conversion Price, the Company, at its sole expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of such series of Preferred Shares at such holder’s address as shown in the Company’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Ordinary Shares issued

 

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or sold or deemed to have been issued or sold, (ii) the number of Additional Ordinary Shares issued or sold or deemed to be issued or sold, (iii) the Applicable Conversion Price in effect before and after such adjustment or readjustment, and (iv) the number of Ordinary Shares and the type and amount, if any, of other property which would be received upon conversion of such series of Preferred Shares after such adjustment or readjustment.

 

(8)

Notice of Record Date. In the event the Company shall propose to take any action of the type or types requiring an adjustment to a Conversion Price or the number or character of the Preferred Shares as set forth herein, the Company shall give notice to the holders of such series of Preferred Shares, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Applicable Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable upon the occurrence of such action or deliverable upon the conversion of Preferred Shares. In the case of any action which would require the fixing of a record date, such notice shall be given at least twenty (20) days prior to the date so fixed, and in the case of all other actions, such notice shall be given at least thirty (30) days prior to the taking of such proposed action.

 

(9)

Reservation of Shares Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued Ordinary Shares, 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 Share. 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, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purpose.

 

(10)

Notices. Any notice required or permitted pursuant to this Clause 9(d) shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to each holder of record at the address of such holder appearing on the books of the Company. Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly

 

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addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a confirmation of delivery, and to have been effected at the expiration of two (2) days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid.

 

(11)

Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of Ordinary Shares upon conversion of Preferred Shares, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Ordinary Shares in a name other than that in which the Preferred Share so converted were registered.

 

(e)

Redemption

 

(i)

Notwithstanding any provisions to the contrary in this Clause 9, the Preferred Shares shall be redeemable at the option of holders of the Preferred Shares as provided herein:

 

(1)

Optional Redemption Date. At any time after (i) the fourth (4) anniversary of the Closing (as defined in the Share Purchase Agreement), each holder of the then outstanding Series C Preferred Shares, or (ii) December 31, 2016, each holder of the then outstanding Series A Preferred Shares and Series B Preferred Shares, may require that the Company redeem all of its Preferred Shares, in accordance with the following terms. Following receipt of the request for redemption from such holders, the Company shall within fifteen (15) business days give written notice (the “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 Preferred Shares have elected redemption of all of the Preferred Shares pursuant to the provisions of this Clause 9(e)(i)(1), shall specify the redemption date, and shall direct the holders of such shares to submit their share certificates to the Company on or before the scheduled redemption date. Notwithstanding anything to the contrary, each holder of Preferred Shares shall have the right, but not the obligation, to participate in the redemption and require the Company to redeem up to all of the Preferred Shares held by such holder by written notice to the Company within fifteen (15) days following the date of the Redemption Notice indicating its election to participate in the

 

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redemption and the number of its Preferred Shares to be redeemed.

 

(2)

Redemption Price. The redemption price for each Series A-1 Preferred Share and Series A-2 Preferred Share redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per Preferred Share which is one hundred and fifty percent (150%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series A-1 and Series A-2 Redemption Price”). The redemption price for Series A-3 Preferred Shares redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per share which is one hundred and twenty-five percent (125%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series A-3 Redemption Price”). The redemption price for each Series B Preferred Share redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per Preferred Share which is one hundred and twenty-five percent (125%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series B Redemption Price”). The redemption price for each Series C Preferred Share redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per Preferred Share which is one hundred and twenty-five percent (125%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series C Redemption Price”).

 

(3)

Procedure. Upon delivery of the Redemption Notice, the aggregate Redemption Price to be paid by the Company as provided in Clause 9(e)(i)(2) herein shall be paid by the Company in cash or immediately converted into a debt payable by the Company over a period of twenty-four (24) months or on a payment schedule mutually agreed between the holders and the Company to the owner of such

 

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Preferred Shares, plus a simple interest calculated at seven percent (7%) per annum during the period commencing from the delivery of the Redemption Notice until the Redemption Closing (as defined below). The closing (the “Redemption Closing”) of the redemption of any Preferred Shares pursuant to this Clause 9(e)(i)(3) will take place no later than twenty-four (24) months from the date of the Redemption Notice at the offices of the Company, or such other date or other place as such holders of the then outstanding Preferred Shares 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 therefor, redeem each Preferred Share by paying in cash therefor the Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such share. From and after the Redemption Closing, if the Company makes the 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 therefor) 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.

 

(ii)

Insufficient Funds. If the Company’s assets or funds which are legally available on the date that any redemption payment under this Clause 9(e) is due are insufficient to pay in full all redemption payments to be paid at the Redemption Closing, or if the Company is otherwise prohibited by applicable law from making such redemption, those assets or funds which are legally available shall be used in the following manner: (1) all of Series C Preferred Shares required to be redeemed shall be redeemed prior to any of the Series A Preferred Shares and Series B Preferred Shares, (2) if not all of the Series C Preferred Shares required to be redeemed are able to be redeemed, then the Series C Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series C Preferred Shares in proportion to the total number of Series C Preferred Shares held by each such holder of Series C Preferred Shares, and then the remaining Series C Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so; (3) once all of the Series C Preferred Shares required to be redeemed have been redeemed, then the Series B Preferred Shares required to be redeemed shall be redeemed; (4) if not all of the Series B Preferred Shares required to be redeemed are able to be redeemed, then the Series B Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series B Preferred Shares in proportion to the total number of Series B Preferred Shares held by each such holder of Series B Preferred Shares, and then the remaining Series B Preferred Shares to

 

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be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so; (5) once all of the Series B Preferred Shares required to be redeemed have been redeemed, then the Series A-3 Preferred Shares required to be redeemed shall be redeemed; (6) if not all of the Series A-3 Preferred Shares required to be redeemed are able to be redeemed, then the Series A-3 Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series A-3 Preferred Shares in proportion to the total number of Series A-3 Preferred Shares held by each such holder of Series A-3 Preferred Shares, and then the remaining Series A-3 Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so; (7) once all of the Series A-3 Preferred Shares required to be redeemed have been redeemed, then the Series A-2 Preferred Shares and Series A-1 Preferred Shares required to be redeemed shall be redeemed, (8) if not all of the Series A-2 Preferred Shares and Series A-1 Preferred Shares required to be redeemed are able to be redeemed, then the Series A-2 Preferred Shares and Series A-1 Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series A-2 Preferred Shares and the holders of the Series A-1 Preferred Shares in proportion to the total number of Series A-2 Preferred Shares and Series A-1 Preferred Shares held by each such holder of Series A-2 Preferred Shares and holder of Series A-1 Preferred Shares, and then the remaining Series A-2 Preferred Shares and Series A-1 Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so. Notwithstanding anything to the contrary herein, no other securities of the Company shall be redeemed unless and until the Company shall have redeemed all of the Preferred Shares requested to be redeemed and shall have paid all the applicable Redemption Price for such Preferred Shares requested to be redeemed payable pursuant to this Clause 9 (e)(ii) Without limiting any rights of the holders of Preferred Shares which are set forth in this Memorandum and the 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.

 

(f)

Acts of the Company.

(A) In addition to any other vote or consent required elsewhere in the

 

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Memorandum and the Articles or by any applicable statute, each Group Company shall not, and each holder of Ordinary Shares shall procure that each Group Company does not, directly or indirectly, (i) without the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (i), (ii), (iii), (iv), (v), (xi), (xiv), (xv), (xvii), (xix) and (xx) below; and (2) without the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii) below:

 

(i)

cease to conduct or substantially change the business of the Company and/or any Group Company, as such business is normally conducted, or deviate from the business plan previously approved by the Board of Director of the Company;

 

(ii)

sell or dispose of the whole or a substantial part of the undertaking goodwill or the assets of the Company and/or any Group Company;

 

(iii)

increase, reduce or cancel the authorized or issued share capital of the Company and/or any Group Company 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 or grant or issue any options rights or warrants, 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 any Investor in the Company (with the exception of any shares issued upon conversion of the Preferred Shares);

 

(iv)

make any distribution of profits amongst the shareholders by way of dividend, (interim and final) capitalization of reserves or otherwise;

 

(v)

appoint, or settle the terms of appointment of the chief executive officer (except for appointing Tang Yan as the chief executive officer of the Company and/or any Group Company), the chief operative officer and the chief technology officer of the Company and/or any Group Company;

 

(vi)

approve or amend the employee share option plans or approve any new equity-based compensation plan or any bonus or incentive plan;

 

(vii)

select or change the external auditor, or make any material changes to the accounting policies or change the financial year of the Group Companies;

 

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(viii)

invest in or acquire any other Person, or any assets, business, business organization or division of any other Person in an amount in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or form any new subsidiary of any Group Company;

 

(ix)

create, incur or authorize the creation of any debt (including without limitation the issuance of any debt securities) if the Group’s aggregate indebtedness would exceed US$1,000,000, or guarantee any indebtedness, except for trade accounts of the Group Companies arising in the ordinary course of business;

 

(x)

create any liens over assets to serve any indebtedness otherwise permitted or previously approved pursuant to paragraph (ix) above;

 

(xi)

make any loan or advance in an amount in excess of US$500,000 other than trade credit given in the ordinary course of business, except to wholly-owned subsidiaries of the Company;

 

(xii)

sell, transfer, license out (other than non-exclusive license granted in the ordinary course of business), pledge or encumber technology or intellectual property;

 

(xiii)

purchase any real property;

 

(xiv)

pass any resolution for the winding up of the Company and /or any Group Company or undertake any merger, reconstruction or liquidation exercise concerning the Company and/or any Group Company or apply for the appointment of a receiver, manager or judicial manager or like officer;

 

(xv)

make any alteration or amendment to the memorandum and articles of association of the Company or any of the Group Companies (provided however that with respect to the memorandum and articles of association of the Domestic Company, only the alteration or amendment related to the items listed in this Clause 9(f)(A) shall require the approval of the Investors in accordance with this Clause 9(f)(A));

 

(xvi)

approve, extend or amend any transaction or agreement which is in an amount in excess of US$1,000,000 in a single transaction, or US$3,000,000 in a series of related transactions, with a Shareholder, director, officer, employee or Affiliate of any Group Company or any relative thereof, except pursuant to the Company’s employee share option plans, provided however that, any connected transaction or agreement which is not in an amount in excess of US$1,000,000 shall be fully disclosed to the Investors and shall be arm’s length transaction;

 

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(xvii)

make any equity investments in any other companies in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or the establishment of any brands for companies other than the Group Companies;

 

(xviii)

enter into any joint venture or partnership of which the total investment amount is in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, other than any strategic alliance not involving any equity or equity-related investment;

 

(xix)

dispose or dilute the Company’s interest, directly or indirectly, in any of the Group Company; or

 

(xx)

approve any transfer of shares in the Company or any of the Group Company; or

 

(xxi)

authorize, agree or undertake to do any of the foregoing.

Actions under subsection (xxi) shall require the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis) if the subject matter is related to the matters listed in subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii), otherwise, actions under the subsection (xxi) shall require the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis).

(B) In addition to any other vote or consent required elsewhere in the Memorandum and the Articles or by any applicable statute, each Group Company shall not, and the Company shall procure that each Group Company does not, directly or indirectly, without AIL’s approval, to take any of the following actions:

 

(i)

Issue, sell, transfer or otherwise dispose of, directly or indirectly, any equity securities, security convertible into or exercisable for any equity securities, assets or good will of any Group Company to, or merge, amalgamate or consolidate any Group Company with or into Tencent Holdings Limited, or any Person controlled by Tencent Holdings Limited (the “Tencent Group”) (notwithstanding any provision to the contrary in the opening paragraph of this Section, AIL has the absolute right to withhold its approval of the actions set forth in this subsection (i) for any reason whatsoever); it being understood for purposes of this provision, “control” refers to management rights, ownership of more than 50% of equity or voting rights.

 

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Notwithstanding the foregoing,

 

(ii)

In the event that Tencent Group enters into a written term sheet or other similar document (the “Tencent Offer”) with the Company through bona fide negotiations for a Sale of the Company, pursuant to which, the Company has received a non-refundable deposit (unless to be otherwise refunded in the form of the Tencent Indemnification under the second paragraph of this Section) in an amount of no less than 2.5% of the total consideration of the transaction under the Tencent Offer (the “Tencent Deposit”), the Company shall deliver a written notice to AIL, describing material terms of Tencent Offer, with a copy of the executed Tencent Offer (the “Sale Notice”) and bank statement or other evidence on receipt of the Tencent Deposit (the “Evidence of Receipt”). AIL shall have the right of first refusal to purchase all such equity interests, securities or assets proposed to be purchased by Tencent Group on the same terms and conditions set forth in the Tencent Offer (the “AIL Option”), by paying a deposit in the same amount as the Tencent Deposit to the Company within twenty-five (25) calendar days after its receipt of the Sale Notice and the Evidence of Receipt (the “AIL Notice Period”), provided that the Company shall have first entered into a written term sheet or other similar document with AIL (the “AIL Offer”).

If AIL decides to exercise the AIL Option, all the commercially reasonable indemnification, penalty and other similar payment payable by the Company and the shareholders of the Company (if the shareholders are parties to the Tencent Offer) to Tencent Group under the Tencent Offer for not completing the transaction contemplated thereunder (the “Tencent Indemnification”), the total amount of which shall be no more than the Tencent Deposit plus its accrued interests during the AIL Notice Period, if any, calculated using the then effective base demand deposit interest rate published by the People’s Bank of China, shall be borne by the Company.

If AIL decides to exercise the AIL Option, but the transaction is not completed solely due to AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the definitive transaction agreements between AIL and the Company (the “AIL Purchase Agreement”), the Company shall not refund the deposit paid by AIL. If the transaction is not completed due to reasons other than AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the AIL Purchase Agreement, the Company shall refund the deposit paid by AIL, plus its accrued interests calculated using the then effective base demand deposit interest rate published by the People’s Bank of China.

 

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If AIL decides not to exercise the AIL Option, or fails to pay the deposit to the Company pursuant to the AIL Offer within the AIL Notice Period, the Company can proceed with the transaction with Tencent Group upon terms and conditions not more favorable than those set forth in the Sale Notice. If the Company does not enter into any definitive transaction agreement with Tencent Group within the sixty (60) calendar days following the expiration of the AIL Notice Period, or if such agreement is not consummated within ninety (90) calendar days of the execution thereof, AIL’s right of first refusal provided under this Clause 9(f)(B) shall be deemed to be revived and the Company shall re-deliver a Sale Notice to AIL in accordance with this Clause 9(f)(B).

(C) For the avoidance of doubt, the Shareholders agree that without the prior written consent of each Series B Shareholder and each Series C Shareholder, no Shareholder shall pass resolutions or otherwise take actions to amend, alter or repeal rights, privileges and obligations of the Series B Preferred Shares or Series C Preferred Shares, or any holder of the Series B Preferred Shares or Series C Preferred Shares hereunder, it being understood that rounds of investors further to the current Series A, B and C are not deemed to constitute the above amendment, alteration or repeal.

 

10	TRANSFER OF SHARES

 

10.1

The Company shall, on receipt of an instrument of transfer complying with Regulation 7.1 of the Articles and any agreements relating to the transfer of Shares to which the Company is a party, enter the name of the transferee of a Share in the register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall be specified in a Resolution of Directors.

 

10.2	The directors may not resolve to refuse or delay the transfer of a Share unless the Shareholder has failed to pay an amount due in respect of the Share.

 

11	AMENDMENTS

 

11.1	Subject to Clause 9, the Company may amend this Memorandum or the Articles by Resolution of Shareholders or by Resolution of Directors, save that no amendment may be made by Resolution of Directors:

 

(a)

to restrict the rights or powers of the Shareholders to amend this Memorandum or the Articles;

 

(b)

to change the percentage of Shareholders required to pass a Resolution of Shareholders to amend this Memorandum or the Articles;

 

(c)

in circumstances where this Memorandum or Articles cannot be amended by the Shareholders; or

 

(d)

to Clause 9 and Clause 11.

 

11.2	Any amendment of this Memorandum or the Articles will take effect on the registration by the Registrar of a notice of amendment, or restated Memorandum and Articles, filed by the registered agent.

 

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TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

SIXTH AMENDED AND RESTATED ARTICLES OF ASSOCIATION

OF

Momo Technology Company Limited

(Adopted by Resolutions of Shareholders passed on             , 2013)

 

1.	INTERPRETATION

 

1.1

References in these Articles of Association (“Articles”) to the Act shall mean the BVI Business Companies Act, 2004. The following Articles shall constitute the Articles of the Company. In these Articles, words and expressions defined in the Act shall have the same meanings and, unless otherwise required by the context, the singular shall include the plural and vice versa, the masculine shall include the feminine and the neuter and references to persons shall include corporations and all legal entities capable of having a legal existence.

 

1.2	In the Memorandum and these Articles the capitalized terms shall have the following meaning unless there is something in the subject or context inconsistent therewith:

“Act” means the Companies Act of the British Virgin Islands, as amended, and every statutory modification or re-enactment thereof for the time being in force.

“Additional Ordinary Shares” means all Ordinary Shares issued by the Company (including all Ordinary Shares issuable upon an exercise, conversion or exchange of Ordinary Share Equivalents issued or granted by the Company); provided that the term “Additional Ordinary Shares” does not include (i) Employee Compensation Share; (ii) securities issued upon conversion of the Preferred Shares; (iii) securities issued as a dividend or distribution on the Preferred Shares; (iv) securities issued in connection with any share split, share dividend, combination, recapitalization or other similar transaction of the Company; or (v) warrants or options to purchase securities granted to strategic partners of the Company in connection with mergers and acquisitions of other companies.

“Affiliate” means, with respect to a Person, any other Person that, directly or indirectly, controls, is Controlled by or is under common Control with such Person, and the term “affiliated” has the meaning correlative to the foregoing.

“AIL” means Alibaba Investment Limited.

“AIL Directors” has the meaning specified in Section 9.2(b) of these Articles.

“Articles” means these Articles as originally framed or as from time to time altered by

 

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Resolution of Shareholders.

“as adjusted” means as appropriately adjusted for any subsequent bonus issue, share split, consolidation, subdivision, reclassification, recapitalization or similar arrangement.

“Applicable Conversion Price” has the meaning specified in Clause 9(d) of the Memorandum.

“Board” means the board of directors of the Company.

“Company” means Momo Technology Company Limited, a company organized and existing under the laws of the British Virgin Islands.

“Control” means, when used with respect to any Person, power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Control Documents” means each of the following agreement: Exclusive Technology Consulting and Service Agreement dated April 18, 2012, entered into by and between the Domestic Company and WFOE; Equity Pledge Agreement dated April 18, 2012, entered into by and among the WFOE, Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li, Beijing Matrix Venture Technology Co., Ltd. and Shanghai ButtonWood Capital Limited; Share Option Agreement dated April 18, 2012, enter into by and between the WFOE and each of Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li, Beijing Matrix Venture Technology Co., Ltd. and Shanghai ButtonWood Capital Limited; Operating Agreement dated April 18, 2012, entered into by and among the WFOE, the Domestic Company, Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li and other parties thereto; Power of Attorney dated April 18, 2012, entered into by and between the WFOE and each of Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li, Beijing Matrix Venture Technology Co., Ltd. and Shanghai ButtonWood Capital Limited.

“Conversion Price” means the Series A-1 Conversion Price, Series A-2 Conversion Price, Series A-3 Conversion Price, Series B Conversion Price or Series C Conversion Price, as the context requires.

“Conversion Share” has the meaning specified in Clause 9(d)(iii) of the Memorandum.

“Director” means a member of the Board.

“Domestic Company” means Beijing Momo Technology Co., Ltd.

“DST” means DST Team Fund Limited.

“Employee Compensation Share” means up to 44,758,220 Ordinary Shares issued or issuable to employees, consultants or directors of the Company either in connection with the provision of services to the Company or on exercise of any options to purchase

 

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Employee Compensation Shares granted under a share incentive plan or other arrangement adopted by the Company’s Board and approved by the shareholders of the Company, including without limitation in connection with a restricted stock or other equity compensation plan or arrangement approved by the Company’s Board.

“Equity Securities” means any Ordinary Shares or Ordinary Share Equivalents of the Company.

“Founders” means Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li.

“HK Co” means Momo Technology HK Company Limited.

“Group Companies” means the Company, the WFOE, the Domestic Company, the HK Co, and any other direct or indirect Subsidiary of a Group Company collectively, and the Group Company means any one of them.

“Initial Purchase Price” means in the case of each Series A-1 Preferred Share, the Original Series A-1 Issue Price, in the case of each Series A-2 Preferred Share, the Original Series A-2 Issue Price, in the case of each Series A-3 Preferred Share, the Original Series A-3 Issue Price, in the case of each Series B Preferred Share, the Original Series B Issue Price and in the case of each Series C Preferred Share, the Original Series C Issue Price.

“Liquidation Event” has the meaning specified in Clause 9(b)(ii) of the Memorandum.

“Majority Preferred Holders” means the holders of at least fifty percent (50%) of the then outstanding Series A-1, Series A-2 and Series A-3 Preferred Shares, Series B Preferred Shares held by Matrix only and Series C Preferred Shares held by Matrix only, voting together as a single class, including any Conversion Shares.

“Matrix” means Matrix Partners China II Hong Kong Limited, [Matrix Affiliate] and its respective successors and permitted assigns.

“Matrix Directors” has the meaning specified in Section 9.2(a) of these Articles.

“Member” has the meaning ascribed to it in the Act.

“Memorandum” means the sixth amended and restated memorandum of association of the Company to be adopted by resolution in writing of all Members of the Company.

“month” means calendar month.

“Ordinary Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Ordinary Share Directors” has the meaning specified in Section 9.2(c) of these Articles.

 

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“Ordinary Share Equivalents” means warrants, options and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Shares, including, without limitation, the Preferred Shares.

“Options” mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Ordinary Shares or Conversion Shares.

“Original Series A-1 Issue Price” means US$0.04714 per share.

“Original Series A-2 Issue Price” means US$0.13469 per share.

“Original Series A-3 Issue Price” means US$0.20204 per share.

“Original Series B Issue Price” means US$0.327 per share.

“Original Series C Issue Price” means US$1.2497 per share.

“Person” or “person” means any individual, sole proprietorship, partnership, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other entity of any kind or nature.

“PRC” means the People’s Republic of China, but solely for the purposes of these Articles, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan.

“Preferred Shares” means collectively, the Series A-1 Preferred Shares, the Series A-2 Preferred Shares, the Series A-3 Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares.

“Qualified IPO” means a firm commitment underwritten registered public offering by the Company of its Ordinary Shares on the NASDAQ National Market System in the United States or Hong Kong or any other exchange in any other jurisdiction (on any combination of such exchanges and jurisdictions) acceptable to the Majority Preferred Holders to the Company with aggregate offering proceeds (before deduction of fees, commissions or expenses) to the Company and selling shareholders, if any, of not less than US$50,000,000 (or any cash proceeds of other currency of equivalent value).

“Redemption Amount” has the meaning specified in Clause 9(d)(iii) of the Memorandum.

“Redemption Closing” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Redemption Price” means the Series A-1 and Series A-2 Redemption Price, Series A-3 Redemption Price, Series B Redemption Price and/or Series C Redemption Price, as the

 

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case may be.

“Redemption Notice” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“registered office” means the registered office for the time being of the Company.

“Relative” means a husband, wife, father, mother, son, daughter, brother, sister, grandparent, grandchild, or spouse of any of these, or a person living in the same household with an individual.

“Resolution of Directors” means either:

 

(a)

a resolution approved at a duly convened and constituted meeting of directors of the Company or of a committee of directors of the Company, by the affirmative vote of a majority of the directors present at the meeting who voted except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority; or

 

(b)

a resolution consented to in writing by all directors or by all members of a committee of directors of the Company, as the case may be.

“Resolution of Shareholders” means either:

 

(a)

Subject to the requirement set forth in Clause 9(f) of the Memorandum, a resolution approved at a duly convened and constituted meeting of the Shareholders of the Company by the affirmative vote of a majority of in excess of 50% the votes of the Shares entitled to vote thereon which were present at the meeting and were voted; or

 

(b)

a resolution consented to in writing by all Shareholders.

“Seal” means the common seal of the Company and includes every duplicate seal.

“Series A-1 Conversion Price” means a price that initially equals to the Original Series A-1 Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series A-2 Conversion Price” means a price that initially equals to the Original Series A-2 Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series A-3 Conversion Price” means a price that initially equals to the Original Series A-3 Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series A-1 Original Issue Date” means the date of the first sale and issuance of Series A-1 Preferred Shares to the holders of Series A-1 Preferred Shares.

“Series A-2 Original Issue Date” means the date of the first sale and issuance of Series A-2 Preferred Shares to the holders of Series A-2 Preferred Shares.

 

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“Series A-3 Original Issue Date” means the date of the first sale and issuance of Series A-3 Preferred Shares to the holders of Series A-3 Preferred Shares.

“Series A-1 Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series A-2 Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series A-3 Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series A Preferred Shares” means, collectively, Series A-1 Preferred Shares, Series A-2 Preferred Shares and Series A-3 Preferred Shares.

“Series A-1 and Series A-2 Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Series A-3 Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Series B Conversion Price” means a price that initially equals to the Original Series B Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series B Original Issue Date” means the date of the first sale and issuance of Series B Preferred Shares to the holders of Series B Preferred Shares.

“Series B Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series B Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Series C Conversion Price” means a price that initially equals to the Original Series C Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series C Original Issue Date” means the date of the first sale and issuance of Series C Preferred Shares to the holders of Series C Preferred Shares.

“Series C Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series C Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

 

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“Share” has the meaning specified in Clause 7.1 of the Memorandum and may also be referenced as “share” and includes any fraction of a share.

“Shareholder” means a Person whose name is entered in the register of members of the Company as the holder of one or more Shares or fractional Shares.

“Shareholders’ Agreement” means the Second Amended and Restated Shareholders’ Agreement, dated as of             , 2013, by and among the Company, the holders of Preferred Shares and other parties thereto.

“Share Purchase Agreement” the Series C Preferred Share Purchase Agreement dated             , 2013 by and among the Company, the holders of Series C Preferred Shares and other parties thereto.

“WFOE” means Beijing Momo Information Technology Co., Ltd., a wholly foreign-owned enterprise established by the HK Co in the PRC under the laws of the PRC.

“written” and “in writing” include all modes of representing or reproducing words in visible form.

Words importing the singular number also include the plural number and vice-versa.

Words importing the masculine gender also include the feminine gender and vice-versa.

The term “day” means “calendar day”.

 

1.3	In the Memorandum and these Articles, unless the context otherwise requires a reference to:

 

(a)

a “Regulation” is a reference to a regulation of these Articles;

 

(b)

a “Clause” is a reference to a clause of the Memorandum;

 

(c)

voting by Shareholders is a reference to the casting of the votes attached to the Shares held by the Shareholder voting;

 

(d)

the Act, the Memorandum or these Articles is a reference to the Act or those documents as amended or, in the case of the Act, any re-enactment thereof; and

 

(e)

the singular includes the plural and vice versa.

 

1.4	Any words or expressions defined in the Act unless the context otherwise requires bear the same meaning in the Memorandum and these Articles unless otherwise defined herein.

 

1.5	Headings are inserted for convenience only and shall be disregarded in interpreting the Memorandum and these Articles.

 

2.	REGISTERED SHARES

 

2.1	Every Shareholder is entitled to a certificate signed by a director of the Company, or any other person authorised by Resolution of Directors, or under the Seal specifying the number of Shares held by him and the signature of the director, officer or authorised

 

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person and the Seal may be facsimiles.

 

2.2

Any Shareholder receiving a certificate shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a certificate for Shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by Resolution of Directors.

 

2.3	If several Eligible Persons are registered as joint holders of any Shares, any one of such Eligible Persons may give an effectual receipt for any Distribution.

 

3.

SHARES

 

3.1	Subject to any restrictions on the issuing of Shares and other Securities contained herein, Shares and other Securities may be issued at such times, to such Eligible Persons, for such consideration and on such terms as the directors may by Resolution of Directors determine.

 

3.2	Section 46 of the Act (Pre-emptive rights) does not apply to the Company.

 

3.3	A Share may be issued for consideration in any form, including money, a promissory note, or other written obligation to contribute money or property, real property, personal property (including goodwill and know-how), services rendered or a contract for future services.

 

3.4

The consideration for a Share with par value shall not be less than the par value of the Share. If a Share with par value is issued for consideration less than the par value, the person to whom the Share is issued is liable to pay to the Company an amount equal to the difference between the issue price and the par value.

 

3.5	No Shares may be issued for a consideration other than money, unless a Resolution of Directors has been passed stating:

 

(a)

the amount to be credited for the issue of the Shares;

 

(b)

their determination of the directors of the reasonable present cash value of the non-money consideration for the issue; and

 

(c)

that, in the opinion, of the directors, the present cash value of the non-money consideration for the issue is not less than the amount to be credited for the issue of the Shares.

 

3.6	The Company shall keep a register (the “register of members”) containing:

 

(a)

the names and addresses of the Eligible Persons who hold Shares;

 

(b)

the number of each class and series of Shares held by each Shareholder;

 

(c)

the date on which the name of each Shareholder was entered in the register of members; and

 

(d)

the date on which any Eligible Person ceased to be a Shareholder.

 

3.7

The register of members may be in any such form as the directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until the directors otherwise determine, the magnetic, electronic or other data storage form shall be the original register of members.

 

3.8	A Share is deemed to be issued when the name of the Shareholder is entered in the

 

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register of members.

 

4.	REDEMPTION OF SHARES AND TREASURY SHARES

 

4.1

The Company may purchase, redeem or otherwise acquire and hold its own Shares save that the Company may not purchase, redeem or otherwise acquire its own Shares without the consent of Shareholders whose Shares are to be purchased, redeemed or otherwise acquired unless the Company is permitted by the Act or any other provision in the Memorandum or these Articles to purchase, redeem or otherwise acquire the Shares without their consent.

 

4.2

The Company may only offer to purchase, redeem or otherwise acquire Shares if the Resolution of Directors authorising the purchase, redemption or other acquisition contains a statement that the directors are satisfied, on reasonable grounds, that immediately after the acquisition the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

 

4.3	Sections 60 (Process for acquisition of own shares), 61 (Offer to one or more shareholders) and 62 (Shares redeemed otherwise than at the option of company) of the Act shall not apply to the Company.

 

4.4

Shares that the Company purchases, redeems or otherwise acquires pursuant to this Regulation may be cancelled or held as Treasury Shares except to the extent that such Shares are in excess of fifty percent (50%) of the issued Shares in which case they shall be cancelled but they shall be available for reissue.

 

4.5	All rights and obligations attaching to a Treasury Share are suspended and shall not be exercised by the Company while it holds the Share as a Treasury Share.

 

4.6	Treasury Shares may be transferred by the Company on such terms and conditions (not otherwise inconsistent with the Memorandum and these Articles) as the Company may by Resolution of Directors determine.

 

4.7

Where Shares are held by another body corporate of which the Company holds, directly or indirectly, shares having more than fifty percent (50%) of the votes in the election of directors of the other body corporate, all rights and obligations attaching to the Shares held by the other body corporate are suspended and shall not be exercised by the other body corporate.

 

5.	MORTGAGES AND CHARGES OF SHARES

 

5.1	Shareholders may mortgage or charge their Shares.

 

5.2	There shall be entered in the register of members at the written request of the Shareholder:

 

(a)

a statement that the Shares held by him are mortgaged or charged;

 

(b)

the name of the mortgagee or chargee; and

 

(c)

the date on which the particulars specified in subparagraphs (a) and (b) are entered in the register of members.

 

5.3	Where particulars of a mortgage or charge are entered in the register of members, such particulars may be cancelled:

 

(a)

with the written consent of the named mortgagee or chargee or anyone authorised

 

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to act on his behalf; or

 

(b)

upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable.

 

5.4	Whilst particulars of a mortgage or charge over Shares are entered in the register of members pursuant to this Regulation:

 

(a)

no transfer of any Share the subject of those particulars shall be effected;

 

(b)

the Company may not purchase, redeem or otherwise acquire any such Share; and

 

(c)

no replacement certificate shall be issued in respect of such Shares;

without the written consent of the named mortgagee or chargee.

 

6.	FORFEITURE

 

6.1	Shares that are not fully paid on issue are subject to the forfeiture provisions set forth in this Regulation and for this purpose Shares issued for a promissory note, other written obligation to contribute money or property or a contract for future services are deemed to be not fully paid.

 

6.2	A written notice of call specifying the date for payment to be made shall be served on the Shareholder who defaults in making payment in respect of the Shares.

 

6.3

The written notice of call referred to in Regulation 6.2 shall name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which the payment required by the notice is to be made and shall contain a statement that in the event of non-payment at or before the time named in the notice the Shares, or any of them, in respect of which payment is not made will be liable to be forfeited.

 

6.4	Where a written notice of call has been issued pursuant to Regulation 6.3 and the requirements of the notice have not been complied with, the directors may, at any time before tender of payment, forfeit and cancel the Shares to which the notice relates.

 

6.5	The Company is under no obligation to refund any moneys to the Shareholder whose Shares have been cancelled pursuant to Regulation 6.3 and that Shareholder shall be discharged from any further obligation to the Company.

 

7.	TRANSFER OF SHARES

 

7.1

Subject to any agreements binding on the Company, shares are transferable, and the Company will only register transfers of shares that are made in accordance with such agreements (if any) and will not register transfers of shares that are not made in accordance with such agreements (if any). The instrument of transfer of any share shall be in writing and shall be executed by or on behalf of the transferor, and containing the name and address of the transferee, which shall be sent to the Company for registration. 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.

 

7.2	The transfer of a Share is effective when the name of the transferee is entered on the register of members.

 

7.3	If the directors of the Company are satisfied that an instrument of transfer relating to

 

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Shares has been signed but that the instrument has been lost or destroyed, they may resolve by Resolution of Directors:

 

(a)

to accept such evidence of the transfer of Shares as they consider appropriate; and

 

(b)

that the transferee’s name should be entered in the register of members notwithstanding the absence of the instrument of transfer.

 

7.4	Subject to the Memorandum, the personal representative of a deceased Shareholder may transfer a Share even though the personal representative is not a Shareholder at the time of the transfer.

 

8.	MEETINGS AND CONSENTS OF SHAREHOLDERS

 

8.1	Any director of the Company may convene meetings of the Shareholders at such times and in such manner and places within or outside the British Virgin Islands as the director considers necessary or desirable.

 

8.2	Upon the written request of Shareholders entitled to exercise 30 per cent or more of the voting rights in respect of the matter for which the meeting is requested the directors shall convene a meeting of Shareholders.

 

8.3	The director convening a meeting shall give not less than 7 days’ notice of a meeting of Shareholders to:

 

(a)

those Shareholders whose names on the date the notice is given appear as Shareholders in the register of members of the Company and are entitled to vote at the meeting; and

 

(b)

the other directors.

 

8.4

The director convening a meeting of Shareholders may fix as the record date for determining those Shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other date as may be specified in the notice, being a date not earlier than the date of the notice.

 

8.5

A meeting of Shareholders held in contravention of the requirement to give notice is valid if Shareholders holding at least 90 per cent of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a Shareholder at the meeting shall constitute waiver in relation to all the Shares which that Shareholder holds.

 

8.6	The inadvertent failure of a director who convenes a meeting to give notice of a meeting to a Shareholder or another director, or the fact that a Shareholder or another director has not received notice, does not invalidate the meeting.

 

8.7	A Shareholder may be represented at a meeting of Shareholders by a proxy who may speak and vote on behalf of the Shareholder.

 

8.8

The instrument appointing a proxy shall be produced at the place designated for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The notice of the meeting may specify an alternative or additional place or time at which the proxy shall be presented.

 

8.9	The instrument appointing a proxy shall be in substantially the following form or such other form as the chairman of the meeting shall accept as properly evidencing the wishes

 

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of the Shareholder appointing the proxy.

Momo Technology Company Limited

I/We being a Shareholder of the above Company HEREBY APPOINT                      of                      or failing him                      of                      to be my/our proxy to vote for me/us at the meeting of Shareholders to be held on the      day of             , 20     and at any adjournment thereof.

(Any restrictions on voting to be inserted here.)

Signed this      day of             , 20    

 

Shareholder

 

8.10	The following applies where Shares are jointly owned:

 

(a)

if two or more persons hold Shares jointly each of them may be present in person or by proxy at a meeting of Shareholders and may speak as a Shareholder;

 

(b)

if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners; and

 

(c)

if two or more of the joint owners are present in person or by proxy they must vote as one.

 

8.11	A Shareholder shall be deemed to be present at a meeting of Shareholders if he participates by telephone or other electronic means and all Shareholders participating in the meeting are able to hear each other.

 

8.12

A meeting of Shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than two thirds of the votes of the Shares (including not less than two thirds of the Preferred Shares) entitled to vote on Resolutions of Shareholders to be considered at the meeting. A quorum may comprise a single Shareholder or proxy and then such person may pass a Resolution of Shareholders and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy instrument shall constitute a valid Resolution of Shareholders.

 

8.13

Subject to Clause 9(f) of the Memorandum, if within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other time and place as the directors may determine, and subject to Clause 9(f) of the Memorandum and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the Shares or each class or series of Shares entitled to vote on the matters to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved.

 

8.14	At every meeting of Shareholders, the Chairman of the Board shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present at the meeting, the Shareholders present shall choose one of their number to be

 

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the chairman. If the Shareholders are unable to choose a chairman for any reason, then the person representing the greatest number of voting Shares present in person or by proxy at the meeting shall preside as chairman failing which the oldest individual Shareholder or representative of a Shareholder present shall take the chair.

 

8.15	The chairman may, with the consent of the meeting, adjourn any 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.

 

8.16

At any meeting of the Shareholders the chairman is responsible for deciding in such manner as he considers appropriate whether any resolution proposed has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes of the meeting. If the chairman has any doubt as to the outcome of the vote on a proposed resolution, he shall cause a poll to be taken of all votes cast upon such resolution. If the chairman fails to take a poll then any Shareholder present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall cause a poll to be taken. If a poll is taken at any meeting, the result shall be announced to the meeting and recorded in the minutes of the meeting.

 

8.17

Subject to the specific provisions contained in this Regulation for the appointment of representatives of Eligible Persons other than individuals the right of any individual to speak for or represent a Shareholder shall be determined by the law of the jurisdiction where, and by the documents by which, the Eligible Person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any Shareholder or the Company.

 

8.18

Any Eligible Person other than an individual which is a Shareholder may by resolution of its directors or other governing body authorise such individual as it thinks fit to act as its representative at any meeting of Shareholders or of any class of Shareholders, and the individual so authorised shall be entitled to exercise the same rights on behalf of the Eligible Person which he represents as that Eligible Person could exercise if it were an individual.

 

8.19

The chairman of any meeting at which a vote is cast by proxy or on behalf of any Eligible Person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such Eligible Person shall be disregarded.

 

8.20	Directors of the Company may attend and speak at any meeting of Shareholders and at any separate meeting of the holders of any class or series of Shares.

 

8.21

An action that may be taken by the Shareholders at a meeting may also be taken by a resolution consented to in writing, without the need for any notice, but if any Resolution of Shareholders is adopted otherwise than by the unanimous written consent of all Shareholders, a copy of such resolution shall forthwith be sent to all Shareholders not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more Shareholders. If the consent is in one or more

 

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counterparts, and the counterparts bear different dates, then the resolution shall take effect on the earliest date upon which Eligible Persons holding a sufficient number of votes of Shares to constitute a Resolution of Shareholders have consented to the resolution by signed counterparts.

 

9.

DIRECTORS

 

9.1	The number of the directors at the date these articles come into effect shall be fixed at seven (7) who shall be appointed in accordance with Clause 9.2.

 

9.2	For so long as they are Shareholders in the Company:

 

(a)

Matrix shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “Matrix Directors”), initially to be David Ying Zhang and Harry Man.

 

(b)

AIL shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “AIL Directors”), initially to be Hongping Zhang and Yongming Wu.

 

(c)

Tang Yan, one of the holders of Ordinary Shares, voting separately, shall be entitled to elect four (3) directors of the Board of the Company (the “Ordinary Share Directors”), initially to be Tang Yan, Yong Li and Sichuan Zhang, and Tang Yan shall have three (3) votes for each of the matters submitted to the Board of Directors.

 

9.3	Each director holds office until his successor takes office or until his earlier death resignation or removal.

 

9.4	A director may be removed from office, with or without cause, by the Shareholders who elected such director and such Shareholder may also replace any director so removed.

 

9.5	The office of director shall be vacated if the director:

 

(a)

is removed from office by a resolution of Shareholders who appointed the such director; or

 

(b)

becomes bankrupt or makes any arrangement or composition with his creditors generally; or

 

(c)

becomes of unsound mind, or of such infirm health as to be incapable of managing his affairs; or

 

(d)

resigns his office by a notice in writing to the Company.

 

9.6

A director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company or from such later date as may be specified in the notice. A director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the Act.

 

9.7	The directors may at any time appoint any person to be a director either to fill a vacancy or as an addition to the existing directors. Where the directors appoint a person as director to fill a vacancy, the term shall not exceed the term that remained when the

 

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person who has ceased to be a director ceased to hold office.

 

9.8	A vacancy in relation to directors occurs if a director dies or otherwise ceases to hold office prior to the expiration of his term of office.

 

9.9

Where the Company only has one Shareholder who is an individual and that Shareholder is also the sole director of the Company, the sole Shareholder/director may, by instrument in writing, nominate a person who is not disqualified from being a director of the Company as a reserve director of the Company to act in the place of the sole director in the event of his death.

 

9.10	The nomination of a person as a reserve director of the Company ceases to have effect if:

 

(a)

before the death of the sole Shareholder/director who nominated him,

 

(i)

he resigns as reserve director, or

 

(ii)

the sole Shareholder/director revokes the nomination in writing; or

 

(b)

the sole Shareholder/director who nominated him ceases to be the sole Shareholder/director of the Company for any reason other than his death.

 

9.11	The Company shall keep a register of directors containing:

 

(a)

the names and addresses of the persons who are directors of the Company, or who have been nominated as reserve directors of the Company;

 

(b)

the date on which each person whose name is entered in the register was appointed as a director of the Company, or nominated as a reserve director of the Company;

 

(c)

the date on which each person named as a director ceased to be a director of the Company;

 

(d)

the date on which the nomination of any person nominated as a reserve director ceased to have effect; and

 

(e)

such other information as may be prescribed by the Act.

 

9.12

The register of directors may be kept in any such form as the directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until a Resolution of Directors determining otherwise is passed, the magnetic, electronic or other data storage shall be the original register of directors.

 

9.13	The directors may, by Resolution of Directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company.

 

9.14	A director is not required to hold a Share as a qualification to office.

 

10.	POWERS OF DIRECTORS

 

10.1

The business and affairs of the Company shall be managed by, or under the direction or supervision of, the directors of the Company. The directors of the Company have all the powers necessary for managing, and for directing and supervising, the business and affairs of the Company. The directors may pay all expenses incurred preliminary to and in connection with the incorporation of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the Shareholders.

 

10.2	Each director shall exercise his powers for a proper purpose and shall not act or agree to

 

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the Company acting in a manner that contravenes the Memorandum, these Articles or the Act. Each director, in exercising his powers or performing his duties, shall act honestly and in good faith in what the director believes to be the best interests of the Company.

 

10.3

If the Company is the wholly owned subsidiary of a holding company, a director of the Company may, when exercising powers or performing duties as a director, act in a manner which he believes is in the best interests of the holding company even though it may not be in the best interests of the Company.

 

10.4	Any director which is a body corporate may appoint any individual as its duly authorised representative for the purpose of representing it at meetings of the directors, with respect to the signing of consents or otherwise.

 

10.5	The continuing directors may act notwithstanding any vacancy in their body.

 

10.6	The directors may by Resolution of Directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party.

 

10.7

All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by Resolution of Directors.

 

10.8

For the purposes of Section 175 (Disposition of assets) of the Act, the directors may by Resolution of Directors determine that any sale, transfer, lease, exchange or other disposition is in the usual or regular course of the business carried on by the Company and such determination is, in the absence of fraud, conclusive.

 

11.	PROCEEDINGS OF DIRECTORS

 

11.1	Any one director of the Company may call a meeting of the directors by sending a written notice to each other director.

 

11.2	The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable.

 

11.3	A director is deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other.

 

11.4

A director shall be given not less than 7 days’ notice of meetings of directors, but a meeting of directors held without 7 days’ notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend waive notice of the meeting, and for this purpose the presence of a director at a meeting shall constitute waiver by that director. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting.

 

11.5	A director may by a written instrument appoint an alternate who need not be a director and the alternate shall be entitled to attend meetings in the absence of the director who appointed him and to vote in place of the director until the appointment lapses or is terminated.

 

11.6	A meeting of directors is duly constituted for all purposes if at the commencement of the

 

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meeting there are present in person or by alternate not less than four (4) directors, including the Matrix Directors and the AIL Directors, provided however that if at any time a duly convened meeting of Directors fails to get a quorum due to the absence of the Matrix Directors or the AIL Directors, the notice shall be duly delivered again for a second meeting, if at such second time, the quorum is still not present, those directors present shall be deemed a quorum provided that at such second meeting the business not included in the notice shall not be transacted.

 

11.7

If the Company has only one director the provisions herein contained for meetings of directors do not apply and such sole director has full power to represent and act for the Company in all matters as are not by the Act, the Memorandum or these Articles required to be exercised by the Shareholders. In lieu of minutes of a meeting the sole director shall record in writing and sign a note or memorandum of all matters requiring a Resolution of Directors. Such a note or memorandum constitutes sufficient evidence of such resolution for all purposes.

 

11.8	At meetings of directors at which the Chairman of the Board is present, he shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present, the directors present shall choose one of their members to be chairman of the meeting.

 

11.9

An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a Resolution of Directors or a resolution of a committee of directors consented to in writing by all directors or by all members of the committee, as the case may be, without the need for any notice. The consent may be in the form of counterparts each counterpart being signed by one or more directors. If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the date upon which the last director has consented to the resolution by signed counterparts.

 

12.	COMMITTEES

 

12.1	The directors may, by Resolution of Directors, designate one or more committees, each consisting of one or more directors, and delegate one or more of their powers, including the power to affix the Seal, to the committee.

 

12.2	The directors have no power to delegate to a committee of directors any of the following powers:

 

(a)

to amend the Memorandum or these Articles;

 

(b)

to designate committees of directors;

 

(c)

to delegate powers to a committee of directors;

 

(d)

to appoint or remove directors;

 

(e)

to appoint or remove an agent;

 

(f)

to approve a plan of merger, consolidation or arrangement;

 

(g)

to make a declaration of solvency or to approve a liquidation plan; or

 

(h)

to make a determination that immediately after a proposed distribution the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

 

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12.3	Regulations 12.2(b) and 12.2(c) do not prevent a committee of directors, where authorised by the Resolution of Directors appointing such committee or by a subsequent Resolution of Directors, from appointing a sub-committee and delegating powers exercisable by the committee to the sub-committee.

 

12.4

The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the Resolution of Directors establishing the committee.

 

12.5

Where the directors delegate their powers to a committee of directors they remain responsible for the exercise of that power by the committee, unless they believed on reasonable grounds at all times before the exercise of the power that the committee would exercise the power in conformity with the duties imposed on directors of the Company under the Act.

 

13.	OFFICERS AND AGENTS

 

13.1

The Company may by Resolution of Directors appoint officers of the Company at such times as may be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, the chief executive officer, a president and one or more vice-presidents, secretaries and treasurers and such other officers as may from time to time be considered necessary or expedient. Any number of offices may be held by the same person.

 

13.2

The officers shall perform such duties as are prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by Resolution of Directors. In the absence of any specific prescription of duties it shall be the responsibility of the Chairman of the Board to preside at meetings of directors and Shareholders, the president to manage the day to day affairs of the Company, the vice-presidents to act in order of seniority in the absence of the president but otherwise to perform such duties as may be delegated to them by the president, the secretaries to maintain the register of members, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the treasurer to be responsible for the financial affairs of the Company.

 

13.3	The emoluments of all officers shall be fixed by Resolution of Directors.

 

13.4

The officers of the Company shall hold office until their successors are duly appointed, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by Resolution of Directors. Any vacancy occurring in any office of the Company may be filled by Resolution of Directors.

 

13.5	The directors may, by Resolution of Directors, appoint any person, including a person who is a director, to be an agent of the Company.

 

13.6

An agent of the Company shall have such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the Resolution of Directors appointing the agent, except that no agent has any power or authority with respect to the following:

 

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(a)

to amend the Memorandum or these Articles;

 

(b)

to change the registered office or agent;

 

(c)

to designate committees of directors;

 

(d)

to delegate powers to a committee of directors;

 

(e)

to appoint or remove directors;

 

(f)

to appoint or remove an agent;

 

(g)

to fix emoluments of directors;

 

(h)

to approve a plan of merger, consolidation or arrangement;

 

(i)

to make a declaration of solvency or to approve a liquidation plan;

 

(j)

to make a determination that the company will, immediately after a proposed distribution, satisfy the solvency test; or

 

(k)

to authorise the Company to continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands.

 

13.7	The resolution of Directors appointing an agent may authorise the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.

 

13.8	The directors may remove an agent appointed by the Company and may revoke or vary a power conferred on him.

 

14.	CONFLICT OF INTERESTS

 

14.1	A director of the Company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose the interest to all other directors of the Company.

 

14.2

For the purposes of Regulation 14.1, a disclosure to all other directors to the effect that a director is a member, director or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry into the transaction or disclosure, of the interest, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction.

 

14.3	A director of the Company who is interested in a transaction entered into or to be entered into by the Company may:

 

(a)

vote on a matter relating to the transaction;

 

(b)

attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and

 

(c)

sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction,

and, subject to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit.

 

15.	INDEMNIFICATION

 

15.1	Subject to the limitations hereinafter provided the Company shall indemnify against all

 

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expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who:

 

(a)

is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director of the Company; or

 

(b)

is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise.

 

15.2	The indemnity in Regulation 15.1 only applies if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful.

 

15.3	For the purposes of Regulation 15.2, a director acts in the best interest of the Company if he acts in the best interest of:

 

(a)

the Company’s holding company; or

 

(b)

a Shareholder or Shareholders of the Company;

in either case, in the circumstances specified in Regulation 10.3 or the Act, as the case may be.

 

15.4

The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of the Articles, unless a question of law is involved.

 

15.5

The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful.

 

15.6

Expenses, including legal fees, incurred by a director in defending any legal, administrative or investigative proceedings maybe paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the director is not entitled to be indemnified by the Company in accordance with Regulation 15.1.

 

15.7

Expenses, including legal fees, incurred by a former director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the former director to repay the amount if it shall ultimately be determined that the former director is not entitled to be indemnified by the Company in accordance with Regulation 15.1 and upon such terms and conditions, if any, as the Company deems appropriate.

 

15.8

The indemnification and advancement of expenses provided by, or granted pursuant to, this section is not exclusive of any other rights to which the person seeking indemnification or advancement of expenses may be entitled under any agreement, Resolution of Shareholders, resolution of disinterested directors or otherwise, both as acting in the person’s official capacity and as to acting in another capacity while serving

 

44

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as a director of the Company.

 

15.9

If a person referred to in Regulation 15.1 has been successful in defence of any proceedings referred to in Regulation 15.1, the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings.

 

15.10

The Company may purchase and maintain insurance in relation to any person who is or was a director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in the Articles.

 

16.

RECORDS

 

16.1	The Company shall keep the following documents at the office of its registered agent:

 

(a)

the Memorandum and these Articles;

 

(b)

the register of members, or a copy of the register of members;

 

(c)

the register of directors, or a copy of the register of directors; and

 

(d)

copies of all notices and other documents filed by the Company with the Registrar of Corporate Affairs in the previous 10 years.

 

16.2	Until the directors determine otherwise by Resolution of Directors the Company shall keep the original register of members and original register of directors at the office of its registered agent.

 

16.3	If the Company maintains only a copy of the register of members or a copy of the register of directors at the office of its registered agent, it shall:

 

(a)

within 15 days of any change in either register, notify the registered agent in writing of the change; and

 

(b)

provide the registered agent with a written record of the physical address of the place or places at which the original register of members or the original register of directors is kept.

 

16.4	The Company shall keep the following records at the office of its registered agent or at such other place or places, within or outside the British Virgin Islands, as the directors may determine:

 

(a)

minutes of meetings and Resolutions of Shareholders and classes of Shareholders;

 

(b)

minutes of meetings and Resolutions of Directors and committees of directors; and

 

(c)

an impression of the Seal.

 

16.5

Where any original records referred to in this Regulation are maintained other than at the office of the registered agent of the Company, and the place at which the original records is changed, the Company shall provide the registered agent with the physical address of the new location of the records of the Company within 14 days of the change of location.

 

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16.6	The records kept by the Company under this Regulation shall be in written form or either wholly or partly as electronic records complying with the requirements of the Electronic Transactions Act (No. 5 of 2001) as from time to time amended or re-enacted.

 

17.	REGISTER OF CHARGES

The Company shall maintain at the office of its registered agent a register of charges in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance created by the Company:

 

(a)

the date of creation of the charge;

 

(b)

a short description of the liability secured by the charge;

 

(c)

a short description of the property charged;

 

(d)

the name and address of the trustee for the security or, if there is no such trustee, the name and address of the chargee;

 

(e)

unless the charge is a security to bearer, the name and address of the holder of the charge; and

 

(f)

details of any prohibition or restriction contained in the instrument creating the charge on the power of the Company to create any future charge ranking in priority to or equally with the charge.

 

18.

SEAL

The Company shall have a seal. The Company may have more than one Seal and references herein to the Seal shall be references to every Seal which shall have been duly adopted by Resolution of Directors. The directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the registered office. Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of any one director or other person so authorised from time to time by Resolution of Directors. Such authorisation may be before or after the Seal is affixed, may be general or specific and may refer to any number of sealings. The directors may provide for a facsimile of the Seal and of the signature of any director or authorised person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been attested to as hereinbefore described.

 

19.	DISTRIBUTIONS BY WAY OF DIVIDEND

 

19.1

Subject to provisions in the Memorandum, the directors of the Company may, by Resolution of Directors, authorise a Distribution by way of dividend at a time and of an amount they think fit if they are satisfied, on reasonable grounds, that, immediately after the Distribution, the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due, provided, however, any such Distribution must be approved by all Ordinary Share Directors, and at least two (2) directors appointed by the holders of the Preferred Shares.

 

19.2	Dividends may be paid in money, shares, or other property.

 

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19.3	Notice of any dividend that may have been declared shall be given to each Shareholder as specified in Regulation 21.1 and all dividends unclaimed for 3 years after having been declared may be forfeited by Resolution of Directors for the benefit of the Company.

 

19.4	No dividend shall bear interest as against the Company and no dividend shall be paid on Treasury Shares.

 

20.	ACCOUNTS AND AUDIT

 

20.1	The Company shall keep records that are sufficient to show and explain the Company’s transactions and that will, at any time, enable the financial position of the Company to be determined with reasonable accuracy.

 

20.2

The Company may by Resolution of Shareholders call for the directors to prepare periodically and make available a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for a financial period and a true and fair view of the assets and liabilities of the Company as at the end of a financial period.

 

20.3	The Company may by Resolution of Shareholders call for the accounts to be examined by auditors.

 

20.4	The first auditors shall be appointed by Resolution of Directors; subsequent auditors shall be appointed by a Resolution of Shareholders or by Resolution of Directors.

 

20.5	The auditors may be Shareholders, but no director or other officer shall be eligible to be an auditor of the Company during their continuance in office.

 

20.6	The remuneration of the auditors of the Company maybe fixed by Resolution of Directors.

 

20.7	The auditors shall examine each profit and loss account and balance sheet required to be laid before a meeting of the Shareholders or otherwise given to Shareholders and shall state in a written report whether or not:

 

(a)

in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the assets and liabilities of the Company at the end of that period; and

 

(b)

all the information and explanations required by the auditors have been obtained.

 

20.8	The report of the auditors shall be annexed to the accounts and shall be read at the meeting of Shareholders at which the accounts are laid before the Company or shall be otherwise given to the Shareholders.

 

20.9

Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors.

 

20.10

The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of Shareholders at which the Company’s profit and loss account and balance sheet are to be presented.

 

21.

NOTICES

 

21.1	Any notice, information or written statement to be given by the Company to Shareholders

 

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may be given by personal service or by mail addressed to each Shareholder at the address shown in the register of members.

 

21.2

Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.

 

21.3

Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid.

 

22.	VOLUNTARY LIQUIDATION

Subject to provisions in the Memorandum, the Company may by Resolution of Shareholders appoint a voluntary liquidator.

 

23.	CONTINUATION

The Company may by Resolution of Shareholders or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws.

 

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EXHIBIT C

FORM OF SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

Exhibit C

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EXECUTION

MOMO TECHNOLOGY COMPANY LIMITED

SECOND AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

This SECOND AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT (the “Agreement”) is made as of             , 2013 by and among Momo Technology Company Limited (the “Company”), the Investors listed on Schedule 1 attached to this Agreement (each an “Investor” and collectively the “Investors”), the Persons listed on Schedule 2 attached to this Agreement (each a “Founder” and collectively the “Founders”), Momo Technology HK Company Limited (the “HK Co”), Beijing Momo Technology Co., Ltd. (the “Domestic Company”), and Beijing Momo Information Technology Co., Ltd. (the “WFOE”). This Agreement shall be effective as to all parties as of the date hereof.

RECITALS

WHEREAS, the Company, the Investors, the Founders, the HK Co, the Domestic Company and the WFOE entered into an Amended and Restated Shareholders’ Agreement (the “Prior Shareholders’ Agreement”), dated July 18, 2012;

WHEREAS, the Company, the Investors (other than Zheng Feini), the Founders, the HK Co, the WFOE, and the Domestic Company are each parties to the Series C Preferred Share Purchase Agreement dated as of             , 2013 (the “Purchase Agreement”), pursuant to which each such Investor will purchase from the Company the corresponding number of series C preferred shares as set forth on Schedule 1 attached to this Agreement;

WHEREAS, the Purchase Agreement provides that the execution and delivery of this Agreement by the Parties and the substitution of the Prior Shareholders’ Agreement by this Agreement in its entirety shall be a condition precedent to the consummation of the transactions contemplated under the Purchase Agreement.

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

 

1.	DEFINITIONS.

For purposes of this Agreement, capitalized terms shall have the meanings set forth in Exhibit A attached hereto.

 

2.	REGISTRATION RIGHTS.

The registrations rights of the Investors with respect to the Company and the rights and obligations of the Parties with respect to registration of the Company’s Ordinary Shares are set forth on Exhibit B attached hereto. The rights set forth in Exhibit B shall terminate upon the earlier of: (i) the date of the completion of a Liquidation Event, (ii) as to any Holder, when all Registrable Securities held by such Holder (together with any Affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under SEC Rule 144(k) within a ninety (90) day period, and (iii) the date that is five (5) years following the consummation of the Qualified IPO of the Company.

 

1

SHAREHOLDER’S AGREEMENT

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EXECUTION

 

3.	INFORMATION RIGHTS.

 

3.1	Delivery of Financial Statements.

The Company shall deliver to the Investors:

 

(a)

as soon as practicable, but in any event within ninety (90) days after the end of each financial year of the Company, (i) an audited annual consolidated balance sheet as of the last day of such year; (ii) an audited consolidated income statement for such year; and (iii) an audited consolidated statement of cash flows for such year; such year-end financial statements to be in reasonable detail, prepared in accordance with US GAAP or IFRS, acceptable to the Investors and consistently applied and in each case setting forth in comparative form figures for the previous year and audited and certified by independent public accountants of internationally recognized standing selected by the Company with the approval of the Board of Directors, including the affirmative consent of at least one (1) AIL Director and one (1) Matrix Director, and accompanied by a report and opinion thereon by such independent public accountants;

 

(b)

as soon as practicable, but in any event within thirty (30) days after the end of each quarter of each financial year of the Company, (i) an unaudited consolidated balance sheet as of the last day of such quarter; (ii) an unaudited consolidated income statement for such quarter; and (iii) an unaudited consolidated statement of cash flows for such quarter;

 

(c)

as soon as practicable, but in any event forty-five (45) days prior to the end of each financial year, a proposed budget and business plan for the next financial year to be submitted to the Board for approval (collectively, the “Budget”), prepared on a monthly basis including, revenues, expenses, cash position, balance sheets and sources and applications of funds statements (including any anticipated or planned capital expenditure or borrowings) for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company;

 

(d)

with respect to the financial statements called for in Sections 3.1 (a), (b) and (c) an instrument executed by the chief executive officer or the financial controller of the Company and certifying that such financials were prepared in accordance with US GAAP or IFRS, acceptable to the Investors and consistently applied with prior practice for earlier periods (with the exception, for unaudited statements, such statements may be subject to normal year-end audit adjustments and exclude all footnotes required by applicable accounting standard). Management shall also provide an analysis of results, highlighting notable events and a thorough explanation of any material differences between actual figures, on the one hand and figures for the prior year and figures presented in the Budget on the other hand;

 

(e)

such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investors or any assignee of the Investors may from time to time reasonably request, provided, however, that the Company shall not be obligated under this Section 3.1(e) or any other

 

2

SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

Section of Section 3.1 to (i) provide information which the Company reasonably deems in good faith to be a trade secret or similar confidential information or (ii) would adversely affect the attorney-client privilege between the Company and its counsel;

 

(f)

if for any period the Company shall have any Subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated Subsidiaries; and

 

(g)

notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of the registration effecting the IPO, to the extent required under the applicable rules of the jurisdiction in which the registration statement (or similar application for listing of the Ordinary Shares) is to be filed; provided that the Company is actively employing its reasonable best efforts to cause such registration statement to become effective.

 

3.2	Inspection.

The Company and any other Group Company shall permit the Investors, at the Investors’ expense, to visit and inspect the Company or any other Group Company’s properties, to examine its books of account and records and to discuss the Company or any other Group Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be reasonably requested by the Investors; provided, that, the Investors shall inform the Company ten (10) days prior to the inspection; provided, however, that the Company and any other Group Company shall not be obligated pursuant to this Section 3.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information, or would adversely affect the attorney-client privilege between the Company or any other Group Company and its counsel.

 

3.3	U.S. Tax Matters.

 

(a)

The Company shall upon the request of any U.S. Investor (a) determine, with respect to such taxable year whether the Company (or any of its Affiliates) is a passive foreign investment company (“PFIC”) as described in Section 1297 of the United States Internal Revenue Code of 1986, as amended (the “Code”) (including whether any exception to PFIC status may apply) or is or may be classified as a partnership or branch for U.S. federal income tax purposes, and (b) provide such information reasonably available to the Company as any U.S. Investor may reasonably request to permit such U.S. Investor to elect to treat the Company and/or any such entity (including a Subsidiary of the Company) as a “qualified electing fund” (within the meaning of Section 1295 of the Code) (a “QEF Election”) for U.S. federal income tax purposes. The Company shall also, reasonably promptly upon request, obtain and provide any and all other information reasonably deemed necessary by the U.S. Investor to comply with the provisions of this Section 3.3(a). The Company

 

3

SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

shall, upon the request of any U.S. Investor, appoint an internationally reputable accounting firm acceptable to the U.S. Investor to prepare and submit its U.S. tax filings.

 

(b)

If a determination is made by the Company that the Company is a PFIC for a particular taxable year, then for such year and for each year thereafter, the Company shall also provide each known U.S. Investor within 60 days upon the request of such U.S. Investor with a completed “PFIC Annual Information Statement” as required by Treasury Regulation Section 1.1295-1(g) and any other information reasonably required by a U.S. Investor to comply with any reporting or other requirements in connection with the QEF Election.

 

(c)

The Company shall promptly provide the U.S. Investor with written notice if it (or any of its Subsidiaries) becomes aware that it is a controlled foreign corporation as described in Section 957 of the Code (“CFC”). The Company shall, upon the reasonable request of a U.S. Investor, furnish on a timely basis all information requested by the U.S. Investor to satisfy its U.S. federal income tax return filing requirements, if any, arising from its investment in the Company and relating to the Company or any Group Company’s classification as a CFC.

 

(d)

The Company, upon a reasonable request, will comply and will cause its Subsidiaries to comply with all record-keeping, reporting, and other requests reasonably necessary for the Company and its Subsidiaries to allow any U.S. Investor to comply with any applicable U.S. federal income tax Law. The Company, will also provide any known U.S. Investor with any information reasonably requested to allow such U.S. Investor to comply with any applicable U.S. federal income tax Law (including but not limited to information relating to the transfer of any equity interests of the Company (or any Subsidiary) and the issuance or redemption by the Company (or any Subsidiary) of any equity interests).

 

(e)

The Company shall, if reasonably requested by a U.S. Investor, cooperate in determining whether it would be desirable, reasonable and appropriate for the Company and/or any Subsidiary to elect to be classified as a partnership or branch for U.S. federal income tax purposes and, if so, to take all reasonable steps to cause any such elections to be made, including by filing or by causing to be filed, Internal Revenue Service Form 8832 (or any successor form), and the Company shall not permit such election, once made, to be terminated or revoked without the written consent of the U.S. Investor; provided that the Company shall notify all U.S. Investors prior to the making of any such election.

 

(f)

The Company shall, and shall cause each Group Company to, timely and accurately file tax returns in each jurisdiction in which such returns are required to be filed.

 

(g)

All out-of-pocket expenses incurred by the Company or any Subsidiary, resulting from the affirmative requests of a U.S. Investor pursuant to Sections 3.3(a)-(f) above, shall be borne by the Company.

 

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3.4	Termination of Information and Inspection.

The covenants set forth in Section 3.1 and Section 3.2 shall terminate and be of no further force or effect immediately prior to (i) the consummation of the sale of Ordinary Shares in the Company’s Qualified IPO, or (ii) upon a Liquidation Event, whichever event shall first occur.

 

3.5	Confidentiality.

 

(a)

The Investors agree that they will keep confidential and will not disclose, divulge or use for any purpose, other than to monitor its investment in the Company, any confidential information obtained from the Company pursuant to the terms of this Agreement, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.5(a) by the Investors), (ii) is or has been independently developed or conceived by the Investors without use of the Company’s confidential information or (iii) is or has been made known or disclosed to the Investors by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that the Investors may disclose confidential information (a) to their legal advisers, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring their investment in the Company, (b) to any prospective investor of any Registrable Securities from the Investors as long as such prospective investor agrees to be bound by the provisions of this Section 3.5(a), (c) to any Affiliate, partner, member, shareholder or wholly owned Subsidiary of the Investors in the ordinary course of business, or (d) as may otherwise be required by law, provided that the Investors take reasonable steps to minimize the extent of any such required disclosure, and provided that the Investors ensure that all such Persons named above to whom the Investors disclose confidential information are bound by the same provisions of this Section 3.5(a).

 

(b)

The Company agrees that it will keep confidential and will not disclose, divulge or use for any purpose, other than for the discharge of its obligations under this Agreement, any confidential information obtained from the Investors pursuant to the terms of this Agreement, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.5(b) by the Company), (ii) is or has been independently developed or conceived by the Company without use of the Investors’ confidential information or (iii) is or has been made known or disclosed to the Company by a third party without a breach of any obligation of confidentiality such third party may have to the Investors; provided, however, that the Company may disclose confidential information (a) to its legal advisers, accountants, consultants, and other professionals to the extent necessary for the discharge of their obligations under this Agreement, (b) to any Affiliate, partner, member, shareholder or wholly-owned Subsidiary of the Company in the ordinary course of business, or (c) as may otherwise be required by Law, provided that the Company takes reasonable steps to minimize the extent of any such required disclosure.

 

4.	RIGHT OF FIRST OFFER.

 

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4.1	Right of First Offer.

Subject to the terms and conditions specified in this Section 4.1, and applicable securities laws, in the event the Company proposes to offer or sell any Additional Equity Securities, the Company shall first make an offering of such Additional Equity Securities (the “Offered Securities”) to the Founders and the Investors (the “Offerees”) in accordance with the following provisions of this Section 4.1. Any Offeree shall be entitled to apportion the right of first offer hereby granted to it among their partners, members and Affiliates in such proportions as it deems appropriate.

 

(a)

The Company shall deliver a notice, in accordance with the provisions of Section 8.4 hereof, (the “Offer Notice”) to the Offerees stating (i) its bona fide intention to offer such Offered Securities, (ii) the number of such Offered Securities to be offered to the Offerees, and (iii) the price and terms, if any, upon which it proposes to offer such Offered Securities.

 

(b)

By written notification received by the Company, within twenty (20) calendar days after mailing of the Offer Notice, each Offeree may elect to purchase or obtain its pro-rata share of the Offered Securities, at the price and on the terms specified in the Offer Notice. For purpose of this Section 4.1(b), the “pro-rata share” shall be the ratio of (a) the number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) held by such Offeree, bearing to (b) the total number of Ordinary Shares of the Company (calculated on a fully-diluted and as-converted basis) then outstanding immediately prior to the issuance of Additional Equity Securities. The Company shall promptly, in writing, inform each Offeree that elects to purchase all the shares available to it (each, a “Fully-Exercising Holder”) of any other Offeree’s failure to do likewise. During the ten (10) day-period commencing immediately after receipt of such information, each Fully-Exercising Holder shall be entitled to obtain that portion of the Offered Securities for which any of the Offerees were entitled to subscribe but which were not subscribed for by the Offerees which is equal to the proportion calculated by dividing the number of Ordinary Shares issued and held, or issuable upon conversion of Preferred Shares then held by such Fully-Exercising Holder by the total number of Ordinary Shares issued and held, or issuable upon conversion of the Preferred Shares then held by all Fully-Exercising Holders who wish to purchase such unsubscribed Offered Securities.

 

(c)

If all Offered Securities referred to in the Offer Notice are not elected to be purchased or obtained as provided in Section 4.1(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in Section 4.1(b) hereof, offer the remaining unsubscribed portion of such Offered Securities (collectively, the “Refused Securities”) to any Person or Persons at a price not less than, and upon terms no more favorable to the Offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the Offered Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Offered Securities shall not be offered unless first reoffered to the Offeree in accordance with this Section 4.1.

 

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(d)

The right of first offer set forth in this Section 4.1 may not be assigned or transferred except that such right is assignable by an Investor to any Affiliate of such Investor.

 

4.2	Termination.

The provisions of this Section 4 shall terminate upon the earlier of: (a) the consummation of a Qualified IPO or (b) upon a Liquidation Event.

 

5.	BOARD COMPOSITION AND VOTING MATTERS.

 

5.1	Board Composition.

Each Shareholder agrees to vote all of his, her or its Shares in the Company (whether now owned or hereafter acquired or which the Shareholder may be empowered to vote), from time to time and at all times, in whatever manner shall be necessary to ensure that at each annual or special meeting of shareholders at which an election of directors is held or pursuant to any written consent of the shareholders, the following persons shall be elected to the Board:

 

(a)

AIL shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “AIL Directors”), initially to be Hongping Zhang and Yongming Wu.

 

(b)

Matrix shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “Matrix Directors”), initially to be David Ying Zhang and Harry Man.

 

(c)

Tang Yan, one of the Holders of Ordinary Shares, shall be entitled to elect three (3) directors of the Board of the Company (the “Ordinary Share Directors”), initially to be Tang Yan, Yong Li and Sichuan Zhang, and Tang Yan shall have three (3) votes for each of the matters submitted to the Board of Directors.

 

5.2	Size of the Board; Subsidiaries.

Each Shareholder agrees to vote all of its Shares from time to time and at all times, in whatever manner shall be necessary to ensure that the size of the Board shall be set at seven (7) directors. It is further agreed that, upon request of the Investors and to the extent legally feasible, the Investors shall be entitled to appoint the same number of directors to any Subsidiaries of the Company (other than the Domestic Company) as determined in accordance with Section 5.1. The Company and the Founders shall procure that such nominee(s) are appointed to the relevant board of directors.

 

5.3	Removal of Board Members.

Each Shareholder also agrees to vote all of his, her or its Shares from time to time and at all times in whatever manner as shall be necessary to ensure that (i) no director elected pursuant to Section 5.1 of this Agreement may be removed from office unless (A) such removal is directed or approved by the affirmative vote of the holders of fifty percent (50%) or more of the shares entitled under Section 5.1 to designate that director or (B) the person(s) or entity(ies) originally entitled to designate or approve

 

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such director or occupy such Board seat pursuant to Section 5.1 is no longer so entitled to designate or approve such director or occupy such Board seat; and (ii) any vacancies created by the resignation, removal or death of a director elected pursuant to Section 5.1 shall be filled pursuant to the provisions of Section 5.1. All Shareholders agree to execute any written consents required to effectuate the obligations of this Agreement, and the Company agrees at the request of any Shareholder entitled to designate directors to call a special meeting of shareholders for the purpose of electing directors.

 

5.4	Drag-Along Right.

In the event that at any time following the Closing, the Majority Preferred Holders and the Majority Ordinary Holders approve either: (A) a transaction or series of related transactions in which a Person, or a group of related Persons, acquires all or substantially all of the equity or assets or undertaking of the Company, or (B) a transaction that qualifies as a Liquidation Event (such events described in subsections (A) and (B) are referred to in this Agreement as a “Sale of the Company”), then each Shareholder hereby agrees with respect to all Shares that he, she or it holds and any other Company securities over which he, she or it otherwise exercises dispositive power:

 

(a)

in the event the Sale of the Company requires the approval of shareholders, (a) if the matter is to be brought to a vote at a shareholder meeting, after receiving proper notice of any meeting of shareholders of the Company to vote on the approval of a Sale of the Company, to be present, in person or by proxy, as a holder of Shares, at all such meetings and be counted for the purposes of determining the presence of a quorum at such meetings; and (b) to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of such Sale of the Company and in opposition of any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;

 

(b)

in the event that the Sale of the Company is to be effected by the sale of Shares held by another Shareholder (the “Selling Shareholder”) without the need for shareholder approval, to sell all shares of the Company beneficially held by such Shareholder (or in the event that the Selling Shareholder is selling fewer than all of its shares held in the Company, shares in the same proportion as the Selling Shareholder is selling) to the person to whom the Selling Shareholder propose to sell its shares, for the same per-share consideration (on an as-converted basis) and on the same terms and conditions as the Selling Shareholder, except that the Shareholder will not be required to sell its shares unless the liability for indemnification, if any, of the Shareholder in such Sale of the Company is several, not joint, and is pro rata in accordance with the Shareholder’s relative share ownership of the Company, and will not exceed the consideration payable to the Shareholder, if any, in such transaction (except in the case of potential liability for fraud or willful misconduct by the Shareholder);

 

(c)

to refrain from exercising any dissenters’ rights or rights of appraisal under applicable Law at any time with respect to such Sale of the Company;

 

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(d)

to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company; and

 

(e)

not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any voting securities owned by such Party or Affiliate in a voting trust or subject any such voting securities to any arrangement or agreement with respect to the voting of such securities, unless specifically requested to do so by the acquiror in connection with a Sale of the Company.

 

5.5	Increase in Authorized Capital.

Each Shareholder agrees to vote all of its Shares from time to time and at all times, in whatever manner shall be necessary to authorize an increase in the authorized capital of the Company so that there will be sufficient Ordinary Shares available for conversion of all of the then-outstanding Preferred Shares at any time that an adjustment to the relevant conversion price with respect to the Preferred Shares is made under the Articles.

 

5.6	Specific Enforcement.

Each Shareholder acknowledges and agrees that each Party hereto will be irreparably damaged in the event any of the provisions of this Section 5 are not performed by the Shareholder in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that each of the Company and the Shareholders shall be entitled to an injunction to prevent breaches of this Section 5 and to specific enforcement of this Section 5 and its terms and provisions in any action instituted in any court of competent jurisdiction, in addition to any other remedy to which the Parties may be entitled at law or in equity. Each of the Parties to this Agreement hereby consents to personal jurisdiction in any such action brought in the courts of Hong Kong.

 

5.7

Term.

The provisions of this Section 5 shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the earlier to occur of (a) the consummation of a Qualified IPO, or (b) a Liquidation Event; provided, however, that the provisions of Section 5.6 shall survive until the Investors have converted all of their Preferred Shares into Ordinary Shares.

 

6.	RIGHT OF FIRST REFUSAL, CO-SALE AND RESTRICTIONS ON SALE.

 

6.1	Restrictions on Transfer.

 

(a)

Transfer of Shares.

Subject to Section 6.6, any proposed assignment, sale, offer to sell, pledge, mortgage, hypothecation, encumbrance, disposition of or any other like transfer or encumbering, through one or a series of transactions, of any interest in any Shares now or hereafter owned or held by a Shareholder, either directly or indirectly (in each case, a “Proposed Transfer”) shall be made in compliance with the terms of this Section 6. For avoidance of doubt, any

 

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change in the equity interest of a non-Investor Shareholder that is an entity, including without limitation as a result of (i) the issuance or redemption by such non-Investor Shareholder of any portion of its outstanding shares or equity, or (ii) a Transfer of such non-Investor Shareholder’s equity by its equity holder, shall constitute a “Proposed Transfer” for purposes of this Agreement.

 

(b)

Prohibition on Transfer of Ordinary Shares.

In addition to the restrictions set forth in Sections 6.2 and 6.3, until the date that is thirty-six (36) months following the Closing, each of the Founders agrees and undertakes to the Investors that he/she will not sell, assign, pledge, hypothecate, encumber or otherwise transfer any Ordinary Shares of the Company or in any other way dilute any beneficial ownership, control and discretion over any Ordinary Shares of the Company, either directly or through a holding company of such Founder, prior to a Qualified IPO without an affirmative vote by at least two thirds (2/3) of the Directors (including at least one (1) AIL Director and one (1) Matrix Director). Notwithstanding the foregoing but subject to compliance by a prospective transferee with the requirements of Section 8.10(b), the restrictions on transfer set forth in this Section 6 shall not apply to

 

(i)

a transfer in connection with a Sale of the Company as provided in Section 5.4;

 

(ii)

an exempt transfer that meets the requirements set forth in Section 6.6.

For avoidance of doubt, any proposed direct or indirect transfer by a Founder of an equity interest in any Ordinary Shares, including without limitation any transfer or issuance of an equity interest in a holding company that holds, directly or indirectly, an interest in Ordinary Shares, shall constitute a transfer for purposes of this Section 6.1(b).

 

6.2	Right of First Refusal.

 

(a)

Grant.

Subject to the provisions of the Companies Act, any other applicable Law and Section 6.7 below, each Shareholder (each a “Transferor”) hereby unconditionally and irrevocably grants to the other non-transferring Shareholders (each an “Eligible Holder”) a right of first refusal (the “Right of First Refusal”) to purchase its pro-rata share of the Shares (the “Transfer Shares”), to be included in a Proposed Transfer; provided, however, that the shareholding percentage of AIL in the Company after exercising its Right of First Refusal shall be no more than 25% (calculated on a fully-diluted and as-converted basis). In the event that the shareholding percentage of AIL in the Company shall be in excess of 25% (calculated on a fully-diluted and as-converted basis) solely due to exercising its Right of First Refusal under this Section 6.2 (a), prior consent from Tang Yan shall be required. For purpose of this Section 6.2 (a), the “pro-rata share” shall be the ratio of (a) the number of Ordinary Shares (calculated on a fully-diluted and as-converted

 

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basis) held by each Eligible Holder, to (b) the total number of Ordinary Shares of the Company (calculated on a fully-diluted and as-converted basis) held by all Eligible Holders immediately prior to the Proposed Transfer, at the same price and on the same terms and conditions as those offered to the proposed transferee (the “Prospective Transferee”). The Eligible Holders shall be entitled to apportion the respective Right of First Refusal granted under this Section 6.2(a) among their partners, members and Affiliates in such proportions as they deem appropriate. In the event of a conflict between this Agreement and any other agreement that may have been entered into by a Shareholder with the Company that contains a preexisting right of first refusal, the terms of this Agreement shall control and the preexisting right of first refusal shall be deemed satisfied by compliance with this Section 6.2(a).

Subject to Section 7.3(B)(i), the Right of First Refusal under this Section 6.2 shall not apply in the event that any Investor proposes to transfer any of its Shares to its Affiliate.

 

(b)

Notice.

Each Shareholder proposing to make a Proposed Transfer must deliver a notice (the “Proposed Transfer Notice”) to the Company and the Eligible Holders not later than forty-five (45) days prior to the consummation of such Proposed Transfer. Such Proposed Transfer Notice shall contain the material terms and conditions of the Proposed Transfer, amount of Shares proposed to be transferred and the identity of the Prospective Transferee.

 

(c)

To exercise its respective Right of First Refusal, an Eligible Holder must deliver a notice (an “Exercise Notice”) to the Transferor, and the Company within ten (10) days (the “Investor Notice Period”) after receipt of the Proposed Transfer Notice by giving an Exercise Notice to the Transferor. Such right shall at all times be exercised in accordance with the provisions of the Companies Act and any other applicable Laws. Failure by an Eligible Holder to give notice within the Investor Notice Period shall be deemed to constitute a decision by the Investor not to exercise its Right of First Refusal.

 

(d)

Undersubscription of Transfer Shares. If options to purchase have been exercised by the Eligible Holders with respect to some but not all of the Transfer Shares by the end of the Investor Notice Period, then the Company shall, immediately after the expiration of the Investor Notice Period, send written notice (the “Undersubscription Notice”) to those Eligible Holders who fully exercised their options within the Notice Period (the “Exercising Eligible Holders”). Each Exercising Eligible Holders shall have an additional option to purchase all or any part of the balance of any such remaining unsubscribed Transfer Shares on the terms and conditions set forth in the Proposed Transfer Notice. To exercise such option, an Eligible Holder must deliver an Undersubscription Notice to the Transferor and the Company within ten (10) days after the expiration of the Notice Period. In the event there are two or more such Eligible Holders that choose to exercise the last-mentioned option for a total number of remaining Shares in excess of the number available, the remaining Shares available for purchase under this Section 6.2(d) shall be allocated to such Eligible Holders pro rata based on the

 

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number of Shares such Eligible Holders have elected to purchase. If the options to purchase the remaining Shares are exercised in full by the Eligible Holders, the Company shall immediately notify all of the Exercising Eligible Holders of that fact.

 

(e)

Consideration; Closing. If the consideration proposed to be paid for the Transfer Shares is in property, services or other non-cash consideration, the fair market value of the consideration shall be determined in good faith by the Board. If any Eligible Holder cannot, for any reason, pay for the Transfer Shares, in the same form of non-cash consideration, such Eligible Holder may pay the cash value equivalent thereof, as determined by the Board. The closing of the purchase of the Transfer Shares by the Eligible Holder shall take place, and all payments from the Eligible Holders shall have been delivered to the Transferor, by the later of (i) the date specified in the Proposed Transfer Notice as the intended date of the Proposed Transfer and (ii) forty-five (45) days after delivery of the Proposed Transfer Notice.

 

6.3	Right of Co-Sale.

 

(a)

If any Transfer Shares subject to a Proposed Transfer are not purchased pursuant to Section 6.2 above and thereafter are to be sold to a Prospective Transferee (such Transfer Shares, the “Co-Sale Eligible Shares”), the Eligible Holder who has not exercised its rights under Section 6.2(c) (each, a “Co-Sale Eligible Holder”), may elect to exercise its right of co-sale (a “Right of Co-Sale”) and participate on a pro-rata basis in the Proposed Transfer on the same terms and conditions specified in the Proposed Transfer Notice. To exercise its Right of Co-Sale, the Co-Sale Eligible Holder must give the Transferor and the Company written notice to that effect within fifteen (15) calendar days (the “Co-Sale Period”) after receiving the Proposed Transfer Notice as provided in Section 6.2(b), and upon giving such notice the Co-Sale Eligible Holder shall be deemed to have effectively exercised its respective Right of Co-Sale.

 

(b)

Each Co-Sale Eligible Holder, by timely exercising its Right of Co-Sale, may include in the Proposed Transfer all or any part of its Shares not to exceed the product obtained by multiplying (i) the aggregate number of Co-Sale Eligible Shares by (ii) a fraction, the numerator of which is the number of Shares owned by such Co-Sale Eligible Holder immediately before consummation of the Proposed Transfer and the denominator of which is the total number of Shares owned, in the aggregate, by all Co-Sale Eligible Holders immediately prior to the consummation of the Proposed Transfer, plus the number of Shares held by the Transferor. To the extent that one or more of the Co-Sale Eligible Holders exercises such right of participation in accordance with the terms and conditions set forth herein, the number of Co-Sale Eligible Shares that the Transferor may sell in the Proposed Transfer shall be correspondingly reduced.

 

(c)

The sale of the Co-Sale Eligible Shares and remaining Transfer Shares shall occur within twenty-five (25) calendar days from the beginning of the Co–Sale Period (the “Co-Sale Closing”). For avoidance of doubt, the Right

 

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of Co–Sale shall not apply with respect to Transfer Shares sold or to be sold to the Eligible Holders under the Right of First Refusal in Section 6.2(a).

 

(d)

A Co-sale Eligible Holder shall effect its participation in the Proposed Transfer by delivering to the Transferor, prior to the Co-Sale Closing, one or more share certificates, properly endorsed for transfer to the Prospective Transferee, representing:

 

(i)

the number of Ordinary Shares that such Co-sale Eligible Holder elect to include in the Proposed Transfer; or

 

(ii)

the number of the Preferred Shares that are at such time convertible into the number of Ordinary Shares that such Co-sale Eligible Holder elects to include in the Proposed Transfer; provided, however, that if the Prospective Transferee objects to the delivery of convertible Preferred Shares in lieu of Ordinary Shares, such Co-sale Eligible Holder shall first convert the Preferred Shares into Ordinary Shares and deliver Ordinary Shares as provided above. The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such shares to the Prospective Transferee.

 

(e)

The terms and conditions of any sale pursuant to this Section 6.3 will be contained in, and governed by, a written purchase and sale agreement with customary terms and provisions for such a transaction.

 

(f)

Each share certificate a Co-sale Eligible Holder delivers to the Transferor pursuant to Section 6.3(d) above will be transferred to the Prospective Transferee against payment therefor in consummation of the sale of the Transfer Shares pursuant to the terms and conditions specified in the Proposed Transfer Notice and the purchase and sale agreement, and the Transferor shall remit to such Co-sale Eligible Holder of the sale proceeds to which such Co-sale Eligible Holder is entitled by reason of its participation in such sale. If any Prospective Transferee or Transferees refuse(s) to purchase securities subject to the Right of Co-Sale from any Co-sale Eligible Holder exercising their Right of Co-Sale hereunder, no Transferor may sell any Transfer Shares to such Prospective Transferee or Transferees unless and until, simultaneously with such sale, such Transferor purchases all securities subject to the Right of Co-Sale from such Co-sale Eligible Holder.

 

6.4	Proposed Transfer - Compliance Period.

If any Proposed Transfer is not consummated within seventy-five (75) days after receipt of the Proposed Transfer Notice by the Company and the Investors, the Transferor proposing to make a Proposed Transfer may not sell any Transfer Shares unless such Transferor complies in full with each provision of this Section 6. The exercise or election not to exercise any right by the Investors hereunder shall not adversely affect its right to participate in any other sales of Transfer Shares subject to this Section 6.

 

6.5	Effect of Failure to Comply.

 

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(a)

Any Proposed Transfer not made in compliance with the requirements of this Agreement (including without limitation this Section 6) shall be null and void ab initio, shall not be recorded on the books or register of the Company or its transfer agent and shall not be recognized by the Company. Each Party hereto acknowledges and agrees that any breach of this Agreement would result in substantial harm to the other Parties hereto for which monetary damages alone could not adequately compensate. Therefore, the Parties hereto unconditionally and irrevocably agree that any non-breaching Party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity (including, without limitation, seeking specific performance or the rescission of purchases, sales and other transfers of Shares not made in strict compliance with this Agreement).

 

(b)

If any Founder becomes obligated to sell any Shares to the Company under this Agreement and fails to deliver such Shares in accordance with the terms of this Agreement, the Company may, at its option, in addition to all other remedies it may have, send to such Founder the purchase price for such Shares as is herein specified and cancel on its books or registers the certificate or certificates representing the Shares to be sold.

 

(c)

If any Founder purports to sell any Shares in contravention of the Right of Co-Sale (a “Prohibited Transfer”), the Investors, in addition to such remedies as may be available by law, in equity or hereunder, is entitled to require such Transferor to purchase Shares from the Investors, as provided below, and such Transferor will be bound by the terms of such option. If a Transferor makes a Prohibited Transfer, the Investors, upon timely exercise of their Right of Co-Sale under Section 6.3, may require such Transferor to purchase from the Investors the type and number of Shares that the Investors would have been entitled to sell to the Prospective Transferee under Section 6.3 had the Prohibited Transfer been effected pursuant to and in compliance with the terms of Section 6.3. The sale will be made on the same terms and subject to the same conditions as would have applied had the Transferor not made the Prohibited Transfer, except that the sale (including, without limitation, the delivery of the purchase price) must be made within ninety (90) days after the Investors learn of the Prohibited Transfer, as opposed to the timeframe prescribed in Section 6.3. Such Transferor shall also reimburse the Investors for any and all fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Investors’ rights under Section 6.3.

 

6.6	Exempt Transfers.

Notwithstanding the foregoing or anything to the contrary herein, the provisions of Section 6.1(b), Section 6.2 and Section 6.3 shall not apply: (i) to a repurchase of Shares from a Transferor by the Company at a price no greater than that originally paid by such Transferor for such Shares and pursuant to an agreement containing vesting and/or repurchase provisions approved by a majority of the Board, (ii) in the case of a Transferor that is a natural person, upon a transfer of Shares by such Transferor, either during his or her lifetime or on death by will or intestacy, to his or her Immediate Family Members or any other relatives approved by the Board of the Company, or any custodian or trustee for the account of a Transferor or a Transferor’s

 

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Immediate Family Members, or (iii) the sale of any Shares to the public in a Qualified IPO or in connection with a Sale of the Company.

 

6.7	Restriction on Transfer of Series A-1 Preferred Shares.

Ms. Feini Zheng agrees and undertakes that she will not sell, assign, pledge, hypothecate, encumber or otherwise transfer any Shares, directly or indirectly, or for any reason whatsoever request for redemption of any Shares, without prior written consent of Mr. Tang Yan, Matrix and AIL within the nine (9) months period following the Closing. In the event the written consent of Mr. Tang Yan, Matrix and AIL is obtained, Feini Zheng hereby unconditionally and irrevocably grants to Matrix and AIL a right of first refusal to purchase the proposed transfer of any Shares held by her on a pro-rata basis at the same price and on the same terms and conditions as those offered to any proposed transferee.

 

6.8

Term.

The provisions of this Section 6 shall terminate upon the earlier of (i) immediately prior to the Company’s Qualified IPO and (ii) the occurrence of a Liquidation Event.

 

7.	ADDITIONAL COVENANTS.

 

7.1	Share Incentive Plan.

Subject to the provisions of this Agreement and the Articles, the Company shall establish after the Closing a share incentive option plan, subject to adoption by the Board and approval by the Company’s shareholders (the “Share Plan”), under which the Company may reserve not more than 44,758,220 Ordinary Shares for issuance to officers, directors, employees and consultants of the Company. Unless approved by the Board, all officers, directors, employees and consultants of the Company who shall purchase, or receive options to purchase, shares of the Company under the Share Plan shall be required to execute share purchase or option agreements providing for (i) vesting of shares over not less than a four-year period with the first twenty five percent (25%) of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, and (ii) a one-hundred eighty (180) day lockup period in connection with the Company’s Qualified IPO. The Company shall retain a “right of first refusal” on employee transfers until the Company’s Qualified IPO and the right to repurchase unvested shares at cost.

Without the approval of the holders representing at least two-thirds (66.67%) of the then outstanding Preferred Shares (voting together as a single class on an as-converted basis), the Company shall not (i) grant any option or other equity-based awards to any person with the underlying Shares representing 0.5% or more of the total share capital of the Company on a single basis, or grant any option or other equity-based awards to any person with the underlying Shares representing 1% or more of the total share capital of the Company on a cumulative basis; or (iii) grant any option or other equity-based awards to any person that is not in standard terms of the employee share option plans with respect to the vesting schedule, the exercise price or any other aspects.

 

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7.2	Publicity.

Without the prior written consent of AIL, each of the Group Companies, each of the holders of Ordinary Shares, and each Investor (other than AIL) shall not, and each foregoing Person shall cause any of its Affiliates to not, (i) use in advertising, publicity, announcements, or otherwise, the name of AIL or any Affiliate of AIL, including without limitation, “Ali ,” “Alibaba ,” “Alipay ,” “Taobao ,” “Tmall ,” “etao ,” “Juhuasuan ,” “Aliyun / Alibaba Cloud ,” “Yahoo China ,” or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned or used by AIL or any of its Affiliates, or (ii) represent, directly or indirectly, that any product or services provided by any Group Company has been approved or endorsed by AIL or any of its Affiliates. The rights and obligations of each Group Company and each Shareholder under this Section 7.2 shall survive the termination of this Agreement.

 

7.3	Protective Provisions.

 

(A)

In addition to any other vote or consent required elsewhere in the Articles or by any applicable statute, each Group Company shall not, and each holder of Ordinary Shares shall procure that each Group Company does not, directly or indirectly, (1) without the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (i), (ii), (iii), (iv), (v), (xi), (xiv), (xv), (xvii), (xix) and (xx) below; and (2) without the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii) below:

 

(i)

cease to conduct or substantially change the business of the Company and/or any Group Company, as such business is normally conducted, or deviate from the business plan previously approved by the Board of Director of the Company;

 

(ii)

sell or dispose of the whole or substantial part of the undertaking goodwill or the assets of the Company and/or any Group Company;

 

(iii)

increase, reduce or cancel the authorized or issued share capital of the Company and/or any Group Company 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 or grant or issue any options rights or warrants, 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 any Investor in the Company (with the exception of any shares issued upon conversion of the Preferred Shares);

 

(iv)

make any distribution of profits amongst the shareholders by way of dividend, (interim and final) capitalization of reserves or otherwise;

 

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(v)

appoint or settle the terms of appointment of the chief executive officer (except for appointing Tang Yan as the chief executive officer of the Company and/or any Group Company), the chief operative officer and the chief technology officer of the Company and/or any Group Company;

 

(vi)

approve or amend the employee share option plans or approve any new equity-based compensation plan or any bonus or incentive plan;

 

(vii)

select or change the external auditor, or make any material changes to the accounting policies or change the financial year of the Group Companies;

 

(viii)

invest in or acquire any other Person, or any assets, business, business organization or division of any other Person in an amount in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or form any new subsidiary of any Group Company;

 

(ix)

create, incur or authorize the creation of any debt (including without limitation the issuance of any debt securities) if the Group’s aggregate indebtedness would exceed US$1,000,000, or guarantee any indebtedness, except for trade accounts of the Group Companies arising in the ordinary course of business;

 

(x)

create any liens over assets to serve any indebtedness otherwise permitted or previously approved pursuant to paragraph (ix) above;

 

(xi)

make any loan or advance in an amount in excess of US$500,000 other than trade credit given in the ordinary course of business, except to wholly-owned subsidiaries of the Company;

 

(xii)

sell, transfer, license out (other than non-exclusive license granted in the ordinary course of business), pledge or encumber technology or intellectual property;

 

(xiii)

purchase any real property;

 

(xiv)

pass any resolution for the winding up of the Company and /or any Group Company or undertake any merger, reconstruction or liquidation exercise concerning the Company and/or any Group Company or apply for the appointment of a receiver, manager or judicial manager or like officer;

 

(xv)

make any alteration or amendment to the memorandum and articles of association of the Company or any of the Group Companies (provided however that with respect to the memorandum and articles of association of the Domestic Company, only the alteration or amendment related to the items listed in this Section 7.3(A) shall require the approval of the Investors in accordance with this Section 7.3(A) );

 

(xvi)

approve, extend or amend any transaction or agreement which is in an amount in excess of US$1,000,000 in a single transaction, or US$3,000,000 in a series of related transactions, with a Shareholder, director, officer, employee or Affiliate of any Group Company or any relative thereof, except pursuant to the Company’s employee share option plans, provided however that, any connected transaction or agreement which is not in an amount in excess of US$1,000,000 shall be fully disclosed to the Investors and shall be arm’s length transaction;

 

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(xvii)

make any equity investments in any other companies in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or the establishment of any brands for companies other than the Group Companies;

 

(xviii)

enter into any joint venture or partnership of which the total investment amount is in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, other than any strategic alliance not involving any equity or equity-related investment;

 

(xix)

dispose or dilute the Company’s interest, directly or indirectly, in any of the Group Company;

 

(xx)

approve any transfer of shares in the Company or any of the Group Company; or

 

(xxi)

authorize, agree or undertake to do any of the foregoing.

Actions under subsection (xxi) shall require the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis) if the subject matter is related to the matters listed in subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii), otherwise, actions under the subsection (xxi) shall require the approval of the holders holding at least two-thirds (66.67%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis).

 

(B)

In addition to any other vote or consent required elsewhere in the Memorandum and the Articles or by any applicable statute, each Group Company shall not, and the Company shall procure that each Group Company does not, directly or indirectly, without AIL’s approval, to take any of the following actions:

 

(i)

Issue, sell, transfer or otherwise dispose of, directly or indirectly, any equity securities, security convertible into or exercisable for any equity securities, assets or good will of any Group Company to, or merge, amalgamate or consolidate any Group Company with or into Tencent Holdings Limited, or any Person controlled by Tencent Holdings Limited (the “Tencent Group”) (notwithstanding any provision to the contrary in the opening paragraph of this Section, AIL has the absolute right to withhold its approval of the actions set forth in this subsection (i) for any reason whatsoever; it being understood that, solely for purposes of this Section 7.3(B)(i), “control” refers to management rights, ownership of more than 50% of equity or voting rights.

Notwithstanding the foregoing,

 

(ii)

In the event that Tencent Group enters into a written term sheet or other similar document (the “Tencent Offer”) with the Company through bona fide negotiations for a Sale of the Company, pursuant to which, the Company has received a non-refundable deposit (unless to be otherwise refunded in the form of the Tencent Indemnification

 

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under the second paragraph of this Section) in an amount of no less than 2.5% of the total consideration of the transaction under the Tencent Offer (the “Tencent Deposit”), the Company shall deliver a written notice to AIL, describing material terms of Tencent Offer, with a copy of the executed Tencent Offer (the “Sale Notice”) and bank statement or other evidence on receipt of the Tencent Deposit (the “Evidence of Receipt”). AIL shall have the right of first refusal to purchase all such equity interests, securities or assets proposed to be purchased by Tencent Group on the same terms and conditions set forth in the Tencent Offer (the “AIL Option”), by paying a deposit in the same amount as the Tencent Deposit to the Company within twenty-five (25) calendar days after its receipt of the Sale Notice and the Evidence of Receipt (the “AIL Notice Period”), provided that the Company shall have first entered into a written term sheet or other similar document with AIL (the “AIL Offer”).

If AIL decides to exercise the AIL Option, all the commercially reasonable indemnification, penalty and other similar payment payable by the Company and the shareholders of the Company (if the shareholders are parties to the Tencent Offer) to Tencent Group under the Tencent Offer for not completing the transaction contemplated thereunder (the “Tencent Indemnification”), the total amount of which shall be no more than the Tencent Deposit plus its accrued interests during the AIL Notice Period, if any, calculated using the then effective base demand deposit interest rate published by the People’s Bank of China, shall be borne by the Company.

If AIL decides to exercise the AIL Option, but the transaction is not completed solely due to AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the definitive transaction agreements between AIL and the Company (the “AIL Purchase Agreement”), the Company shall not refund the deposit paid by AIL. If the transaction is not completed due to reasons other than AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the AIL Purchase Agreement, the Company shall refund the deposit paid by AIL, plus its accrued interests calculated using the then effective base demand deposit interest rate published by the People’s Bank of China.

If AIL decides not to exercise the AIL Option, or fails to pay the deposit to the Company pursuant to the AIL Offer within the AIL Notice Period, the Company can proceed with the transaction with Tencent Group upon terms and conditions not more favorable than those set forth in the Sale Notice. If the Company does not enter into any definitive transaction agreement with Tencent Group within the sixty (60) calendar days following the expiration of the AIL Notice Period, or if such agreement is not consummated within ninety (90) calendar days of the execution thereof, AIL’s right of first refusal provided under this Section 7.3(B) shall be deemed to be revived and

 

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the Company shall re-deliver a Sale Notice to AIL in accordance with this Section 7.3(B).

 

(C)

For the avoidance of doubt, the Shareholders agree that without the prior written consent of each Series B Shareholder and each Series C Shareholder, no Shareholder shall pass resolutions or otherwise take actions to amend, alter or repeal rights, privileges and obligations of the Series B Preferred Shares or Series C Preferred Shares, or any holder of the Series B Preferred Shares or Series C Preferred Shares hereunder, it being understood that rounds of investors further to the current Series A, B and C are not deemed to constitute the above amendment, alteration or repeal.

 

7.4	Meetings of the Board.

Unless otherwise determined by the vote of a majority of the directors then in office, the Board shall meet at least quarterly in accordance with an agreed upon schedule.

 

7.5	Successor Indemnification.

In the event that the Company or any of its successors or assigns (i) consolidates with or merges into any other entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person or entity, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately prior to such transaction, whether in the Company’s Articles or elsewhere, as the case may be.

 

7.6	Business Principles.

The Company agrees and undertakes to the Investors that the business of the Company will be designed and carried on in accordance with the following business principles (collectively, the “Business Principles”), namely, in a way that:

 

(a)

provides safe and healthy working conditions for its employees and contractors;

 

(b)

encourages the efficient use of natural resources and promotes the protection of the environment;

 

(c)

treats all employees fairly in terms of recruitment, progression, remuneration and conditions of work, irrespective of gender, race, color, language, disability, political opinion, age, religion, or national/social origin;

 

(d)

allows consultative work-place structures and associations that provide employees with an opportunity to present their views to management;

 

(e)

takes account of the impact of its operations on the local community and seeks to ensure that potentially harmful occupational health and safety, environmental and social effects are properly assessed, addressed and monitored;

 

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(f)

upholds high standards of business integrity and honesty, and operates in accordance with local Laws and international good practice (including those intended to fight extortion, bribery and financial crime);

 

(g)

implements a social and environmental management system that enables effective identification, management and monitoring of any risks and provides a framework for action; and

 

(h)

provides for the reporting of the Company’s compliances with the Business Principles in an annual report by the Company to its Board in a manner that allows a reader to make an informed assessment of the business of the Company and, to the extent relevant, its Subsidiary undertakings as against the requirements of the Business Principles.

 

7.7	Amendment to Control Documents.

In the event that any provision under the Control Documents (as defined in the Purchase Agreement) is ruled by any relevant Governmental Authority as invalid or unenforceable under the Laws of the PRC, the Founders and the Group Companies shall, subject to the Laws of the PRC, use their best efforts to take, or cause to be taken, such action, to execute and deliver, or cause to be executed and delivered, such documents and instruments and to do, or cause to be done, all things necessary, proper or advisable to ensure that substantially all of the income generated by the Domestic Company is consolidated into the WFOE.

 

7.8	Option to Purchase the Domestic Company.

The Company shall maintain an option, exercisable by the Company or any other entity designated by it at any time after the Closing, to purchase one hundred percent (100%) of the shares or ownership of the Domestic Company, for the lowest price that is in compliance with PRC Law. The shareholders of each of the Group Companies shall return any proceeds from the Company’s exercise of this option to the Company.

 

7.9	Employee Agreements.

The Company shall cause (i) all the Key Employees employed by it or any Group Company (or engaged by the Company or any Group Company as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a non-disclosure and proprietary rights assignment agreement and (ii) each Key Employee to enter into a two (2) year non-competition and non-solicitation agreement.

 

7.10	Bank Account Signatory.

All accounts holding cash of the Company, the HK Co and capital account of the WFOE shall be established such that any disbursement in excess of US$3,000,000 shall require the signature of a representative designated by Matrix.

 

7.11	Qualified IPO.

The Company and Founders undertake to use their best efforts to, within 48 months from the date of Closing (as defined in the Purchase Agreement) to conduct a

 

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Qualified IPO of the Company on NASDAQ or Hong Kong Stock Exchange (Main Board or GEM) or any other stock exchange acceptable to the Investors.

 

7.12	Termination of Covenants.

The covenants set forth in this Section 7 (other than Section 7.7) shall terminate and be of no further force or effect upon (a) the consummation of a Qualified IPO, or (b) upon the consummation of a Liquidation Event, whichever event shall first occur.

 

8.	MISCELLANEOUS.

 

8.1	Governing Law.

This Agreement shall be governed by and construed in accordance with the laws of Hong Kong.

 

8.2	Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile or other electronic signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

8.3	Headings and Subheadings.

The headings and subheadings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

8.4

Notices.

All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next Business Day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address, or to such email address, facsimile number or address as set forth on Schedule 3 hereto or as subsequently modified by written notice given in accordance with this Section 8.4.

 

8.5	Costs of Enforcement.

If any Party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing Party shall pay all costs and expenses incurred by the prevailing Party, including, without limitation, all reasonable legal advisor’s fees.

 

8.6	Amendments and Waivers.

 

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Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) the Company, (ii) the Majority Ordinary Holders, and (iii) each of the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then Outstanding, each future holder of all such Registrable Securities, and the Company. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any Party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 8.6 shall be binding on all Parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

 

8.7	Severability.

The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

 

8.8	Aggregation of Shares.

All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

 

8.9	Entire Agreement.

This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement between the Parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the Parties are expressly canceled. Without limiting the generality of the foregoing, this Agreement supersedes, in its entirety, the Prior Shareholders’ Agreement, which shall be null and void and have no further force or effect whatsoever as of the date of this Agreement. The Parties hereto hereby irrevocably waive any and all rights that they may have against any other party under the Prior Shareholders’ Agreement.

 

8.10	Transfers, Successors and Assigns.

 

(a)

The terms and conditions of this Agreement shall insure to the benefit of and be binding upon the respective successors and assigns of the Parties.

 

(b)

Each transferee or assignee of the Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Assumption Agreement substantially in the form attached hereto as Exhibit C. Upon the execution and delivery of an Assumption Agreement by any transferee, such transferee shall be deemed to be a Party hereto as if such transferee’s signature appeared on the signature pages of this

 

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Agreement. By execution of this Agreement or of any Assumption Agreement, each of the Parties appoints the Company as its attorney in fact for the purpose of executing any Assumption Agreement that may be required to be delivered under the terms of this Agreement. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until such transferee shall have complied with the terms of this Section 8.10. Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 8.11.

 

(c)

Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties or their respective executors, administrators, heirs, successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

8.11

Legend.

 

(a)

Each certificate representing Shares of the Founders issued by the Company shall be endorsed with the following legend:

THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO, AND IN CERTAIN CASES PROHIBITED BY, THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDERS’ AGREEMENT BY AND AMONG THE SHAREHOLDER, THE COMPANY AND CERTAIN OTHER HOLDERS OF SHARES OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

 

(b)

Each Founder 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 8.11(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 this Agreement at the request of the Holder.

 

8.12	Dispute Resolution.

 

(a)

Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall first be subject to resolution through consultation of the parties to such dispute, controversy or claim. Such consultation shall begin within seven (7) days after one Party hereto has delivered to the other Parties involved a written request for such consultation. If within thirty (30) days following the commencement of such consultation the dispute cannot be resolved, the dispute shall be submitted to arbitration upon the request of any Party with notice to the other Parties.

 

(b)

The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “HKIAC”). There shall be three arbitrators. The complainant and the respondent to such dispute shall

 

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each select one arbitrator within thirty (30) days after giving or receiving the demand for arbitration. Such arbitrators shall be freely selected, and the Parties shall not be limited in their selection to any prescribed list. The Chairman of the HKIAC shall select the third arbitrator, who shall be qualified to practice Law in Hong Kong. If either party to the arbitration does not appoint an arbitrator who has consented to participate within thirty (30) days after selection of the first arbitrator, the relevant appointment shall be made by the Chairman of the HKIAC.

 

(c)

The arbitration proceedings shall be conducted in Chinese. The arbitration tribunal shall apply the Arbitration Rules of the HKIAC in effect at the time of the arbitration. However, if such rules are in conflict with the provisions of this Section 8.12, including the provisions concerning the appointment of arbitrators, the provisions of this Section 8.12 shall prevail.

 

(d)

The arbitrators shall decide any dispute submitted by the parties to the arbitration strictly in accordance with the substantive Law of Hong Kong and shall not apply any other substantive law.

 

(e)

Each Party hereto shall cooperate with any party to the dispute in making full disclosure of and providing complete access to all information and documents requested by such party in connection with such arbitration proceedings, subject only to any confidentiality obligations binding on the Party receiving the request.

 

(f)

The award of the arbitration tribunal shall be final and binding upon the disputing parties, and any party to the dispute may apply to a court of competent jurisdiction for enforcement of such award.

 

(g)

Any party to the dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal.

 

8.13	Delays or Omissions.

No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Party, shall be cumulative and not alternative.

 

8.14	Conflict with Articles of Association.

 

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In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the Company’s Articles or other constitutional documents, the terms of this Agreement shall prevail as between the shareholders of the Company only. The Investors and the Founders shall, notwithstanding the conflict or inconsistency, act so as to effect the intent of this Agreement to the greatest extent possible under the circumstances and shall promptly amend the conflicting constitutional documents to conform to this Agreement to the greatest extent possible.

[Remainder of Page Intentionally Left Blank]

 

26

SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first above written.

 

COMPANY:				MOMO TECHNOLOGY COMPANY LIMITED
				By:
				Name:		Yan Tang
				Title:		Director
HK CO:				MOMO TECHNOLOGY HK COMPANY LIMITED
				By:
				Name:		Yan Tang
				Title:		Director
DOMESTIC COMPANY:				BEIJING MOMO TECHNOLOGY CO., LTD.
				By:
				Name:		Yan Tang
				Title:		Legal Representative
				Affix Seal:
WFOE:				BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.
				By:
				Name:		Yan Tang
				Title:		Legal Representative
				Affix Seal:

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

FOUNDERS

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				MATRIX PARTNERS CHINA II HONG KONG LIMITED
				c/o Suite 2008 20/F Jardine House
				1 Connaught Place
				Central, Hong Kong
				By
				Print Name:
				Title:		Director
INVESTOR				[MATRIX AFFILIATE]
				By
				Print Name:
				Title:

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				ALIBABA INVESTMENT LIMITED
				26/F, Tower One, Times Square
				1 Matheson Street, Causeway Bay
				Hong Kong
				Attention: Mr. Tim Steinert
				Tel: (852) 2215 5100
				Fax: (852) 2215 5200
				Email: tim.steinert@hk.alibaba-inc.com
				By
				Print Name:
				Title:

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				DST TEAM FUND LIMITED
				c/o Tulloch & Co
				4 Hill Street
				London W1J 5NE
				United Kingdom
				By
				Print Name:   Sean Hogan
				Title:   Director

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

INVESTOR:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

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EXECUTION

 

SCHEDULE 1

LIST OF INVESTORS

 

Name		Number of Series A-1 Preferred Shares of the Company				Number of Series A-2 Preferred Shares of the Company				Number of Series A-3 Preferred Shares of the Company				Number of Series B Preferred Shares of the Company				Number of Series C Preferred Shares of the Company
Matrix Partners China II Hong Kong Limited			22,272,730				8,909,090				19,797,980				4,588,600				10,402,497
[Matrix Affiliate]			—				—				—								9,602,305
Feini Zheng			7,298,857				—				—				—				—
Alibaba Investment Limited			—				—				—				60,859,813				8,001,920
DST Team Fund Limited			—				—				—				4,588,600				8,001,920

 

SCHEDULE 1

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EXECUTION

 

SCHEDULE 2

LIST OF FOUNDERS

 

Name		PRC Identification Number
Yan Tang		***
Yong Li		***
Xiaoliang Lei		***
Zhiwei Li		***

 

SCHEDULE 2

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EXECUTION

 

SCHEDULE 3

NOTICES

 

Group Companies and the Founders   Address: Level 8 Tower D, Vantone Center, No. 6 Chaoyangmen Outer Ave., Chaoyang District, Beijing, P. R. China 100020		Investors   Matrix Partners China II Hong Kong Limited   Address: c/o Suite 2008 20/F Jardine House 1 Connaught Place Central, Hong Kong   [Matrix Affiliate]
		Feini Zheng   Address: Unit A, 8/F, Urban City Center 45 Nan Chang Road, Shanghai, China 200020
		Alibaba Investment Limited   Address: c/o Alibaba Group Services Limited 26/F, Tower One, Times Square 1 Matheson Street, Causeway Bay Hong Kong Attention: Mr. Tim Steinert Tel: (852) 2215 5100 Fax: (852) 2215 5200 Email: tim.steinert@hk.alibaba-inc.com
		DST Team Fund Limited   Address: c/o Tulloch & Co 4 Hill Street London W1J 5NE United Kingdom

 

SCHEDULE 3

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EXECUTION

 

EXHIBIT A

DEFINITIONS

For purposes of this Agreement, capitalized terms shall have the meanings set forth in this Exhibit A.

 

1.

The term “Additional Equity Securities” means any security issued by the Company after the Closing, including (i) the Ordinary Share; (ii) warrant, option and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Share, including, without limitation, the Preferred Share; provided that the term “Additional Equity Securities” does not include (i) Employee Compensation Share (as defined in the Articles); (ii) securities issued upon conversion of the Preferred Shares; (iii) securities issued as a dividend or distribution on the Preferred Shares; (iv) securities issued in connection with any share split, share dividend, combination, recapitalization or other similar transaction of the Company; or (v) warrants or options to purchase securities granted to strategic partners of the Company in connection with mergers and acquisitions of other companies.

 

2.	The term “AIL” means Alibaba Investment Limited.

 

3.	The term “AIL Directors” has the meaning ascribed to such term in Section 5.1(a)

 

4.

The term “Affiliate” means, with respect to any individual, corporation, partnership, association, trust, or any other entity, any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation any general partner, limited partner, officer or director of such Person and any venture capital fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person.

 

5.	The term “Agreement” has the meaning ascribed to such term in the Preamble to this Agreement.

 

6.	The term “Articles” means the Sixth Company’s Amended and Restated Memorandum and Articles of Association, as amended from time to time.

 

7.	The term “Board” or “Board of Director” means the Company’s Board of Directors.

 

8.	The term “Budget” has the meaning ascribed to such term in Section 3.1(c).

 

9.	The term “Business Day” means any day, other than a Saturday, Sunday or other day on which the commercial banks in Beijing or Hong Kong are authorized or required to be closed for the conduct of regular banking business.

 

10.	The term “Business Principles” has the meaning ascribed to such term in Section 7.6.

 

11.	The term “CFC” has the meaning ascribed to such term in Section 3.3(c).

 

12.	The term “Closing” means the closing of the sale and purchase of the Series C Preferred Shares in accordance with the Purchase Agreement.

 

EXHIBIT A

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EXECUTION

 

 

13.	The term “Code” has the meaning ascribed to such term in Section 3.3(a).

 

14.	The term “Company” means Momo Technology Company Limited, a company duly incorporated with limited liability and validly existing under the Laws of the British Virgin Islands.

 

15.	The term “Conversion Shares” means Ordinary Shares issued or issuable upon conversion of any Preferred Shares.

 

16.	The term “Companies Act” means the British Virgin Islands Business Companies Act, 2004.

 

17.	The term “Co-Sale Eligible Holder” has the meaning ascribed to such term in Section 6.3(a).

 

18.	The term “Co-Sale Eligible Shares” has the meaning ascribed to such term in Section 6.3(a).

 

19.	The term “Co-Sale Closing” has the meaning ascribed to such term in Section 6.3(c).

 

20.	The term “Co-Sale Period” has the meaning ascribed to such term in Section 6.3(a).

 

21.	The term “Domestic Company” has the meaning ascribed to such term in the Preamble to this Agreement.

 

22.	The term “DST” means DST Team Fund Limited.

 

23.	The term “Eligible Holder” has the meaning ascribed to such term in Section 6.2(a).

 

24.	The term “Exchange Act” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, or any comparable law of any other jurisdiction in which the Company’s Shares are subject to regulation.

 

25.	The term “Exercising Eligible Holder” has the meaning ascribed to such term in Section 6.2(d).

 

26.	The term “Exercise Notice” has the meaning ascribed to such term in Section 6.2(c).

 

27.

The term “Form S-3” or “Form F-3” means such form under the Securities Act as in effect on the date hereof (including Form S-3 or Form F-3, as appropriate) or any 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.

 

28.	The term “Fully-Exercising Holder” has the meaning ascribed to such term in Section 4.1(b).

 

29.	The term “Founders” means the persons named on Schedule 2 hereto and the respective transferees of such Persons’ Shares pursuant to Section 6 hereof.

 

30.	The term “Governmental Authority” means the government of any nation, province, state, city, locality or other political subdivision of any thereof, any entity exercising

 

EXHIBIT A

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EXECUTION

 

executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, regulation or compliance, and any corporation or other entity owned or controlled, through share or capital ownership or otherwise, by any of the foregoing.

 

31.	The term “Group Companies” means the Company, the WFOE, the Domestic Company, the HK Co, and any other direct or indirect Subsidiary of a Group Company collectively, and the Group Company means any one of them.

 

32.	The term “HK Co” means Momo Technology HK Company Limited

 

33.	The term “HKIAC” has the meaning ascribed to such term in Section 8.12(b).

 

34.	The term “Holder” means, for purposes of Exhibit B, any Person owning or having the rights to acquire Registrable Securities or any permitted assignee of record of such Registrable Securities to whom rights under Exhibit B have been duly assigned in accordance with this Agreement.

 

35.	The term “Hong Kong” means the Hong Kong Special Administrative Region of the PRC.

 

36.	The term “IFRS” means the International Financial Reporting Standards in effect from time to time.

 

37.	The term “Immediate Family Member” means a child, stepchild, grandchild, parent, step-parent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a person referred to herein.

 

38.	The term “Initiating Holders” has the meaning ascribed to such term in Section 2.2(a) of Exhibit B.

 

39.	The term “Investor” or “Investors” means the persons named on Schedule 1 hereto.

 

40.	The term “Investor Notice Period” has the meaning ascribed to such term in Section 6.2(c).

 

41.	The term “IPO” means the Company’s first underwritten public offering of its Ordinary Shares and listing on an internationally-recognized securities exchange.

 

42.	The term “Key Employee” has the meaning set forth in the Purchase Agreement.

 

43.	The term “Liquidation Event” has the meaning ascribed to such term in Clause 9(b)(ii) of the Articles.

 

44.	The term “Law” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Authority.

 

45.	The term “Majority Ordinary Holders” shall mean the holders of at least fifty percent (50%) of the then outstanding ordinary shares.

 

EXHIBIT A

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EXECUTION

 

 

46.

The term “Majority Preferred Holders” shall mean the holders of at least fifty percent (50%) of the then outstanding Series A-1, A-2 and A-3 Preferred Shares, Series B Preferred Shares held by Matrix only and Series C Preferred Shares held by Matrix only, voting together as a single class, including any Conversion Shares.

 

47.	The term “Matrix” shall mean Matrix Partners China II Hong Kong Limited, [Matrix Affiliate] and its affiliated or successor funds, companies or entities.

 

48.	The term “Matrix Directors” has the meaning ascribed to such term in Section 5.1(b)

 

49.	The term “Offer Notice” has the meaning ascribed to such term in Section 4.1(a).

 

50.	The term “Offered Securities” has the meaning ascribed to such term in Section 4.1.

 

51.	The term “Offerees” has the meaning ascribed to such term in Section 4.1.

 

52.	The term “Offered Securities” has the meaning ascribed to such term in Section 4.1.

 

53.	The term “on an as converted basis” shall mean assuming the conversion, exercise and exchange of all securities, directly or indirectly, convertible, exercisable or exchangeable into or for Ordinary Shares, including without limitation the Preferred Shares.

 

54.	The term “Ordinary Shares” means ordinary shares of the Company, par value US$0.0001 per share.

 

55.	The term “Ordinary Share Directors” has the meaning ascribed to such term in Section 5.1(c).

 

56.	The term “Party” or “Parties” shall mean the parties to this Agreement, as set forth in the Preamble.

 

57.	The term “Person” means any natural person, firm, partnership, association, corporation, company, trust, public body or government.

 

58.	The term “PFIC” has the meaning ascribed to such term in Section 3.3(a).

 

59.	The term “PRC” means the People’s Republic of China, which for purposes of this Agreement excludes Hong Kong, the Macau Special Administrative Region and Taiwan.

 

60.

The term “Preferred Shares” means, collectively, the Series A-1 Preferred Shares of par value US$0.0001 per share of the Company, the Series A-2 Preferred Shares of par value US$0.0001 per share of the Company, the Series A-3 Preferred Shares of par value US$0.0001 per share of the Company, the Series B Preferred Shares of par value US$0.0001 per share of the Company and the Series C Preferred Shares of par value US$0.0001 per share of the Company.

 

61.	The term “Prior Shareholders’ Agreement” has the meaning ascribed to such term in the Preamble to this Agreement.

 

62.	The term “Prohibited Transfer” has the meaning ascribed to such term in Section 6.5(c).

 

EXHIBIT A

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EXECUTION

 

 

63.	The term “Proposed Transfer” has the meaning ascribed to such term in Section 6.1(a).

 

64.	The term “Proposed Transfer Notice” has the meaning ascribed to such term in Section 6.2(b).

 

65.	The term “Prospective Transferee” has the meaning ascribed to such term in Section 6.2(a).

 

66.	The term “Purchase Agreement” has the meaning ascribed to such term in Recitals.

 

67.	The term “QEF Election” has the meaning ascribed to such term in Section 3.3(a).

 

68.

The term “Qualified IPO” means a firm commitment underwritten registered public offering by the Company of its Ordinary Shares on the NASDAQ National Market System in the United States or in Hong Kong or any other exchange in any other jurisdiction (on any combination of such exchanges and jurisdictions) acceptable to the Majority Preferred Holders to the Company with aggregate offering proceeds (before deduction of fees, commissions or expenses) to the Company and selling shareholders, if any, of not less than US$50,000,000 (or any cash proceeds of other currency of equivalent value).

 

69.	The term “Refused Securities” has the meaning ascribed to such term in Section 4.1(c)

 

70.	The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement which is in a form which complies with, and is declared effective by the SEC in accordance with, the Securities Act.

 

71.

The term “Registrable Securities” means: (1) any Ordinary Shares of the Company issued or issuable pursuant to conversion of any Preferred Shares, (2) any Ordinary Shares of the Company issued (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 Preferred Shares, and (3) any other Ordinary Shares owned or hereafter acquired by the Investors. Notwithstanding the foregoing, “Registrable Securities” shall exclude any Registrable Securities sold by a Person in a transaction in which rights under Exhibit B are not assigned in accordance with this Agreement and any Registrable Securities which are sold in a registered public offering under the Securities Act or analogous statute of another jurisdiction, or sold pursuant to SEC Rule 144 promulgated under the Securities Act or analogous rule of another jurisdiction.

 

72.

The term “Registrable Securities then Outstanding” means the number of Ordinary Shares of the Company that are Registrable Securities and are then issued and outstanding, issuable upon conversion of Preferred Shares then issued and outstanding or issuable upon conversion or exercise of any warrant, right or other security then outstanding.

 

73.

The term “Registration Expenses” shall mean all expenses incurred by the Company in complying with Sections 2, 3 and 4 of Exhibit B, including, without limitation, all registration and filing fees, printing expenses, fees, and disbursements of counsel for the Company, reasonable fees and disbursements of one (1) counsel for the Holders, “blue sky” fees and expenses and the expense of any special audits incident to or required by

 

EXHIBIT A

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EXECUTION

 

any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).

 

74.	The term “Right of Co-Sale” has the meaning ascribed to such term in Section 6.3(a).

 

75.	The term “Right of First Refusal” has the meaning ascribed to such term in Section 6.2(a).

 

76.	The term “Sale of the Company” has the meaning ascribed to such term in Section 5.4.

 

77.	The term “SEC” means the United States Securities and Exchange Commission, or comparable regulatory authority in any other jurisdiction having oversight over the trading of the Company’s Shares.

 

78.	The term “SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States).

 

79.	The term “SEC Rule 144(k)” means Rule 144(k) promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States).

 

80.	The term “SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States).

 

81.	The term “Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (or comparable law in a jurisdiction other than the United States).

 

82.	The term “Selling Expenses” shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to Sections 2, 3 and 4 of Exhibit B.

 

83.	The term “Selling Shareholder” has the meaning ascribed to such term in Section 5.4(b).

 

84.	The term “Series A-1 Preferred Share” shall mean the Series A-1 Preferred Shares of the Company par value US$0.0001 each.

 

85.	The term “Series A-2 Preferred Shares” means Series A-2 Preferred Shares of the Company par value of US$0.0001 each.

 

86.	The term “Series A-3 Preferred Shares” means Series A-3 Preferred Shares of the Company par value of US$0.0001 each.

 

87.	The term “Series B Preferred Shares” means Series B Preferred Shares of the Company par value of US$0.0001 each.

 

88.	The term “Series C Preferred Shares” means Series C Preferred Shares of the Company par value of US$0.0001 each.

 

89.	The term “Shareholder” shall mean each of the Founders and the Investors.

 

EXHIBIT A

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EXECUTION

 

 

90.

The term “Shares” means (i) Ordinary Shares (whether now outstanding or hereafter issued in any context), (ii) Ordinary Shares issued or issuable upon conversion of the Preferred Shares and (iii) Ordinary Shares issued or issuable upon exercise or conversion, as applicable, of share options, warrants or other convertible securities of the Company, in each case now owned or subsequently acquired by any Founder, any Investor, or their respective successors or permitted transferees or assigns.

 

91.	The term “Share Transfer” has the meaning ascribed to such term in the Preamble to this Agreement.

 

92.

The term “Subsidiary” or “subsidiary” means, as of the relevant date of determination, with respect to any Person (the “subject entity”), (i) any Person: (1) more than 50% of whose shares or other interests entitled to vote in the election of directors or (2) more than a fifty percent (50%) interest in the profits or capital of such Person are owned or controlled directly or indirectly by the subject entity or through one (1) or more Subsidiaries of the subject entity, (ii) any Person 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 U.S. GAAP or IFRS, or (iii) any Person 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. For the avoidance of doubt, the Subsidiaries of the Company shall include the Group Companies.

 

93.	The term “Transfer Shares” has the meaning ascribed to such term in Section 6.2(a)

 

94.	The term “Transferor” has the meaning ascribed to such term in Section 6.2(a).

 

95.	The term “Undersubscription Notice” has the meaning ascribed to such term in Section 6.2(d).

 

96.	The term “United States Person” means any person described in Section 7701(a)(30) of the Code.

 

97.	The term “US$” means the United States dollar, the lawful currency of the United States of America.

 

98.	The term “US GAAP” mean the generally accepted accounting principles in the United States of America.

 

99.	The term “U.S. Investor” means (A) any Investor that is a United States Person and (B) any Investor, one or more of the owners of which are, or controlled by, United States Persons.

 

100.	The term “Violation” has the meaning ascribed to such term in Section 8.1 of Exhibit B.

 

101.	The term “WFOE” means Beijing Momo Information Technology Co., Ltd. , a wholly foreign-owned enterprise established and existing under the laws of the PRC.

 

EXHIBIT A

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EXECUTION

EXHIBIT B

REGISTRATION RIGHTS

 

1.	Applicability of Rights; Non-U.S. Registrations.

 

1.1

The Holders (as defined below) shall be entitled to the following rights with respect to any potential public offering of the Company’s Ordinary Shares in the United States and shall be entitled to reasonably analogous or equivalent rights with respect to any other offering of Company securities in any other jurisdiction pursuant to which the Company undertakes to publicly offer or list such securities for trading on a recognized securities exchange.

 

1.2

For purposes of this Agreement and Exhibit B, reference to registration of securities under the U.S. Securities Act and the U.S. Exchange Act shall be deemed to mean the equivalent registration in a jurisdiction other than the United States as designated by such Holders, it being understood and agreed that in each such case all references in this Agreement to the U.S. Securities Act, the U.S. Exchange Act and rules, forms of registration statements and registration of securities thereunder, U.S. law and the SEC, shall be deemed to refer, to the equivalent statutes, rules, forms of registration statements, registration of securities and laws of and equivalent government authority in the applicable non-U.S. jurisdiction.

 

2.	Demand Registration.

 

2.1	Request by Holders.

If the Company shall, at any time after the earlier of (i) the fourth anniversary after the Closing or (ii) following the taking effect of a registration statement for a Qualified IPO, receive a written request from the Holders of at least thirty percent (30%) of the Registrable Securities then Outstanding that the Company file a registration statement under the U.S. Securities Act covering the registration of at least thirty percent (30%) of the Registrable Securities pursuant to this Section 2, (or any lesser percentage if the anticipated gross receipts from the offering are to exceed US$1,000,000) then the Company shall, within ten (10) Business Days of the receipt of such written request, give written notice of such request (the “Request Notice”) to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the U.S. Securities Act of all Registrable Securities that the Holders request to be registered and included in such registration by written notice given by such Holders to the Company within twenty (20) days after receipt of the Request Notice, subject only to the limitations of this Section 2; provided 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 2 or Section 4 or in which the Holders had an opportunity to participate pursuant to the provisions of Section 3, other than a registration from which the Registrable Securities of the 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 Sections 2.2(b) or 3.2(b).

 

2.2	Underwriting.

 

EXHIBIT B

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EXECUTION

 

 

(a)

If the Holders initiating the registration request under this Section 2 (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 2 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the 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.

 

(b)

Notwithstanding any other provision of this Section 2, 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 (i) first, to the Investors on a pro rata basis according to the number of Registrable Securities then Outstanding held by the Investors requesting registration and (ii) then, to the other Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then Outstanding held by each such Holder requesting registration; provided, however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities are first entirely excluded from the underwriting and registration including, without limitation, all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company or any subsidiary of the Company; provided further, that at least twenty-five percent (25%) of shares of Registrable Securities requested by the Holders to be included in such underwriting and registration shall be so included. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by 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.

 

2.3	Maximum Number of Demand Registrations.

The Company shall not be obligated to effect more than two (2) such registrations pursuant to this Section 2.

 

2.4

Deferral.

 

EXHIBIT B

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EXECUTION

 

Notwithstanding the foregoing, if the Company shall furnish to Holders requesting registration pursuant to this Section 2, 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 at such time, 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 twice in any twelve (12) month period; provided further, that the Company shall not register any other of its shares during such twelve (12) month period. A demand right shall not be deemed to have been exercised until such deferred registration shall have been effected.

 

3.	Piggyback Registrations.

 

3.1

The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the U.S. Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2 or Section 3 of this Agreement or to any employee benefit plan or a corporate reorganization) and shall 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 it shall within twenty (20) 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.

 

3.2	Underwriting.

 

(a)

If a registration statement under which the Company gives notice under this Section 3 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 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 for such underwriting.

 

(b)

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

 

EXHIBIT B

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EXECUTION

 

underwriting shall be allocated, first, to the Company, second, to each of the Investors requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by the Investors, third, to the other Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by each such Holder and fourth, to holders of other securities of the Company; 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 shares of Registrable Securities for which inclusion has been requested; and (ii) all shares that are not Registrable Securities and are held by any other person, including, without limitation, 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, unless otherwise approved by the holders of a majority of the Registrable Securities. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by 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.

 

3.3	Not Demand Registration.

Registration pursuant to this Section 3 shall not be deemed to be a demand registration as described in Section 2 above. There shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 3.

 

4.	Form F-3 Registration.

In case the Company shall receive from any Holder or Holders of at least thirty percent of all Registrable Securities then Outstanding a written request or requests that the Company effect a registration on Form F-3 (or an equivalent registration in a jurisdiction outside of the United States) and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will:

 

4.1

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

 

4.2	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

 

EXHIBIT B

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EXECUTION

 

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 Company provides the notice contemplated by Section 4.1; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 4:

 

(a)

if Form F-3 is not available for such offering by the Holders;

 

(b)

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 to the public of less than US$1,000,000;

 

(c)

if the Company shall furnish to the Holders a certificate signed by the president or chief executive officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such Form F-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form F-3 registration statement no more than once during any twelve (12) month period for a period of not more than sixty (60) days after receipt of the request of the Holder or Holders under this Section 4; provided that the Company shall not register any of its other shares during such sixty (60) day period.

 

(d)

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 Sections 2.2 and 3.2; or

 

(e)

in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

 

4.3	Not a Demand Registration.

Form F-3 registrations shall not be deemed to be demand registrations as described in Section 2 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 4.

 

4.4	Underwriting.

If the Holders of Registrable Securities requesting registration under this Section 4 intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Section 2.2 shall apply to such registration.

 

5.

Expenses.

 

EXHIBIT B

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EXECUTION

 

All Registration Expenses incurred in connection with any registration pursuant to Sections 2, 3 or 4 (but excluding Selling Expenses) shall be borne by the Company. Each Holder participating in a registration pursuant to Sections 2, 3 or 4 shall bear such Holder’s proportionate share (based on the total number of shares sold in such registration other than for the account of the Company) of all Selling Expenses or other amounts payable to underwriter(s) or brokers, in connection with such offering by the Holders. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 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 Section 2 (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (1) 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, then the Holders shall not be required to pay any of such expenses and such registration shall not constitute the use of a demand registration pursuant to Section 2.

 

6.	Obligations of the Company.

Whenever required to effect the registration of any Registrable Securities under this Agreement the Company shall, as expeditiously as reasonably possible:

 

6.1	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, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days or, in the case of Registrable Securities registered under Form F-3 in accordance with Rule 415 under the Securities Act or a successor rule, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such ninety (90) day period shall be extended for a period of time equal to the period any Holder refrains from selling any securities included in such registration at the request of the underwriter(s), and (ii) in the case of any registration of Registrable Securities on Form F-3 which are intended to be offered on a continuous or delayed basis, such ninety (90) day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold.

 

6.2	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 securities covered by such registration statement.

 

EXHIBIT B

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EXECUTION

 

 

6.3	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.

 

6.4

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 unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act.

 

6.5	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.

 

6.6	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 (i) the issuance of any stop order by the SEC in respect of such registration statement, or (ii) 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.

 

6.7	Opinion 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 securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel 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 a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and (ii) letters dated as of (1) the effective date of the registration statement covering such Registrable Securities and (2) the closing date of the offering 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 a majority in interest of the Holders requesting registration,

 

EXHIBIT B

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EXECUTION

 

addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.

 

7.	Furnish Information.

It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2, 3 or 4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable Securities.

 

8.	Indemnification.

In the event any Registrable Securities are included in a registration statement under Sections 2, 3 or 4:

 

8.1	By the Company.

To the extent permitted by law, the Company shall indemnify and hold harmless each Holder, its partners, officers, directors, legal counsel, any underwriter (as defined 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 U.S. Securities Act, the U.S. Exchange Act or other United States federal or state 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”):

 

(f)

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;

 

(g)

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

 

(h)

any violation or alleged violation by the Company of the U.S. Securities Act, the U.S. Exchange Act, any United States federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any United States federal or state securities law in connection with the offering covered by such registration statement;

and the Company will reimburse each such Holder, its partner, officer, director, legal counsel, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 8.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), 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

 

EXHIBIT B

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EXECUTION

 

furnished expressly for use in connection with such registration by such Holder or any partner, officer, director, counsel, underwriter or controlling person of such Holder.

 

8.2	By Selling Holders.

To the extent permitted by law, each selling Holder will, if Registrable Securities held by Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, 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 U.S. Securities Act or the U.S. 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 U.S. Securities Act, the U.S. Exchange Act or other United States federal or state 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 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 agreement contained in this Section 8.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further, that in no event shall any indemnity under this Section 8.2 exceed the net proceeds received by such Holder in the registered offering out of which the applicable Violation arises.

 

8.3

Notice.

Promptly after receipt by an indemnified party under this Section 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 indemnified party under this Section 8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the 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, 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 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 8 to the extent the indemnifying party is prejudiced as a result thereof, but the

 

EXHIBIT B

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EXECUTION

 

omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 8.

 

8.4	Contribution.

In order to provide for just and equitable contribution to joint liability under the U.S. Securities Act in any case in which either (i) any indemnified party makes a claim for indemnification pursuant to this Section 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 8 provides for indemnification in such case, or (ii) contribution under the U.S. Securities Act may be required on the part of any indemnified party in circumstances for which indemnification is provided under this Section 8; then, and in each such case, the indemnified party and the indemnifying party 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 a Holder (together with its related persons) 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. The relative fault of the indemnifying Party and of the indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying Party or by the indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case: (A) no Holder will be required to contribute any amount in excess of the net proceeds to such Holder from the sale of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of 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.

 

8.5

Survival.

The obligations of the Company and Holders under this Section 8 shall survive 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. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

 

9.	No Registration Rights to Third Parties.

Without the prior written consent of the Holders of a majority in interest of the Registrable Securities then Outstanding, the Company covenants and agrees that it

 

EXHIBIT B

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EXECUTION

 

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 F-3 registration rights described in this Exhibit B, or otherwise) relating to any securities of the Company which are senior to, or on a parity with, those granted to the Holders of Registrable Securities.

 

10.	Rule 144 Reporting.

With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration or pursuant to a registration on Form F-3, after such time as a public market exists for the Ordinary Shares, the Company agrees to:

 

10.1	Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

 

10.2	File with the SEC in a timely manner all reports and other documents required of the Company under the U.S. Securities Act and the U.S. Exchange Act (at any time after it has become subject to such reporting requirements); and

 

10.3

So long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the Company’s initial public offering), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or its qualification as a registrant whose securities may be resold pursuant to Form F-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to Form F-3.

 

11.	Market Stand-Off.

Each Shareholder agrees that, so long as it holds any voting securities of the Company, upon request by the Company or the underwriters managing the initial public offering of the Company’s securities, it will not sell or otherwise transfer or dispose of any securities of the Company (other than those permitted to be included in the registration and other transfers to Affiliates permitted by law) without the prior written consent of the Company or such underwriters, as the case may be, for a period of time specified by the representative of the underwriters not to exceed one hundred and eighty (180) days from the effective date of the registration statement covering such initial public offering or the pricing date of such offering as may be requested by the underwriters. The foregoing provision of this Section 11 shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, and shall only be applicable to the Holders if all officers, directors and holders of one percent (1%) or more of the Company’s outstanding share

 

EXHIBIT B

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EXECUTION

 

capital enter into similar agreements, and if the Company or any underwriter releases any officer, director or holder of one percent (1%) or more of the Company’s outstanding share capital from his or her sale restrictions so undertaken, then each Holder shall be notified prior to such release and shall itself be simultaneously released to the same proportional extent. The Company shall require all future acquirers of the Company’s securities holding at least one percent (1%) of the then outstanding share capital of the Company to execute prior to a Qualified IPO a market stand-off agreement containing substantially similar provisions as those contained in this Section 11.

 

EXHIBIT B

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EXHIBIT C

FORM OF ASSUMPTION AGREEMENT

THIS ASSUMPTION AGREEMENT is made the          day of             , by and between Momo Technology Company Limited (the “Company”); and <        > (the <”New Investor”><”New Shareholder”>).

The Company and the New Investor shall be referred to collectively as the Parties.

WHEREAS

 

(A)	As of             , 2013, the Company, certain existing shareholders of the Company and certain other parties entered into a Shareholders’ Agreement (the “Shareholders Agreement”), attached hereto as Exhibit A.

 

(B)

The <New Investor><New Shareholder> wishes to acquire an aggregate of              <Ordinary Shares> <Preferred Shares> (as defined in the Shareholders Agreement) in the capital of the Company and in accordance with the Shareholders Agreement has agreed to enter into this Assumption Agreement (the “Assumption Agreement”).

 

(C)	The Company is entering into this Assumption Agreement on behalf of itself and as agent for all the existing Shareholders of the Company.

NOW, THEREFORE, the Parties hereby agree as follows:

 

1.	INTERPRETATION

In this Assumption Agreement, except as the context may otherwise require, all words and expressions defined in the Shareholders Agreement shall have the same meanings when used herein.

 

2.

COVENANT

The <New Investor>< New Shareholder > hereby covenants to the Company as trustee for all other persons who are at present or who may hereafter become bound by the Shareholders Agreement, and to the Company itself, to adhere to and be bound by all the duties, burdens and obligations of an party holding <Ordinary Shares> <Preferred Shares> imposed pursuant to the provisions of the Shareholders Agreement and all documents expressed in writing to be supplemental or ancillary thereto as if the <New Investor>< New Shareholder > had been an original party to the Shareholders Agreement as a <New Investor>< New Shareholder > since the date thereof.

 

3.	ENFORCEABILITY

 

EXHIBIT C

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Each existing Investor, Founder and the Company shall be entitled to enforce the Shareholders Agreement against the <New Investor>< New Shareholder >, and the <New Investor>< New Shareholder > shall be entitled to all rights and benefits of a <New Investor>< New Shareholder > under the Shareholders Agreement in each case as if such <New Investor>< New Shareholder > had been an original party to the Shareholders Agreement since the date hereof.

 

4.	GOVERNING LAW

This Assumption Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflicts of law thereunder.

 

5.	COUNTERPARTS

This Assumption Agreement may be signed in any number of counterparts which together shall form one and the same agreement.

 

6.	FURTHER ASSURANCE

Each party agrees to take all such further action as may be reasonably necessary to give full effect to this Assumption Agreement on its terms and conditions.

 

7.

HEADINGS

The headings used in this Assumption Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

[Reminder of page intentionally left blank]

 

EXHIBIT C

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IN WITNESS whereof the parties have executed and delivered this Assumption Agreement on the day and year first hereinbefore mentioned.

 

COMPANY:				MOMO TECHNOLOGY COMPANY LIMITED
				By:
				Name:
				Capacity:
				Address:
				Fax:

 

<NEW INVESTOR:>				<                    >
< NEW SHAREHOLDER:>
				By:
				Name:
				Title:

[SIGNATURE PAGE TO ASSUMPTION AGREEMENT]

 

EXHIBIT C

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EXHIBIT D

DISCLOSURE SCHEDULE

 

Exhibit D

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EXHIBIT E-1

FORM OF OPINION OF PRC COUNSEL

 

Exhibit E-1

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To:

Momo technology Company Limited

P.O.Box 957, Offshore Incorporations Centre,

Road Town, Tortola,

British Virgin Islands

Date:                 , 2013

Re: Series C shares Financing of Momo Technology Company Limited

Dear Sirs,

We are lawyers qualified to practice the laws of the People’s Republic of China (the “PRC”, excluding Taiwan, Hong Kong and Macao Special Administrative Region for the purpose of these opinions only).

We have been requested by Momo Technology Company Limited (the “Company”), to provide these legal opinions with respect to the issue of series C Preferred Shares to                  (the “Investors”).

Save as expressly mentioned in these opinions, we did not make any independent search or investigation of the facts for the purpose of these opinions.

All capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Series C Preferred Share Purchase Agreement (the “SPA”) dated                 , 2013 entered into by and among the Company, the Investors, the Persons listed on Schedule A attached to the SPA (each a “Founder” and collectively the “Founders”); Momo Technology HK Company Limited ( , the “HK Co.”), Beijing Momo Technology Co., Ltd. ( , the “Domestic Company”), and Beijing Momo Information Technology Co., Ltd. ( , the “WFOE”, together with the Domestic Company, the “PRC Companies”, each a “PRC Company”). The following terms shall have the meanings set forth below:

 

(i).

“Control Documents” means the following contracts collectively: (a) the Exclusive Technology Consulting and Service Agreement by and between the WFOE and the Domestic Company dated [April 18, 2012], (b) the Equity Pledge Agreement by and among the WFOE, the Founders, , and dated April 18, 2012, (c) the Share Option Agreements by and Between each of the Founders, , , respectively, and the WFOE dated April 18, 2012, (d) the Operation Agreement by and among the WFOE, the Domestic Company,

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the Founders, , dated April 18, 2012, and (e) the Power of Attorney issued by each of the Founders, , and respectively of the Domestic Company to the WFOE dated April 18, 2012;

 

(ii).

“PRC Laws” means all laws, statutes, regulations, rules, orders, decrees, notices, circulars, judicial interpretations, and subordinate legislations of the PRC, publicly available, publicly promulgated and in force in the People’s Republic of China (not including Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan) as of the date of this Legal Opinion;

 

(iii).

“SAFE” means the State Administration of Foreign Exchange of the PRC or its local branch;

 

(iv).

“Circular 75” means SAFE’s Notice on Relevant Issues concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles, or SAFE Circular No. 75, issued on October 21, 2005 ;

 

(v).	“Material Agreement” shall have the meaning set forth in section 3.10(a) of the SPA.

 

1.	DOCUMENTS EXAMINED

For the purposes of this opinion, we have examined the following documents provided by the Domestic Company and made such inquiries that we have considered necessary or relevant for purpose of providing this opinion:

 

(i).

Copies of Control Documents;

 

(ii).

Copies of (A) the executed (1) SPA, (2) Shareholders Agreement entered into on                 , 2013; (B) the Sixth Amended and Restated Memorandum of Association, and the Articles of Association; and (C) the Disclosure Schedule;

 

(iii).

Copies of incorporation documents in connection with the Domestic Company and the WFOE listed in Schedule B of this opinion; and

 

(iv).

The oversea investment foreign exchange registration forms for each of the Founders in connection with their equity interests in the Company as follows:

 

a.

The oversea investment foreign exchange registration form of Yan Tang, issued by Beijing Branch of SAFE, No.: GEZI(2011)628B2,

 

b.

The oversea investment foreign exchange registration form of Yong Li, issued by Beijing Branch of SAFE, No.: GEZI(2011)629B2,

 

c.

The oversea investment foreign exchange registration form of Xiaoliang Lei, issued by Beijing Branch of SAFE, No.: GEZI(2011)630B2,

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d.

The oversea investment foreign exchange registration form of Zhiwei Li, issued by Beijing Branch of SAFE, No.: GEZI(2011)631B2;

 

(v).

The documents listed in items (ii) above are herein collectively referred to as “Transaction Documents”; the Transaction Documents, together with the documents listed in items (i), (iii) and (iv) above are herein collectively referred to as “Documents”.

 

2.	ASSUMPTIONS

In examination of the Documents and for the purposes of giving this opinion, we have assumed without further inquiry that:

 

(i).

The genuineness of all the signatures, seals and chops and the authenticity of all Documents provided to us as originals, the conformity with the originals of all Documents provided to us as copies and the authenticity of such originals;

 

(ii).

The Documents as presented to us remain in full force and effect after they were submitted for this opinion and have not been revoked, amended, carried or supplemented;

 

(iii).

The truthfulness, accuracy and completeness of all factual statements in the Documents;

 

(iv).

All the Documents expressed to be governed by laws other than the PRC laws are lawful, valid and enforceable under the laws of such jurisdictions; and

 

(v).

That, in response to our due diligence inquiries, requests and investigation for the purpose of this opinion, all the relevant information and materials have been provided to us are true, accurate, complete and not misleading, and that nothing has been withheld that, if disclosed to us, would reasonably cause us to alter this opinion in whole or in part.

 

3.

OPINIONS

Based on the above presumptions and subject to the Disclosure Schedule and the qualifications below, as the date hereof, we are of the following opinions:

Part One-the Domestic Company and the WFOE

 

(i).

The WFOF, solely invested by the Company through the HK CO., is a wholly foreign-owned enterprise duly incorporated and validly existing under the PRC Laws with limited liability, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity, or any third party right. There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in the WFOE. The

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WFOE was established on March 9, 2012 with a term of 30 years. The total amount of the investment of the WFOE is US$ 25,750,000 and the registered capital is US$10,300,000. The registered capital of the WFOE has been fully paid. The WFOE is an independent legal entity capable of entering into any contractual relationship binding on itself with any party, and has the power and authority to assume civil liability with respect to its assets.

 

(ii).

The articles of association, the business license and the approval certificate of the WFOE are in compliance with the requirements of applicable PRC Laws and are in full force and effect.

 

(iii).

The WFOE has obtained all necessary licenses, authorizations, approvals, registrations, and permits in the PRC for the establishment and the maintenance of the enterprise legal person status.

 

(iv).

The Domestic Company is a legal person with limited liability duly incorporated and validly existing under the PRC Laws. The Domestic Company was established on July 7, 2011 with a term of 20 years. Its registered capital is RMB 1,111,100, which has been paid in full by its shareholders. Yan Tang owns 52% of the equity interests, Yong Li owns 16% of the equity interests, Zhiwei Li owns 5.6% of the equity interests, Beijing Jingwei Meichuang Technology Co., Ltd. Owns 10% of the equity interests, and Shanghai Zihui Investment Management Co., Ltd. Owns 10% of the equity interest in the Domestic Company. All of the equity interests in the registered capital is free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity, or any third party right and was not issued in violation of preemptive or similar rights except for those set forth in the Control Documents. All approvals as required by the PRC Laws for the Domestic Company’s establishment, existence, change of shareholding, capital increase and change of other material company particulars as of date hereof have been duly obtained and are in full force and effect.

 

(v).	The articles of association and the business license of the Domestic Company are in compliance with the requirements of applicable PRC Laws and are in full force and effect.

 

(vi).

All registrations or records with and applications to the relevant PRC authorities in respect of Company Intellectual Property have been made, are valid, and in full force an effect. The Domestic Company possesses, or has the appropriate rights to use the Company Intellectual Property.

 

(vii).

Except for the Value Added Telecommunication Operation License and the Internet Culture Operation License which will be applied for by the Domestic Company, each of the PRC Companies has obtained all necessary permits, authorizations and approvals, has the power and authority and has satisfied all conditions and done all material things required by the PRC Laws in order for it to own, use, lease and operate its material assets and to conduct its existing business as it is currently conducted. Such permits, authorizations and approvals are in full force and effect; no violation exists in respect of any such permits, authorizations and approvals; and no such permits, authorizations and approvals are subject to suspension, revocation or withdrawal.

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(viii).

To the best of our knowledge, each of the PRC Companies has obtained all necessary PRC government approval and permits to own, lease and use its properties and assets and has good and marketable title to all of its material properties and assets, free and clear of all liens and encumbrances, except such encumbrances as contemplated in the Control Documents.

 

(ix).

The WFOE and the Key Employees have duly executed and delivered the employment agreements and confidential information agreements (collectively, the “Employment Agreements” Each Employment Agreement (i) is legal, binding and enforceable under the PRC Laws against each party thereto in accordance with its terms, and (ii) does not violate or result in a material breach of or a material default under any provisions of any PRC Laws, rule, regulation, or governmental policy and is binding upon any party there or to which any of the parties thereto is subject.

 

(x).

To the best of our knowledge, each of the PRC Companies is not in breach of or in default under, (i) any applicable PRC Laws, (ii) any approval, permit, or authorization granted by any PRC governmental or regulatory body or its business license, (iii) its articles of association or other constitutional documents, (iv) any material obligation, indenture, mortgage, deed of trust, bank loan or credit agreements governed by the PRC law, or (v) any terms or provisions of any Material Agreement.

 

(xi).

Each of the PRC Companies is capable of suing and being sued and can be the subject of any legal proceedings in PRC courts except and to the extent that the subject matter of any such suit or legal proceeding is required by an enforceable agreements to which such PRC Company is bound to be settled by arbitration.

 

(xii).

Neither the PRC Company nor any Founder is entitled to any immunity on the ground of sovereignty from any action, suit or other legal proceedings or from enforcement, execution or attachment.

 

(xiii).

To the best of our knowledge, there is no claim, litigation, arbitration, administrative proceedings or other legal process or threatened by or against the PRC Companies, or to which any of the property of any of them may be subject, before any court or governmental agency in the PRC. Each of the PRC Companies has not taken any action, passed any resolution, nor have any steps been taken or legal or administrative proceedings been commenced or threatened for the winding up, dissolution or liquidation of the PRC Companies, or for the suspension, withdrawal, revocation or cancellation of their business licenses, operational permit or other governmental approvals.

Part Two-Transaction Documents

 

(i).	Each of the PRC Companies has full corporate power and authority to enter into, execute, deliver and perform the Transaction Documents to which it is a party. Each of the Founders has the power and authority to enter into, execute, deliver and perform the

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Transaction Documents to which it is a party. The execution and delivery by the PRC Companies, of each of the Transaction Documents and the performance by the PRC Companies of their obligations therein have been duly authorized by all requisite corporate action on the part of the PRC Companies. The Transaction Documents executed and delivered by each PRC Company and each Founder that is a party thereto constitutes the legal, valid, binding and enforceable obligations of such PRC Company or Founder, as applicable, in accordance with the terms thereof.

 

(ii).

The execution, delivery and performance of and compliance with the terms of the Transaction Documents by each of the PRC Companies and each of the Founders that is a party thereto and the consummation of the transactions contemplated therein are not in contravention of and applicable PRC Laws, and did not and do not violate or conflict with, or constitute by itself or upon notice or passage of time, or both, a default under any PRC Laws or any provision in the articles of association of any PRC Company or to the best of our knowledge, any agreement, instrument, arbitration award or judgment, order or decree of any court of the PRC to which any of the PRC Companies and the Founders, as the case may be, is a party or which is binding on any of the PRC Companies and Founders or any of their assets.

 

(iii).

No approval of, or filing with, any governmental authority in the PRC is required for the validity of any of the Transaction Documents by the PRC Companies, the issuance of the Series A-1, Series A-2, Series A-3, Series B Preferred Shares, and Series C Preferred Shares, the valid authorization, reservation, issuance and delivery of the Ordinary Shares upon conversion, or the consummation of the other transactions contemplated by the Transaction Documents.

 

(iv).

The Founders have duly registered and conducted subsequent filing, with the Beijing SAFE, for the establishment of the overseas special purpose vehicles and for the round-trip investment in the PRC in connection with the Domestic Company for the shares they hold in the Company, as required under the Circular 75.

 

(v).

The Control Documents, individually or taken as a whole, are legal and in conformity with PRC Laws, and have been duly executed and delivered by the PRC Companies and the Founders to which each of them is a party, and such obligations constitute valid legal and binding obligations enforceable against each of them in accordance with the terms of each of the Control Documents. No government approval is required under the PRC laws in connection with the execution, delivery and the performance of each of the Control Documents by the parties thereto.

 

(vi).

The choice of the Laws of Hong Kong as the governing law of the SPA and the Shareholders Agreement is a valid choice of law and would be recognized and given effect to in any action brought before a court of competent jurisdiction in the PRC. The submission to arbitration administered by the Hong Kong International Arbitration Center in Hong Kong in accordance with terms of the Transaction Agreements does not

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contravenes any PRC Laws. The courts of the PRC would recognize a final and conclusive arbitral award obtained in accordance with the SPA and the Shareholders Agreement against the parties thereto, and would enforce such award without re-examination or re-litigation of any matter which is the substantive subject of such award, provided that such recognition and enforcement will be conducted in accordance with the Mutual Enforcement of Arbitration Award between the Mainland China and Hong Kong promulgated by the PRC Supreme People’s Court.

4. FURTHER QUALIFICATIONS

This opinion expressed above is subject to the following additional qualifications:

 

(i).

These opinions are subject to the restriction of (A) any applicable bankruptcy, insolvency, reorganization, or similar laws affecting creditors’ rights generally (including without limitation, all laws relating to fraudulent transfers) and (B) any judicial or administrative actions affecting creditors’ rights generally.

 

(ii).

These opinions are subject to the effects of judicial discretion with respect to the availability of specific performance, injunctive relief, indemnifications, remedies or defenses, the calculation of damages, the entitlement of attorneys’ fees or other costs, the waiver of immunity from jurisdiction of any court or from legal proceedings.

 

(iii).

These opinions are confined to and given on the basis of the PRC Laws as of the date hereof. The PRC Laws referred to herein are laws and regulations publicly available and currently in force on the date hereof and there is no guarantee that any of such laws and regulations or the interpretation or enforcement thereof, will not be changed, amended or revoked in the future with or without retrospective effect. The interpretation and implementation of the PRC Laws, and their application to and effect on the legality, binding effect and enforceability of contracts and transactions are subject to the discretion of competent PRC legislative, administrative and judicial authorities. We do not express or imply any opinion on the laws of any other jurisdiction and we are under no obligation to update this opinion in any way subsequent to the date hereof.

These opinions are limited to the matters addressed herein and are not to be read as opinion with respect to any other matter. These opinions are addressed to the addressee listed at the beginning of these opinions and may not be relied upon by anyone else.

 

Yours faithfully,

Concord & Partners

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Schedule A

List of Founders

 

Founders		Number of Ordinary Shares of the Company				%
Yan Tang			96,886,370				27.21	%
Yong Li			28,954,540				8.13	%
Xiaoliang Lei			11,359,090				3.19	%
Zhiwei Li			9,800,000				2.76	%
Total			147,000,000				100.00	%

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Chinese text (Translation: English Text)

 

 

 

Schedule B

List of Documents

Document list of Beijing Momo Information Technology Co., Ltd.

 

1.	[Approval Reply re the Articles of Association and Members of Board of Directors of Beijing Momo Information Technology Co., Ltd. (Chao Shang Fu Zi [2012] No. 1090) issued by Beijing Chaoyang District Commerce Committee]

 

2.	[Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People’s Republic of China (Shang Wai Zi Jing Zi Zi [2012]No. 05112)]

 

3.	[Approval Reply re the Amendment to the Articles of Association of (Chao Shang Fu Zi [2012] No. 3024) issued by Beijing Chaoyang District Commerce Committee]

 

4.	[Articles of Association and its Amendments of Beijing Momo Information Technology Co., Ltd.]

 

5.	[Business License (Registration No. 110000450200208)]

 

6.	[Organizational Institution Code Certificate (Code No. 59064254-7)

 

7.	Tax Registration Certificate (Jing Shui Zheng Zi No. 110105590642547)]

 

8.	[Foreign Exchange Certificate/Foreign Exchange Certificate IC Card]

 

9.	[Statistics Registration Certificate of Beijing Municipality (Statistics Registration No. 315590642547)]

 

10.	[Financial Registration Certificate of Foreign Invested Enterprise (Registration Certificate No. 1101059510)]

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Chinese text (Translation: English Text)

 

 

 

11.	[Social Insurance Registration Certificate]

[Document List of Beijing Momo Technology Co., Ltd.]

 

1.	[Business License (Registration No. 110105014033048)]

 

2.	[Articles of Association and its Amendments of Beijing Momo Technology Co., Ltd.]

 

3.	[Tax Registration Certificate (Jing Shui Zheng Zi No. 110105579055157)]

 

4.	[Organizational Institution Code Certificate (Code No. 57905515-7)]

 

5.	[Telecommunications and Information Service Business Operation Certificate (Operation Certificate No.: Jing ICP Zheng 120107)]

 

6.	[Social Insurance Registration Certificate]

 

7.	[Agreement on Transfer of Equity Interest entered into by the Founders and dated February 2012]

 

8.	[Shareholders Resolutions executed in February 2012]

 

9.	[Capital Increase Agreement entered into by the Founders and

 

10.	[Shareholders Resolutions executed on May 2, 2012]

 

11.	[Equity Pledge Agreement entered into by and among Tang Yan, Lei Xiaoliang, Li Zhiwei, Li Yong, and Beijing Momo Information Technology Co., Ltd dated February 22, 2012]

 

12.	[Employment Agreements entered into by

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Chinese text (Translation: English Text)

 

 

 

Beijing Momo Technology Co., Ltd and Tang Yan, Lei Xiaoliang, Li Zhiwei, Zhang Sichuan, Wang Li, Liu Hanhui, Lin Zhilin, Zhang Ying, Li Ziang, Dong Yu, Wang Chunlai]

 

13.	[Agreements on Transfer of Intellectual Property, Non-Competition and Confidentiality entered into by Beijing Momo Technology Co., Ltd and Tang Yan, Lei Xiaoliang, Li Zhiwei, Zhang Sichuan, Wang Li, Liu Hanhui, Lin Zhilin, Zhang Ying, Li Ziang, Dong Yu]

 

14.	[Trademark Registration Certificates (Registration No.: 10679466, 10679590, 10679614, 10679677, 9945658, 9940833, 9945544, 9945602, 9945573, 9940938)]

 

15.	[Acceptance Notices on Application for Trademark Registration (Application No.: 10679415, 10679546, 12095059, 12095003, 12094962, 12095035, 12095116, 12095074)]

 

16.	[Acceptance Notices on Application for Work Copyright Registration (Acceptance No.: 2013Z11S019845, 2013Z11S019846, 2013Z11S019847, 2013Z11S019848, 2013Z11S019849, 2013Z11S019850, 2013Z11S016531, 2013Z11S016530, 2013Z11S016532, 2013Z11S016533, 2013Z11S016534, 2013Z11S016535)]

 

17.	[Acceptance Notices on Software Registration (Acceptance No.: 2013R11S084181, 2013R11S084182)]

 

18.	[Works Registration Certificates (Registration No.: Guo Zuo Deng Zi -2013-F-00099742, Guo Zuo Deng Zi-2013-F-00099743, Guo Zuo Deng Zi-2013-F-00099744)]

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Chinese text (Translation: English Text)

 

 

 

19.	[Copyright Registration Certificates (Registration No.: Guo Zuo Deng Zi -2012-F-00072269, Guo Zuo Deng Zi -2012-F-00068170, Guo Zuo Deng Zi -2012-F-00071043)]

 

20.	[Computer Software Copyright Registration Certificates (Certificate No.: Ruan Zhu Deng Zi No. 0463696, Ruan Zhu Deng Zi No. 0463791)]

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EXECUTION

 

EXHIBIT E-2

FORM OF OPINION OF BRITISH VIRGIN ISLANDS COUNSEL

 

Exhibit E-2

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(SUBJECT TO REVIEW AND APPROVAL BY THE OPINIONS COMMITTEE)

Our Ref: 422886.0001 / 2667565

[Date] 2013

[ ADDRESSEE ]

Dear Sirs,

Re: Momo Technology Company Limited (the “Company”)

This opinion as to the laws of the British Virgin Islands is addressed to you in connection with the following documents:

 

1.

a series C preferred share purchase agreement dated                      (the “SPA”) made between, inter alia, the Company, Momo Technology HK Company Limited, Beijing Momo Information Technology Co., Ltd., Beijing Momo Technology Co., Ltd., the founders and the investors both as listed in the SPA;

 

2.

a second amended and restated shareholders’ agreement dated                      (the “SHA”) made between, inter alia, the Company, Momo Technology HK Company Limited, Beijing Momo Information Technology Co., Ltd., Beijing Momo Technology Co., Ltd., the founders, Feini Zheng and the investors as listed in the SPA;

 

3.

the indemnification agreements dated                      (the “Indemnity Agreement”) made between, inter alia, the Company, certain investors as listed in the SPA and each of the directors appointed by such investors; and

 

4.

the management rights letters dated                      (the “Management Rights Letters”) made between, inter alia, the Company, Momo Technology HK Company

 

Page 1 of 14

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Limited, Beijing Momo Information Technology Co., Ltd., Beijing Momo Technology Co., Ltd., and each of the investors as listed in the SPA.

(collectively, the “Subject Agreements”).

 

5.

the Sixth Amended and Restated Memorandum and Articles of Association (the “Sixth Restated M&A”) as adopted by the relevant Resolutions.

For the purposes of this opinion, we have examined and relied upon the following:

 

1.	The public records of the Company on file and available for inspection at the Registry of Corporate Affairs, Road Town, Tortola, British Virgin Islands, as revealed by a search on 16 September 2013 and updated on              2013 (the “Company Search”).

 

2.	The records of proceedings on file with, and available for inspection at the High Court of Justice, Road Town, Tortola, British Virgin Islands, as revealed by a search on 16 September 2013 and updated on              2013 in respect of the Company (the “Litigation Search”).

 

3.	Copies of the Sixth Restated M&A of the Company adopted on              2013 and Certificate of Incorporation of the Company dated 23 November 2011 (collectively referred to as the “Constitutional Documents”).

 

4.	Copies of the Fifth Amended and Restated Memorandum and Articles of Association adopted on 18 January 2013 (the “Fifth Restated M&A”).

 

5.

Copies of the unanimous written resolutions of the shareholders of the Company dated                      in respect of the Subject Agreements (the Shareholders’ Resolutions), the unanimous written resolutions of the directors of the Company dated                      in respect of the Subject Agreements (the Directors’ Resolutions), the unanimous written resolutions of the shareholders of the Company dated                      in respect of, inter alia, the Sixth Restated M&A (the Sixth Restated M&A Shareholders’ Resolutions) and the unanimous written

 

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resolutions of the directors of the Company dated                      in respect of, inter alia, the Sixth Restated M&A (the Sixth Restated M&A Directors’ Resolutions), (collectively, the “Resolutions”).

 

6.	Copy of a Registered Agent Certificate dated                      and issued by the Company’s Registered Agent in respect of the Company with the following attachments in respect of the Company:

a. the Register of Directors;

b. the Register of Members; and

c. the Register of Mortgages and Charges.

 

7.	Copy of a Certificate of Good Standing, dated 24 September 2013 and issued by the Registrar of Corporate Affairs in respect of the Company.

 

8.	Copies of the executed Subject Agreements.

(collectively hereinafter referred to as the “Documents”).

Unless otherwise defined herein, capitalised terms have the meanings assigned to them in the Subject Agreements.

Assumptions

In stating our opinion we have assumed:

 

(a)

the authenticity, accuracy and completeness of all Documents and other documentation examined by us submitted to us as originals and the conformity to authentic original documents of all Documents and other such documentation submitted to us as certified, conformed, notarised, faxed or photostatic copies;

 

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(b)	that each of the Documents and other such documentation which was received by electronic means is complete, intact and in conformity with the transmission as sent;

 

(c)	the genuineness of all signatures and seals on the Documents;

 

(d)	the authority, capacity and power of each of the persons signing the Documents (other than the Company in respect of the Subject Agreements);

 

(e)	that any representation, warranty or statement of fact or law, other than as to the laws of the British Virgin Islands, made in any of the Documents is true, accurate and complete;

 

(f)	that the Subject Agreements constitute the legal, valid and binding obligations of each of the parties thereto, other than the Company, under the laws of its jurisdiction of incorporation or its jurisdiction of formation;

 

(g)

that the Subject Agreements have been validly authorised, executed and delivered by each of the parties thereto, other than the Company, and the performance thereof is within the capacity and powers of each such party thereto, and that each such party to which the Company purportedly delivered the Subject Agreements has actually received and accepted delivery of such Subject Agreements;

 

(h)	that the Subject Agreements will effect, and will constitute legal, valid and binding obligations of each of the parties thereto, enforceable in accordance with their terms, under the laws of Hong Kong by which they are expressed to be governed;

 

(i)	that the Subject Agreements are in the proper legal form to be the subject-matter of arbitration in accordance with the terms of the Subject Agreements;

 

(j)

that there are no provisions of the laws or regulations of any jurisdiction other than the British Virgin Islands which would be contravened by the execution or delivery of the Subject Agreements or which would have any implication in relation to the opinions expressed herein and that, in so far as any obligation under, or action to

 

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be taken under, the Subject Agreements is required to be performed or taken in any jurisdiction outside the British Virgin Islands, the performance of such obligation or the taking of such action will constitute a valid and binding obligation of each of the parties thereto under the laws of that jurisdiction and will not be illegal by virtue of the laws of that jurisdiction;

 

(k)

that the records which were the subject of the Company Search and Litigation Search were complete and accurate at the time of such search and disclosed all information which is material for the purposes of this opinion and such information has not since the date of the Company Search nor the date of the Litigation Search been materially altered;

 

(l)

that the Resolutions have not been rescinded, either in whole or in part, and accurately record the resolutions adopted by all the Directors and Shareholders of the Company as unanimous written resolutions of the Board and Shareholders and that there is no matter affecting the authority of the Directors to effect entry by the Company into the Subject Agreements, not disclosed by the Constitutional Documents or the Resolutions, which would have any adverse implication in relation to the opinions expressed herein;

 

(m)

that no Director of the Company has a financial interest in or other relationship to a party to any transaction to be entered into pursuant to the Subject Agreements or if such an interest does exist, the material facts of the interest of each Director has been disclosed in good faith or is known by the other Directors and/or that the material facts of the interest of each director has been disclosed to the Shareholders and Shareholder approval or ratification has been obtained; and

 

(n)	that there are no circumstances affecting the enforceability of the Subject Agreements which have arisen since the date of the Subject Agreements, of which we are unaware, which would have any adverse implication in relation to the opinions expressed herein.

Opinion

 

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Based upon and subject to the foregoing and subject to the reservations set out below and to any matters not disclosed to us, we are of the opinion that:

 

(1)

The Company is a company limited by shares duly incorporated under the British Virgin Islands Business Companies Act, 2004 (the “BVIBC Act”), validly existing [and in good standing] under the laws of the British Virgin Islands. The Company is a separate legal entity and possesses the capacity to sue and be sued in its own name.

 

(2)	The Company has all requisite corporate power and authority to enter into, execute, deliver, and perform its obligations under the Subject Agreements and to take all action as may be necessary to complete the transactions contemplated thereby.

 

(3)	The execution, delivery and performance by the Company of the Subject Agreements and the transactions contemplated thereby have been duly authorised by all necessary corporate action on the part of the Company.

 

(4)	The obligations of the Company as set out in the Subject Agreements constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms and would be so treated in courts of the British Virgin Islands.

 

(5)	No consent, licence or authorisation of or by any governmental authority of the British Virgin Islands is required to be obtained by the Company in connection with the execution, delivery or performance by the Company of the Subject Agreements.

 

(6)

The execution, delivery and performance by the Company of the Subject Agreements and the transactions contemplated thereby do not and will not violate, conflict with or constitute a default under (i) any requirement of any law or any regulation of the British Virgin Islands or (ii) the Constitutional Documents.

 

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(7)

No stamp duties or similar documentary taxes imposed by or in the British Virgin Islands are payable in respect of the Subject Agreements and the Company will not be required by any laws of the British Virgin Islands to make any deduction or withholding from any payment it may make under the Subject Agreements. There are no government controls or exchange controls in relation to the performance by the Company of its obligations under the Subject Agreements.

 

(8)	There is no applicable usury or interest limitation law in the British Virgin Islands which would restrict the recovery of payments or the performance by the Company of its obligations under the Subject Agreements.

 

(9)

Any monetary judgment in a court of the British Virgin Islands in respect of a claim brought in connection with the Subject Agreements is likely to be expressed in the currency in which such claim is made, since such courts have power to grant a monetary judgment expressed otherwise than in the currency of the British Virgin Islands, but they may not necessarily do so.

 

(10)

It is not necessary in order to ensure the legality, validity, enforceability or admissibility in evidence in proceedings of the obligations of the Company under the Subject Agreements that the Subject Agreements or any other document be notarised, filed, registered or recorded in the British Virgin Islands except that, the Company is required by section 162 of the BVIBC Act to keep a register of charges and pursuant to section 163 of the BVIBC Act an application may be made with the British Virgin Islands Registrar of Corporate Affairs of the British Virgin Islands to register details of the charge in the Register of Registered Charges for the Company as maintained at the British Virgin Islands Registry.

Based solely upon the Company Search, [no] charges have been filed at the Registry of Corporate Affairs in the British Virgin Islands over the assets of the Company.

 

(11)	The choice of the laws of Hong Kong as the proper law to govern the Subject Agreements would be recognised, upheld and applied by the courts of the British Virgin Islands as a valid choice of law and the proper law of the Subject

 

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Agreements in proceedings brought before them in relation to the Subject Agreements, except for those laws (i) which such courts consider to be procedural in nature; (ii) which are revenue or penal laws; or (iii) the application of which would be inconsistent with public policy, as that term is interpreted under British Virgin Islands law.

 

(12)

The submission by the Company to arbitration pursuant to the terms of the Subject Agreements is not contrary to the British Virgin Islands law and would be recognised by the courts of the British Virgin Islands as a legal, valid and binding submission, if such submission is legal, valid and binding under the laws of Hong Kong.

 

(13)

An arbitration award made in a foreign country other than the United Kingdom that is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by the United Nations Conference on International Commercial Arbitration on 10 June 1958 (the “New York Convention”), of which China is such as signatory (the New York Convention applies to Hong Kong, Special Administrative Region of China, by virtue of China being a signatory to the New York Convention), in respect of the Subject Agreements for a definite sum obtained against the Company may be enforced with the BVI High Court in the British Virgin Islands and judgment entered according to the terms of the award. The BVI High Court may only exercise its discretion to refuse leave if:

 

(i)

a party to the arbitration agreement was, under the law applicable to him, under some incapacity;

 

(ii)

the arbitration agreement was not valid under the governing law of the arbitration agreement;

 

(iii)

the Company was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case;

 

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(iv)

the award deals with an issue not contemplated by or not falling within the terms of the submission to arbitration, or contains matters beyond the scope of the arbitration, subject to the proviso that an award which contains decisions on such matters may be enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those matters not so submitted;

 

(v)

the composition of the arbitral authority was not in accordance with the agreement of the parties or, failing such agreement, with [relevant law];

 

(vi)

the award has not yet become binding upon the parties, or has been set aside or suspended by a competent authority, either in Hong Kong, or pursuant to the law of the arbitration agreement;

 

(vii)

the subject matter of the award was not capable of resolution by arbitration; or

 

(viii)

enforcement would be contrary to public policy.

 

(14)

The Company is not entitled to immunity from suit or enforcement of a judgment on the ground of sovereignty or otherwise in the courts of the British Virgin Islands in respect of proceedings against it in relation to the Subject Agreements and the execution of the Subject Agreements and performance of its obligations under the Subject Agreements by the Company constitute private and commercial acts.

 

(15)

Based solely upon a review of the Sixth Restated M&A as adopted by the relevant Resolutions of the Company and registered by the Registrar of Corporate Affairs in the British Virgin Islands, the Company is authorized to issue [*] Series C Preferred Shares with par value of US$[*] each (the “Series C Preferred Shares”)

 

(16)

The Series C Preferred Shares, when allotted, issued and delivered by the Company in accordance with the terms of the Constitutional Documents, the Subject Agreements, and the Resolutions, and when entered on the Register of Members of the Company against the name of the holder thereof as such, and the Ordinary

 

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Shares issuable upon conversion of the Series C Preferred Shares (the “Conversion Shares”) to such Ordinary Shares , when issued upon a conversion of the Series C Preferred Shares to such Ordinary Shares in accordance with Clause 9(d) of the Sixth Restated M&A, and when entered on the Register of Members of the Company against the name of the holder thereof as such, will be validly issued, fully paid and non-assessable under the British Virgin Islands law and in accordance with the Resolutions:

 

a.

assuming payment in full of the consideration set forth in the Subject Agreements has been made and no requirement to pay additional consideration is contained in any other document; and

 

b.

subject to the satisfaction of any conditions or requirements set forth in the Subject Agreements, Sixth Restated M&A and the Resolutions.

 

(17)	Upon entry on the Register of Members of the Company, each holder of the Series C Preferred Shares will be the registered holder of such number of Series C Preferred Shares as noted against their respective name on such Register of members.

 

(18)	The Sixth Restated M&A have been registered by the Registrar of Corporate affairs and are in full force and effect and are binding upon the Company and enforceable against the Company in accordance with the terms thereof.

 

(19)	The provisions of the Sixth Restated M&A do not contravene the laws of the British Virgin Islands.

 

(20)

Under the laws of the British Virgin Islands, the parties (other than the Company) to the Subject Agreements will not be deemed to be resident, domiciled or carrying on any commercial activity in the British Virgin Islands or subject to any tax in the British Virgin Islands by reason only of the execution, delivery and performance of the Subject Agreements nor is it necessary for the execution, delivery, performance and enforcement of the Subject Agreements that the parties be authorised or qualified to carry on business in the British Virgin Islands.

 

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(21)

Service of process in the British Virgin Islands on the Company may be effected by leaving at the registered office of the Company the relevant document to be served. Based on the Company Search, the registered office of the Company is situated at P.O. Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands.

 

(22)	Based solely upon the Company Search and the Litigation Search:

 

(i)

no court proceedings are pending against the Company; and

 

(ii)

no currently valid order or resolution for winding up of the Company and no current notice of appointment of a receiver over the Company or any of its assets appears, but it should be noted that failure to file notice of appointment of a receiver with the Registrar of Corporate Affairs does not invalidate the receivership but merely gives rise to penalties on the part of the receiver.

Reservations

Our opinion is subject to the following reservations:

 

(a)

We express no opinion as to any law other than British Virgin Islands law and none of the opinions expressed herein relate to compliance with or matters governed by the laws of any jurisdiction except the British Virgin Islands. This opinion is limited to British Virgin Islands law as applied by the courts of the British Virgin Islands at the date hereof.

 

(b)

We express no opinion as to the validity, binding effect or enforceability of any provision incorporated into any of the Subject Agreements by reference to a law other than that of the British Virgin Islands, or as to the availability in the British Virgin Islands of remedies which are available in other jurisdictions.

 

(c)	The term “good standing” as used in this opinion means solely that the Company has received a Certificate of Good Standing from the Registrar of Corporate Affairs.

 

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(d)	The term “enforceable” as used in this opinion means that there is a way of ensuring that each party performs an agreement or that there are remedies available for breach.

 

(e)

Enforcement of the obligations of the Company under the Subject Agreements may be limited or affected by applicable laws from time to time in effect relating to bankruptcy, insolvency or liquidation or any other laws or other legal procedures affecting generally the enforcement of creditors’ rights.

 

(f)	Enforcement of the obligations of the Company may be the subject of a statutory limitation of the time within which such proceedings may be brought or may be or become subject to defences of set-off or counterclaim.

 

(g)	We express no opinion as to the validity or binding effect of any provision in the Subject Agreements which provides that the Company will not exercise its statutory powers. This may constitute an unlawful fetter on the statutory powers of the Company.

 

(h)	We express no opinion as to the validity or binding effect of any provision of the Subject Agreements which provides for the severance of illegal, invalid or unenforceable provisions.

 

(i)

Any provision in the Subject Agreements that certain calculations or certificates will be conclusive and binding will not be effective if such calculations or certificates are fraudulent or erroneous on their face and will not necessarily prevent juridical enquiries into the merits of any claim by an aggrieved party.

 

(j)	Where a person is vested with a discretion or may determine a matter in his, her or its opinion, such discretion may have to be exercised reasonably or such an opinion may have to be based on reasonable grounds.

 

(k)	Obligations that are to be performed in a jurisdiction outside the British Virgin Islands may not be enforceable under the laws of the British Virgin Islands to the

 

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extent that such performance would be contrary to public policy under the laws of the British Virgin Islands.

 

(l)

We express no opinion as to the availability of equitable remedies such as specific performance or injunctive relief, or as to any matters which are within the discretion of the courts of the British Virgin Islands in respect of any obligations of the Company as set out in the Subject Agreements. In particular, we express no opinion as to the enforceability of any present or future waiver of any provision of law (whether substantive or procedural) or of any right or remedy which might otherwise be available presently or in the future under the Subject Agreements.

 

(m)	A British Virgin Islands court may refuse to give effect to any provisions of the Subject Agreements in respect of costs of unsuccessful litigation brought before the British Virgin Islands court or where that court has itself made an order for costs.

 

(n)	We express no opinion as to the validity or binding effect of any provision in the Subject Agreements for the payment of a specified rate of interest on the amount of a judgment after the date of judgment.

 

(o)	In order to issue this opinion we have carried out the Company Search and have not enquired as to whether there has been any change since the date of such search.

 

(p)	In order to issue this opinion we have carried out the Litigation Search and have not enquired as to whether there has been any change since the date of such search.

 

(q)	The Company Search and the Litigation Search are not conclusive and it should be noted that the Company Search and the Litigation Search do not reveal:

 

(i)

details of matters which have not been lodged for registration or have been lodged for registration but not actually registered at the time of the searches;

 

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(ii)

details of any proceedings which have been filed but not actually entered in the records of proceedings at the time of the searches.

 

(r)

[The Company Search did not reveal the existence of a Register of Mortgages, Charges and other Encumbrances. Such a Register of Mortgages, Charges and other Encumbrances may, however, be maintained at the Company’s registered office without a copy being necessarily filed at the Registry of Corporate Affairs.]

Disclosure

This opinion is addressed to you solely for your benefit and is neither to be transmitted to any other person, nor relied upon by any other person or for any other purpose nor quoted or referred to in any public document nor filed with any governmental agency or person, without our prior written consent, except as may be required by law or regulatory authority. Further, this opinion speaks as of its date and is strictly limited to the matters stated herein and we assume no obligation to review or update this opinion if applicable law or the existing facts or circumstances should change.

This opinion is governed by and is to be construed in accordance with British Virgin Islands law. It is given on the basis that it will not give rise to any legal proceedings with respect thereto in any jurisdiction other than the British Virgin Islands.

Yours faithfully

Appleby

 

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EXECUTION

 

EXHIBIT F

FORM OF INDEMNIFICATION AGREEMENT

 

Exhibit F

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INDEMNIFICATION AGREEMENT

INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of             , 2013, by and among Momo Technology Company Limited (the “Company”), Ho Kee Harry Man (the “Director”), and Matrix Partners China II Hong Kong Limited (the “Fund”). The Director and the Fund shall be referred to herein individually as the “Indemnitee” and collectively as the “Indemnitees.”

RECITALS

A. The Company and the Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors and officers, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.

B. The Company and the Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees, controlling persons, stockholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.

C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and the Indemnitees and other directors and officers of the Company may not be willing to serve in such capacities without additional protection.

D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Director, to serve the Company and, in part, in order to induce the Director to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent permitted by law as provided herein.

D. The Director is affiliated with the Fund, and has agreed to serve as a director of the Company in connection with the Fund’s investment in the Company.

E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.

NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:

1. Indemnification.

a. Indemnification of Expenses.

(i) Third-Party Claims. Subject to Section 8 below, the Company shall indemnify and hold harmless the Director to the fullest extent permitted by law if the Director was or is or becomes a party to or witness, or other participant in, or is threatened to be made a party to or witness or

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other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that such Director reasonably believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a “Claim”) (other than an action by right of the Company) by reason of (or arising in part out of or in connection with) the fact that the Director is or was a director or officer of the Company, or any subsidiary or affiliate of the Company, or is or was serving at the request of the Company as a director, officer, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of the Director while serving in such capacity (hereinafter, an “Agent”) or as a direct or indirect result of any Claim made by any stockholder of the Company against the Director and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-participation, or non-pro rata participation, in such round by such stockholder), or made by a third party against the Director based on any misstatement or omission of a material fact by the Company or any subsidiary or affiliate of the Company in violation of any duty of disclosure imposed on the Company by securities or common laws (hereinafter an “Indemnification Event”) against any and all expenses (including, without limitation, attorneys’ fees, travel and deposition costs, and all other costs, expenses and obligations), judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Director in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in, or otherwise participate in such Claim, costs of attachment or similar bonds or equivalent, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, and any applicable taxes of any jurisdiction imposed on Director as a result of the actual or deemed receipt of any payments, under this Agreement, the Company’s Memorandum and Articles of Association as now or hereafter in effect (the “M&A”), applicable law or otherwise (collectively, hereinafter the “Expenses”) if the Director acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

(ii) Derivative Actions. If the Director is a person who was or is a party or is threatened to be made a party to any Claim by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was an Agent of the Company, or by reason of anything done or not done by him or her in any such capacity, the Company shall indemnify the Director against any amounts paid in settlement of any such Claim and all Expenses actually and reasonably incurred by him or her in connection with the investigation, defense, settlement or appeal of such Claim if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his 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

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case, such person is fairly and reasonably entitled to indemnity for such amounts which such court shall deem proper.

(iii) Indemnification of Funds. The Company agrees that, if and whenever any of the Funds is or was a party or is threatened to be made a party to or is in any way involved in any Claim (including without limitation any such Claim brought by or in the right of the Company), by reason of the fact that (i) the Director is or was an Agent, (ii) by reason of anything done or not done by the Director in such capacity, or (iii) by reason of the fact that any of the Funds is or was acting as an express agent of the Company upon the request of the Company and solely for the benefit of the Company (provided that the fact that the Funds will incidentally benefit as a stockholder from such action will not alone mean that such action is not or was not solely for the benefit of the Company), the Company shall indemnify the Funds against all Expenses actually and reasonably incurred by the Funds or on the Funds’ behalf in connection with such Claim (including but not limited to in connection with the investigation, defense, settlement or appeal of such Claim) except to the extent that any such Expenses arise from a Claim for which the Director is not entitled to indemnification hereunder pursuant to Section 8 hereof or under applicable law.

(b) Reviewing Party.

Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the Reviewing Party (as described in Section 10(e) hereof) shall not have determined that the Indemnitee would not be permitted to be indemnified under applicable law or pursuant to Section 8 hereof, and (ii) each Indemnitee acknowledges and agrees that the obligation of the Company to make an advance payment of Expenses to an Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that such Indemnitee would not be permitted to be so indemnified under applicable law or Section 8 hereof, the Company shall be entitled to be reimbursed by the Indemnitee (who each hereby agree to promptly reimburse the Company) for all such amounts theretofore paid; provided, however, that if the Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that such Indemnitee should be indemnified under applicable law or Section 8 hereof, any determination made by the Reviewing Party that the Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and the Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). The Indemnitees’ obligation to reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c) hereof), the Reviewing Party shall be selected by the a majority of the Board of Directors (excluding the Director), and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors (other than the Director) who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be

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indemnified in whole or in part under applicable law or Section 8 hereof, the Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitees.

(c) Contribution.

If the indemnification provided for in Section 1(a) above for any reason other than the statutory limitations of applicable law or as provided in Section 8, is held by a court of competent jurisdiction to be unavailable to an Indemnitee in respect of any losses, claims, damages, expenses or liabilities in which the Company is jointly liable with such Indemnitee, as the case may be (or would be jointly liable if joined), then the Company, in lieu of indemnifying the Indemnitee thereunder, shall contribute to the amount actually and reasonably incurred and paid or payable by the Indemnitee as a result of such losses, claims, damages, expenses or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Company and the Indemnitee, and (ii) the relative fault of the Company and such Indemnitee in connection with the action or inaction that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Indemnitee shall be determined, by such court or by Independent Legal Counsel, by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such losses, claims, damages, expenses or liabilities.

The Company and the Indemnitees agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the U.S. Securities Act of 1933, as amended (the “Securities Act”)) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

(d) Survival Regardless of Investigation.

The indemnification and contribution provided for in this Section 1 shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnitees.

(e) Change in Control.

The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were

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directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitees to payments of Expenses under this Agreement, any other agreement or under the Company’s M&A, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). The Company agrees to abide by the determination of the Independent Legal Counsel and to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including, without limitation, attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(f) Mandatory Payment of Expenses.

Notwithstanding any other provision of this Agreement, to the extent an Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice or the settlement of an action without an admission of liability, in the defense of any Claim referred to in Section 1(a) hereof or in the defense of any claim, issue or matter therein, such Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by such Indemnitee in connection herewith.

2. Expenses; Indemnification Procedure.

(a) Advancement of Expenses.

Subject to Section 8 and except as prohibited by applicable law, the Company shall advance all Expenses incurred by an Indemnitee in connection with the investigation, defense, settlement or appeal of any Claim to which such Indemnitee is a party or is threatened to be made a party by reason of the fact that the Director is or was an Agent of the Company or by reason of anything done or not done by him or her in any such capacity. The Indemnitee hereby undertakes to promptly repay such portion of the Expense Advance, only if, and to the extent that, it shall ultimately be determined by a final judicial decision that such Indemnitee is not entitled to be indemnified by the Company, in whole or in part, under the provisions of this Agreement, the M&A, the bylaws, applicable law or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee as soon as practicable but in any event no later than thirty (30) days after written demand by the Indemnitee therefor to the Company.

(b) Notice/Cooperation by Indemnitee.

The Indemnitee shall give the Company notice in writing promptly after receipt of notice of commencement of any Claim, or the threat of the commencement of any Claim, made against such Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other person and/or address as the Company shall designate in writing to the Indemnitee). The failure of Indemnitees to give such notice, or to provide such information or cooperation, shall not affect Indemnitees’ rights to

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indemnification under this Agreement, or the obligations of the Company hereunder, except to the extent that the Company is materially prejudiced thereby.

(c) No Presumptions; Burden of Proof.

If a claim for indemnification or Expense Advance under this Agreement is not paid by the Company within thirty (30) days after receipt of written notice by the Company, the rights provided by this Agreement shall be enforceable by the relevant Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be conducted de novo. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not (i) create a presumption that the Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law, or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or Expense Advance under this Agreement. In addition, neither the failure of the Reviewing Party to have made a determination as to whether the Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee had not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by the Indemnitee to secure a judicial determination that the Indemnitee should be indemnified under applicable law, shall be a defense to the Indemnitee’s claim or create a presumption that the Indemnitee had not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that the Indemnitee is not so entitled by clear and convincing evidence. The Company further agrees to stipulate in any such judicial proceeding that it is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.

(d) Notice to Insurers.

If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.

(e) Selection of Counsel.

In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim, with legal counsel reasonably approved by the Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such legal counsel by the Indemnitee, and the

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retention of such legal counsel by the Company, the Company will not be liable to such Indemnitee under this Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such Indemnitee’s legal counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own legal counsel in connection with any such proceeding, at the expense of the Company, if such legal counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; and (iii) if (A) the employment of legal counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not in fact continue to retain such legal counsel to defend such Claim, then the fees and expenses of the Indemnitee’s legal counsel shall be at the expense of the Company.

The Company shall not be entitled to settle any claim against any Indemnitee without the reasonable consent of such Indemnitee, unless the settlement involves only the payment of monetary relief for which such Indemnitee will be indemnified and does not include a statement or an admission of fault or culpability by or on behalf of such Indemnitee.

3. Additional Indemnification Rights; Non-exclusivity.

(a) Scope.

The Company hereby agrees to indemnify the Director to the fullest extent permitted by law (except as provided in Section 8) with respect to Claims for Indemnification Events, even if such indemnification is not specifically authorized by the other provisions of this Agreement or any other agreement, the Company’s M&A, or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a British Virgin Islands company to indemnify a member of its Board of Directors or an officer or Agent, it is the intent of the parties hereto that Indemnitees shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a British Virgin Islands company to indemnify a member of its Board of Directors or an officer, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 8 hereof.

(b) Non-exclusivity.

Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which the Indemnitees may be entitled under the Company’s M&A, any agreement, any vote of stockholders or disinterested directors, applicable laws, or otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action the Director took or did not take while serving in an indemnified capacity even though such Director may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each Indemnitee from

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and after the Director’s first day of service as a director with the Company or affiliation with a director from and after the date the Director commences services as a director with the Company.

4. No Duplication of Payments.

The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, M&A, bylaws or otherwise) of the amounts otherwise indemnifiable hereunder. The Company acknowledges and agrees that while under certain circumstances, Indemnitees may be entitled to indemnification and expense advancement and/or reimbursement from the Fund and/or its general partner or other affiliates thereof (collectively, “Fund Related Parties”) in connection with Claims made against Indemnitees, the obligations of the Company hereunder with respect to any Claim are primary to any obligations of any Fund Related Party with respect thereto, and Indemnitees will not be obligated to seek indemnification from or expense advancements or reimbursement by any Fund Related Party with respect to any Claim unless and until the Company shall have fulfilled all of its obligations hereunder, including without limitation, with respect to any insurance provided pursuant hereto or otherwise. In addition, the Company hereby waives any rights of contribution, subrogation, or any other recovery of any kind in respect thereof from or against each and every Fund Related Party with respect to any Claim. Each of the Fund Related Parties is an intended third party beneficiary of this Agreement and the Company agrees to execute all documents required and to take such further action as may be requested by any Fund Related Party to effectuate the contractual arrangement between the Company and the Fund Related Parties as set forth herein.

5. Partial Indemnification.

If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which such Indemnitee is entitled.

6. Mutual Acknowledgement.

The Company and each Indemnitee acknowledge that in certain instances, applicable law or public policy may prohibit the Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.

7. Liability Insurance.

To the extent the Company maintains liability insurance applicable to its directors and other Agents, the Company shall use commercially reasonable efforts to provide that the Director shall be covered by such policies in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director; or of the Company’s Agents, if such Indemnitee is not a director of the

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Company but is an Agent.

8. Exceptions.

Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Claims Under Section 16(b).

To indemnify either Indemnitee for expenses and the payment of profits or an accounting thereof arising from the purchase and sale by such Indemnitee of securities in violation the provisions of Section 16(b) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any similar provisions of any international, federal, state or local statutory law;

(b) Unauthorized Settlements.

To indemnify the Indemnitees hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld;

(c) Unlawful Indemnification.

To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitees have been advised that the U.S. 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;

(d) Fraud.

To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has knowingly committed fraud on the Company;

(e) Insurance.

To indemnify an Indemnitee for which payment is actually and fully made to such Indemnitee under a valid and collectible insurance policy; or

(f) Company Contracts.

Subject to the provisions of this Agreement, to indemnify an Indemnitee with respect to any Claim related to any dispute or breach arising under any contract or similar obligation between the Company and such Indemnitee.

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9. Period of Limitations.

No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against the Director, the Director’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

10. Construction of Certain Phrases.

(a) For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers, so that if the Director is or was or may be deemed a director or officer of such constituent corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as the Director would have with respect to such constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on the Indemnitees with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as an Agent of the Company which imposes duties on, or involves services by, such Agent with respect to an employee benefit plan, its participants or its beneficiaries; and if the Indemnitees acted in good faith and in a manner such Indemnitees reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, the Indemnitees shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

(c) For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than thirty percent (30%) of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the

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Company’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least two-thirds of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company’s assets; provided that in no event shall a Change in Control be deemed to include (A) a merger, consolidation or reorganization of the Company for the purpose of changing the Company’s state of incorporation and in which there is no substantial change in the shareholders of the Company or its successor (as the case may be), or (B) the Company’s first firm commitment underwritten public offering of any of its securities to the general public pursuant to (x) a registration statement filed under the Securities Act, or (y) the securities laws applicable to an offering of securities in another jurisdiction pursuant to which such securities will be listed on an internationally recognized securities exchange (the “IPO”).

(d) For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last two (2) (other than with respect to matters concerning the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

(e) For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body, consistent with applicable law, consisting of a member or members of the Company’s Board of Directors (other than the Director) or any other person or body appointed by the Board of Directors who is not a named party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.

(f) For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

11. Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12. Binding Effect; Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by

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purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance reasonably satisfactory to each Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnification Events regardless of whether any Indemnitee continues to serve as an Agent of the Company or of any other enterprise, including subsidiaries or affiliates of the Company, at the Company’s request.

13. Attorneys’ Fees.

Subject to Section 8 and except as prohibited by applicable law, in the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, such Indemnitee shall be entitled to be paid all Expenses actually and reasonably incurred by such Indemnitee with respect to such action if such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses actually and reasonably incurred by such Indemnitee in defense of such action (including costs and expenses incurred with respect to the Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the extent that such Indemnitee is ultimately successful in such action.

14. Notice.

All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one (1) day after the business day of delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Director’s and the Funds’ addresses as set forth beneath their signatures to this Agreement and if to the Company at the address of its principal corporate offices (attention: Chief Executive Officer), or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

15. Severability.

The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of

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competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

16. Choice of Law.

This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of Hong Kong without regard to the conflict of laws principles thereof.

17. 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 Indemnitees who each 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; provided, however, that the Company expressly waives any rights of subrogation with respect to any rights of recovery of any Indemnitee against any Fund Related Party or any insurer providing liability insurance in respect of or in support of any such obligations of a Fund Related Party.

18. Amendment and Termination.

Except as provided in Section 21, no amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

19. No Construction as Employment Agreement.

Nothing contained in this Agreement shall be construed as giving the Indemnitees any right to be retained in the employment or service of the Company or any of its subsidiaries.

20. Corporate Authority.

The Board of Directors of the Company and its stockholders in accordance with British Virgin Islands law have approved the terms of this Agreement.

21. Termination of Agreement.

This Agreement shall terminate and be of no further force or effect upon the closing of the IPO, provided that each Indemnitee will be entitled to all of the benefits and rights accorded such party

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under this Agreement with respect to any Claims for any Indemnification Events arising or related to events, circumstances and actions or omissions which have occurred or alleged and to have occurred prior to the closing of the IPO.

22. Dispute Resolution.

Any dispute or claim arising out of or relating to this Agreement shall be settled in accordance with the procedure set forth in Section 8.12 of the Second Amended and Restated Shareholders’ Agreement dated on             , 2013 by and among the Company, certain members of the Fund, and certain other parties.

23. Entire Agreement.

This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

24. Interpretation.

(a) The headings preceding the text of the sections included in this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. Reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof.

(b) The use of the masculine, feminine or neuter gender or the singular or plural form of words herein shall not limit any provision of this Agreement. The use of the terms “including” or “include” shall, in all cases herein, mean “including, without limitation” or “include, without limitation,” respectively. The use of the terms “hereunder”, “hereof”, “hereto” and words of similar import shall refer to this Agreement as a whole and not to any particular section, subsection paragraph or clause of, this Agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.

 

COMPANY:				MOMO TECHNOLOGY
				COMPANY LIMITED
				a British Virgin Islands company
				By:
				Name:		Yan Tang
				Title:		director

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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.

 

DIRECTOR:				as individual
				Name: Ho Kee Harry Man

 

FUND:				MATRIX PARTNERS CHINA II HONG KONG LIMITED
				c/o Suite 2008 20/F Jardine House
				1 Connaught Place
				Central, Hong Kong
				Name:
				Title:

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EXECUTION

 

EXHIBIT G

FORM OF KEY EMPLOYEE EMPLOYMENT AGREEMENT

 

Exhibit G

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This is an English translation of the original Chinese text.

Contract Number:                     

BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.

EMPLOYMENT CONTRACT

Party A (Employer): Beijing Momo Information Technology Co., Ltd. (the “Company”)

Party B (Employee):                     

 

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It is confirmed by the Parties that prior to execution of this Contract, Party A has made to Party B inclusive and true descriptions of the jobs, conditions, location, potential occupational hazard, safe production status, employment compensation and any other information requested by Party B in relation to the employment.

 

Party A:		Beijing Momo Information Technology Co., Ltd.
Legal representative:		Yan TANG
Office address:		Rooms 801-803 Block D, A6 Chaoyang Men Wai Avenue, Chaoyang District, Beijing
Party B:
Gender:
ID number:
Mailing address:

(Party A and Party B collectively, the “Parties”)

In accordance with the Employment Law of the People’s Republic of China, the Employment Contract Law of the People’s Republic of China and applicable laws and regulations, the Parties, after negotiations based on the principles of equality, fairness, self-willingness and good faith, and intend to be legally bound hereby, agree as follows:

TERM OF EMPLOYMENT CONTRACT

 

1)	The Parties agree to define the term of the Contract according to the following option b:

 

a.

Perpetual period: the term of this Contract commences on              and ends on             ;

 

b.

Fixed period: the term of this Contract shall be three years commencing on             and ending on             , with/without a probation from              through             .

 

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JOB DESCRIPTION AND WORK LOCATION

 

2)	Party A will engage Party B as          of          department.

 

3)

The job descriptions and responsibilities of Party B are specified in the position statement or otherwise agreed in writing between the Parties. Party B shall submit to Party A’s management and arrangements, and complete the relevant work at the time, quality and quantity required by Party A according to the job descriptions and responsibilities set forth in the position statement or otherwise agreed in writing, on the basis of which Party B will receive assessment by Party A.

 

4)	The work location of Party B shall be at Beijing.

 

5)

Party A may make reasonable adjustment to Party B’s position if it finds Party B unqualified for this position after its review, and also adjust Party B’s compensation accordingly, which adjustment and review shall be conducted according to applicable procedures adopted by Party A pursuant to relevant laws. Party B shall submit to Party A’s such arrangements, failing to do which Party A may terminate this Contract.

WORKING HOURS, LEAVES AND VACATIONS

 

6)	Party B’s working hours are standard working hours, which is determined based on the actual situation of Party A’s position.

 

7)	During the term of this Contract and subject to approval from employment administrative department, the working hours of Party B will be adjusted as of the date on which such approval is received.

 

8)

Party A may adjust the starting and ending time of Party B’s working hours according to work requirement, provided that Party B shall arrange Party B to work within normal working hours as much as possible. If Party B is required to work beyond normal working hours as necessary, a compensatory time-off with equivalent hours worked overtime shall be given, or an overtime payment shall be made to Party B according to relevant regulations. Party B’s overtime work must be approved or subsequently recognized by Party A, and the overtime work so approved or recognized shall be entitled to a compensatory time-off with equivalent hours worked overtime or an overtime payment; Party B’s overtime work not so approved or recognized or that results from his/her failure to finish his/her due work for his/her own reasons will not be entitled to any compensatory time-off or overtime payment.

 

9)	Party B shall be entitled to all kinds of mandatory leaves, vacations and holidays during the term of this Contract.

EMPLOYMENT COMPENSATION

 

10)	Party B’s salary will consist of basic salary and allowance.

 

11)	Party B’s basic before-tax salary during normal working hours will be RMB          per month. The salary during the probation period shall be determined according to the following option a.

 

a.

The before-tax salary during the probation period shall be RMB          per month; or

 

b.

No probation.

 

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12)	Party A will pay the Party B’s salary in monetary funds no later than 10th day of the next month, which will be postponed when such day is a public holiday.

 

13)	Party A will withhold the income tax and the amount of contribution to the social security insurance payable by Party B.

SOCIAL INSURANCE AND BENEFITS

 

14)

Party A shall provide social security insurance and housing fund for Party B in accordance with the Employment Law of the People’s Republic of China, the Employment Contract Law of the People’s Republic of China and applicable national and local regulations. Each of the Parties shall pay their respective mandatory contribution amount.

 

15)	Party B shall provide his true information required for maintaining social security insurance.

 

16)	Upon termination or expiration of the Employment Contract, Party A shall effect the mandatory procedures necessary to transfer Party B’s social security insurance and housing fund.

 

17)	If Party B is sick or injured out of working hours, his salary will be paid according to relevant national regulations and Party A’s rules.

 

18)	If Party B becomes victim of occupational disease or is injured during working hours, he will be compensated according to relevant national and local regulations.

 

19)	Party B’s other benefits will be provided according to relevant national regulations and Party A’s rules.

WORK DISCIPLINE

 

20)

Party A will formulate rules, policies and disciplinary measures according to work requirement and in compliance with relevant laws. Party B acknowledges that he/she has fully understood, and will diligently comply with, the existing rules and regulations of Party A. If Party B is in breach of any of the disciplinary measures or Party A’s rules and regulations, Party A shall have the right to deal with the breach according to its rules and regulations, up to terminating this Contract.

WARRANTIES BY PARTY B

 

21)	Party B warrants that as of the date hereof, he/she has no relationship of employment or engagement with any third party, and there are no other matters with his/her former employer that suffice to affect the effectiveness and performance of this Contract.

 

22)	Party B warrants that he/she did not conceal any severe medical history from Party A at the execution hereof.

 

23)	Party B warrants that the execution and performance of this Contract will not breach the obligations under any other contract or agreement executed by him/her with a third party, and Party B has not executed a non-compete agreement with any third party.

 

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24)

Party B warrants that after employed by Party A, his/her engagement of any work assigned by Party A will not infringe upon the trade secrets or other legitimate rights and interests of his/her former employer. In case of breach of the preceding sentence, Party B will undertake corresponding responsibilities thus incurred.

 

25)	Party B warrants that all information and qualifications, credentials and certificates provided by him/her in relation to him/herself are true and contain no errors.

NON-DISCLOSURE AND NON COMPETE

 

26)	All the works or inventions accomplished by Party B during his/her employment with Party A for its duties, or primarily by using Party A’s materials and resources shall belong to works of product or works of invention, the intellectual property rights of which shall belong to Party A.

 

27)

Party B undertakes to be in strict compliance with all non-disclosure requirements maintained by Party A under applicable laws, keep any of Party A’s business secrets in strict confidence, and shall not disclose, use or permit any other party to use any of Party A’s business secrets during the term hereof and after the end or termination of this Agreement.

 

28)

As long as the position held by Party B involves access to any of Party A’s business secrets, the Parties agree to restrict Party B in his use of any of Party A’s business secrets or engagement of any business or conduct which is competition with Party A during the term hereof as well as a certain period after the end or termination of this Agreement. For this purpose, the Parties may enter into a separate agreement of non-compete and non-disclosure, whereby Party A shall pay economic compensation during the term of non-compete and Party B will be liable for damages if he is in breach of such requirement. Such agreement of non-compete and non-disclosure shall be attached hereto and constitute an integral part of this Contract.

AMENDMENT, TERMINATION, EXPIRATION AND RENEWAL OF THIS CONTRACT

 

29)	This Contract may be amended in accordance with the Employment Contract Law or agreement of the Parties. Any amendment hereto shall be made in agreement signed by the Parties.

 

30)	During the term of this Contract, the Parties may terminate this Contract upon agreement.

 

31)	Party A may terminate this Contract if Party B:

 

a.

fails to meet the qualifications required for his job during his probation;

 

b.

provides fake CV or information in job seeking;

 

c.

provides fake CV or information in entering into this Contract;

 

d.

fails to provide the severance proof with the former employer;

 

e.

fails to provide documents necessary for handling social security insurance within the mandatory period of time prescribed by the State;

 

f.

contracts a mental disease or an infectious disease of A or B category classified by Law on the Control of Communicable Diseases;

 

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g.

has a non-compete agreement with the former employer;

 

h.

conceals severe medical history from Party A when executing this Contract with Party A;

 

i.

is absent from work for three days consecutively and five days accumulatively in a single calendar year;

 

j.

discloses to a third person the salary offered by the Company, the business information of the Company and such other trade secrets without authorization or written consent of the Company;

 

k.

is in material breach of regulations and rules of Party A;

 

l.

is in gross negligence or corruption which causes material damage to Party A;

 

m.

is concurrently in employment relationship with other entity, which relationship has material impact on his performance of his job in Party A, or refuses to rectify such relationship at request from Party A;

 

n.

is held criminally liable according to laws; and

 

o.

is under any other circumstance provided in applicable laws and regulations.

 

32)	Party B may terminate this Contract with three (3) calendar days’ prior written notice to Party A during his probation, or with thirty (30) calendar days’ prior written notice to Party A if Party B terminates this Contract after the end of the probation.

 

33)	This Contract shall automatically terminate if:

 

a.

Upon the end of its term;

 

b.

Party B is entitled to benefiting from basic pension insurance;

 

c.

Party B is dead or declared dead or missing by the competent people’s court;

 

d.

Party A declares bankruptcy according to law;

 

e.

Party A is revoked of business license, or is ordered for closure or cancellation, or decides for dissolution; and

 

f.

There occurs any other circumstance under which this Contract shall automatically terminate.

 

34)	Party A may terminate this Contract with thirty (30) days’ prior written notice or payment equal to one-month salary to Party B if Party B:

 

a.

fails to perform his original job duty or any other job duty assigned by Party A after Party B returns to work after treatment of any illness or injury not afflicted during his work;

 

b.

fails to perform his job duty, or still fails to do so after training or re-assignment; and

 

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c.

Party A and Party B fail to reach agreement to amend this Contract if this Contract becomes un-performable due to material change of circumstances on which this Contract is based.

 

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35)

Upon termination or end of this Contract for any reason whatsoever, Party A shall, on the same day as the cause of such end or termination occurs or the decision of such end or termination is rendered, produce or provide by service of process the evidence for such termination or end to Party B, and effect the procedures to transfer the files and social security insurance of Party B within fifteen (15) calendar days. Party A shall not be held liable if it fails to effect the procedures to transfer such files and social security insurance due to any reason attributable to Party B. Party B shall diligently complete the work handover and job leaving formalities as required by Party A, and accept Party A’s inspection on the properties dealt with or managed, and financial and operating activities conducted by him/her during his/her employment. If upon such inspection, Party B is found to have committed any acts detrimental to Party A’s interests, Party A may claim indemnification against Party B; Party A shall have the right to require Party B to undertake relevant legal consequences for any losses incurred to Party A as a result of Party B’s failure to complete the job leaving formalities or work handover.

 

36)	Subject to agreement of the Parties, this Contract may be renewed. No probation will be included upon renewal of this Contract.

ECONOMIC INDEMNIFICATION AND COMPENSATION

 

37)	At the end or termination of this Contract, any economic compensation duly required to be paid by Party A to Party B shall be paid to Party B when Party B completes his/her work handover formalities in compliance with Employment Law and Employment Contract Law and relevant rules of Party A.

 

38)	Party B shall indemnify Party A for any economic losses incurred to Party A due to Party B’s termination of this Contract in breach of the conditions agreed herein or Party B’s breach of non-disclosure requirements herein, according to the extent of such losses.

 

39)

If Party B violates Party A’s rules and regulations and thus incurs loss to Party A, Party A may decide to give Party B such penalties as warning, salary reduction, demotion, cease of salary increase up to dismissal according to the seriousness of such violation and losses thus incurred. Party B shall also compensate Party A for any losses thus incurred.

DISPUTE RESOLUTION

 

40)

If any dispute arises in connection with performance of this Contract, such dispute shall be resolved through negotiations of the Parties or, if the negotiations fail, by submission by any of the Parties to arbitration at the competent arbitration commission where Party A is domiciled or, if the arbitration award is challenged by any of the Parties, by submission to the jurisdiction of the people’s court where Party A is domiciled within 15 days upon the receipt of the arbitration award.

SPECIAL PROVISIONS

 

41)

Party B shall notify Party A in writing of any change of the mailing address, mobile phone or other telephone number, email address or other contact information of Party B within ten (10) calendar days from occurrence of such change. If Party B fails to do so, any document delivered by Party A to the mailing address set forth in this Contract or last notified by Party B shall be deemed duly given.

 

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MISCELLANEOUS

 

42)	If any provision of this Contract is held invalid or unenforceable, it will not affect the validity of the remainder of this Contract.

 

43)	The Parties may enter into any supplement hereto regarding any matter not provided under this Contract, and any such supplement shall have the same effect with this Contract.

 

44)	Each of the Amendment to this Contract, Non-Disclosure Agreement, Employee Manual and such other documents, notices, decisions, agreements in relation to anything of this Contract shall be an attachment to and have the same effect with this Contract.

 

45)	This Contract shall be effective as of signature (and affixture of seal) by each of the Parties. This Contract shall be in two originals, with one original for each of the Parties.

 

Party A: (seal)				Party B: (signature)
Date:				Date:             , 20

 

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EXECUTION

 

EXHIBIT H

FORM OF MANAGEMENT RIGHTS LETTER

 

Exhibit H

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MANAGEMENT RIGHTS LETTER

 

Alibaba Investment Limited 26/F Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong		, 2013

Re: Management Rights

Ladies and Gentlemen:

This letter will confirm our agreement that in connection with your purchase of [8,001,920] Series C Preferred Shares (the “Subscription Shares”) of Momo Technology Company Limited (the “Company”), you will be entitled to the following contractual management rights, in addition to (but not in limitation of) rights to certain non-public financial information, inspection rights and other rights specifically provided to you under the Series C Preferred Share Purchase Agreement.

(1) If and for so long as you do not have (or do not have the contractual right to designate) a representative on the Company’s Board of Directors (“Unrepresented Party”), you shall be permitted to select one representative (“Representative”) to consult with and advise management of the Company on significant business issues, including management’s proposed annual operating plans, and management will make itself available to meet with your Representative regularly during each year at the Company’s facilities at mutually agreeable times for such consultation and advice and to review progress in achieving said plans.

(2) If and for so long as you are an Unrepresented Party, your Representative may examine the books and records of the Company and inspect its facilities and may request information at reasonable times and intervals concerning the general status of the Company’s financial condition and operations.

(3) If and for so long as you are an Unrepresented Party, the Company shall invite you to send your Representative to attend in a nonvoting observer capacity all meetings of its Board of Directors and, in this respect, shall give your Representative copies of all notices, minutes, consents, and other material that it provides to the member of its Board of Directors; provided, however, that the Company reserves the right to exclude your Representative from access to any material or meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is reasonably necessary to preserve the attorney-client privilege. Your Representative may participate in discussions of matters brought to the Board of Directors.

The rights described herein shall terminate and be of no further force or effect when the sale of securities to the general public pursuant to a registration statement filed by the Company under the Securities Act of 1933 in connection with a firm commitment underwritten Qualified Offering (as defined in the legal documents relating to the purchase of the Subscription Shares) is consummated or when the

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Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, whichever event shall occur first.

 

MOMO TECHNOLOGY COMPANY LIMITED						ALIBABA INVESTMENT LIMITED
By:						By:
Name:		Yan Tang				Name:
Title:		Director				Title:
MOMO TECHNOLOGY HK COMPANY LIMITED
By:
Name:		Yan Tang
Title:		Director
BEIJING MOMO TECHNOLOGY CO., LTD.						BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.
By:						By:
Name:		Yan Tang				Name:		Yan Tang
Title:		Legal Representative				Title:		Legal Representative
Affix Seal:						Affix Seal:

Exhibit 10.3

Execution Version

SERIES D PREFERRED SHARE PURCHASE AGREEMENT

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SERIES D PREFERRED SHARE PURCHASE AGREEMENT

THIS SERIES D PREFERRED SHARE PURCHASE AGREEMENT (this “Agreement”) is entered into as of April 22, 2014, by and among:

 

(1)	Momo Technology Company Limited, a company duly incorporated and validly existing under the Laws of the British Virgin Islands (the “Company”),

 

(2)	Momo Technology HK Company Limited , a company organized and existing under the Laws of Hong Kong (the “HK Co”),

 

(3)	Beijing Momo Information Technology Co., Ltd. , a company organized and existing under the Laws of the People’s Republic of China (the “WFOE”),

 

(4)	Beijing Momo Technology Co., Ltd. , a limited liability company organized and existing under the Laws of the People’s Republic of China (the “Domestic Company”),

 

(5)	the individuals listed in Schedule I(A) attached hereto (the “Founders,” and each a “Founder”),

 

(6)	the entities listed in Schedule I(B) attached hereto (the “Founder Holdcos,” and each a “Founder Holdco”, and together with the Founders, the “Founder Parties”), and

 

(7)	the investors listed in Schedule II attached hereto (the “Investors,” and each an “Investor”).

Each of the Company, the HK Co, the WFOE, the Domestic Company, the Founders, the Founder Holdcos and the Investors is referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

A. The Investors wish to invest in the Company by subscribing for Series D Preferred Shares (as defined below), to be issued by the Company pursuant to the terms and subject to the conditions of this Agreement.

B. The Company wishes to issue and sell Series D Preferred Shares to the Investors pursuant to the terms and subject to the conditions of this Agreement.

C. The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein.

 

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WITNESSETH

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:

1. Definitions. The following terms shall have the meanings ascribed to them below:

“Applicable Accounting Principles” means, in the case of the WFOE and the Domestic Company, PRC GAAP, and, in the case of all other Group Companies, US GAAP or IFRS.

“Affiliate” means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person.

“Agreement” means this Series D Preferred Share Purchase Agreement.

“Ancillary Agreements” means, collectively, the Shareholders Agreement, Management Rights Letter, Employment Agreements and the Indemnification Agreement (as amended from time to time), each as defined herein.

“Approval” means any approval, authorization, license, permit, release, order, or consent required to be obtained from, or any registration, qualification, designation, declaration, filing, notice, statement or other communication required to be filed with or delivered to, any Governmental Authority or any other Person, or any waiver of any of the foregoing.

“Board” or “Board of Directors” means the board of directors of the Company.

“Breach” has the meaning set forth in Section 9.1 hereof.

“Charter Documents” means, as to a Person, such Person’s certificate of incorporation, formation or registration (including, if relevant, certificates of change of name), memorandum of association, articles of association or incorporation, charter, by-laws, trust deed, trust instrument, partnership, operating agreement, limited liability company, joint venture or Shareholders Agreement or equivalent documents, and business license, in each case as amended.

“Circular 75” means Circular 75 issued by the SAFE on October 21, 2005 (as supplemented by implementing rules and regulations, including without limitation the implementing rule issued by SAFE on May 31, 2007 and known as Notice 106, and by any successor rule or regulation under PRC Law, including but not limited to any rule or regulation interpreting or setting forth provisions for implementation of any of the foregoing.

“Closing” has the meaning set forth in Section 2.2(i) hereof.

“Closing Account” has the meaning set forth in Section 2.2(ii) hereof.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” has the meaning set forth in the Preamble of this Agreement.

“Contract” means, as to any Person, any Contract, agreement, undertaking, understanding, indenture, note, bond, loan, instrument, lease, mortgage, deed of trust, franchise, or license to which such Person is a party or by which such Person or any of its property is bound, whether oral or written.

 

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“Control” of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise, which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person; the term “Controlled” has the meaning correlative to the foregoing.

“Control Documents” means the following Contracts collectively: (a) the Exclusive Technology Consulting and Service Agreement by and between the WFOE and the Domestic Company, (b) the Equity Pledge Agreement by and among the WFOE, the Founders, , and dated April 18, 2012, (c) the Share Option Agreements by and between each of the Founders, , , respectively, and the WFOE dated April 18, 2012, (d) the Operating Agreement by and among the WFOE, the Domestic Company, the Founders, , dated April 18, 2012, and (e) the Power of Attorney issued by each of the Founders, , and respectively of the Domestic Company to the WFOE dated April 18, 2012.

“Conversion Shares” means Ordinary Shares issuable upon conversion of any Subscription Shares.

“Disclosing Party” has the meaning set forth in Section 8.4 hereof.

“Disclosure Schedule” has the meaning set forth in Section 3 hereof.

“Domestic Company” has the meaning set forth in the Preamble of this Agreement.

“Employee Benefit Plans” has the meaning set forth in Section 3.16(g) hereof.

“Employment Agreement” has the meaning set forth in Section 5.10 hereof.

“Equity Securities” means, with respect to a Person, any shares, share capital, registered capital, ownership interest, equity interest, or other securities of such Person, and any option, warrant, or right to subscribe for, acquire or purchase any of the foregoing, or any other security or instrument convertible into or exercisable or exchangeable for any of the foregoing, or any equity appreciation, phantom equity, equity plans or similar rights with respect to such Person, or any Contract of any kind for the purchase or acquisition from such Person of any of the foregoing, either directly or indirectly.

“FCPA” has the meaning set forth in Section 7.9 hereof.

“Financial Statements” has the meaning set forth in Section 3.14 hereof.

“Financing Terms” has the meaning set forth in Section 8.1 hereof.

 

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“Founder” or “Founders” has the meaning set forth in the Preamble of this Agreement.

“GC Product or Service” has the meaning set forth in Section 3.8(f) hereof.

“Governmental Authority” means any nation or government or any federation, province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC, the British Virgin Islands or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

“Governmental Order” means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.

“Group Company” means each of the Company, the HK Co., the WFOE and the Domestic Company, together with each Subsidiary of any of the foregoing, and each Person (other than a natural person) that is, directly or indirectly, Controlled by any of the foregoing, including but not limited to each joint venture in which any of the foregoing holds more than fifty percent (50%) of the voting power, and “Group” refers to all of Group Companies collectively. The particulars of the Group Companies are set forth on Exhibit A attached hereto.

“HK Co” has the meaning set forth in the Preamble.

“HKIAC” has the meaning set forth in Section 10.4(ii) hereof.

“Hong Kong” means the Hong Kong Special Administrative Region of the PRC.

“IFRS” means the International Financial Reporting Standards in effect from time to time.

“Indemnifiable Loss” has the meaning set forth in Section 9.1 hereof.

“Indemnification Agreement” has the meaning set forth in Section 5.9 hereof.

“Indemnitee” has the meaning set forth in Section 9.1 hereof.

“Investor” or “Investors” has the meaning set forth in the Preamble of this Agreement.

 

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“Intellectual Property” means any and all (i) patents, all patent rights and all applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), (iv) URLs, domain names, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (vi) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (vii) trade names, trade dress, trademarks, domain names, and service marks, and registrations and applications therefor, and (viii) the goodwill of the business symbolized or represented by the foregoing, customer lists and other proprietary information and common-law rights.

“Key Employee” means each of the Persons listed on Schedule III and Key Employees mean such Persons collectively.

“Knowledge” means, with respect to any of the Warrantors, the knowledge of any of the Founders and the Key Employees after making such due inquiry and exercising such due diligence as a prudent business person would have made or exercised in the management of his or her business affairs, including but not limited to due inquiry of all officers, directors, employees, consultants and professional advisers (including attorneys, accountants and auditors) of the Group and of its Affiliates who could reasonably be expected to have knowledge of the matters in question, and where any statement in the representations and warranties hereunder is expressed to be given or made to a Person’s Knowledge, or so far as a Party is aware, or is qualified in some other manner having a similar effect, the statement shall be deemed to be supplemented by the additional statement that such Party has made such due inquiry and due diligence.

“Law” or “Laws” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any Governmental Order.

“Liabilities” means, with respect to any Person, all debts, obligations, liabilities owed by such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

“Lien” means any mortgage, pledge, claim, security interest, encumbrance, title defect, lien, charge, easement, adverse claim, restrictive covenant, or other restriction or limitation of any kind whatsoever, including any restriction on the use, voting, transfer, receipt of income, or exercise of any attributes of ownership.

“Material Adverse Effect” means any (i) event, occurrence, fact, condition, change or development that has had, has, or could reasonably be expected to have, either alone or together with other events, occurrences, facts, conditions, changes or developments, a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects, assets or liabilities of the Group or any Group Company, individually or in the aggregate, (ii) material impairment of the ability of any Group Company or Founder to perform the material obligations of such Person hereunder or under any other Transaction Documents, as applicable, or (iii) material impairment of the validity or enforceability of this Agreement or any Transaction Document against any Group Company or Founder.

 

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“Material Agreements” has the meaning set forth in Section 3.10 hereof.

“Memorandum and Articles” means the seventh amended and restated memorandum of association of the Company and the seventh amended and restated articles of association of the Company attached hereto as Exhibit B, to be adopted in accordance with applicable Law on or before the Closing and which shall be in full force and effect as of the Closing.

“Ordinary Shares” means the Company’s ordinary shares, par value US$0.0001 per share.

“Party” or “Parties” has the meaning set forth in the Preamble of this Agreement.

“Person” means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

“PRC” means the People’s Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.

“PRC GAAP” means generally accepted accounting principles as adopted by the PRC.

“Preferred Shares” means, collectively, the Series A Preferred Shares, the Series B Preferred Shares, the Series C Preferred Shares and the Series D Preferred Shares of the Company.

“Projections” has the meaning set forth in Section 3.24 hereof.

“Public Official” means any employee of a Governmental Authority, an active member of a political party engaged in political or governmental activities, a political candidate, officer of a public international organization, or officer or employee of a state-owned enterprise, including a PRC state-owned enterprise.

“Public Software” has the meaning set forth in Section 3.8(f) hereof.

“Qualified IPO” has the meaning set forth in the Company’s Memorandum and Articles.

“Related Party” means an officer, director or employee of any Group Company or any “affiliate” or “associate” (as those terms are defined in Rule 405 promulgated under the Securities Act) of any of them.

“Restated Control Documents” has the meaning set forth in Section 5.18 hereof.

“SAFE” means the State Administration of Foreign Exchange of the PRC.

“SAFE Rules and Regulations” means any applicable reporting and/or registration requirements under Circular 75 and any other applicable SAFE rules and regulations.

“SEC” has the meaning set forth in Section 4.5 hereof.

 

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“Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Sequoia” means Sequoia Capital China Investment Holdco II, Ltd., Sequoia Capital China GF Holdco III-A, Ltd. and SC China Growth III Co-Investment 2014-A, L.P.

“Series A Preferred Shares” means, collectively, the Series A-1 Preferred Shares of the Company, par value US$0.0001 per share (the “Series A-1 Preferred Shares”), the Series A-2 Preferred Shares of the Company, par value US$0.0001 per share (the “Series A-2 Preferred Shares”), and the Series A-3 Preferred Shares of the Company, par value US$0.0001 per share (the “Series A-3 Preferred Shares”), with the rights and privileges as set forth in the Memorandum and Articles.

“Series B Preferred Shares” means the Series B Preferred Shares of the Company, par value US$0.0001 per share.

“Series C Preferred Shares” means the Series C Preferred Shares of the Company, par value US$0.0001 per share.

“Series D Preferred Shares” means the Series D Preferred Shares of the Company, par value US$0.0001 per share.

“Share Plan” means the Company’s Share Incentive Plan adopted by the Company’s shareholders on November 1, 2012, as amended and restated on October 9, 2013.

“Shareholders Agreement” means the Third Amended and Restated Shareholders Agreement entered into by and among the parties thereto on or prior to the Closing, in the form attached hereto as Exhibit C.

“Statement Date” has the meaning set forth in Section 3.14 hereof.

“Subscription Price” has the meaning set forth in Section 2.1 hereof.

“Subscription Shares” has the meaning set forth in Section 2.1 hereof.

“Subsidiary” means, with respect to any specified Person, any Person of which the specified Person directly or indirectly Controls.

“Tax” means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Government Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Government Authority in connection with any item described in clauses (a) and (b) above, and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i) above.

 

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“Tax Return” means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax.

“Transaction Documents” means this Agreement, the Ancillary Agreements, the Memorandum and Articles, the exhibits attached to any of the foregoing, and each of the agreements and other documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.

“U.S.” means the United States of America.

“US GAAP” means generally accepted accounting principles in the United States of America.

“Warrantors” has the meaning set forth in Section 3 hereof.

“WFOE” has the meaning set forth in the Preamble of this Agreement.

“Yunfeng” means Rich Moon Limited.

2. Purchase and Sale of Series D Preferred Shares.

2.1 Sale and Issuance of the Series D Preferred Shares. Subject to the terms and conditions of this Agreement, at the Closing, each Investor, severally and not jointly, agrees to subscribe for and purchase, and the Company agrees to issue and sell to each Investor, that number of Series D Preferred Shares set forth opposite such Investor’s name on Schedule II attached hereto (such Investor’s “Subscription Shares”), with each Investor to pay, or cause to be paid, as consideration for such Series D Preferred Shares the aggregate purchase price set forth opposite such Investor’s name on Schedule II attached hereto (such Investor’s “Subscription Price”).

2.2 Closing

(i) Closing. The consummation of the sale and issuance of the Series D Preferred Shares pursuant to Section 2.1 (the “Closing”) shall take place remotely via the exchange of documents and signatures as soon as practicable, but in no event later than five (5) business days following the satisfaction or waiver of all of the conditions set forth in Section 5 and Section 6, as confirmed in writing by the Investors and the Company, or at such other place or at such other time or on such other date as the Company and the Investors may mutually agree.

(ii) Closing Account. Payment of the Subscription Price by each Investor to the Company shall be made by remittance of immediately available funds to a bank account of the Company acceptable to the Investors (the “Closing Account”). All bank charges and related expenses for remittance and receipt of funds shall be borne by the account of the Company.

 

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(iii) Closing Deliveries. At the Closing, (a) the Company shall deliver to each Investor (A) a copy of the updated register of members of the Company, certified by the registered agent of the Company, reflecting the issuance to each Investor of the Subscription Shares being purchased by such Investor at the Closing, and (B) share certificate or certificates representing the Subscription Shares being purchased by such Investor at the Closing, and (b) each Investor shall pay its respective Subscription Price by wire transfer in U.S. dollars to the Closing Account. For the avoidance of doubt, all transactions at the Closing shall be deemed to occur simultaneously.

3. Representations and Warranties of the Warrantors. Subject to such exceptions as may be specifically set forth in the Disclosure Schedule attached to this Agreement as Exhibit D (the “Disclosure Schedule”), each of the Company, the HK Co., the WFOE, the Domestic Company, and the Founder Parties (collectively, the “Warrantors”), jointly and severally, represents and warrants to each Investor that each of the statements contained in this Section 3 is true and complete as of the date of this Agreement and the date of the Closing (with the same effect as if made on and as of the date of the Closing) as follows:

3.1. Organization, Good Standing; Corporate Power and Qualification. Each of the Group Companies and the Founder Holdcos is a corporation duly organized, validly existing and in good standing under the Laws of their jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as presently conducted and as proposed to be conducted. Each of the Group Companies and the Founder Holdcos is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect.

3.2. Capitalization of the Company. The authorised number of shares and issued share capital of the Company consists, immediately prior to the Closing, of:

(a) 799,281,189 Ordinary Shares, of which 131,348,411 shares are issued and outstanding, immediately prior to the Closing. All of the outstanding Ordinary Shares have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable securities Laws. The Company holds no treasury shares.

(b) 50,979,800 Series A Preferred Shares, of which 22,272,730 are designated as Series A-1 Preferred Shares, 8,909,090 are designated as Series A-2 Preferred Shares, and 19,797,980 are designated as Series A-3 Preferred Shares, all of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series A Preferred Shares are as stated in the Memorandum and Articles and as provided by the Companies Act.

(c) 70,037,013 Series B Preferred Shares, all of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series B Preferred Shares are as stated in the Memorandum and Articles and as provided by the Companies Act.

(d) 36,008,642 Series C Preferred Shares, all of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series C Preferred Shares are as stated in the Memorandum and Articles and as provided by the Companies Act.

 

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(e) 43,693,356 Series D Preferred Shares, none of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series D Preferred Shares are as stated in the Memorandum and Articles and as provided by the Companies Act.

(f) Immediately following the Closing, the Company will have reserved up to 60,409,808 Ordinary Shares for issuance to officers, directors, employees and consultants of the Company pursuant to its Share Plan. With respect to such reserved Ordinary Shares, immediately following the Closing, options to purchase 27,863,526 Ordinary Shares will have been granted or are currently outstanding, and options to purchase up to 32,546,282 Ordinary Shares will remain available for issuance to officers, directors, employees and consultants pursuant to the Share Plan.

(g) Schedule IV(B) sets forth the capitalization of the Company immediately following the Closing including the number of shares of the following: (i) issued and outstanding Ordinary Shares, including, with respect to restricted Ordinary Shares (if any), vesting schedule and repurchase price; (ii) each series of Preferred Shares; and (iii) warrants or stock purchase rights, if any. Except for (A) the conversion privileges of the Preferred Shares to be issued under this Agreement, (B) the rights provided in the Shareholders Agreement, (C) the securities and rights described in this Section 3.2(g), and (D) the options described in Section 3.2(f), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company any Ordinary Share or Preferred Share, or any securities convertible into or exchangeable for Ordinary Shares or Preferred Shares.

(h) The Company is the sole legal and beneficial owner of one hundred percent (100%) of the equity interest of the HK Co and the HK Co is the sole legal and beneficial owner of one hundred percent (100%) of the equity interest of the WFOE.

(i) The Founder Holdcos are the sole legal and beneficial owners of the issued and outstanding Ordinary Shares of the Company. Each of the Founders is the sole legal and beneficial owner of the issued and outstanding share capital of the Founder Holdco set forth opposite his name in Schedule I(B).

(j) Section 3.2(j) of the Disclosure Schedule sets forth the capitalization and equity holders of the Domestic Company, including all issued and outstanding equity capital of the Domestic Company. Except for the Control Documents, there are no outstanding options, warrants, rights (including conversion or, preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire any equity interest or share capital, or any securities convertible into or exchangeable for an equity interest or share capital, of the Domestic Company.

3.3. Subsidiaries.

(a) Except as set forth in Section 3.3(a) of the Disclosure Schedule, the Company and each Group Company do not currently own or control, directly or indirectly, any interest in any other company, corporation, partnership, trust, joint venture, association, or other business entity. Neither the Company nor any Group Company is a participant in any joint venture, partnership or similar arrangement.

 

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(b) The equity interests of the Domestic Company were duly and validly issued and were issued in accordance with all applicable Laws, rules and regulations or pursuant to exemptions therefrom. Except for the Control Documents, the equity interests in the Domestic Company are not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any PRC Law, the articles of association or any Contract to which any of the Domestic Company is a party or otherwise bound. There are not any bonds, debentures, notes or other indebtedness of any of the Domestic Company having the right to vote (or convertible) into, or exchangeable for, securities having the right to vote) on any matters on which holders of equity interests of any Domestic Company may vote. There are no voting trusts, shareholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the equity interests to which any Domestic Company is a party or is otherwise bound.

(c) There are no options, warrants, convertible securities, subscriptions or other rights, agreements, arrangements or commitments of any character relating to the equity interests of any Subsidiary of any of the Group Companies or obligating any of the Group Companies to issue or sell any portion of the equity interests of, or any other interest in, any such Subsidiary.

(d) No order has been made or petition presented or resolution passed for the winding up of any of the Group Companies, and no distress, execution or process has been levied against any of the Group Companies or any of its property.

3.4. Authorization.

(a) All corporate action required to be taken by each Group Company’s and each Founder Holdco’s board of directors and shareholders in order to authorize each respective Group Company or Founder Holdco, as applicable, to enter into the Transaction Documents to which each such Group Company or Founder Holdco, as applicable, is a party, and to issue the Subscription Shares at the Closing and the Conversion Shares upon conversion of the Subscription Shares, has been taken or will be taken prior to the Closing. All action on the part of the officers of each Group Company or Founder Holdco necessary for the execution and delivery of the Transaction Documents, the performance of all obligations of such Group Company or Founder Holdco under the Transaction Documents to be performed as of the Closing, and the issuance and delivery of the Subscription Shares has been taken or will be taken prior to the Closing. All action on the part of the officers of each Group Company or Founder Holdco necessary for the performance of all obligations of such Group Company or Founder Holdco under the Transaction Documents to be performed as of the Closing has been taken or will be taken prior to the Closing. The Transaction Documents, when executed and delivered by each Group Company and Founder Holdco, shall constitute valid and legally binding obligations of each Group Company and Founder Holdco, enforceable against each Group Company and Founder Holdco in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other Laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (iii) to the extent the indemnification provisions contained in the Shareholders Agreement and the Indemnification Agreement may be limited by applicable securities Laws. The issuance of any Subscription Shares or Conversion Shares is not subject to any preemptive rights or rights of first refusal, or if any such preemptive rights or rights of first refusal exist, waiver of such rights has been obtained from the holders thereof. For the purpose only of this Agreement, “reserve,” “reservation” or similar words with respect to a specified number of Ordinary Shares or Preferred Shares of the Company shall mean that the Company shall, and the Board of Directors of the Company shall procure that the Company shall, refrain from issuing such number of shares so that such number of shares will remain in the authorized but unissued share capital of the Company until the conversion rights of the holders of any convertible securities exercisable for such shares are exercised in accordance with the Memorandum and Articles or otherwise.

(b) Each of Group Companies has all franchises, permits, licenses, and any similar authority necessary for the conduct of its respective business as now being conducted by it.

 

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3.5. Valid Issuance of Shares.

(a) The Subscription Shares, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of any Lien or restrictions on transfer other than restrictions on transfer under this Agreement, the Shareholders Agreement, applicable securities Laws and Liens or encumbrances created by or imposed by the Investors. Subject in part to the accuracy of the representations of the Investors in Section 4 of this Agreement, the Subscription Shares will be issued in compliance with all applicable securities Laws. The Conversion Shares have been duly reserved for issuance, and upon issuance in accordance with the terms of the Memorandum and Articles, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Transaction Documents, applicable securities Laws and Liens created by or imposed by the Investors. The Conversion Shares will be issued in compliance with all applicable securities Laws.

(b) All presently outstanding Ordinary Shares of the Company were duly and validly issued, fully paid and non-assessable, and are free and clear of any Liens and free of restrictions on transfer (except for any restrictions on transfer under applicable securities Laws) and have been issued in compliance in all material respects with the requirements of all applicable securities Laws and regulations, including, to the extent applicable, the Securities Act.

3.6. Governmental Consents and Filings. Except as set forth in Section 3.6 of the Disclosure Schedule, no consent, approval, order or authorization of or registration, qualification, designation, declaration or filing with, any Governmental Authority is required on the part of any Warrantor in connection with the valid execution, delivery and consummation of the transactions contemplated by this Agreement, Shareholders Agreement or the offer, sale, issuance or reservation for issuance of the Subscription Shares and the Conversion Shares.

3.7. Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or, to the Warrantors’ Knowledge, currently threatened against any Group Company or any officer, director or Key Employee of any Group Company (i) that would either individually or in aggregate, reasonably be expected to have a Material Adverse Effect; or (ii) that questions the validity of the Transaction Documents or the right of any Group Company to enter into them, or to consummate the transactions contemplated by the Transaction Documents. None of the Group Companies, its officers or directors, is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or Governmental Authority which would either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. There is no action, suit, proceeding or investigation by any Group Company pending or which any Group Company intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to the Warrantors) involving the prior employment of any of the Group Company’s employees, their services provided in connection with Group Company’s business, or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.

 

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3.8. Intellectual Property. Each Group Company owns or possesses sufficient legal rights to (i) all trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes and (ii) to the Warrantors’ Knowledge, all patents and patent rights, as are necessary to the conduct of such Group Company’s business as now conducted and as presently proposed to be conducted, without any known conflict with, or infringement of, the rights of others. Section 3.8 of the Disclosure Schedule contains a complete and accurate list of all Intellectual Property owned, licensed to or used by each Group Company, whether registered or not, and a complete and accurate list of all licenses granted by such Group Company to any third party with respect to any Intellectual Property. Except as set forth in Section 3.8 of the Disclosure Schedule, no product or service marketed or sold (or proposed to be marketed or sold) by any Group Company violates or will violate any license or infringes or will infringe any Intellectual Property rights of any other party.

(a) No Group Company has received any communications alleging that any Group Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. Except as set forth in Section 3.8(a) of the Disclosure Schedule, each Group Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with such Group Company’s business. It will not be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by a Group Company. Each Key Employee has assigned to the Group Companies all Intellectual Property rights he or she owns that are related to the Group Companies’ business as now conducted.

(b) Other than with respect to commercially available software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the Intellectual Property owned, licensed to or used by each Group Company, nor is any Group Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity.

 

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(c) No proceedings or claims in which any Group Company alleges that any Person is infringing upon, or otherwise violating, its Intellectual Property rights are pending, or has been served, instituted or asserted by any Group Company. None of the Group Companies has any intention to initiate such proceedings or claims.

(d) None of the Founders or the employees of any Group Company or Founder Holdco is obligated under any Contract (including a Contract of employment), or subject to any judgment, decree or order of any court or administrative agency, 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. It will not be necessary to utilize in the course of any Group Company’s business operations any inventions of any of the employees of any Group Company made prior to their employment by the such Group Company, except for inventions that have been validly and properly assigned or licensed to such Group Company as of the date hereof.

(e) Each Group Company has taken all security measures that in the judgment of such Person are commercially prudent in order to protect the secrecy, confidentiality, and value of its material Intellectual Property.

(f) No Public Software (as defined below) forms part of any product or service provided by any Group Company (“GC Product or Service”), and no Public Software was or is used in connection with the development of any GC Product or Service or is incorporated into, in whole or in part, or has been distributed with, in whole or in part, any GC Product or Service. As used in this Section 3.8(f), “Public Software” means any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software (as defined by the Free Software Foundation), open source software (e.g., Linux or software distributed under any license approved by the Open Source Initiative as set forth www.opensource.org) or similar licensing or distribution models which require the distribution or making available of source code as well as object code of the software to licensees without charge (except for the cost of the medium) and (b) the right of the licensee to modify the software and redistribute both the modified and unmodified versions of the software, including software licensed or distributed under any of the following licenses: (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv) the Netscape Public License; (v) the BSD License; or (vi) the Apache License.

3.9. Compliance with Other Instruments. None of the Group Companies and the Founder Parties is in violation or default (i) of any provisions of its Charter Document, (ii) of any instrument, judgment, order, writ or decree, (iii) under any note, indenture or mortgage, or (iv) under any lease, agreement, Contract or purchase order to which it is a party or by which it is bound that is required to be listed on the Disclosure Schedule, or (v) of any Law applicable to such Group Company or Founder Party, the violation of which would either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated by the Transaction Documents will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any such provision, instrument, judgment, order, writ, decree, Contract or agreement or (ii) an event which results in the creation of any Lien, charge or encumbrance upon any assets of any Group Company or Founder Party or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to any Group Company or Founder Party, which would either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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3.10. Agreements; Actions.

(a) Save for the agreements set out in Section 3.10(a) of the Disclosure Schedule (the “Material Agreements”) and the Transaction Documents, there are no other agreements, understandings, instruments, Contracts or proposed transactions to which any Group Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, any Group Company in excess of US$25,000 per annum or in excess of US$50,000 in the aggregate, (ii) the transfer or license of any Intellectual Property rights to or from any Group Company, other than from or to another Group Company or from a Founder to a Group Company, (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other Person or affect any Group Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products, or (iv) indemnification by any Group Company with respect to infringements of proprietary rights. All the Material Agreements are valid, binding and enforceable obligations of the parties thereto and the terms thereof have been complied with by the relevant Group Company, and to the Knowledge of the Warrantors, by all the other parties thereto. There are, to the Knowledge of the Warrantors, no circumstances likely to give rise to any material breach of such terms, no grounds for rescission, avoidance or repudiation of any of the Material Agreements which would have a Material Adverse Effect and no notice of termination or of intention to terminate has been received in respect of any Material Agreement.

(b) The Company has not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class of its share capital, and no Group Company has (i) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of US$25,000 or in excess of US$50,000 in the aggregate, (ii) made any loans or advances to any Person, other than ordinary advances for travel expenses and trade receivables in the ordinary course of business, or (iii) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business or otherwise envisaged in this Agreement. For the purposes of this Section 3.10, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsection.

(c) No Group Company is a guarantor or indemnitor of any indebtedness of any other Person, firm or corporation that is not a Group Company.

3.11. Conflict of Interest.

(a) Other than (i) standard employee benefits generally made available to all employees, (ii) standard director and officer indemnification agreements approved by the Board of Directors and (iii) the issuance of options to purchase the Company’s Ordinary Shares pursuant to the Share Plan, in each instance, disclosed in Section 3.11(a) of the Disclosure Schedule, there are no agreements, understandings or proposed transactions between any Group Company and any of its officers, directors, consultants or Key Employees, or any Affiliate thereof, respectively.

 

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(b) No Group Company is indebted, directly or indirectly, to any of its directors, officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or employee relocation expenses. None of the Group Companies’ directors, officers or employees, or any members of their immediate families, or any Affiliate of the foregoing (i) are, directly or indirectly, indebted to any Group Company or, (ii) to the Warrantors’ Knowledge, have any direct or indirect ownership interest in any firm or corporation with which any Group Company is affiliated or with which any Group Company has a business relationship, or any firm or corporation which competes with any Group Company except that directors, officers or employees or shareholders of the Company may own shares in (but not exceeding one percent (1%) of the outstanding shares of) publicly traded companies that may compete with any Group Company. To the Warrantors’ Knowledge, none of the Group Companies’ employees or directors or any members of their immediate families or any Affiliate of any of the foregoing are, directly or indirectly, interested in any Contract with any Group Company. None of the directors or officers, or any members of their immediate families, has any material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any of the Group Companies’ five (5) largest business relationship partners, service providers, joint venture partners, licensees and competitors.

(c) Except as set forth in Section 3.11(c) of the Disclosure Schedule, there are no corporations, partnerships, trusts, joint ventures, limited liability companies or other business entities in which any Founder owns or controls, directly or indirectly, 10% or more of the outstanding voting interests.

3.12. Rights of Registration and Voting Rights. Except as provided in the Shareholders Agreement and as set forth in Section 3.12 of the Disclosure Schedule, no Group Company is under any obligation to register under the Securities Act or any other applicable securities Laws, any of its currently outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding securities. To the Warrantors’ Knowledge, except as contemplated in the Shareholders Agreement, no shareholder of any Group Company has entered into any agreements with respect to the voting of shares in the capital of the Company. Except as contemplated by or disclosed in the Transaction Documents, no Founder is a party to or has any Knowledge of any agreements, written or oral, relating to the acquisition, disposition, registration under the Securities Act, or voting of the shares or securities of any Group Company.

3.13. Absence of Liens. The property and assets owned by the Group Companies are free and clear of all Liens, except for statutory Liens for the payment of current Taxes that are not yet delinquent and Liens that arise in the ordinary course of business and do not materially impair the Group Companies’ ownership or use of such property or assets. With respect to the property and assets it leases, each Group Company is in compliance with such leases and, to the Warrantors’ knowledge, holds a valid leasehold interest free of any Liens, claims or encumbrances other than those of the lessors of such property or assets.

 

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3.14. Financial Statements and Operating Data. (a) The Domestic Company has delivered to the Investors its consolidated balance sheet, income statement and statement of cash flows, prepared in accordance with the Applicable Accounting Principles and applied on a consistent basis, for each of the fiscal year ended December 31, 2011, 2012 and 2013, and an unaudited balance sheet and statements of operations and cash flow for the two month period ended February 28, 2014 (the “Statement Date”). The financial statements referred to above are collectively referred herein as the “Financial Statements”. The Financial Statements fairly present in all material respects the financial condition and operating results of the Domestic Company as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Financial Statements to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Domestic Company does not have material Liabilities or obligations, contingent or otherwise, as of the Statement Date, other than (i) Liabilities incurred in the ordinary course of business subsequent to the Statement Date, (ii) obligations under Contracts and commitments incurred in the ordinary course of business and (iii) Liabilities and obligations of a type or nature not required under PRC GAAP to be reflected in the Financial Statements, which, in all such cases, individually and in the aggregate would not have a Material Adverse Effect. The Domestic Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with PRC GAAP.

(b) The operating data provided by the Company to the Investors, including but not limited to monthly active users for February 2014, daily active users, total registered users and paying users, each as of February 28, 2014, are true and accurate in all material respect.

3.15. Changes. Since the Statement Date in the case of the Domestic Company and since its inception for each other Group Company, except as set forth in Section 3.15 of the Disclosure Schedule or as contemplated by the Transaction Documents, there has not been:

(a) any change in the assets, Liabilities, financial condition or operating results of any Group Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not caused, in the aggregate, a Material Adverse Effect on a Group Company;

(b) any damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect on a Group Company;

(c) any waiver or compromise by any Group Company of a valuable right or of a material debt owed to it;

(d) any satisfaction or discharge of any Lien or payment of any obligation by any Group Company, except in the ordinary course of business and the satisfaction or discharge of which would not have a Material Adverse Effect;

(e) any material change to a material Contract or agreement by which any Group Company or any of its assets is bound or subject;

(f) any material change in any compensation arrangement or agreement with any employee, officer, director or shareholder;

(g) any resignation or termination of employment of any officer or Key Employee of any Group Company;

 

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(h) any mortgage, pledge, transfer of a security interest in, or Lien, created by any Group Company, with respect to any of its material properties or assets, except Liens for Taxes not yet due or payable and Liens that arise in the ordinary course of business and do not materially impair such Group Company’s ownership or use of such property or assets;

(i) any dividend, loans or guarantees made by any Group Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

(j) any declaration, setting aside or payment or other distribution in respect of any Group Company’s share capital, or any direct or indirect redemption, purchase, or other acquisition of any of such shares by any Group Company;

(k) any sale, assignment or transfer of any Group Company Intellectual Property that could reasonably be expected to result in a Material Adverse Effect;

(l) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of any Group Company;

(m) to the Warrantors’ Knowledge, any other event or condition of any character, other than events affecting the economy or the Company’s industry generally, that could reasonably be expected to result in a Material Adverse Effect; or

(n) any arrangement or commitment by the Company to do any of the things described in this Section 3.15.

3.16. Employee Matters.

(a) As of the date hereof, the Group Companies employ around 250 full-time employees. Section 3.16(a) of the Disclosure Schedule sets forth a detailed description of all compensation, including salary, bonus, severance obligations and deferred compensation paid or payable for each officer, employee, consultant and independent contractor of any Group Company who received compensation in excess of US$25,000 for the fiscal year ending December 31, 2013 and who is anticipated to receive compensation in excess of US$50,000 for the fiscal year ending December 31, 2014.

(b) To the Warrantors’ Knowledge, no employee of any Group Company is obligated under any Contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Group Companies or that would conflict with the Group Companies’ business. Neither the execution or delivery of the Transaction Documents, nor the carrying on of any Group Company’s business by the employees of the Group Companies, nor the conduct of the business as now conducted and as presently proposed to be conducted, will, to the Warrantors’ Knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any Contract, covenant or instrument under which any such employee is now obligated.

 

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(c) Except as set forth in Section 3.16(c) of the Disclosure Schedule, no Group Company is delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants, or independent contractors. Each Group Company has complied in all material respects with all applicable Laws related to employment, including those related to wages, hours, worker classification, and collective bargaining, and the payment and withholding of Taxes and other sums as required by Law except where noncompliance with any applicable Law would not result in a Material Adverse Effect. Each Group Company has withheld and paid to the appropriate Governmental Authority or is holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of such Group Company and is not liable for any arrears of wages, Taxes, penalties, or other sums for failure to comply with any of the foregoing.

(d) To the Warrantors’ Knowledge, no Key Employee intends to terminate employment with any Group Company or is otherwise likely to become unavailable to continue as a Key Employee, nor does any Group Company have a present intention to terminate the employment of any of the Key Employees. The employment of each employee of the Company is terminable at the will of the Company. Except as set forth in Section 3.16(d) of the Disclosure Schedule or as required by Law, upon termination of the employment of any such employees, no severance or other payments will become due. Except as set forth in Section 3.16(d) of the Disclosure Schedule, no Group Company has any policy, practice, plan, or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.

(e) The Company has not made any representations regarding equity incentives to any officer, employees, director or consultant that are inconsistent with the share amounts and terms set forth in the Share Plan or Company’s board minutes provided to the Investors.

(f) Each former key employee whose employment was terminated by any Group Company has entered into an agreement with such Group Company providing for the full release of any claims against the Company or any Related Party arising out of such employment.

(g) Section 3.16(g) of the Disclosure Schedule sets forth each and every employee benefit plan maintained, established or sponsored by any Group Company, or in which any Group Company participates in or contributes to in any jurisdiction, including without limitation, the PRC (the “Employee Benefit Plans”). Save as set out in Section 3.16(g) of the Disclosure Schedule, there is no other pension, retirement, profit-sharing, deferred compensation, bonus, incentive or other employee benefit program, arrangement, agreement or understanding to which any Group Company contributes, is bound, or under which any employees or former employees (or their beneficiaries) are eligible to participate or derive a benefit. Each Group Company has made all required contributions under all the Employee Benefit Plans including without limitation all contributions required to be made under the PRC social insurance and housing schemes, and has complied in all material respects with all applicable Laws of any jurisdiction, in relation to the Employee Benefit Plans.

 

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(h) 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, to the Warrantors’ Knowledge, has sought to represent any of the employees, representatives or agents of any Group Company. There is no strike or other labor dispute involving any Group Company pending, or to the Warrantors’ Knowledge, threatened, which could have a Material Adverse Effect, nor is the Company aware of any labor organization activity involving its employees.

(i) To the Warrantors’ Knowledge, none of the Key Employees or directors of any Group Company during the previous four (4) years, has been (a) subject to voluntary or involuntary petition under any applicable bankruptcy Laws or any state insolvency Laws or the appointment of manager, a receiver or similar officer by a court for his business or property; (b) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (c) subject to any order, judgment, or decree (not subsequently reversed, suspended, or vacated) of any court of competent jurisdiction permanently or temporarily enjoining him from engaging, or otherwise imposing limits or conditions on his engagement in any securities, investment advisory, banking, insurance, or other type of business or acting as an officer or director of a public company; or (d) found by a court of competent jurisdiction in a civil action or by any relevant regulatory organization to have violated any applicable securities, commodities, or unfair trade practices Law, which such judgment or finding has not been subsequently reversed, suspended, or vacated.

(j) Each Key Employee has executed a Letter of Commitment and Non-Competition with the Company dated April 18, 2012, pursuant to which, among other things, each Key Employee must (A) devote all work effort exclusively to the Group Companies until at least one (1) year after the closing of a Qualified IPO, (B) not directly or indirectly compete with any business activities of any Group Company during or for two (2) years after the employment period, and (C) not directly or indirectly induce any employees, consultants, or directors of any Group Company to terminate their employment with or services to any Group Company.

3.17. Tax Matters.

(a) The provisions for Taxes as shown on the balance sheet included in the Financial Statements are sufficient in all material respects for the payment of all accrued and unpaid applicable Taxes of the Group Companies as of the date of each such balance sheet, whether or not assessed or disputed as of the date of each such balance sheet. There have been no extraordinary examinations or audits of any Tax Returns or reports by any applicable Governmental Authority. Each Group Company has filed or caused to be filed on a timely basis all Tax Returns that are or were required to be filed (to the extent applicable), all such returns are correct and complete, and each Group Company has paid all Taxes that have become due, or have reflected such Taxes in accordance with the Applicable Accounting Principles as a reserve for Taxes on the Financial Statements. There are in effect no waivers of applicable statutes of limitations with respect to Taxes for any year.

(b) No Group Company is treated as a resident for Tax purposes of, or is otherwise subject to income Taxation in, a jurisdiction other than the jurisdiction in which such Group Company is established. No written claim has been made by a Governmental Authority in a jurisdiction where the Group Companies do not file Tax Returns that any Group Company is or may be subject to taxation by that jurisdiction.

 

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(c) The Company has never been, and, to the best of its Knowledge after consultation with its tax advisors, will not be with respect to its taxable year during which the Closing occurs, a “passive foreign investment company” within the meaning of Section 1297 of the Code (or any successor thereto). The Company shall use its best efforts to avoid being a “passive foreign investment company” within the meaning of Section 1297 of the Code (or any successor thereto). In connection with a “Qualified Electing Fund” election made by any of the Investors’ partners pursuant to Section 1295 of the Code or a “Protective Statement” filed by any of a Investors’ Partners pursuant to Treasury Regulation Section 1.1295-3, as amended (or any successor thereto), the Company shall provide annual financial information to the Investors in such form as may be required by the Investors in accordance with applicable Law as soon as reasonably practicable following the end of each taxable year of the Company (but in no event later than 90 days following the end of each such taxable year), and shall provide the Investors with access to such other Company information as may be required for purposes of filing U.S. federal income Tax Returns of the Investors’ partners in connection with any such Qualified Electing Fund election or Protective Statement. In the event that an Investor’s partner who has made a “Qualified Electing Fund” election must include in its gross income for a particular taxable year its pro rata share of the Company’s earnings and profits pursuant to Section 1293 of the United States Internal Code of 1986, as amended (or any successor thereto), the Company agrees to make a dividend distribution to the Investors (no later than 90 days following the end of the Company’s taxable year or, if later, 90 days after the Company is informed by Investors that the Investors’ partner has been required to recognize such an income inclusion) in an amount equal to 50% of the amount that would be included by the Investors if the Investors were a “United States person” as such term is defined in Section 7701(a)(30) of the Code and had Investors made a valid and timely “Qualified Electing Fund” election which was applicable to such taxable year.

3.18. Insurance. Section 3.18 of the Disclosure Schedule provides a complete list of each Group Company’s insurance policies currently in effect. No Group Company has done or omitted to do or suffered anything to be done or not to be done other than any acts in the ordinary course of business which has or would render any policies of insurance taken out by it or by any other Person in relation to any such Group Company’s assets void or voidable or which would result in an increase in the rate of premiums on the said policies and there are no claims outstanding and no circumstances which would give rise to any claim under any such policies of insurance.

3.19. Confidential Information and Invention Assignment Agreements. Except as set forth in Section 3.19 of the Disclosure Schedule, each current and former employee, consultant, contractor, director, and officer of the Company or any Group Company has executed an agreement with the Company or such Group Company regarding confidentiality, proprietary information, non-competition, non-solicitation, and invention assignment substantially in the form or forms delivered to the counsel for the Investors (the “Confidential Information Agreements”). No current or former Key Employee has excluded works or inventions from his or her assignment of inventions pursuant to such Key Employee’s Confidential Information Agreement. The Company and any Group Company are not aware that any of the Key Employees is in violation thereof.

 

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3.20. Governmental and Other Permits. Except as set forth in Section 3.20 of the Disclosure Schedule, each Group Company has all franchises, governmental permits, licenses and any similar authority necessary for the conduct of its business. No Group Company is in default in any material respect under any of such franchises, governmental permits, licenses or other similar authority.

(a) The Domestic Company and the WFOE have applied and obtained all requisite licenses, clearance and permits required under PRC Laws as necessary for the conduct of its businesses, and complied in all material respects with all PRC Laws in connection with foreign exchange, including without limitation, carrying out all relevant filings, registrations and applications for relevant permits with the SAFE and any other relevant authorities, and all such permits are validly subsisting.

(b) Except as set forth in Section 3.20(b) of the Disclosure Schedule, the registered capital of the Domestic Company and the WFOE has been fully paid up in accordance with the schedule of payment stipulated in its respective Charter Documents and in compliance with PRC Laws and regulations, and there is no outstanding capital contribution commitment.

(c) The Charter Documents of the Domestic Company and the WFOE have been duly approved and filed in accordance with the Laws of the PRC and are valid and enforceable.

(d) The business scope specified in the Charter Documents of the Domestic Company complies with the requirements of all relevant PRC Laws. The operation and conduct of the business by and the term of operation of the Domestic Company in accordance with the Charter Documents is in compliance with the Laws of the PRC.

(e) Section 3.20(e) of the Disclosure Schedule sets out full and accurate details of all loan agreements entered into between any one Group Company regarding any inter-company loan, shareholders loan or foreign exchange loan obtained by them. Such loan agreements have been duly registered in accordance with the Laws of the PRC (where necessary) and all such registrations are validly subsisting under the Laws of the PRC.

3.21. Corporate Documents. The Memorandum and Articles and all other Charter Documents (or analogous constitutional documents) of each Group Company are in the form provided to the Investors. The copy of the minute books of the Company provided to the Investors contains minutes of all meetings of directors and shareholders and all actions by written consent without a meeting by the directors and shareholders since the date of incorporation and accurately reflects in all material respects all actions by the directors (and any committee of directors) and shareholders with respect to all transactions referred to in such minutes.

3.22. Liabilities. Except as set forth in Section 3.22 of the Disclosure Schedule, no Group Company has Liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, except for (i) Liabilities set forth in the Financial Statements, (ii) trade or business liabilities incurred in the ordinary course of business that do not have a Material Adverse Effect, and (iii) other Liabilities that do not exceed US$20,000 in the aggregate.

 

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3.23. Compliance with Laws.

(a) Except as set forth in Section 3.23(a) of the Disclosure Schedule, each Group Company is in material compliance with all applicable Laws applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets or properties;

(b) No event has occurred and no circumstance exists that to the Warrantors’ Knowledge (i) may constitute or result in a violation by any Group Company, or a failure on the part of any Group Company to comply with any Law, 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, except for such violations or failures by a Group Company that, individually or in the aggregate, would not result in any Material Adverse Effect;

(c) No Group Company has received any written notice from any Governmental Authority regarding (i) any actual, alleged or likely material violation of, or material failure to comply with, any Law, or (ii) any actual, alleged or likely material obligation on the part of any Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature;

(d) No Group Company, nor any director, agent, employee or any other person acting for or on behalf of any Group Company, has directly or indirectly (i) made any contribution, gift, bribe, payoff, influence payment, kickback, or any other fraudulent payment in any form, whether in money, property, or services to any Public Official or otherwise (A) to obtain favorable treatment in securing business for a Group Company, (B) to pay for favorable treatment for business secured, or (C) to obtain special concessions or for special concessions already obtained, for or in respect of any Group Company, in each case which would have been in violation of any applicable Law or (ii) established or maintained any fund or assets in which any Group Company shall have proprietary rights that have not been recorded in the books and records of a Group Company.

3.24. Disclosure; Projections. The Company has made available to the Investors all the information reasonably available to the Company that the Investors has requested for deciding whether to acquire the Subscription Shares, including certain of financial projections with respect to the Company (the “Projections”), each of which were prepared in good faith. To the Warrantors’ Knowledge, no representation or warranty of any Warrantor contained in this Agreement, as qualified by the Disclosure Schedule, and no certificate furnished or to be furnished to the Investors at the Closing contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

3.25. Finders’ Fee. No investment banker, broker or finder is entitled to any fee or commission in connection with the transactions contemplated by this Agreement or any of the other Transaction Documents based upon arrangements or agreements made by or on behalf of any Group Company.

 

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3.26. Entire Business. There are no material facilities, services, assets or properties shared with any entity other than the Group Company which are used in connection with the business of the Domestic Company.

4. Representations and Warranties of the Investors. Each Investor hereby represents and warrants to the Company, severally and not jointly, that each of the statements contained in this Section 4 is true and complete as of the date of this Agreement and the date of the Closing as follows:

4.1 Status. Such Investor is an entity duly organized validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation.

4.2 Authorization. Such Investor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All action on the part of such Investor (and, as applicable, its officers, directors and shareholders) necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, and the performance of all obligations of such Investor thereunder, has been taken or will be taken prior to the Closing. This Agreement has been duly executed and delivered by such Investor. This Agreement and each of the Transaction Documents are, or when executed and delivered by such Investor will be, valid and legally binding obligations of such Investor, enforceable against such Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other Laws of general application relating to or affecting the enforcement of creditors’ rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

4.3 Purchase for Own Account. The Subscription Shares purchased hereunder, and to be received by such Investor, will be acquired for investment purposes for such Investor’s own account or the account of one or more of such Investor’s Affiliates, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and such Investor does not have any present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that it does not have any Contract with any Person to, directly or indirectly, sell, transfer or grant participations, with respect to any of the Subscription Shares, and has not solicited any Person for such purpose.

4.4 Investment Experience. Such Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in its Subscription Shares.

4.5 Status of Investor. Such Investor is either (i) an “accredited investor” within the meaning of U.S. Securities and Exchange Commission (“SEC”) Rule 501 of Regulation D, as presently in effect, under the Securities Act, or (ii) not a “U.S. person” as defined in Rule 902 of Regulation S of the Securities Act and that any transfer or resale of the Subscription Shares and the Conversion Shares will be in accordance with the provisions of said Regulation S or pursuant to an available exemption therefrom.

4.6 Foreign Investors. If such Investor is not a “U.S. person” (as defined in Rule 902 of Regulation S of the Securities Act), such Investor hereby represents that it has satisfied itself as to the full observance of the Laws of its jurisdiction in connection with the issuance of its Subscription Shares or any use of this Agreement, including (i) the legal exchange requirements within its jurisdiction for the purchase of its Subscription Shares, (ii) any foreign consents that may need to be obtained, and (iii) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of its Subscription Shares. Such Investor’s subscription and payment for, and continued beneficial ownership of, its Subscription Shares will not violate any applicable securities or other Laws of such Investor’s jurisdiction.

 

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4.7 Restricted Securities. Such Investor understands that its Subscription Shares are characterized as “restricted securities” under U.S. federal securities Laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such Laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. Such Investor understands that its Subscription Shares have not been qualified or registered under the Laws of any other jurisdiction and therefore may be viewed as restricted securities under any or all of such other applicable securities Laws.

4.8 Legends. Such Investor understands that the certificates evidencing its Subscription Shares issued pursuant to this Agreement may bear the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNLESS SUCH TRANSFER IS MADE PURSUANT TO AN EXEMPTION UNDER THE U.S. SECURITIES ACT OF 1933.”

5. Conditions of the Investors’ Obligations at the Closing. The obligations of the Investors to consummate the Closing under Section 2 of this Agreement, unless otherwise waived in writing by the Investors, are subject to the fulfillment on or before the Closing of each of the following conditions:

5.1 Representations and Warranties. Each of the representations and warranties of the Warrantors contained in Section 3 shall be true, correct and complete when made and shall be true, correct and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true, correct and complete as of such particular date.

5.2 Performance. Each Warrantor shall have performed and complied with all agreements, obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by them, on or before the Closing.

5.3 Authorizations. All Approvals of any competent Governmental Authority or of any other Person that are required to be obtained by any Group Company or Founder in connection with the consummation of the transactions contemplated by this Agreement and other Transaction Documents (including but not limited to those related to the lawful issuance and sale of the Subscription Shares, any waivers of rights of first refusal, preemptive rights, put or call rights, transactions contemplated by the Control Documents, or other rights triggered by the Transaction Documents, if any) shall have been duly obtained and effective as of the Closing.

 

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5.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions to be completed at the Closing and all documents incident thereto, including without limitation written approval from all of the then current holders of equity interests of each Group Company, as applicable, with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, shall have been completed in form and substance reasonably satisfactory to the Investors, and the Investors shall have received all such counterpart original or other copies of such documents as it may reasonably request.

5.5 Memorandum and Articles. The Memorandum and Articles shall have been duly adopted by all necessary actions of the Board of Directors and/or the members of the Company, and shall have been duly filed with the registration authority of the British Virgin Islands.

5.6 Closing Certificate. The chief executive officer of the Company shall have executed and delivered to the Investors at the Closing a certificate dated as of the Closing (i) stating that the conditions specified in this Section 5 have been fulfilled as of the Closing, and (ii) attaching thereto (a) the Charter Documents of the Group Companies as then in effect, (b) copies of all resolutions approved by the shareholders and boards of directors of each Group Company related to the transactions contemplated hereby, and (c) good standing or equivalent certificates with respect to the Company from the applicable authorities in the British Virgin Islands dated no more than five (5) days prior to the Closing.

5.7 Ancillary Agreements. Each of the parties to the Shareholders Agreement and all other Ancillary Agreements (other than the Investors) shall have executed and delivered such agreements to the Investors.

5.8 Opinions of Counsel. The Investors shall have received:

(i) from Concord & Partners, PRC counsel for the Company, an opinion, dated as of the Closing, in substantially the form attached hereto as Exhibit E-1; and

(ii) from Harneys Westwood & Riegels, British Virgin Islands counsel for the Company, an opinion, dated as of the Closing, in substantially the form attached hereto as Exhibit E-2.

5.9 Indemnification Agreement. The Company shall have delivered to the Investors a copy of indemnification agreement between the Company and the additional director of the Company designated by the Investors, duly executed by the Company (an “Indemnification Agreement”) in form and substance attached hereto as Exhibit F.

5.10 Employment Agreements. The Company shall have delivered to the Investors copies of duly executed employment agreements, IP assignment, non-competition and confidentiality agreement, non-solicitation agreements with each of the Key Employees, respectively (each, an “Employment Agreement”), each in form and substance attached hereto as Exhibit G.

 

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5.11 Capitalization Prior to Closing. The Company’s capitalization immediately prior to Closing shall be the same as set forth in Schedule IV(A).

5.12 Board of Directors. The Board of Directors shall have been constituted in accordance with the Shareholders Agreement and the Company shall have delivered to the Investors a copy of the Company’s register of directors certified by its registered agent and evidencing the same.

5.13 SAFE Compliance. Except for the establishment of the Founder Holdcos, each holder of the Equity Securities of the Company shall have complied with all applicable reporting and/or registration requirements under the SAFE Rules and Regulations to the reasonable satisfaction of the Investors.

5.14 Due Diligence. The Investors shall have satisfactorily completed their due diligence review concerning the business, legal, financial, management, technology, intellectual property, process, licenses, and government regulations of each Group Company, including but not limited to the receipt by the Investors of the Financial Statements with respect to each Group Company hereof at the Company’s expense.

5.15 No Material Adverse Effect. Since the date of this Agreement, no event, circumstance or change shall have occurred that, individually or in the aggregate with one or more other events, circumstances or changes, have had or reasonably could be expected to have a Material Adverse Effect on the Company or any other Group Company.

5.16 Management Rights Letter. The Company shall have executed and delivered to each Investor a Management Rights Letter in the form attached hereto as Exhibit H.

5.17 Delivery of Budget. The Company shall have delivered to the Investors its budget for the financial year ending December 31, 2014 in the form and substance reasonably satisfactory to the Investors.

5.18 Restated Control Documents. The Founders, the Domestic Company and the WFOE shall have amended and restated the Control Documents in substantially the same form set forth in Exhibit I (the “Restated Control Documents”).

5.19 Equity Pledge Registration. The Founders, the Domestic Company and the WFOE shall have registered the equity pledge contemplated under the Restated Control Documents with the competent PRC authority.

6. Conditions of the Company’s Obligations at Closing. The obligations of the Company to consummate the Closing under Section 2 of this Agreement, unless otherwise waived in writing by the Company, are subject to the fulfillment on or before the Closing of each of the following conditions:

6.1 Representations and Warranties. The representations and warranties of each Investor contained in Section 4 shall be true and complete when made and shall be true and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.

 

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6.2 Performance. Each Investor shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by such Investor on or before the Closing.

6.3 Ancillary Agreements. Each Investor shall have executed the Shareholders Agreement and all other Ancillary Agreements to which it is a party and delivered the same to the other parties thereto.

7. Covenants and Other Agreements.

7.1 Use of Proceeds. In accordance with the directions of the Company’s Board of Directors, as it shall be constituted in accordance with the Shareholders Agreement, the Company will use the proceeds from the sale of the Subscription Shares for business expansion, general working capital, merger and acquisition and other general corporate purposes for the Group Companies as approved by the Board of Directors and the Shareholders.

7.2 Executory Period Covenants. Between the date of this Agreement and the Closing, unless the Investors consent in writing otherwise:

(i) Pre-Closing Actions. As promptly as practicable, each Warrantor shall: (a) use best efforts to take all actions required of such party and to do all other things reasonably necessary, proper or advisable to consummate the transactions contemplated under the Transaction Documents; (b) file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by such Warrantor pursuant to Law in connection with the Transaction Documents and the issuance of the Subscription Shares pursuant hereto and the consummation of the other transactions contemplated under the Transaction Documents; (c) use reasonable best efforts to obtain, or cause to be obtained, all consents (including any consents required under any Contract) necessary to be obtained by such party in order to consummate the transactions contemplated pursuant to the Transaction Documents; and (d) coordinate and cooperate with the other Parties in exchanging such information and supplying such assistance as may be reasonably requested by the other Parties in connection with any filings and other actions to be made or taken in order to consummate the transactions contemplated pursuant to the Transaction Documents.

(ii) Non-Violation. Pending the Closing, none of the Warrantors, without the prior written consent of the Investors, shall take any action which (a) would render any of the representations or warranties made by the Warrantors in this Agreement untrue in any material respect if given with reference to the facts and circumstances then existing or (b) would result in any of the covenants contained in this Agreement becoming incapable of performance. Each Warrantor shall promptly advise the Investors of any action or event of which such Warrantor becomes aware which would have the effect of making incorrect in any material respect any such representations or warranties if given with reference to facts and circumstances then existing or which has the effect of rendering any such covenants incapable of performance.

(iii) Conduct of Business. Except as otherwise permitted by this Agreement or with the written consent of the Investors, from the date hereof to the date of the Closing, the Warrantors shall: (a) carry on the Group’s business in the ordinary course consistent with past practice and in substantially the same manner as conducted prior to the date hereof and use best efforts to preserve its relationships with customers, suppliers and others having business dealings with the Group; and (b) not do any act or thing which would require the consent of the Investors under the Shareholders Agreement had the transactions contemplated hereunder been consummated.

 

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(iv) Negative Covenants. No Warrantor shall (a) waive, release or assign any material right or claim, (b) take any action that would reasonably be expected to materially impair the value of any Group Company, (c) sell, purchase, assign, lease, transfer, pledge, encumber or otherwise dispose of any material asset, (d) issue, sell, or grant any Equity Security, (e) declare, issue, make, or pay any dividend or other distribution with respect to any Equity Security, (f) incur any indebtedness for borrowed money or capital lease commitments or assume or guarantee for any indebtedness of any Person, (g) make any material change in any method of accounting or accounting practice used by any Group Company, other than any such changes required by Applicable Accounting Principles, (h) enter into any Contract or other transaction with an Affiliate, or (i) authorize or commit to do any of the foregoing.

(v) Exclusivity. From the date hereof until the Closing, the Warrantors shall not, and they shall not permit any of their representatives or any member of the Group to, solicit, initiate, facilitate, engage in any discussions or negotiations with respect to, adopt, approve, commit to, or conclude any investment transaction with, or any sale of any member of the Group or the business or equity thereof to, any third party, whether directly or indirectly. The Warrantors shall, and shall cause their representatives and the other members of the Group to, immediately terminate all existing activities, discussions and negotiations with any third parties with respect to the foregoing, and if any of them hereafter receives any correspondence or communication that constitutes, or could reasonably be expected to lead to, any such transaction they shall immediately give notice thereof (including the third party and the material terms of such transaction) to the Investors.

(vi) Access and Information. From the date hereof until the Closing, the Warrantors shall permit each Investor, or any representative thereof, at its own expense, to (a) visit and inspect the properties of the Group Companies, (b) inspect the contracts, books of account, records, ledgers, and other documents and data of the Group Companies, (c) discuss the business, affairs, finances and accounts of the Group Companies with officers and employees of the Group Companies, and (d) review such other information as such Investor reasonably requests, in each case during normal business hours and in such a manner so as not to unreasonably interfere with the normal operations of the Group Companies. No information or knowledge obtained pursuant to this Section or otherwise by an Investor in connection with its due diligence will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the transactions.

(vii) Financial Statements. Each Warrantor shall furnish to the Investors as soon as practicable after the end of each month between the date hereof and the Closing, and in any event within 15 business days after each such month, the unaudited financial statements of each such entity for the month then ended, which shall present fairly, in all material respects, the unaudited financial position of such entity as of the end of such month and the consolidated results of such entity’s operations and cash flows for the month then ended, in conformity with Applicable Accounting Principles consistently applied with the Financial Statements, except for noncompliance with the footnote disclosure requirements under Applicable Accounting Principles and for year-end adjustments, and subject to such other exceptions as may be indicated in the notes thereto.

 

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7.3 Compliance with Circular 75. The Company (and/or any other Group Company and/or the Founder Parties, as the case may be) shall, within thirty (30) days after Closing and to the satisfaction of the Investors, take all requisite actions to apply for and, as promptly as practicable after such application, complete any necessary filing under the SAFE Rules and Regulations in relation to (i) the transactions contemplated in the Transaction Documents and (ii) each Founder Holdco’s acquisition of Ordinary Shares from the applicable Founder.

7.4 Permit and License. As soon as practicable after the Closing, the Domestic Company and its Subsidiary shall, and the Founders and other Group Companies shall cause the Domestic Company and its Subsidiary to, obtain all the permits and licenses and necessary governmental authorizations for the conduct of their business as currently conducted and as proposed to be conducted in full compliance with applicable laws, and shall keep such permits, licenses and authorizations effective and updated.

7.5 Registration of Other Intellectual Property Rights. As soon as practically possible following the Closing and to the extent permitted under applicable PRC Laws, the WFOE shall, and the Founders shall cause the WFOE to have all the intellectual property rights, including without limitation software copyrights and domain names necessary for the operation of the Group Companies registered under the name of the WFOE.

7.6 Filing of Changes of Registered Capital and Registered Address. Each of the Domestic Company and the WFOE shall, and the Founders and the Group Companies shall cause the Domestic Company and the WFOE to, file with competent Governmental Authority the changes of registered capital and registered address to the extent applicable to their respective licenses, permits and registrations within sixty (60) days after the Closing.

7.7 Filing of Lease Agreements. As soon as practical, each of the Domestic Company and the WFOE shall file the lease agreements to which it is a party with the competent Governmental Authority.

7.8 Compliance with Anti-corruption Laws. At any time after the Closing, the Company shall not, and shall not permit any of its Subsidiaries or Affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to, promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any non-U.S. official, in each case, in violation of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. At any time after the Closing, the Company shall, and shall cause each of its Subsidiaries and Affiliates to, cease all of its or their respective activities, as well as remediate any actions taken by the Company, its Subsidiaries or Affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. At any time after the Closing, the Company shall, and shall cause each of its Subsidiaries and Affiliates to, maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law.

 

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7.9 Green Dot Corporation. The Company shall not enter into any banking or nonbanking transaction with Green Dot Corporation or any of its Subsidiaries (Next Estate Communications and Bonneville Bancorp) without the prior written consent of Sequoia.

8. Confidentiality.

8.1 Disclosure of Terms. The terms and conditions of the Transaction Documents (collectively, the “Financing Terms”), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except in accordance with the provisions set forth below.

8.2 Permitted Disclosures. Notwithstanding the foregoing, (i) each member of the Group and each Investor, as appropriate, may disclose any of the Financing Terms to its current or bona fide prospective investors or their respective Affiliates, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; and (ii) each Investor may disclose any of the Financing Terms to its fund manager and the employees thereof so long as such Persons are under appropriate nondisclosure obligations.

8.3 Announcements. Each Party to this Agreement hereby acknowledges, affirms and agrees that it shall not and shall procure its Affiliates not to make any announcement or other publicity in connection with the Financing Terms without approval of the Board as to its content, form and manner of publication; provided that the Company may make announcement or other publicity in connection with the Financing Terms if such action is necessary for its performance of obligations under the Transaction Documents, in which case the Company shall promptly notify the other Parties hereof and the Parties shall use reasonable efforts to cause a mutually agreeable release or announcement to be issued.

8.4 Legally Compelled Disclosure. In the event that any Party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws) to disclose the existence or content of any of the Financing Terms hereof in contravention of the provisions of this Section 8, such Party (the “Disclosing Party”) shall promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be given to such information to the extent reasonably requested by the other Parties.

8.5 Other Exceptions. Notwithstanding any other provision of this Section 8, the confidentiality obligations of the Parties shall not apply to: (i) information which a restricted Party learns from a third party having the right to make the disclosure, provided the restricted Party complies with any restrictions imposed by the third party; (ii) information which is in the restricted Party’s possession prior to the time of disclosure by the protected Party and not acquired by the restricted Party under a confidentiality obligation; (iii) information which enters the public domain without breach of confidentiality by the restricted Party; or (iv) disclosures to a Party’s accountants, attorneys or other professional advisors so long as they agree to keep such disclosures confidential.

 

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9. Indemnity.

9.1 General Indemnity. In the event of (a) any breach or violation of, or inaccuracy or misrepresentation in, any representation or warranty made by the Warrantors contained herein or any of the other Transaction Documents, or (b) any breach or violation of any covenant or agreement contained herein or any of the other Transaction Documents (each of (a) or (b), a “Breach”), the Warrantors shall, jointly and severally, or cause the other Warrantors to, cure such Breach (to the extent that such Breach is curable) to the satisfaction of the Investors (it being understood that any cure shall be without recourse to cash or assets of any of the Group Companies). Notwithstanding the foregoing, each Warrantor shall also, jointly and severally, indemnify the Investors and its Affiliates, limited partners, members, stockholders, employees, agents and representatives (each, an “Indemnitee”) for any and all losses, liabilities, damages, liens, claims, obligations, penalties, settlements, deficiencies, costs and expenses, including without limitation reasonable advisor’s fees and other reasonable expenses of investigation, defense and resolution of any Breach paid, suffered, sustained or incurred by the Indemnitees (each, an “Indemnifiable Loss”), resulting from, or arising out of, or due to, directly or indirectly, any Breach. For the avoidance of doubt, the breach of Section 3.14(b) is a material Breach that will trigger indemnity under this Section 9.

9.2 Specific Indemnity. Without limiting the generality of Section 9.1, each Warrantor hereby agrees to jointly and severally indemnify and hold harmless each Indemnitee, from and against any and all Indemnifiable Losses suffered by such Indemnitee, directly or indirectly, as a result of, or based upon or arising from the failure of the Group Companies and the Founders (i) to timely register certain equity pledges made by each individual equity holder of the Domestic Company; (ii) to obtain and maintain any governmental permits, licenses, certificates, or any similar authority necessary for the conduct of the business of the Group Companies, including to timely file the changes of registered capital and registered address to the extent applicable to relevant certificates, licenses and registrations of the Domestic Company and the WFOE; and (iii) to comply with any SAFE Rules and Regulations according to this Agreement. Such indemnification shall not be prejudiced by or be otherwise subject to any disclosure (in the Disclosure Schedule or otherwise) and shall apply regardless of whether the Indemnitees have any knowledge, actual or constructive, with respect thereto.

9.3 Tax Indemnity. Notwithstanding the foregoing, the Founder Parties shall, jointly and severally, indemnify and keep indemnified the Indemnitees at all times and hold them harmless against any and all Indemnifiable Losses resulting from, or arising out of, or due to, directly or indirectly, any claim for Tax which has been made or may hereafter be made against the Domestic Company and any other Group Company wholly or partly in respect of or in consequence of any event occurring or any income, profits or gains earned, accrued or received by the Domestic Company and any other Group Company on or before the Closing and any reasonable costs, fees or expenses incurred and other liabilities which the Domestic Company and any other Group Company may properly incur in connection with the investigation, assessment or the contesting of any claim, the settlement of any claim for Tax, any legal proceedings in which the Domestic Company or any other Group Company claims in respect of the claim for Tax and in which an arbitration award or judgment is given for the Domestic Company or any other Group Company and the enforcement of any such arbitration award or judgment whether or not such Tax is chargeable against or attributable to any other person, provided, however, that the Founder Parties shall be under no liability in respect of taxation:

(a) that is promptly cured without recourse to cash or other assets of any Group Company;

 

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(b) to the extent that provision, reserve or allowance has been made for such Tax in the Financial Statements;

(c) if it has arisen in and relates to the ordinary course of business of the Domestic Company since the Closing Date;

(d) to the extent that the liability arises as a result only of a provision or reserve in respect of the liability made in the Financial Statement being insufficient by reason of any increase in rates of Tax announced after the Closing with retrospective effect; or

(e) to the extent that the liability arises as a result of legislation which comes into force after the Closing and which is retrospective in effect.

Notwithstanding anything to the contrary herein, the survival period for any indemnity obligation relating to claims for Tax matters arising under this Section 9.3 shall be the applicable statute of limitations for Tax claims.

9.4 Survival of Warranties. Unless otherwise set forth in this Agreement, the representations and warranties contained in Section 3 to this Agreement shall survive the execution and delivery of this Agreement and the Closing until the expiration of the applicable statute of limitations, and such representations and warranties shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on behalf of the Investors or any Group Company.

10. Miscellaneous.

10.1 Further Assurances. Upon the terms and subject to the conditions herein, each of the Parties agrees to use its reasonable best efforts to take or cause to be taken all action, to do or cause to be done, to execute such further instruments, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the other Transaction Documents and, to the extent reasonably requested by another Party, to enforce rights and obligations pursuant hereto or thereto.

10.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties whose rights or obligations hereunder are affected by such terms and conditions. This Agreement and the rights and obligations hereunder shall not be assigned without the mutual written consent of the Investors and the Company, provided that each Investor may assign its rights and obligations to an Affiliate of such Investor without consent of the other Parties under this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the Parties or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

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10.3 Governing Law. This Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflict of Laws thereunder.

10.4 Dispute Resolution.

(i) Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall first be subject to resolution through consultation of the parties to such dispute, controversy or claim. Such consultation shall begin within seven (7) days after one Party hereto has delivered to the other Parties involved a written request for such consultation. If within thirty (30) days following the commencement of such consultation the dispute cannot be resolved, the dispute shall be submitted to arbitration upon the request of any Party with notice to the other Parties.

(ii) The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “HKIAC”). There shall be three arbitrators. The complainant and the respondent to such dispute shall each select one arbitrator within thirty (30) days after giving or receiving the demand for arbitration. Such arbitrators shall be freely selected, and the Parties shall not be limited in their selection to any prescribed list. The Chairman of the HKIAC shall select the third arbitrator, who shall be qualified to practice Law in Hong Kong. If either party to the arbitration does not appoint an arbitrator who has consented to participate within thirty (30) days after selection of the first arbitrator, the relevant appointment shall be made by the Chairman of the HKIAC.

(iii) The arbitration proceedings shall be conducted in English. The arbitration tribunal shall apply the Arbitration Rules of the HKIAC in effect at the time of the arbitration. However, if such rules are in conflict with the provisions of this Section 10.4, including the provisions concerning the appointment of arbitrators, the provisions of this Section 10.4 shall prevail.

(iv) The arbitrators shall decide any dispute submitted by the parties to the arbitration strictly in accordance with the substantive Law of Hong Kong and shall not apply any other substantive law.

(v) Each Party hereto shall cooperate with any party to the dispute in making full disclosure of and providing complete access to all information and documents requested by such party in connection with such arbitration proceedings, subject only to any confidentiality obligations binding on the Party receiving the request.

(vi) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and any party to the dispute may apply to a court of competent jurisdiction for enforcement of such award.

(vii) Any party to the dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal.

 

34

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10.5 Notices. Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by courier service, fax, electronic mail or similar means to the address as set out in Schedule V (or at such other address as such Party may designate by fifteen (15) days’ advance written notice to the other Parties given in accordance with this Section 10.5). Where a notice is given personally, delivery shall be deemed to have been effected on receipt (or when delivery is refused). Where a notice is sent by courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending through an internationally-recognized courier the notice, with a confirmation of delivery, and to have been effected on receipt (or when delivery is refused). Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid if sent during normal business hours of the recipient on a business day thereof and otherwise on the next business day thereof.

10.6 Rights Cumulative. Each and all of the various rights, powers and remedies of a Party will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party.

10.7 Fees and Expenses. Each Party shall pay all of its own costs and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby; provided that so long as the Closing occurs, the Company shall pay or reimburse all reasonable costs and expenses incurred or to be incurred by the Investors incurred in connection with the transactions contemplated by the Transaction Documents up to a maximum of US$500,000. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled.

10.8 Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.

10.9 Amendments and Waivers. Any term of this Agreement may be amended only with the written consent of each of (i) the Company, (ii) the Founders, and (iii) the Investors. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by any Party against whom the waiver is sought to be enforced in writing. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each of the Parties.

10.10 No Waiver. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.

 

35

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10.11 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by Law or otherwise afforded to any Party, shall be cumulative and not alternative.

10.12 Sequoia Entities. Notwithstanding the foregoing, the Parties acknowledge and agree that (a) the name “Sequoia Capital” is commonly used to describe a variety of entities (collectively, the “Sequoia Entities”) that are affiliated by ownership or operational relationship and engaged in a broad range of activities related to investing and securities trading and (b) notwithstanding any other provision of this Agreement to the contrary, this Agreement shall not be binding on, or restrict the activities of, any (i) Sequoia Entity outside of the Sequoia China Sector Group or (ii) entity primarily engaged in investment and trading in the secondary securities market. For purposes of the foregoing, the “Sequoia China Sector Group” means all Sequoia Entities (whether currently existing or formed in the future) that are principally focused on companies located in, or with connections to, the PRC.

10.13 No Presumption. The Parties acknowledge that each Party has been represented by counsel in connection with this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it, has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.

10.14 Headings and Subtitles; Interpretation. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Unless a provision hereof expressly provides otherwise: (i) the term “or” is not exclusive; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) the terms “herein”, “hereof”, and other similar words refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause, or other subdivision; (iv) the term “including” will be deemed to be followed by “, but not limited to,”; (v) the masculine, feminine, and neuter genders will each be deemed to include the others; (vi) the terms “shall”, “will”, and “agrees” are mandatory, and the term “may” is permissive; (vii) the term “day” means “calendar day”, and (viii) all references to dollars or to “US$” are to currency of the United States of America (and shall be deemed to include reference to the equivalent amount in other currencies).

10.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.

 

36

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10.16 Entire Agreement. This Agreement and the Transaction Documents, together with all schedules and exhibits hereto and thereto, constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof, and supersede all other agreements between or among all of the Parties with respect to the subject matters hereof and thereof, and no Party shall be liable or bound to any other Party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.

10.17 Third Party Beneficiaries. Each of the Indemnitees shall be a third party beneficiary of this Agreement with the full ability to enforce Section 9 of this Agreement as if it were a Party hereto.

[The remainder of this page has been left intentionally blank]

 

37

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IN WITNESS WHEREOF, the Parties have executed this Series D Preferred Share Purchase Agreement as of the date first written above.

 

COMPANY:						MOMO TECHNOLOGY COMPANY LIMITED
						By:		/s/ Yan Tang
						Name:		Yan Tang
						Title:		Director
HK CO:						MOMO TECHNOLOGY HK COMPANY LIMITED
						By:		/s/ Yan Tang
						Name:		Yan Tang
						Title:		Director
DOMESTIC COMPANY:						BEIJING MOMO TECHNOLOGY CO., LTD.
						By:		/s/ Yan Tang      /common seal/
						Name:		Yan Tang
						Title:		Legal Representative
						Affix Seal:
WFOE:						BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.
						By:		/s/ Yan Tang      /common seal/
						Name:		Yan Tang
						Title:		Legal Representative
						Affix Seal:

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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FOUNDER HOLDCOS:				GALLANT FUTURE HOLDINGS LIMITED
				By:		/s/ Yan Tang
				Name:
				Title:
				JOYOUS HARVEST HOLDINGS LIMITED
				By:		/s/ Yong Li
				Name:
				Title:
				FIRST OPTIMAL HOLDINGS LIMITED
				By:		/s/ Xiaoliang Lei
				Name:
				Title:
				FAST PROSPEROUS HOLDINGS LIMITED
				By:		/s/ Zhiwei Li
				Name:
				Title:

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

---

IN WITNESS WHEREOF, the Parties have executed this Series D Preferred Share Purchase Agreement as of the date first written above.

 

FOUNDERS:
				By:		/s/ Yan Tang
				Name:		Yan Tang
				By:		/s/ Yong Li
				Name:		Yong Li
				By:		/s/ Xiaoliang Lei
				Name:		Xiaoliang Lei
				By:		/s/ Zhiwei Li
				Name:		Zhiwei Li

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

---

IN WITNESS WHEREOF, the Parties have executed this Series D Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				SEQUOIA CAPITAL CHINA INVESTMENT HOLDCO II, LTD.
				a Cayman Islands company
				By:		/s/ Kok Wai Yee
				Name:		Kok Wai Yee
				Title:		Authorized Signatory
				SEQUOIA CAPITAL CHINA GF HOLDCO III-A, LTD.
				a Cayman Islands company
				By:		/s/ Kok Wai Yee
				Name:		Kok Wai Yee
				Title:		Authorized Signatory

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

---

IN WITNESS WHEREOF, the Parties have executed this Series D Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				SC CHINA GROWTH III CO-INVESTMENT 2014-A, L.P.
				a Cayman Islands limited partnership
				By: SC China Growth III Management, L.P.
				a Cayman Islands limited partnership
				its general partner
				By: SC China Holding Limited
				a Cayman Islands company
				its general partner
				By:		/s/ Kok Wai Yee
				Name:		Kok Wai Yee
				Title:		Authorized Signatory

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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IN WITNESS WHEREOF, the Parties have executed this Series D Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				RICH MOON LIMITED
				By:		/s/ Xin Huang
				Name:		Xin Huang
				Title:		Director

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

---

IN WITNESS WHEREOF, the Parties have executed this Series D Preferred Share Purchase Agreement as of the date first written above.

 

INVESTOR:				TIGER GLOBAL EIGHT HOLDINGS
				By:		/s/ Moussa Taujoo
				Name:		Moussa Taujoo
				Title:		Director

 

SIGNATURE PAGES TO THE SHARE PURCHASE AGREEMENT

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SCHEDULE I(A)

LIST OF FOUNDERS

 

Founders		Number of Ordinary Shares of the Company Held Through Founder Holdco				% of Total Outstanding Ordinary Shares
Yan Tang			96,886,370				73.76	%
Yong Li			16,846,899				12.83	%
Xiaoliang Lei			9,587,116				7.30	%
Zhiwei Li			8,028,026				6.11	%
Total			131,348,411				100.00	%

SCHEDULE I(B)

LIST OF FOUNDER HOLDCOS

 

Founders		Founder Holdcos		%
Yan Tang		Gallant Future Holdings Limited			100	%
Yong Li		Joyous Harvest Holdings Limited			100	%
Xiaoliang Lei		First Optimal Holdings Limited			100	%
Zhiwei Li		Fast Prosperous Holdings Limited			100	%

 

Schedule I

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SCHEDULE II

SCHEDULE OF INVESTORS

 

Name		Number of Subscription Shares				Total Subscription Price (US$)
Sequoia Capital China Investment Holdco II, Ltd.			2,063,441				10,000,000
Sequoia Capital China GF Holdco III-A, Ltd.			11,348,923				55,000,000
SC China Growth III Co-Investment 2014-A, L.P.			5,158,602				25,000,000
Rich Moon Limited			18,570,966				90,000,000
Tiger Global Eight Holdings			6,551,424				31,750,000

 

Schedule II

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SCHEDULE III

LIST OF KEY EMPLOYEES

 

Name		Title
Yan Tang		CEO
Sichuan Zhang		Design Director
Zhiwei Li		CTO
Hanhui Liu		Senior Engineer
Xiaoliang Lei		Product Director
Li Wang		Sales Director
Ying Zhang		Legal Counsel

 

Schedule III

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SCHEDULE IV(A)

CAPITALIZATION TABLE IMMEDIATELY PRIOR TO CLOSING

 

Shareholder		Common Shares				Preferred Shares Series A-1/A-2				Preferred Shares Series A-3				Preferred Shares Series B				Preferred Shares Series C				Total Issued and Outstanding Shares
Yan TANG			96,886,370				—				—				—				—				96,886,370
Yong LI			16,846,899				—				—				—				—				16,846,899
Xiaoliang LEI			9,587,116				—				—				—				—				9,587,116
Zhiwei LI			8,028,026				—				—				—				—				8,028,026
Matrix			—				31,181,820				19,797,980				4,588,600				10,402,497				65,970,897
Matrix Affiliates			—				—				—				—				9,602,305				9,602,305
Alibaba			—				—				—				60,859,813				8,001,920				68,861,733
DST			—				—				—				4,588,600				8,001,920				12,590,520
Total			131,348,411				31,181,820				19,797,980				70,037,013				36,008,642				288,373,866

 

Schedule IV

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SCHEDULE IV(B)

CAPITALIZATION TABLE IMMEDIATELY AFTER CLOSING

 

Shareholder		Common Shares				Preferred Shares Series A-1/A-2				Preferred Shares Series A-3				Preferred Shares Series B				Preferred Shares Series C				Preferred Shares Series D				Total Issued and Outstanding Shares
Yan TANG			96,886,370				—				—				—				—				—				96,886,370
Yong LI			16,846,899				—				—				—				—				—				16,846,899
Xiaoliang LEI			9,587,116				—				—				—				—				—				9,587,116
Zhiwei LI			8,028,026				—				—				—				—				—				8,028,026
Matrix			—				31,181,820				19,797,980				4,588,600				10,402,497				—				65,970,897
Matrix Affiliates			—				—				—				—				9,602,305				—				9,602,305
Alibaba			—				—				—				60,859,813				8,001,920				—				68,861,733
DST			—				—				—				4,588,600				8,001,920				—				12,590,520
Sequoia Entity A			—				—				—				—				—				2,063,441				2,063,441
Sequoia Entity B			—				—				—				—				—				11,348,923				11,348,923
Sequoia Entity C			—				—				—				—				—				5,158,602				5,158,602
Yunfeng			—				—				—				—				—				18,570,966				18,570,966
Tiger																							6,551,424				6,551,424
Total			131,348,411				31,181,820				19,797,980				70,037,013				36,008,642				43,693,356				332,067,222

 

Schedule IV

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SCHEDULE V

NOTICE ADDRESSES

For the purpose of the notice provisions contained in this Agreement, the following are the initial addresses of each Party:

If to the Company, the HK Co, the WFOE, the Domestic Company and the Founders:

Level 8 Tower D, Vantone Center,

No. 6 Chaoyangmen Outer Ave.,

Chaoyang District, Beijing,

P. R. China 100020

If to the Investors:

Sequoia:

Address:

Sequoia Capital China

Suite 2215, 22/F, Two Pacific Place, 88 Queensway Hong Kong

Telephone: 852-2501-8971

Fax No.: 852-2501-5249

Email: wkok@sequoiacap.com

Contact Person: Kok Wai Yee

with a copy to:

Wilson Sonsini Goodrich & Rosati, P.C.

Unit 1001, 10/F Henley Building

5 Queen’s Road Central

Hong Kong

Fax No.: 852-3972-4999

Contact Person: Weiheng Chen

Yunfeng:

Address:

Room 3501, K. Wah Center, 1010 Huaihaizhong Road

Shanghai, 200031, China

Telephone: 8621-3127 0909

Fax No.: 8621-3127 1750

Contact Person: Huang Xin

Tiger Global Eight Holdings:

Address:

Twenty Seven, Cybercity, Ebene, Mauritius

Attention: Moussa Taujoo

Facsimile: +230-467-4000

 

Schedule V

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With a copy to:

Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, L.L.P

Address: Suite 2101, Building C

Yintai Center, #2 Jianguomenwai Ave

Beijing 100022 China

Attention: Steven Liu

Fax: + 8610-5680-3889

 

Schedule V

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EXHIBIT A

PARTICULARS OF GROUP COMPANIES

(A) Momo Technology Company Limited

 

Registered Company Name		:		Momo Technology Company Limited
Registered Address		:		P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands
Date of Incorporation		:		November 23, 2011
Company Number		:		1682215
Place of Incorporation		:		British Virgin Islands
Director(s) (as of the date of this Agreement)		:		Hongping Zhang, Yongming Wu, David Ying Zhang, Ho Kee Harry Man, Yan Tang, Yong Li, Sichuan Zhang
Authorized Shares		:		1,000,000,000 with a par value of US$0.0001
Issued Shares (as of the date of this Agreement)		:		311,324,312
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		Momo Technology HK Company Limited (100%)
Shareholders (and percentage of fully-diluted shareholding) as of the date of this Agreement		:		Founders (41.28%) Matrix Partners China II Hong Kong Limited and its Affiliates (21.22%) Feini Zheng (2.05%) Alibaba Investment Limited (19.34%) DST Team Fund Limited (3.54%)

 

Exhibit A-1

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(B) Momo Technology HK Company Limited

 

Registered Company Name		:		Momo Technology HK Company Limited
Registered Address		:
Date of Incorporation		:		December 5, 2011
Company Number		:		1687335
Place of Incorporation		:		Hong Kong
Director(s)		:		Yan Tang, Yong Li, Sichuan Zhang, David Ying Zhang, Hongping Zhang, Yongmnig Wu, Ho Kee Harry Man
Share Capital		:		HK$10,000
Issued Shares				10,000
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		Beijing Momo Information Technology Co. Ltd. (100%)
Shareholder (and percentage of shareholding) as of the date of this Agreement		:		Momo Technology Company Limited (100%)

 

Exhibit A-2

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(C) Beijing Momo Information Technology Co. Ltd.

 

Registered Company Name		:		Beijing Momo Information Technology Co. Ltd.
Registered Address		:
Date of Incorporation		:		March 9, 2012
Company Number		:		110000450200208
Place of Incorporation		:		PRC
Director(s)		:		Yan Tang, Yong Li, Sichuan Zhang, David Ying Zhang and Xiaoliang Lei
Total Investment		:		US$99,990,000
Registered Capital		:		US$40,300,000
Paid Up Capital (as of the date of this Agreement)		:		US$40,300,000
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		None
Shareholder (and percentage of shareholding) as of the date of this Agreement		:		Momo Technology HK Company Limited (100%)

 

Exhibit A-3

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(D) Beijing Momo Technology Co. Ltd.

 

Registered Company Name		:		Beijing Momo Technology Co. Ltd.
Registered Address		:
Date of Incorporation		:		July 7, 2011
Company Number		:		110105014033048
Place of Incorporation		:		PRC
Director(s)		:		Yan Tang, Yong Li and Sichuan Zhang
Registered Capital		:		RMB 1,111,100
Paid Up Capital		:		RMB 1,111,100
Subsidiaries (and percentage of shareholding) as of the date of this Agreement		:		Chengdu Momo Technology Co. Ltd. (100%)
Shareholder (and percentage of shareholding) as of the date of this Agreement		:		Yan Tang (72%) Yong Li (16%) Xiaoliang Lei (6.4%) Zhiwei Li (5.6%)

 

Exhibit A-4

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EXHIBIT B

FORM OF SEVENTH AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION

 

Exhibit B

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TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

(the “Act”)

SEVENTH AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION

OF

Momo Technology Company Limited

(Adopted by Resolution of Shareholders passed on             , 2014)

 

1

NAME

The name of the Company is Momo Technology Company Limited.

 

2	COMPANY LIMITED BY SHARES

The Company is a company limited by shares. The liability of each member is limited to the amount from time to time unpaid on such member’s shares.

 

3	REGISTERED OFFICE

The first registered office of the Company will be situated at the office of the registered agent which is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands or such other place as the directors or members may from time to time decide, being the office of the registered agent.

 

4	REGISTERED AGENT

The first registered agent of the Company will be Offshore Incorporations Limited of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands or such other registered agent as the directors or members may decide from time to time.

 

5	GENERAL OBJECTS AND POWERS

Subject to Clause 6 below 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 BVI Business Companies Act, 2004 or as the same may be revised from time to time, or any other law of the British Virgin Islands.

 

6	LIMITATIONS ON THE COMPANY’S BUSINESS

For the purposes of section 9(4) of the Act the Company has no power to:

 

(a)

carry on banking or trust business, unless it is licensed under the Banks and Trust Companies Act, 1990;

 

(b)

carry on business as an insurance or as a reinsurance company, insurance agent or insurance broker, unless it is licensed under an enactment authorising it to carry on that business;

 

(c)

carry on the business of company management unless it is licensed under the Companies Management Act, 1990;

 

1

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(d)

carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands; or

 

(e)

carry on the business as a mutual fund, mutual fund manager or mutual fund administrator unless it is licensed under the Mutual Funds Act, 1996.

 

7	AUTHORISED SHARES

 

7.1

The Company is authorised to issue a maximum of 1,000,000,000 shares, divided into (i) 799,281,189 Ordinary Shares of US$0.0001 par value each (the “Ordinary Shares”), (ii) 22,272,730 redeemable Series A-1 Preferred Shares of US$0.0001 par value each (the “Series A-1 Preferred Shares”), (iii) 8,909,090 redeemable Series A-2 Preferred Shares of US$0.0001 par value each (the “Series A-2 Preferred Shares”), (iv) 19,797,980 redeemable Series A-3 Preferred Shares of US$0.0001 par value each (the “Series A-3 Preferred Shares”), (v) 70,037,013 redeemable Series B Preferred Shares of US$0.0001 par value each (the “Series B Preferred Shares”), (vi) 36,008,642 redeemable Series C Preferred Shares of US$0.0001 par value each (the “Series C Preferred Shares”) and (vii) 43,693,356 redeemable Series D Preferred Shares of US$0.0001 par value each (the “Series D Preferred Shares”) (the Ordinary Shares, the Series A-1 Preferred Shares, the Series A-2 Preferred Shares, the Series A-3 Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares are collectively referred to herein as the “Shares”), with power for the Company insofar as is permitted by applicable law and the Articles, to redeem or purchase any of its shares and to increase or reduce the said capital and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained.

 

7.2	The shares in the Company shall be issued in the currency of the United States of America.

 

7.3	Subject to Clause 9 of this Memorandum, each Ordinary Share in the Company confers on the holder:

 

(i)

the right to one vote at a meeting of the members of the Company or on any resolution of the members of the Company;

 

(ii)

the right to an equal share in any dividend paid by the Company in accordance with the Act; and

 

(iii)

the right to an equal share in the distribution of the surplus assets of the Company.

 

7.4	Each Ordinary Share in the Company shall be junior and subordinate to the rights of the Preferred Shares pursuant to this Memorandum and the Articles.

 

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8	REGISTERED SHARES ONLY

Shares in the Company may only be issued as registered shares and the Company is not authorised to issue bearer shares. Registered shares may not be exchanged for bearer shares or converted to bearer shares.

 

9	DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES

The Ordinary Shares and the Preferred Shares shall have the following rights and be subject to the following restrictions:

 

(a)

Dividends

 

(i)

Subject to the provisions of the Act and the Memorandum and the Articles, no dividends shall be declared or paid on the Ordinary Shares or any future series of preference shares, unless and until approved by all board members and a dividend in like amount is declared and paid on each outstanding Preferred Share (on an as-converted basis).

 

(ii)

Each holder of a Preferred Share shall be entitled to receive on a pari passu basis in preference to any payment to the Ordinary Shares, on an annual basis, preferential, cumulative dividends at the rate of 8% of the Original Series A-1 Issue Price, the Original Series A-2 Issue Price, the Original Series A-3 Issue Price, the Original Series B Issue Price, the Original Series C Issue Price or the Original Series D Issue Price (as the case may be) (as adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions) payable in cash when and as such cash becomes legally available therefor on parity with each other, prior and in preference to any dividend on any other Shares; provided that such dividends shall be payable only when, as, and if declared by the Board. All declared but unpaid dividends shall be paid in cash when and as such cash becomes legally available to the holders of Preferred Shares immediately prior to the closing of a Qualified IPO.

 

(iii)

In addition to any dividend pursuant to Clause 9(a)(ii) above, the holders of Preferred Shares shall be entitled to receive on a pari passu basis, when, as and if declared at the sole discretion of the Board, but only out of funds that are legally available therefor, cash dividends at the rate or in the amount as the Board considers appropriate.

 

(b)

Liquidation Preference

 

(i)

Liquidation Preferences. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary:

 

(1)

Before any distribution or payment shall be made to the holders of any Ordinary Shares, Series A Preferred Shares, Series B Preferred Shares or Series C Preferred Shares, each holder of Series D Preferred Shares shall be entitled to receive an amount equal to one hundred and thirty percent (130%) of the Original Series D Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series D Preferred Share then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series D Preferred Shares, then such assets shall be distributed among the holders of Series D Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

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(2)

After distribution or payment in full of the amount distributable or payable on the Series D Preferred Shares pursuant to Clause 9(b)(i)(1) and before any distribution or payment shall be made to the holders of any Ordinary Shares, Series A Preferred Shares or Series B Preferred Shares, each holder of Series C Preferred Shares shall be entitled to receive an amount equal to one hundred and thirty percent (130%) of the Original Series C Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series C Preferred then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series C Preferred Shares, then such assets shall be distributed among the holders of Series C Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(3)

After distribution or payment in full of the amount distributable or payable on the Series D Preferred Shares and Series C Preferred Shares pursuant to Clauses 9(b)(i)(1) and 9(b)(i)(2) and before any distribution or payment shall be made to the holders of any Ordinary Shares or Series A Preferred Shares, each holder of Series B Preferred Shares shall be entitled to receive an amount equal to one hundred percent (100%) of the Original Series B Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series B Preferred then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series B Preferred Shares, then such assets shall be distributed among the holders of Series B Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

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(4)

After distribution or payment in full of the amount distributable or payable on the Series D Preferred Shares, Series C Preferred Shares and Series B Preferred Shares pursuant to Clauses 9(b)(i)(1), 9(b)(i)(2) and 9(b)(i)(3) and before any distribution or payment shall be made to the holders of any Ordinary Shares, Series A-1 Preferred Shares or Series A-2 Preferred Shares, each holder of Series A-3 Preferred Shares shall be entitled to receive an amount equal to one hundred percent (100%) of the Original Series A-3 Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series A-3 Preferred then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series A-3 Preferred Shares, then such assets shall be distributed among the holders of Series A-3 Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(5)

After distribution or payment in full of the amount distributable or payable on the Series D Preferred Shares, Series C Preferred Shares, Series B Preferred Shares and Series A-3 Preferred Shares pursuant to Clause 9(b)(i)(1), 9(b)(i)(2), 9(b)(i)(3) and 9(b)(i)(4) and before any distribution or payment shall be made to the holders of any Ordinary Shares, each holder of Series A-1 Preferred Shares and each holder of Series A-2 Preferred Shares shall be entitled to receive on a pari passu basis an amount equal to one hundred fifty percent (150%) of the Original Series A-1 Issue Price or the Original Series A-2 Issue Price (as the case may be) (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series A-1 Preferred Share or Series A-2 Preferred Share, as the case may be, then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series A-1 Preferred Shares and Series A-2 Preferred Shares, then such assets shall be distributed among the holders of Series A-1 Preferred Shares and Series A-2 Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

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(6)

After distribution or payment in full of the amount distributable or payable on the Preferred Shares pursuant to Clause 9(b)(i)(1), Clause 9(b)(i)(2), Clause 9(b)(i)(3), Clause 9(b)(i)(4) and Clause 9(b)(i)(5) the remaining assets of the Company available for distribution to Shareholders shall first be used to pay any accrued but unpaid dividends on other shares and then be distributed ratably among the holders of outstanding Ordinary Shares and holders of Preferred Shares on an as-converted basis.

 

(ii)

Liquidation on Sale or Merger. The following events shall be treated as a liquidation (each, a “Liquidation Event”) under this Clause 9(b)(ii) unless waived by the holders of at least fifty-one percent (51%) of the then outstanding Series A Preferred Shares, the holders of at least fifty-one percent (51%) of the then outstanding Series B Preferred Shares, the holders of at least fifty-one percent (51%) of the then outstanding Series C Preferred Shares and the holders of at least fifty-one percent (51%) of the then outstanding Series D Preferred Shares, each voting as a separate series, on an as-converted basis:

 

(1)

any consolidation, amalgamation or merger of any Group Company with or into any Person, or any other corporate reorganization, including a sale or acquisition of Equity Securities of the Company or of shares or equity of any other Group Company, in which the shareholders of such Group Company immediately before such transaction own less than 50% of such Group Company’s voting power immediately after such transaction (excluding any transaction effected solely for tax purposes or to change such Group Company’s domicile);

 

(2)

a sale of all or substantially all of the assets of the Company or any Group Company; or

 

(3)

the exclusive licensing of all or substantially all of the intellectual property of the Company (or of all of the Group Companies taken as a whole) to a third party;

 

(4)

termination of, or making any unilateral amendments to the Control Documents; or

 

(5)

a liquidation, dissolution or winding up of the Company or any Group Company.

 

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and upon any such event, any proceeds resulting to the shareholders of the Company therefrom shall be distributed in accordance with the terms of Clause 9(b)(i).

 

(iii)

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 Preferred Shares and Ordinary Shares shall be determined in good faith by the Board, 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:

 

(1)

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;

 

(2)

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

 

(3)

If there is no active public market, the value shall be the fair market value thereof as determined in good faith by the Board.

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 clauses (1), (2) or (3) to reflect the fair market value thereof as determined in good faith by the Board, or by a liquidator if one is appointed. The holders of at least twenty percent (20%) of the then outstanding Preferred Shares shall have the right to challenge any determination by the Board of fair market value pursuant to this Clause 9(b)(iii), in which case the determination of fair market value shall be made by an independent appraiser selected jointly by the Board and the challenging parties, the cost of such appraisal to be borne by the Company if the independent appraiser determines that the fair market value of the securities is less than that determined by the Board by a factor of more than 5%. Such costs shall be borne by the challenging parties if the independent appraiser determines that the fair market value of the securities is equal to at least 95% of the fair market value determined by the Board.

 

(c)

Voting Rights

Subject to the provisions of this Memorandum and the Articles, at all general meetings of the Company: (i) the holder of each Ordinary Share issued and outstanding shall have one (1) vote in respect of each Ordinary Share held, provided however that Ordinary Shares held by the Founder Holdcos and the Employee Compensation Shares shall have five (5) votes (“Super Voting Rights”) in respect of each such Share (“Super Voting Shares”) (in the event a holder of Super Voting Shares transfers any of the Super Voting Shares to any person or entity which is not an existing holder of Super Voting Shares and is not an Affiliate of such holder, or any holder of the Super Voting Shares elects to give up the Super Voting Rights by giving a written notice to the Company, such Shares shall no longer be entitled to any Super Voting Rights any more and shall only have one (1) vote in respect of each Ordinary Share), and (ii) the holder of each Preferred Share shall be entitled to such number of votes as equals the whole number of Ordinary Shares into which such holder’s collective Preferred Shares are convertible immediately after the close of business on the record date of the determination of the Company’s shareholders entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Company’s shareholders is first solicited. Subject to provisions to the contrary elsewhere in this Memorandum and the Articles, or as required by the Act, the holders of Preferred Shares shall vote together with the holders of Ordinary Shares, and not as a separate class or series, on all matters put before the Shareholders.

 

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(d)

Conversion Rights

The holders of the Preferred Shares shall have the following rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares. Subject to the provisions of Clause 9(d)(v), (1) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series A-1 Preferred Share shall be the quotient of the Original Series A-1 Issue Price divided by the then-effective Series A-1 Conversion Price; (2) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series A-2 Preferred Share shall be the quotient of the Original Series A-2 Issue Price divided by the then-effective Series A-2 Conversion Price; (3) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series A-3 Preferred Share shall be the quotient of the Original Series A-3 Issue Price divided by the then-effective Series A-3 Conversion Price; (4) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series B Preferred Share shall be the quotient of the Original Series B Issue Price divided by the then-effective Series B Conversion Price; (5) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series C Preferred Share shall be the quotient of the Original Series C Issue Price divided by the then-effective Series C Conversion Price; and (6) the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Series D Preferred Share shall be the quotient of the Original Series D Issue Price divided by the then-effective Series D Conversion Price. For the avoidance of doubt, subject to the provisions of Clause 9(d)(v), the initial conversion ratio for Series A-1 Preferred Shares to Ordinary Shares shall be 1:1, the initial conversion ratio for Series A-2 Preferred Shares to Ordinary Shares shall be 1:1, the initial conversion ratio for Series A-3 Preferred Shares to Ordinary Shares shall be 1:1; the initial conversion ratio for Series B Preferred Shares to Ordinary Shares shall be 1:1; the initial conversion ratio for Series C Preferred Shares to Ordinary Shares shall be 1:1; and the initial conversion ratio for Series D Preferred Shares to Ordinary Shares shall be 1:1, each subject to adjustment based on adjustments of the Series A-1 Conversion Price, Series A-2 Conversion Price, Series A-3 Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable (the “Applicable Conversion Price” and each a “Conversion Price”), as set forth below:

 

(i)

Optional Conversion.

 

(1)

Subject to and in compliance with the provisions of this Clause 9(d)(i), and subject to compliance with the requirements of the Act, 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 Applicable Conversion Price.

 

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(2)

The holder of any Preferred Shares who desires to convert such shares into Ordinary Shares shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Preferred Shares, and shall give written notice to the Company at such office that such holder has elected to convert such shares. Such notice shall state the number of Preferred Shares being converted. Thereupon, the Company shall promptly issue and deliver to such holder at such office a certificate or certificates for the number of Ordinary Shares to which the holder is entitled. No fractional Ordinary Shares shall be issued upon conversion of the Preferred Shares, and the number of Ordinary Shares to be so issued to a holder of Preferred Shares upon the conversion of such Preferred Shares (after aggregating all fractional Ordinary Shares that would be issued to such holder) shall be rounded to the nearest whole share (with one-half being rounded upward). Such conversion shall be deemed to have been made at the close of business on the date of the surrender of the certificates representing the Preferred Shares to be converted, and the person entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Ordinary Shares on such date.

 

(ii)

Automatic Conversion.

 

(1)

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, the Preferred Share shall automatically be converted into Ordinary Shares upon the closing of a Qualified IPO, based on the then-effective Applicable Conversion Price.

 

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(2)

The Company shall not be obligated to issue certificates for any Ordinary Shares issuable upon the automatic conversion of any Preferred Shares unless the certificate or certificates evidencing such Preferred Shares is either delivered as provided below to the Company or any transfer agent for the Preferred Shares, or the holder notifies the Company or its transfer agent that such certificate has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificate. The Company shall, as soon as practicable after receipt of certificates for Preferred Share, or satisfactory agreement for indemnification in the case of a lost certificate, promptly issue and deliver at its office to the holder thereof a certificate or certificates for the number of Ordinary Shares to which the holder is entitled. No fractional Ordinary Shares shall be issued upon conversion of the Preferred Shares, and the number of Ordinary Shares to be so issued to a holder of converting Preferred Share (after aggregating all fractional Ordinary Shares that would be issued to such holder) shall be rounded to the nearest whole share (with one-half being rounded upward). Any person entitled to receive Ordinary Shares issuable upon the automatic conversion of the Preferred Shares shall be treated for all purposes as the record holder of such Ordinary Shares on the date of such conversion.

 

(iii)

Mechanics of Conversion. The conversion hereunder of any Preferred Share (the “Conversion Share”) shall be effected in the following manner:

 

(1)

The Company shall redeem the Conversion Share for aggregate consideration (the “Redemption Amount”) equal to (a) the aggregate par value of any capital shares of the Company to be issued upon such conversion and (b) the aggregate value, as determined by the Board, of any other assets which are to be distributed upon such conversion.

 

(2)

Concurrent with the redemption of the Conversion Share, the Company shall apply the Redemption Amount for the benefit of the holder of the Conversion Share to pay for any capital shares of the Company issuable, and any other assets distributable, to such holder in connection with such conversion.

 

(3)

Upon application of the Redemption Amount, the Company shall issue to the holder of the Conversion Share all capital shares issuable, and distribute to such holder all other assets distributable, upon such conversion.

 

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(iv)

Initial Conversion Price. The “Series A-1 Conversion Price” shall initially equal the Original Series A-1 Issue Price, the “Series A-2 Conversion Price” shall initially equal the Original Series A-2 Issue Price, the “Series A-3 Conversion Price” shall initially equal the Original Series A-3 Issue Price, the “Series B Conversion Price” shall initially equal the Original Series B Issue Price, the “Series C Conversion Price” shall initially equal the Original Series C Issue Price and the “Series D Conversion Price” shall initially equal the Original Series D Issue Price, each of which shall be adjusted from time to time as provided below in Clause 9(d)(v).

 

(v)

Adjustments to Conversion Price.

 

(1)

Adjustment for Share Splits and Combinations. If the Company shall at any time, or from time to time, effect a subdivision of the outstanding Ordinary Shares, the Applicable Conversion Price in effect immediately prior to such subdivision shall be proportionately decreased. Conversely, if the Company shall at any time, or from time to time, combine the outstanding Ordinary Shares into a smaller number of shares, the Applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(2)

Adjustment for Ordinary Share Dividends and Distributions. If the Company makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution to the holders of Ordinary Shares payable in Additional Ordinary Shares, the Applicable Conversion Price then in effect shall be decreased as of the time of such issuance (or in the event such record date is fixed, as of the close of business on such record date) by multiplying such Applicable Conversion Price then in effect by a fraction (i) the numerator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Ordinary Shares issuable in payment of such dividend or distribution.

 

(3)

Adjustments for Other Dividends. If the Company at any time, or from time to time, makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution payable in securities of the Company other than Ordinary Shares or Ordinary Share Equivalents, then, and in each such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive, in addition to the number of Ordinary Shares issuable thereon, the amount of securities of the Company which the holder of such share would have received had the Preferred Shares been converted into Ordinary Shares immediately prior to such event, all subject to further adjustment as provided herein.

 

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(4)

Reorganizations, Mergers, Consolidations, Reclassifications, Exchanges, Substitutions. If at any time, or from time to time, any capital reorganization or reclassification of the Ordinary Shares (other than as a result of a share dividend, subdivision, split or combination otherwise treated above) occurs or the Company is consolidated, merged or amalgamated with or into another Person (other than a consolidation, merger or amalgamation treated as a Liquidation Event), then in any such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive the kind and amount of shares and other securities and property which the holder of such share would have received had the Preferred Shares been converted into Ordinary Shares on the date of such event, all subject to further adjustment as provided herein, or with respect to such other securities or property, in accordance with any terms applicable thereto.

 

(5)

Sale of Shares below the Conversion Price.

 

(A)

Adjustment of Conversion Price Upon Issuance of Additional Ordinary Shares.

 

(i)

In the event the Company shall at any time after the Series D Original Issue Date or the Series C Original Issue Date, as the case may be, issue Additional Ordinary Shares, without consideration or for a consideration per share less than the Series D Conversion Price or the Series C Conversion Price, as the case may be, in effect immediately prior to such issue (the “New Subscription Price”), then the Applicable Conversion Price shall be reduced, concurrently with such issue, to the New Subscription Price; provided however, that in the event of an IPO of the Company where the pre-money market capitalization of the Company (based on the price per share offered to the public in such offering) is less than US$2,100,000,000, this Clause 9(d)(v)(5) shall not apply.

 

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(ii)

In the event the Company shall at any time after the Series A-1 Original Issue Date, the Series A-2 Original Issue Date, the Series A-3 Original Issue Date or the Series B Original Issue Date, as the case may be, issue Additional Ordinary Shares, without consideration or for a consideration per share less than the Series A-1 Conversion Price, the Series A-2 Conversion Price, the Series A-3 Conversion Price or the Series B Conversion Price, as the case may be, in effect immediately prior to such issue, then the Applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

CP2 = CP1 * (A + B) / (A + C).

 

(iii)

For purposes of the foregoing formula, the following definitions shall apply:

 

(aa)

CP2 shall mean the Series A-1 Conversion Price, the Series A-2 Conversion Price, the Series A-3 Conversion Price, or the Series B Conversion Price, as the case may be in effect immediately after such issue of Additional Ordinary Shares;

 

(bb)

CP1 shall mean the Series A-1 Conversion Price, the Series A-2 Conversion Price, the Series A-3 Conversion Price, or the Series B Conversion Price, as the case may be in effect immediately prior to such issue of Additional Ordinary Shares;

 

(cc)

“A” shall mean the number of Ordinary Shares outstanding immediately prior to such issue of Additional Ordinary Shares, treating for this purpose as outstanding all Ordinary Shares issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Equity Securities (including the Preferred Shares) outstanding (assuming exercise of any outstanding Ordinary Share Equivalents therefor) immediately prior to such issue;

 

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(dd)

“B” shall mean the number of Ordinary Shares that would have been issued if such Additional Ordinary Shares had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Company in respect of such issue by CP1); and

 

(ee)

“C” shall mean the number of such Additional Ordinary Shares issued in such transaction.

 

(B)

Determination of Consideration. For the purpose of making any adjustment to any Conversion Price or the number of Ordinary Shares issuable upon conversion of the Preferred Shares, as provided above:

 

(i)

To the extent it consists of cash, the consideration received by the Company for any issue or sale of securities shall be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensations, discounts or concessions paid or allowed by the Company in connection with such issue or sale;

 

(ii)

To the extent it consists of property other than cash, consideration other than cash received by the Company for any issue or sale of securities shall be computed at the fair market value thereof (as determined in good faith by a majority of the Board, including the affirmative vote of at least one (1) AIL Director, one (1) Matrix Director, the Sequoia Director and the Yunfeng Director), as of the date of the adoption of the resolution specifically authorizing such issue or sale, irrespective of any accounting treatment of such property; and

 

(iii)

If Additional Ordinary Shares or Ordinary Share Equivalents exercisable, convertible or exchangeable for Additional Ordinary Shares are issued or sold together with other stock or securities or other assets of the Company for consideration which covers both, the consideration received for the Additional Ordinary Shares or such Ordinary Share Equivalents shall be computed as that portion of the consideration received (as determined in good faith by a majority of the Board, including the affirmative vote of at least one (1) AIL Director, one (1) Matrix Director, the Sequoia Director and the Yunfeng Director) to be allocable to such Additional Ordinary Shares or Ordinary Share Equivalents.

 

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(C)

No Exercise. If all of the rights to exercise, convert or exchange any Ordinary Share Equivalents shall expire without any of such rights having been exercised, the Applicable Conversion Price as adjusted upon the issuance of such Ordinary Share Equivalents shall be readjusted to the Applicable Conversion Price which would have been in effect had such adjustment not been made.

 

(6)

Other Dilutive Events. In case any event shall occur as to which the other provisions of this Clause 9(d) are not strictly applicable, but the failure to make any adjustment to any Conversion Price would not fairly protect the conversion rights of the applicable series of Preferred Shares in accordance with the essential intent and principles hereof, then, in each such case, the Company, in good faith, shall determine the appropriate adjustment to be made, on a basis consistent with the essential intent and principles established in this Clause 9(d) necessary to preserve, without dilution, the conversion rights of such series of Preferred Shares.

 

(7)

Certificate of Adjustment. In the case of any adjustment or readjustment of a Conversion Price, the Company, at its sole expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of such series of Preferred Shares at such holder’s address as shown in the Company’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Ordinary Shares issued or sold or deemed to have been issued or sold, (ii) the number of Additional Ordinary Shares issued or sold or deemed to be issued or sold, (iii) the Applicable Conversion Price in effect before and after such adjustment or readjustment, and (iv) the number of Ordinary Shares and the type and amount, if any, of other property which would be received upon conversion of such series of Preferred Shares after such adjustment or readjustment.

 

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(8)

Notice of Record Date. In the event the Company shall propose to take any action of the type or types requiring an adjustment to a Conversion Price or the number or character of the Preferred Shares as set forth herein, the Company shall give notice to the holders of such series of Preferred Shares, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Applicable Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable upon the occurrence of such action or deliverable upon the conversion of Preferred Shares. In the case of any action which would require the fixing of a record date, such notice shall be given at least twenty (20) days prior to the date so fixed, and in the case of all other actions, such notice shall be given at least thirty (30) days prior to the taking of such proposed action.

 

(9)

Reservation of Shares Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued Ordinary Shares, 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 Share. 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, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purpose.

 

(10)

Notices. Any notice required or permitted pursuant to this Clause 9(d) shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to each holder of record at the address of such holder appearing on the books of the Company. Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a confirmation of delivery, and to have been effected at the expiration of two (2) days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid.

 

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(11)

Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of Ordinary Shares upon conversion of Preferred Shares, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Ordinary Shares in a name other than that in which the Preferred Share so converted were registered.

 

(e)

Redemption

 

(i)

Notwithstanding any provisions to the contrary in this Clause 9, the Preferred Shares shall be redeemable at the option of holders of the Preferred Shares as provided herein:

 

(1)

Optional Redemption Date. At any time after (i) the fourth (4) anniversary of the Closing (as defined in the Share Purchase Agreement), each holder of the then outstanding Series D Preferred Shares, (ii) October 8, 2017, each holder of the then outstanding Series C Preferred Shares, or (iii) December 31, 2016, each holder of the then outstanding Series A Preferred Shares and Series B Preferred Shares, may require that the Company redeem all of its Preferred Shares, in accordance with the following terms. Following receipt of the request for redemption from such holders, the Company shall within fifteen (15) business days give written notice (the “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 Preferred Shares have elected redemption of all of the Preferred Shares pursuant to the provisions of this Clause 9(e)(i)(1), shall specify the redemption date, and shall direct the holders of such shares to submit their share certificates to the Company on or before the scheduled redemption date. Notwithstanding anything to the contrary, each holder of Preferred Shares shall have the right, but not the obligation, to participate in the redemption and require the Company to redeem up to all of the Preferred Shares held by such holder by written notice to the Company within fifteen (15) days following the date of the Redemption Notice indicating its election to participate in the redemption and the number of its Preferred Shares to be redeemed.

 

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(2)

Redemption Price. The redemption price for each Series A-1 Preferred Share and Series A-2 Preferred Share redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per Preferred Share which is one hundred and fifty percent (150%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series A-1 and Series A-2 Redemption Price”). The redemption price for Series A-3 Preferred Shares redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per share which is one hundred and twenty-five percent (125%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series A-3 Redemption Price”). The redemption price for each Series B Preferred Share redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per Preferred Share which is one hundred and twenty-five percent (125%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series B Redemption Price”). The redemption price for each Series C Preferred Share redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per Preferred Share which is one hundred and twenty-five percent (125%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series C Redemption Price”). The redemption price for each Series D Preferred Share redeemed pursuant to this Clause 9(e)(i)(2) shall be equal to a price per Preferred Share which is one hundred and twenty-five percent (125%) of the applicable Initial Purchase Price, plus all declared or accrued but unpaid dividends thereon up until the date of redemption (adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions), including the dividends to be paid pursuant to Clause 9(a)(ii) (the “Series D Redemption Price”).

 

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(3)

Procedure. Upon delivery of the Redemption Notice, the aggregate Redemption Price to be paid by the Company as provided in Clause 9(e)(i)(2) herein shall be paid by the Company in cash or immediately converted into a debt payable by the Company over a period of twenty-four (24) months or on a payment schedule mutually agreed between the holders and the Company to the owner of such Preferred Shares, plus a simple interest calculated at seven percent (7%) per annum during the period commencing from the delivery of the Redemption Notice until the Redemption Closing (as defined below). The closing (the “Redemption Closing”) of the redemption of any Preferred Shares pursuant to this Clause 9(e)(i)(3) will take place no later than twenty-four (24) months from the date of the Redemption Notice at the offices of the Company, or such other date or other place as such holders of the then outstanding Preferred Shares 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 therefor, redeem each Preferred Share by paying in cash therefor the Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such share. From and after the Redemption Closing, if the Company makes the 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 therefor) 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.

 

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(ii)

Insufficient Funds. If the Company’s assets or funds which are legally available on the date that any redemption payment under this Clause 9(e) is due are insufficient to pay in full all redemption payments to be paid at the Redemption Closing, or if the Company is otherwise prohibited by applicable law from making such redemption, those assets or funds which are legally available shall be used in the following manner: (1) all of Series D Preferred Shares required to be redeemed shall be redeemed prior to any of the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares; (2) if not all of the Series D Preferred Shares required to be redeemed are able to be redeemed, then the Series D Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series D Preferred Shares in proportion to the total number of Series D Preferred Shares held by each such holder of Series D Preferred Shares, and then the remaining Series D Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so; (3) once all of the Series D Preferred Shares required to be redeemed have been redeemed, then the Series C Preferred Shares required to be redeemed shall be redeemed; (4) if not all of the Series C Preferred Shares required to be redeemed are able to be redeemed, then the Series C Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series C Preferred Shares in proportion to the total number of Series C Preferred Shares held by each such holder of Series C Preferred Shares, and then the remaining Series C Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so; (5) once all of the Series C Preferred Shares required to be redeemed have been redeemed, then the Series B Preferred Shares required to be redeemed shall be redeemed; (6) if not all of the Series B Preferred Shares required to be redeemed are able to be redeemed, then the Series B Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series B Preferred Shares in proportion to the total number of Series B Preferred Shares held by each such holder of Series B Preferred Shares, and then the remaining Series B Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so; (7) once all of the Series B Preferred Shares required to be redeemed have been redeemed, then the Series A-3 Preferred Shares required to be redeemed shall be redeemed; (8) if not all of the Series A-3 Preferred Shares required to be redeemed are able to be redeemed, then the Series A-3 Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series A-3 Preferred Shares in proportion to the total number of Series A-3 Preferred Shares held by each such holder of Series A-3 Preferred Shares, and then the remaining Series A-3 Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so; (9) once all of the Series A-3 Preferred Shares required to be redeemed have been redeemed, then the Series A-2 Preferred Shares and Series A-1 Preferred Shares required to be redeemed shall be redeemed, (10) if not all of the Series A-2 Preferred Shares and Series A-1 Preferred Shares required to be redeemed are able to be redeemed, then the Series A-2 Preferred Shares and Series A-1 Preferred Shares to be redeemed shall be allocated ratably to the holders of the Series A-2 Preferred Shares and the holders of the Series A-1 Preferred Shares in proportion to the total number of Series A-2 Preferred Shares and Series A-1 Preferred Shares held by each such holder of Series A-2 Preferred Shares and holder of Series A-1 Preferred Shares, and then the remaining Series A-2 Preferred Shares and Series A-1 Preferred Shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so. Notwithstanding anything to the contrary herein, no other securities of the Company shall be redeemed unless and until the Company shall have redeemed all of the Preferred Shares requested to be redeemed and shall have paid all the applicable Redemption Price for such Preferred Shares requested to be redeemed payable pursuant to this Clause 9 (e)(ii) Without limiting any rights of the holders of Preferred Shares which are set forth in this Memorandum and the 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.

 

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(f)

Acts of the Company.

(A) In addition to any other vote or consent required elsewhere in the Memorandum and the Articles or by any applicable statute, each Group Company shall not, and each holder of Ordinary Shares shall procure that each Group Company does not, directly or indirectly, (i) without the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (i), (ii), (iii), (iv), (v), (xi), (xiv), (xv), (xvii), (xix) and (xx) below; and (2) without the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii) below:

 

(i)

cease to conduct or substantially change the business of the Company and/or any Group Company, as such business is normally conducted, or deviate from the business plan previously approved by the Board of Director of the Company;

 

(ii)

sell or dispose of the whole or a substantial part of the undertaking goodwill or the assets of the Company and/or any Group Company;

 

(iii)

increase, reduce or cancel the authorized or issued share capital of the Company and/or any Group Company 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 or grant or issue any options rights or warrants, 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 any Investor in the Company (with the exception of any shares issued upon conversion of the Preferred Shares);

 

(iv)

make any distribution of profits amongst the shareholders by way of dividend, (interim and final) capitalization of reserves or otherwise;

 

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(v)

appoint, or settle the terms of appointment of the chief executive officer (except for appointing Tang Yan as the chief executive officer of the Company and/or any Group Company), the chief operative officer and the chief technology officer of the Company and/or any Group Company;

 

(vi)

approve or amend the employee share option plans or approve any new equity-based compensation plan or any bonus or incentive plan;

 

(vii)

select or change the external auditor, or make any material changes to the accounting policies or change the financial year of the Group Companies;

 

(viii)

invest in or acquire any other Person, or any assets, business, business organization or division of any other Person in an amount in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or form any new subsidiary of any Group Company;

 

(ix)

create, incur or authorize the creation of any debt (including without limitation the issuance of any debt securities) if the Group’s aggregate indebtedness would exceed US$1,000,000, or guarantee any indebtedness, except for trade accounts of the Group Companies arising in the ordinary course of business;

 

(x)

create any liens over assets to serve any indebtedness otherwise permitted or previously approved pursuant to paragraph (ix) above;

 

(xi)

make any loan or advance in an amount in excess of US$500,000 other than trade credit given in the ordinary course of business, except to wholly-owned subsidiaries of the Company;

 

(xii)

sell, transfer, license out (other than non-exclusive license granted in the ordinary course of business), pledge or encumber technology or intellectual property;

 

(xiii)

purchase any real property;

 

(xiv)

pass any resolution for the winding up of the Company and /or any Group Company or undertake any merger, reconstruction or liquidation exercise concerning the Company and/or any Group Company or apply for the appointment of a receiver, manager or judicial manager or like officer;

 

(xv)

make any alteration or amendment to the memorandum and articles of association of the Company or any of the Group Companies (provided however that with respect to the memorandum and articles of association of the Domestic Company, only the alteration or amendment related to the items listed in this Clause 9(f)(A) shall require the approval of the Investors in accordance with this Clause 9(f)(A) );

 

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(xvi)

approve, extend or amend any transaction or agreement which is in an amount in excess of US$1,000,000 in a single transaction, or US$3,000,000 in a series of related transactions, with a Shareholder, director, officer, employee or Affiliate of any Group Company or any relative thereof, except pursuant to the Company’s employee share option plans, provided however that, any connected transaction or agreement which is not in an amount in excess of US$1,000,000 shall be fully disclosed to the Investors and shall be arm’s length transaction;

 

(xvii)

make any equity investments in any other companies in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or the establishment of any brands for companies other than the Group Companies;

 

(xviii)

enter into any joint venture or partnership of which the total investment amount is in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, other than any strategic alliance not involving any equity or equity-related investment;

 

(xix)

dispose or dilute the Company’s interest, directly or indirectly, in any of the Group Company;

 

(xx)

approve any transfer of shares in the Company or any of the Group Company; or

 

(xxi)

authorize, agree or undertake to do any of the foregoing.

Actions under subsection (xxi) shall require the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis) if the subject matter is related to the matters listed in subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii), otherwise, actions under the subsection (xxi) shall require the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis).

 

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(B) In addition to any other vote or consent required elsewhere in the Memorandum and the Articles or by any applicable statute, each Group Company shall not, and the Company shall procure that each Group Company does not, directly or indirectly, without AIL’s approval, take any of the following actions:

 

(i)

Issue, sell, transfer or otherwise dispose of, directly or indirectly, any equity securities, security convertible into or exercisable for any equity securities, assets or good will of any Group Company to, or merge, amalgamate or consolidate any Group Company with or into Tencent Holdings Limited, or any Person controlled by Tencent Holdings Limited (the “Tencent Group”) (notwithstanding any provision to the contrary in the opening paragraph of this Clause, AIL has the absolute right to withhold its approval of the actions set forth in this subsection (i) for any reason whatsoever); it being understood for purposes of this Clause 9(f)(B)(i), “control” refers to management rights, ownership of more than 50% of equity or voting rights.

 

(ii)

Notwithstanding the foregoing, in the event that Tencent Group enters into a written term sheet or other similar document (the “Tencent Offer”) with the Company through bona fide negotiations for a Sale of the Company, pursuant to which, the Company has received a non-refundable deposit (unless to be otherwise refunded in the form of the Tencent Indemnification under the second paragraph of this Section) in an amount of no less than 2.5% of the total consideration of the transaction under the Tencent Offer (the “Tencent Deposit”), the Company shall deliver a written notice to AIL, describing material terms of Tencent Offer, with a copy of the executed Tencent Offer (the “Sale Notice”) and bank statement or other evidence on receipt of the Tencent Deposit (the “Evidence of Receipt”). AIL shall have the right of first refusal to purchase all such equity interests, securities or assets proposed to be purchased by Tencent Group on the same terms and conditions set forth in the Tencent Offer (the “AIL Option”), by paying a deposit in the same amount as the Tencent Deposit to the Company within twenty-five (25) calendar days after its receipt of the Sale Notice and the Evidence of Receipt (the “AIL Notice Period”), provided that the Company shall have first entered into a written term sheet or other similar document with AIL (the “AIL Offer”).

If AIL decides to exercise the AIL Option, all the commercially reasonable indemnification, penalty and other similar payment payable by the Company and the shareholders of the Company (if the shareholders are parties to the Tencent Offer) to Tencent Group under the Tencent Offer for not completing the transaction contemplated thereunder (the “Tencent Indemnification”), the total amount of which shall be no more than the Tencent Deposit plus its accrued interests during the AIL Notice Period, if any, calculated using the then effective base demand deposit interest rate published by the People’s Bank of China, shall be borne by the Company.

 

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If AIL decides to exercise the AIL Option, but the transaction is not completed solely due to AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the definitive transaction agreements between AIL and the Company (the “AIL Purchase Agreement”), the Company shall not refund the deposit paid by AIL. If the transaction is not completed due to reasons other than AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the AIL Purchase Agreement, the Company shall refund the deposit paid by AIL, plus its accrued interests calculated using the then effective base demand deposit interest rate published by the People’s Bank of China.

If AIL decides not to exercise the AIL Option, or fails to pay the deposit to the Company pursuant to the AIL Offer within the AIL Notice Period, the Company can proceed with the transaction with Tencent Group upon terms and conditions not more favorable than those set forth in the Sale Notice. If the Company does not enter into any definitive transaction agreement with Tencent Group within the sixty (60) calendar days following the expiration of the AIL Notice Period, or if such agreement is not consummated within ninety (90) calendar days of the execution thereof, AIL’s right of first refusal provided under this Clause 9(f)(B) shall be deemed to be revived and the Company shall re-deliver a Sale Notice to AIL in accordance with this Clause 9(f)(B).

(C) For the avoidance of doubt, the Shareholders agree that without the prior written consent of each holder of the Series B Preferred Shares, the Series C Preferred Shares or the Series D Preferred Shares, as applicable, no Shareholder shall pass resolutions or otherwise take actions to amend, alter or repeal rights, privileges and obligations of the Series B Preferred Shares, Series C Preferred Shares or Series D Preferred Shares, as applicable, or any holder of the Series B Preferred Shares, Series C Preferred Shares or Series D Preferred Shares hereunder, it being understood that rounds of investors further to the current Series A, B, C and D are not deemed to constitute the above amendment, alteration or repeal.

(D) The Shareholders acknowledge and agree that (a) the name “Sequoia Capital” is commonly used to describe a variety of entities (collectively, the “Sequoia Entities”) that are affiliated by ownership or operational relationship and engaged in a broad range of activities related to investing and securities trading and (b) notwithstanding any other provision in the Memorandum or these Articles to the contrary, the Memorandum or these Articles shall not be binding on, or restrict the activities of, any (i) Sequoia Entity outside of the Sequoia China Sector Group or (ii) entity primarily engaged in investment and trading in the secondary securities market. For purposes of the foregoing, the “Sequoia China Sector Group” means all Sequoia Entities (whether currently existing or formed in the future) that are principally focused on companies located in, or with connections to, the PRC.

 

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10	TRANSFER OF SHARES

 

10.1

The Company shall, on receipt of an instrument of transfer complying with Regulation 7.1 of the Articles and any agreements relating to the transfer of Shares to which the Company is a party, enter the name of the transferee of a Share in the register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall be specified in a Resolution of Directors.

 

10.2	The directors may not resolve to refuse or delay the transfer of a Share unless the Shareholder has failed to pay an amount due in respect of the Share.

 

11	AMENDMENTS

 

11.1	Subject to Clause 9, the Company may amend this Memorandum or the Articles by Resolution of Shareholders or by Resolution of Directors, save that no amendment may be made by Resolution of Directors:

 

(a)

to restrict the rights or powers of the Shareholders to amend this Memorandum or the Articles;

 

(b)

to change the percentage of Shareholders required to pass a Resolution of Shareholders to amend this Memorandum or the Articles;

 

(c)

in circumstances where this Memorandum or Articles cannot be amended by the Shareholders; or

 

(d)

to Clause 9 and Clause 11.

 

11.2	Any amendment of this Memorandum or the Articles will take effect on the registration by the Registrar of a notice of amendment, or restated Memorandum and Articles, filed by the registered agent.

 

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TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

SEVENTH AMENDED AND RESTATED ARTICLES OF ASSOCIATION

OF

Momo Technology Company Limited

(Adopted by Resolutions of Shareholders passed on [—], 2014)

 

1.	INTERPRETATION

 

1.1

References in these Articles of Association (“Articles”) to the Act shall mean the BVI Business Companies Act, 2004. The following Articles shall constitute the Articles of the Company. In these Articles, words and expressions defined in the Act shall have the same meanings and, unless otherwise required by the context, the singular shall include the plural and vice versa, the masculine shall include the feminine and the neuter and references to persons shall include corporations and all legal entities capable of having a legal existence.

 

1.2	In the Memorandum and these Articles the capitalized terms shall have the following meaning unless there is something in the subject or context inconsistent therewith:

“Act” means the Companies Act of the British Virgin Islands, as amended, and every statutory modification or re-enactment thereof for the time being in force.

“Additional Ordinary Shares” means all Ordinary Shares issued by the Company (including all Ordinary Shares issuable upon an exercise, conversion or exchange of Ordinary Share Equivalents issued or granted by the Company); provided that the term “Additional Ordinary Shares” does not include (i) Employee Compensation Share; (ii) securities issued upon conversion of the Preferred Shares; (iii) securities issued as a dividend or distribution on the Preferred Shares; (iv) securities issued in connection with any share split, share dividend, combination, recapitalization or other similar transaction of the Company; or (v) warrants or options to purchase securities granted to strategic partners of the Company in connection with mergers and acquisitions of other companies.

“Affiliate” means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person, and the term “affiliated” has the meaning correlative to the foregoing.

“AIL” means Alibaba Investment Limited.

“AIL Directors” has the meaning specified in Regulation 9.2(b) of these Articles.

“Articles” means these Articles as originally framed or as from time to time altered by Resolution of Shareholders.

 

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“as adjusted” means as appropriately adjusted for any subsequent bonus issue, share split, consolidation, subdivision, reclassification, recapitalization or similar arrangement.

“Applicable Conversion Price” has the meaning specified in Clause 9(d) of the Memorandum.

“Board” means the board of directors of the Company.

“Board Observer” has the meaning specified in Regulation 9.2(f) of these Articles.

“Company” means Momo Technology Company Limited, a company organized and existing under the laws of the British Virgin Islands.

“Control” means, when used with respect to any Person, power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Control Documents” means each of the following agreement: Exclusive Technology Consulting and Service Agreement dated April 18, 2012, entered into by and between the Domestic Company and WFOE; Equity Pledge Agreement dated April 18, 2012, entered into by and among the WFOE, Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li, Beijing Matrix Venture Technology Co., Ltd. and Shanghai ButtonWood Capital Limited; Share Option Agreement dated April 18, 2012, enter into by and between the WFOE and each of Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li, Beijing Matrix Venture Technology Co., Ltd. and Shanghai ButtonWood Capital Limited; Operating Agreement dated April 18, 2012, entered into by and among the WFOE, the Domestic Company, Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li and other parties thereto; Power of Attorney dated April 18, 2012, entered into by and between the WFOE and each of Yan Tang, Yong Li, Xiaoliang Lei, Zhiwei Li, Beijing Matrix Venture Technology Co., Ltd. and Shanghai ButtonWood Capital Limited.

“Conversion Price” means the Series A-1 Conversion Price, Series A-2 Conversion Price, Series A-3 Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as the context requires.

“Conversion Share” has the meaning specified in Clause 9(d)(iii) of the Memorandum.

“Director” means a member of the Board.

“Domestic Company” means Beijing Momo Technology Co., Ltd.

“DST” means DST Team Fund Limited.

 

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“Employee Compensation Share” means up to 44,758,220 Ordinary Shares issued or issuable to employees, consultants or directors of the Company either in connection with the provision of services to the Company or on exercise of any options to purchase Employee Compensation Shares granted under a share incentive plan or other arrangement adopted by the Company’s Board and approved by the shareholders of the Company, including without limitation in connection with a restricted stock or other equity compensation plan or arrangement approved by the Company’s Board.

“Equity Securities” means any Ordinary Shares or Ordinary Share Equivalents of the Company.

“Founders” means Yan Tang, Yong Li, Xiaoliang Lei and Zhiwei Li.

“Founder Holdcos” means Gallant Future Holdings Limited, Joyous Harvest Holdings Limited, First Optimal Holdings Limited and Fast Prosperous Holdings Limited.

“HK Co” means Momo Technology HK Company Limited.

“IPO” means a firm commitment underwritten registered public offering by the Company of its Ordinary Shares on the NASDAQ National Market System in the United States or Hong Kong or any other exchange in any other jurisdiction (on any combination of such exchanges and jurisdictions) acceptable to the Majority Preferred Holders to the Company.

“Group Companies” means the Company, the WFOE, the Domestic Company, the HK Co, and any other direct or indirect Subsidiary of a Group Company collectively, and a Group Company means any one of them.

“Initial Purchase Price” means in the case of each Series A-1 Preferred Share, the Original Series A-1 Issue Price, in the case of each Series A-2 Preferred Share, the Original Series A-2 Issue Price, in the case of each Series A-3 Preferred Share, the Original Series A-3 Issue Price, in the case of each Series B Preferred Share, the Original Series B Issue Price, in the case of each Series C Preferred Share, the Original Series C Issue Price and in the case of each Series D Preferred Share, the Original Series D Issue Price.

“Liquidation Event” has the meaning specified in Clause 9(b)(ii) of the Memorandum.

“Majority Preferred Holders” means the holders of at least fifty percent (50%) of the then outstanding (i) Series A-1, A-2 and A-3 Preferred Shares, (ii) Series B Preferred Shares held by Matrix only, (iii) Series C Preferred Shares held by Matrix only, and (iv) Series D Preferred Shares, voting together as a single class, including any Ordinary Shares issued or issuable upon conversion of the foregoing.

“Matrix” means Matrix Partners China II Hong Kong Limited, Matrix Affiliate and its respective successors and permitted assigns.

“Matrix Affiliates” means Gothic Partners, L.P., PJF Acorn I Trust, Gansett Partners, L.L.C, PH momo investment Ltd and Tenzing Holding 2011 Ltd..

 

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“Matrix Directors” has the meaning specified in Regulation 9.2(a) of these Articles.

“Member” has the meaning ascribed to it in the Act.

“Memorandum” means the seventh amended and restated memorandum of association of the Company to be adopted by resolution in writing of all Members of the Company.

“month” means calendar month.

“Ordinary Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Ordinary Share Directors” has the meaning specified in Regulation 9.2(e) of these Articles.

“Ordinary Share Equivalents” means warrants, options and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Shares, including, without limitation, the Preferred Shares.

“Options” mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Ordinary Shares or Conversion Shares.

“Original Series A-1 Issue Price” means US$0.04714 per share.

“Original Series A-2 Issue Price” means US$0.13469 per share.

“Original Series A-3 Issue Price” means US$0.20204 per share.

“Original Series B Issue Price” means US$0.327 per share.

“Original Series C Issue Price” means US$1.2497 per share.

“Original Series D Issue Price” means US$4.84627 per share.

“Person” or “person” means any individual, sole proprietorship, partnership, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other entity of any kind or nature.

“PRC” means the People’s Republic of China, but solely for the purposes of these Articles, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan.

“Preferred Shares” means collectively, the Series A-1 Preferred Shares, the Series A-2 Preferred Shares, the Series A-3 Preferred Shares, the Series B Preferred Shares, the Series C Preferred Shares and the Series D Preferred Shares.

 

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“Qualified IPO” means a firm commitment underwritten registered public offering by the Company of its Ordinary Shares on the NASDAQ National Market System in the United States or Hong Kong or any other exchange in any other jurisdiction (on any combination of such exchanges and jurisdictions) acceptable to the Majority Preferred Holders to the Company with aggregate offering proceeds (before deduction of fees, commissions or expenses) to the Company and selling shareholders, if any, of not less than US$50,000,000 (or any cash proceeds of other currency of equivalent value).

“Redemption Amount” has the meaning specified in Clause 9(d)(iii) of the Memorandum.

“Redemption Closing” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Redemption Price” means the Series A-1 and Series A-2 Redemption Price, Series A-3 Redemption Price, Series B Redemption Price, Series C Redemption Price and/or Series D Redemption Price, as the case may be.

“Redemption Notice” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“registered office” means the registered office for the time being of the Company.

“Relative” means a husband, wife, father, mother, son, daughter, brother, sister, grandparent, grandchild, or spouse of any of these, or a person living in the same household with an individual.

“Resolution of Directors” means either:

 

(a)

a resolution approved at a duly convened and constituted meeting of directors of the Company or of a committee of directors of the Company, by the affirmative vote of a majority of the directors present at the meeting who voted except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority; or

 

(b)

a resolution consented to in writing by all directors or by all members of a committee of directors of the Company, as the case may be.

“Resolution of Shareholders” means either:

 

(a)

Subject to the requirement set forth in Clause 9(f) of the Memorandum, a resolution approved at a duly convened and constituted meeting of the Shareholders of the Company by the affirmative vote of a majority of in excess of 50% the votes of the Shares entitled to vote thereon which were present at the meeting and were voted; or

 

(b)

a resolution consented to in writing by all Shareholders.

“Seal” means the common seal of the Company and includes every duplicate seal.

 

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“Sequoia” means Sequoia Capital China Investment Holdco II, Ltd., Sequoia Capital China GF Holdco III-A, Ltd. and SC China Growth III Co-Investment 2014-A, L.P.

“Sequoia Director” has the meaning specified in Regulation 9.2(c) of these Articles.

“Series A-1 Conversion Price” means a price that initially equals to the Original Series A-1 Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series A-2 Conversion Price” means a price that initially equals to the Original Series A-2 Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series A-3 Conversion Price” means a price that initially equals to the Original Series A-3 Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series A-1 Original Issue Date” means the date of the first sale and issuance of Series A-1 Preferred Shares to the holders of Series A-1 Preferred Shares.

“Series A-2 Original Issue Date” means the date of the first sale and issuance of Series A-2 Preferred Shares to the holders of Series A-2 Preferred Shares.

“Series A-3 Original Issue Date” means the date of the first sale and issuance of Series A-3 Preferred Shares to the holders of Series A-3 Preferred Shares.

“Series A-1 Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series A-2 Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series A-3 Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series A Preferred Shares” means, collectively, Series A-1 Preferred Shares, Series A-2 Preferred Shares and Series A-3 Preferred Shares.

“Series A-1 and Series A-2 Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Series A-3 Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Series B Conversion Price” means a price that initially equals to the Original Series B Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

 

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“Series B Original Issue Date” means the date of the first sale and issuance of Series B Preferred Shares to the holders of Series B Preferred Shares.

“Series B Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series B Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Series C Conversion Price” means a price that initially equals to the Original Series C Issue Price, and shall be adjusted from time to time as provided below in Clause 9 (d)(iv) of the Memorandum.

“Series C Original Issue Date” means the date of the first sale and issuance of Series C Preferred Shares to the holders of Series C Preferred Shares.

“Series C Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series C Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Series D Conversion Price” means a price that initially equals to the Original Series D Issue Price, and shall be adjusted from time to time as provided below in Clause 9(d)(iv) of the Memorandum.

“Series D Original Issue Date” means the date of the first sale and issuance of Series D Preferred Shares to the holders of Series D Preferred Shares.

“Series D Preferred Shares” has the meaning specified in Clause 7.1 of the Memorandum.

“Series D Redemption Price” has the meaning specified in Clause 9(e)(i) of the Memorandum.

“Share” has the meaning specified in Clause 7.1 of the Memorandum and may also be referenced as “share” and includes any fraction of a share.

“Shareholder” means a Person whose name is entered in the register of members of the Company as the holder of one or more Shares or fractional Shares.

“Shareholders’ Agreement” means the Third Amended and Restated Shareholders’ Agreement, dated as of [—], 2014, by and among the Company, the holders of Preferred Shares and other parties thereto.

“Share Purchase Agreement” means the Series D Preferred Share Purchase Agreement dated April 22, 2014 by and among the Company, the holders of Series D Preferred Shares and other parties thereto.

 

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“Tiger” means Tiger Global Eight Holdings.

“WFOE” means Beijing Momo Information Technology Co., Ltd., a wholly foreign-owned enterprise established by the HK Co in the PRC under the laws of the PRC.

“written” and “in writing” include all modes of representing or reproducing words in visible form.

“Yunfeng” means Rich Moon Limited.

“Yunfeng Director” has the meaning specified in Regulation 9.2(d) of these Articles.

Words importing the singular number also include the plural number and vice-versa.

Words importing the masculine gender also include the feminine gender and vice-versa.

The term “day” means “calendar day”.

 

1.3	In the Memorandum and these Articles, unless the context otherwise requires a reference to:

 

(a)

a “Regulation” is a reference to a regulation of these Articles;

 

(b)

a “Clause” is a reference to a clause of the Memorandum;

 

(c)

voting by Shareholders is a reference to the casting of the votes attached to the Shares held by the Shareholder voting;

 

(d)

the Act, the Memorandum or these Articles is a reference to the Act or those documents as amended or, in the case of the Act, any re-enactment thereof; and

 

(e)

the singular includes the plural and vice versa.

 

1.4	Any words or expressions defined in the Act unless the context otherwise requires bear the same meaning in the Memorandum and these Articles unless otherwise defined herein.

 

1.5	Headings are inserted for convenience only and shall be disregarded in interpreting the Memorandum and these Articles.

 

2.	REGISTERED SHARES

 

2.1

Every Shareholder is entitled to a certificate signed by a director of the Company, or any other person authorised by Resolution of Directors, or under the Seal specifying the number of Shares held by him and the signature of the director, officer or authorised person and the Seal may be facsimiles.

 

2.2

Any Shareholder receiving a certificate shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a certificate for Shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by Resolution of Directors.

 

2.3	If several Eligible Persons are registered as joint holders of any Shares, any one of such Eligible Persons may give an effectual receipt for any Distribution.

 

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3.

SHARES

 

3.1	Subject to any restrictions on the issuing of Shares and other Securities contained herein, Shares and other Securities may be issued at such times, to such Eligible Persons, for such consideration and on such terms as the directors may by Resolution of Directors determine.

 

3.2	Section 46 of the Act (Pre-emptive rights) does not apply to the Company.

 

3.3	A Share may be issued for consideration in any form, including money, a promissory note, or other written obligation to contribute money or property, real property, personal property (including goodwill and know-how), services rendered or a contract for future services.

 

3.4

The consideration for a Share with par value shall not be less than the par value of the Share. If a Share with par value is issued for consideration less than the par value, the person to whom the Share is issued is liable to pay to the Company an amount equal to the difference between the issue price and the par value.

 

3.5	No Shares may be issued for a consideration other than money, unless a Resolution of Directors has been passed stating:

 

(a)

the amount to be credited for the issue of the Shares;

 

(b)

their determination of the directors of the reasonable present cash value of the non-money consideration for the issue; and

 

(c)

that, in the opinion, of the directors, the present cash value of the non-money consideration for the issue is not less than the amount to be credited for the issue of the Shares.

 

3.6	The Company shall keep a register (the “register of members”) containing:

 

(a)

the names and addresses of the Eligible Persons who hold Shares;

 

(b)

the number of each class and series of Shares held by each Shareholder;

 

(c)

the date on which the name of each Shareholder was entered in the register of members; and

 

(d)

the date on which any Eligible Person ceased to be a Shareholder.

 

3.7

The register of members may be in any such form as the directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until the directors otherwise determine, the magnetic, electronic or other data storage form shall be the original register of members.

 

3.8	A Share is deemed to be issued when the name of the Shareholder is entered in the register of members.

 

4.	REDEMPTION OF SHARES AND TREASURY SHARES

 

4.1

The Company may purchase, redeem or otherwise acquire and hold its own Shares save that the Company may not purchase, redeem or otherwise acquire its own Shares without the consent of Shareholders whose Shares are to be purchased, redeemed or otherwise acquired unless the Company is permitted by the Act or any other provision in the Memorandum or these Articles to purchase, redeem or otherwise acquire the Shares without their consent.

 

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4.2

The Company may only offer to purchase, redeem or otherwise acquire Shares if the Resolution of Directors authorising the purchase, redemption or other acquisition contains a statement that the directors are satisfied, on reasonable grounds, that immediately after the acquisition the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

 

4.3	Sections 60 (Process for acquisition of own shares), 61 (Offer to one or more shareholders) and 62 (Shares redeemed otherwise than at the option of company) of the Act shall not apply to the Company.

 

4.4

Shares that the Company purchases, redeems or otherwise acquires pursuant to this Regulation may be cancelled or held as Treasury Shares except to the extent that such Shares are in excess of fifty percent (50%) of the issued Shares in which case they shall be cancelled but they shall be available for reissue.

 

4.5	All rights and obligations attaching to a Treasury Share are suspended and shall not be exercised by the Company while it holds the Share as a Treasury Share.

 

4.6	Treasury Shares may be transferred by the Company on such terms and conditions (not otherwise inconsistent with the Memorandum and these Articles) as the Company may by Resolution of Directors determine.

 

4.7

Where Shares are held by another body corporate of which the Company holds, directly or indirectly, shares having more than fifty percent (50%) of the votes in the election of directors of the other body corporate, all rights and obligations attaching to the Shares held by the other body corporate are suspended and shall not be exercised by the other body corporate.

 

5.	MORTGAGES AND CHARGES OF SHARES

 

5.1	Shareholders may mortgage or charge their Shares.

 

5.2	There shall be entered in the register of members at the written request of the Shareholder:

 

(a)

a statement that the Shares held by him are mortgaged or charged;

 

(b)

the name of the mortgagee or chargee; and

 

(c)

the date on which the particulars specified in subparagraphs (a) and (b) are entered in the register of members.

 

5.3	Where particulars of a mortgage or charge are entered in the register of members, such particulars may be cancelled:

 

(a)

with the written consent of the named mortgagee or chargee or anyone authorised to act on his behalf; or

 

(b)

upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable.

 

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5.4	Whilst particulars of a mortgage or charge over Shares are entered in the register of members pursuant to this Regulation:

 

(a)

no transfer of any Share the subject of those particulars shall be effected;

 

(b)

the Company may not purchase, redeem or otherwise acquire any such Share; and

 

(c)

no replacement certificate shall be issued in respect of such Shares;

without the written consent of the named mortgagee or chargee.

 

6.	FORFEITURE

 

6.1	Shares that are not fully paid on issue are subject to the forfeiture provisions set forth in this Regulation and for this purpose Shares issued for a promissory note, other written obligation to contribute money or property or a contract for future services are deemed to be not fully paid.

 

6.2	A written notice of call specifying the date for payment to be made shall be served on the Shareholder who defaults in making payment in respect of the Shares.

 

6.3

The written notice of call referred to in Regulation 6.2 shall name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which the payment required by the notice is to be made and shall contain a statement that in the event of non-payment at or before the time named in the notice the Shares, or any of them, in respect of which payment is not made will be liable to be forfeited.

 

6.4	Where a written notice of call has been issued pursuant to Regulation 6.3 and the requirements of the notice have not been complied with, the directors may, at any time before tender of payment, forfeit and cancel the Shares to which the notice relates.

 

6.5	The Company is under no obligation to refund any moneys to the Shareholder whose Shares have been cancelled pursuant to Regulation 6.4 and that Shareholder shall be discharged from any further obligation to the Company.

 

7.	TRANSFER OF SHARES

 

7.1

Subject to any agreements binding on the Company, shares are transferable, and the Company will only register transfers of shares that are made in accordance with such agreements (if any) and will not register transfers of shares that are not made in accordance with such agreements (if any). The instrument of transfer of any share shall be in writing and shall be executed by or on behalf of the transferor, and containing the name and address of the transferee, which shall be sent to the Company for registration. 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.

 

7.2	The transfer of a Share is effective when the name of the transferee is entered on the register of members.

 

7.3	If the directors of the Company are satisfied that an instrument of transfer relating to Shares has been signed but that the instrument has been lost or destroyed, they may resolve by Resolution of Directors:

 

(a)

to accept such evidence of the transfer of Shares as they consider appropriate; and

 

(b)

that the transferee’s name should be entered in the register of members notwithstanding the absence of the instrument of transfer.

 

7.4	Subject to the Memorandum, the personal representative of a deceased Shareholder may transfer a Share even though the personal representative is not a Shareholder at the time of the transfer.

 

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8.	MEETINGS AND CONSENTS OF SHAREHOLDERS

 

8.1	Any director of the Company may convene meetings of the Shareholders at such times and in such manner and places within or outside the British Virgin Islands as the director considers necessary or desirable.

 

8.2	Upon the written request of Shareholders entitled to exercise 30 per cent or more of the voting rights in respect of the matter for which the meeting is requested the directors shall convene a meeting of Shareholders.

 

8.3	The director convening a meeting shall give not less than 7 days’ notice of a meeting of Shareholders to:

 

(a)

those Shareholders whose names on the date the notice is given appear as Shareholders in the register of members of the Company and are entitled to vote at the meeting; and

 

(b)

the other directors.

 

8.4

The director convening a meeting of Shareholders may fix as the record date for determining those Shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other date as may be specified in the notice, being a date not earlier than the date of the notice.

 

8.5

A meeting of Shareholders held in contravention of the requirement to give notice is valid if Shareholders holding at least 90 per cent of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a Shareholder at the meeting shall constitute waiver in relation to all the Shares which that Shareholder holds.

 

8.6	The inadvertent failure of a director who convenes a meeting to give notice of a meeting to a Shareholder or another director, or the fact that a Shareholder or another director has not received notice, does not invalidate the meeting.

 

8.7	A Shareholder may be represented at a meeting of Shareholders by a proxy who may speak and vote on behalf of the Shareholder.

 

8.8

The instrument appointing a proxy shall be produced at the place designated for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The notice of the meeting may specify an alternative or additional place or time at which the proxy shall be presented.

 

8.9	The instrument appointing a proxy shall be in substantially the following form or such other form as the chairman of the meeting shall accept as properly evidencing the wishes of the Shareholder appointing the proxy.

Momo Technology Company Limited

I/We being a Shareholder of the above Company HEREBY APPOINT                                          of                                          or failing him                                          of                                          to be my/our proxy to vote for me/us at the meeting of Shareholders to be held on the      day of             , 20     and at any adjournment thereof.

 

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(Any restrictions on voting to be inserted here.)

Signed this      day of             , 20    

 

		Shareholder

 

8.10	The following applies where Shares are jointly owned:

 

(a)

if two or more persons hold Shares jointly each of them may be present in person or by proxy at a meeting of Shareholders and may speak as a Shareholder;

 

(b)

if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners; and

 

(c)

if two or more of the joint owners are present in person or by proxy they must vote as one.

 

8.11	A Shareholder shall be deemed to be present at a meeting of Shareholders if he participates by telephone or other electronic means and all Shareholders participating in the meeting are able to hear each other.

 

8.12

A meeting of Shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than two thirds of the votes of the Shares (including not less than two thirds of the Preferred Shares) entitled to vote on Resolutions of Shareholders to be considered at the meeting. A quorum may comprise a single Shareholder or proxy and then such person may pass a Resolution of Shareholders and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy instrument shall constitute a valid Resolution of Shareholders.

 

8.13

Subject to Clause 9(f) of the Memorandum, if within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other time and place as the directors may determine, and subject to Clause 9(f) of the Memorandum and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the Shares or each class or series of Shares entitled to vote on the matters to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved.

 

8.14

At every meeting of Shareholders, the Chairman of the Board shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present at the meeting, the Shareholders present shall choose one of their number to be the chairman. If the Shareholders are unable to choose a chairman for any reason, then the person representing the greatest number of voting Shares present in person or by proxy at the meeting shall preside as chairman failing which the oldest individual Shareholder or representative of a Shareholder present shall take the chair.

 

8.15	The chairman may, with the consent of the meeting, adjourn any 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.

 

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8.16

At any meeting of the Shareholders the chairman is responsible for deciding in such manner as he considers appropriate whether any resolution proposed has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes of the meeting. If the chairman has any doubt as to the outcome of the vote on a proposed resolution, he shall cause a poll to be taken of all votes cast upon such resolution. If the chairman fails to take a poll then any Shareholder present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall cause a poll to be taken. If a poll is taken at any meeting, the result shall be announced to the meeting and recorded in the minutes of the meeting.

 

8.17

Subject to the specific provisions contained in this Regulation for the appointment of representatives of Eligible Persons other than individuals the right of any individual to speak for or represent a Shareholder shall be determined by the law of the jurisdiction where, and by the documents by which, the Eligible Person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any Shareholder or the Company.

 

8.18

Any Eligible Person other than an individual which is a Shareholder may by resolution of its directors or other governing body authorise such individual as it thinks fit to act as its representative at any meeting of Shareholders or of any class of Shareholders, and the individual so authorised shall be entitled to exercise the same rights on behalf of the Eligible Person which he represents as that Eligible Person could exercise if it were an individual.

 

8.19

The chairman of any meeting at which a vote is cast by proxy or on behalf of any Eligible Person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such Eligible Person shall be disregarded.

 

8.20	Directors of the Company may attend and speak at any meeting of Shareholders and at any separate meeting of the holders of any class or series of Shares.

 

8.21

An action that may be taken by the Shareholders at a meeting may also be taken by a resolution consented to in writing by all Shareholders without the need for any notice. The consent may be in the form of counterparts, each counterpart being signed by one or more Shareholders. If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the date upon which the last Shareholder has consented to the resolution by signed counterparts.

 

9.

DIRECTORS

 

9.1	The number of the directors at the date these articles come into effect shall be fixed at nine (9) who shall be appointed in accordance with Regulation 9.2.

 

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9.2	For so long as they are Shareholders in the Company:

 

(a)

Matrix shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “Matrix Directors”), initially to be David Ying Zhang and Harry Man.

 

(b)

AIL shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “AIL Directors”), initially to be Hongping Zhang and Yongming Wu.

 

(c)

Sequoia shall be entitled to nominate and elect one (1) directors of the Board of the Company (the “Sequoia Director”), initially to be Nanpeng Shen.

 

(d)

Yunfeng shall be entitled to nominate and elect one (1) directors of the Board of the Company (the “Yunfeng Director”), initially to be Feng Yu.

 

(e)

Tang Yan, one of the holders of Ordinary Shares, voting separately, shall be entitled to elect three (3) directors of the Board of the Company (the “Ordinary Share Directors”) , initially to be Tang Yan, Yong Li and Sichuan Zhang, and Tang Yan shall have five (5) votes for each of the matters submitted to the Board of Directors.

 

(f)

Tiger shall be entitled to appoint one (1) observer (the “Board Observer”) of the Board of the Company. The Board Observer shall have the right to (i) receive any notices, documents and information that the Company delivers to the members of the Board and (ii) attend and speak at meetings of the Board.

 

9.3	Each director holds office until his successor takes office or until his earlier death resignation or removal.

 

9.4	A director may be removed from office, with or without cause, by the Shareholders who elected such director and such Shareholder may also replace any director so removed.

 

9.5	The office of director shall be vacated if the director:

 

(a)

is removed from office by a resolution of Shareholders who appointed the such director; or

 

(b)

becomes bankrupt or makes any arrangement or composition with his creditors generally; or

 

(c)

becomes of unsound mind, or of such infirm health as to be incapable of managing his affairs; or

 

(d)

resigns his office by a notice in writing to the Company.

 

9.6

A director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company or from such later date as may be specified in the notice. A director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the Act.

 

9.7

Subject to Regulation 9.2, the directors may at any time appoint any person to be a director either to fill a vacancy or as an addition to the existing directors. Where the directors appoint a person as director to fill a vacancy, the term shall not exceed the term that remained when the person who has ceased to be a director ceased to hold office.

 

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9.8	A vacancy in relation to directors occurs if a director dies or otherwise ceases to hold office prior to the expiration of his term of office.

 

9.9

Where the Company only has one Shareholder who is an individual and that Shareholder is also the sole director of the Company, the sole Shareholder/director may, by instrument in writing, nominate a person who is not disqualified from being a director of the Company as a reserve director of the Company to act in the place of the sole director in the event of his death.

 

9.10	The nomination of a person as a reserve director of the Company ceases to have effect if:

 

(a)

before the death of the sole Shareholder/director who nominated him,

 

(i)

he resigns as reserve director, or

 

(ii)

the sole Shareholder/director revokes the nomination in writing; or

 

(b)

the sole Shareholder/director who nominated him ceases to be the sole Shareholder/director of the Company for any reason other than his death.

 

9.11	The Company shall keep a register of directors containing:

 

(a)

the names and addresses of the persons who are directors of the Company, or who have been nominated as reserve directors of the Company;

 

(b)

the date on which each person whose name is entered in the register was appointed as a director of the Company, or nominated as a reserve director of the Company;

 

(c)

the date on which each person named as a director ceased to be a director of the Company;

 

(d)

the date on which the nomination of any person nominated as a reserve director ceased to have effect; and

 

(e)

such other information as may be prescribed by the Act.

 

9.12

The register of directors may be kept in any such form as the directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until a Resolution of Directors determining otherwise is passed, the magnetic, electronic or other data storage shall be the original register of directors.

 

9.13	Subject to Clause 9(f) of the Memorandum, the directors may, by Resolution of Directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company.

 

9.14	A director is not required to hold a Share as a qualification to office.

 

10.	POWERS OF DIRECTORS

 

10.1

The business and affairs of the Company shall be managed by, or under the direction or supervision of, the directors of the Company. The directors of the Company have all the powers necessary for managing, and for directing and supervising, the business and affairs of the Company. The directors may pay all expenses incurred preliminary to and in connection with the incorporation of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the Shareholders.

 

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10.2

Each director shall exercise his powers for a proper purpose and shall not act or agree to the Company acting in a manner that contravenes the Memorandum, these Articles or the Act. Each director, in exercising his powers or performing his duties, shall act honestly and in good faith in what the director believes to be the best interests of the Company.

 

10.3

If the Company is the wholly owned subsidiary of a holding company, a director of the Company may, when exercising powers or performing duties as a director, act in a manner which he believes is in the best interests of the holding company even though it may not be in the best interests of the Company.

 

10.4	Any director which is a body corporate may appoint any individual as its duly authorised representative for the purpose of representing it at meetings of the directors, with respect to the signing of consents or otherwise.

 

10.5	The continuing directors may act notwithstanding any vacancy in their body.

 

10.6	The directors may by Resolution of Directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party.

 

10.7

All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by Resolution of Directors.

 

10.8

For the purposes of Section 175 (Disposition of assets) of the Act, the directors may by Resolution of Directors determine that any sale, transfer, lease, exchange or other disposition is in the usual or regular course of the business carried on by the Company and such determination is, in the absence of fraud, conclusive.

 

11.	PROCEEDINGS OF DIRECTORS

 

11.1	Any one director of the Company may call a meeting of the directors by sending a written notice to each other director.

 

11.2	The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable.

 

11.3	A director is deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other.

 

11.4

A director shall be given not less than 7 days’ notice of meetings of directors, but a meeting of directors held without 7 days’ notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend waive notice of the meeting, and for this purpose the presence of a director at a meeting shall constitute waiver by that director. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting.

 

11.5	A director may by a written instrument appoint an alternate who need not be a director and the alternate shall be entitled to attend meetings in the absence of the director who appointed him and to vote in place of the director until the appointment lapses or is terminated.

 

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11.6

A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than seven (7) directors, including one Matrix Director, one AIL Director, one director appointed by the holders of Series D Preferred Shares (the Sequoia Director or the Yunfeng Director), provided however that if at any time a duly convened meeting of Directors fails to get a quorum due to the absence of any of the Matrix Directors, the AIL Directors, or the director appointed by the holders of Series D Preferred Shares, the notice shall be duly delivered again for a second meeting, if at such second time, the quorum is still not present, those directors present shall be deemed a quorum provided that at such second meeting the business not included in the notice shall not be transacted.

 

11.7

If the Company has only one director the provisions herein contained for meetings of directors do not apply and such sole director has full power to represent and act for the Company in all matters as are not by the Act, the Memorandum or these Articles required to be exercised by the Shareholders. In lieu of minutes of a meeting the sole director shall record in writing and sign a note or memorandum of all matters requiring a Resolution of Directors. Such a note or memorandum constitutes sufficient evidence of such resolution for all purposes.

 

11.8	At meetings of directors at which the Chairman of the Board is present, he shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present, the directors present shall choose one of their members to be chairman of the meeting.

 

11.9

An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a Resolution of Directors or a resolution of a committee of directors consented to in writing by all directors or by all members of the committee, as the case may be, without the need for any notice. The consent may be in the form of counterparts each counterpart being signed by one or more directors. If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the date upon which the last director has consented to the resolution by signed counterparts.

 

12.	COMMITTEES

 

12.1	The directors may, by Resolution of Directors, designate one or more committees, each consisting of one or more directors, and delegate one or more of their powers, including the power to affix the Seal, to the committee.

 

12.2	The directors have no power to delegate to a committee of directors any of the following powers:

 

(a)

to amend the Memorandum or these Articles;

 

(b)

to designate committees of directors;

 

(c)

to delegate powers to a committee of directors;

 

(d)

to appoint or remove directors;

 

(e)

to appoint or remove an agent;

 

(f)

to approve a plan of merger, consolidation or arrangement;

 

(g)

to make a declaration of solvency or to approve a liquidation plan; or

 

(h)

to make a determination that immediately after a proposed distribution the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

 

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12.3	Regulations 12.2(b) and 12.2(c) do not prevent a committee of directors, where authorised by the Resolution of Directors appointing such committee or by a subsequent Resolution of Directors, from appointing a sub-committee and delegating powers exercisable by the committee to the sub-committee.

 

12.4

The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the Resolution of Directors establishing the committee.

 

12.5

Where the directors delegate their powers to a committee of directors they remain responsible for the exercise of that power by the committee, unless they believed on reasonable grounds at all times before the exercise of the power that the committee would exercise the power in conformity with the duties imposed on directors of the Company under the Act.

 

13.	OFFICERS AND AGENTS

 

13.1

The Company may by Resolution of Directors appoint officers of the Company at such times as may be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, the chief executive officer, a president and one or more vice-presidents, secretaries and treasurers and such other officers as may from time to time be considered necessary or expedient. Any number of offices may be held by the same person.

 

13.2

The officers shall perform such duties as are prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by Resolution of Directors. In the absence of any specific prescription of duties it shall be the responsibility of the Chairman of the Board to preside at meetings of directors and Shareholders, the president to manage the day to day affairs of the Company, the vice-presidents to act in order of seniority in the absence of the president but otherwise to perform such duties as may be delegated to them by the president, the secretaries to maintain the register of members, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the treasurer to be responsible for the financial affairs of the Company.

 

13.3	The emoluments of all officers shall be fixed by Resolution of Directors.

 

13.4

The officers of the Company shall hold office until their successors are duly appointed, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by Resolution of Directors. Any vacancy occurring in any office of the Company may be filled by Resolution of Directors.

 

13.5	The directors may, by Resolution of Directors, appoint any person, including a person who is a director, to be an agent of the Company.

 

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13.6

An agent of the Company shall have such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the Resolution of Directors appointing the agent, except that no agent has any power or authority with respect to the following:

 

(a)

to amend the Memorandum or these Articles;

 

(b)

to change the registered office or agent;

 

(c)

to designate committees of directors;

 

(d)

to delegate powers to a committee of directors;

 

(e)

to appoint or remove directors;

 

(f)

to appoint or remove an agent;

 

(g)

to fix emoluments of directors;

 

(h)

to approve a plan of merger, consolidation or arrangement;

 

(i)

to make a declaration of solvency or to approve a liquidation plan;

 

(j)

to make a determination that the company will, immediately after a proposed distribution, satisfy the solvency test; or

 

(k)

to authorise the Company to continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands.

 

13.7	The resolution of Directors appointing an agent may authorise the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.

 

13.8	The directors may remove an agent appointed by the Company and may revoke or vary a power conferred on him.

 

14.	CONFLICT OF INTERESTS

 

14.1	A director of the Company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose the interest to all other directors of the Company.

 

14.2

For the purposes of Regulation 14.1, a disclosure to all other directors to the effect that a director is a member, director or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry into the transaction or disclosure, of the interest, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction.

 

14.3	A director of the Company who is interested in a transaction entered into or to be entered into by the Company may:

 

(a)

vote on a matter relating to the transaction;

 

(b)

attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and

 

(c)

sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction,

and, subject to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit.

 

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15.	INDEMNIFICATION

 

15.1	Subject to the limitations hereinafter provided the Company shall indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who:

 

(a)

is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director of the Company; or

 

(b)

is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise.

 

15.2	The indemnity in Regulation 15.1 only applies if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful.

 

15.3	For the purposes of Regulation 15.2, a director acts in the best interest of the Company if he acts in the best interest of:

 

(a)

the Company’s holding company; or

 

(b)

a Shareholder or Shareholders of the Company;

in either case, in the circumstances specified in Regulation 10.3 or the Act, as the case may be.

 

15.4

The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of the Articles, unless a question of law is involved.

 

15.5

The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful.

 

15.6

Expenses, including legal fees, incurred by a director in defending any legal, administrative or investigative proceedings maybe paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the director is not entitled to be indemnified by the Company in accordance with Regulation 15.1.

 

15.7

Expenses, including legal fees, incurred by a former director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the former director to repay the amount if it shall ultimately be determined that the former director is not entitled to be indemnified by the Company in accordance with Regulation 15.1 and upon such terms and conditions, if any, as the Company deems appropriate.

 

15.8

The indemnification and advancement of expenses provided by, or granted pursuant to, this Regulation is not exclusive of any other rights to which the person seeking indemnification or advancement of expenses may be entitled under any agreement, Resolution of Shareholders, resolution of disinterested directors or otherwise, both as acting in the person’s official capacity and as to acting in another capacity while serving as a director of the Company.

 

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15.9

If a person referred to in Regulation 15.1 has been successful in defence of any proceedings referred to in Regulation 15.1, the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings.

 

15.10

The Company may purchase and maintain insurance in relation to any person who is or was a director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in the Articles.

 

16.

RECORDS

 

16.1	The Company shall keep the following documents at the office of its registered agent:

 

(a)

the Memorandum and these Articles;

 

(b)

the register of members, or a copy of the register of members;

 

(c)

the register of directors, or a copy of the register of directors; and

 

(d)

copies of all notices and other documents filed by the Company with the Registrar of Corporate Affairs in the previous 10 years.

 

16.2	Until the directors determine otherwise by Resolution of Directors the Company shall keep the original register of members and original register of directors at the office of its registered agent.

 

16.3	If the Company maintains only a copy of the register of members or a copy of the register of directors at the office of its registered agent, it shall:

 

(a)

within 15 days of any change in either register, notify the registered agent in writing of the change; and

 

(b)

provide the registered agent with a written record of the physical address of the place or places at which the original register of members or the original register of directors is kept.

 

16.4	The Company shall keep the following records at the office of its registered agent or at such other place or places, within or outside the British Virgin Islands, as the directors may determine:

 

(a)

minutes of meetings and Resolutions of Shareholders and classes of Shareholders;

 

(b)

minutes of meetings and Resolutions of Directors and committees of directors; and

 

(c)

an impression of the Seal.

 

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16.5

Where any original records referred to in this Regulation are maintained other than at the office of the registered agent of the Company, and the place at which the original records is changed, the Company shall provide the registered agent with the physical address of the new location of the records of the Company within 14 days of the change of location.

 

16.6	The records kept by the Company under this Regulation shall be in written form or either wholly or partly as electronic records complying with the requirements of the Electronic Transactions Act (No. 5 of 2001) as from time to time amended or re-enacted.

 

17.	REGISTER OF CHARGES

The Company shall maintain at the office of its registered agent a register of charges in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance created by the Company:

 

(a)

the date of creation of the charge;

 

(b)

a short description of the liability secured by the charge;

 

(c)

a short description of the property charged;

 

(d)

the name and address of the trustee for the security or, if there is no such trustee, the name and address of the chargee;

 

(e)

unless the charge is a security to bearer, the name and address of the holder of the charge; and

 

(f)

details of any prohibition or restriction contained in the instrument creating the charge on the power of the Company to create any future charge ranking in priority to or equally with the charge.

 

18.

SEAL

The Company shall have a seal. The Company may have more than one Seal and references herein to the Seal shall be references to every Seal which shall have been duly adopted by Resolution of Directors. The directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the registered office. Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of any one director or other person so authorised from time to time by Resolution of Directors. Such authorisation may be before or after the Seal is affixed, may be general or specific and may refer to any number of sealings. The directors may provide for a facsimile of the Seal and of the signature of any director or authorised person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been attested to as hereinbefore described.

 

19.	DISTRIBUTIONS BY WAY OF DIVIDEND

 

19.1

Subject to provisions in the Memorandum, the directors of the Company may, by Resolution of Directors, authorise a Distribution by way of dividend at a time and of an amount they think fit if they are satisfied, on reasonable grounds, that, immediately after the Distribution, the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due, provided, however, any such Distribution must be approved by all Ordinary Share Directors, and at least two (2) directors appointed by the holders of the Preferred Shares.

 

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19.2	Dividends may be paid in money, shares, or other property.

 

19.3	Notice of any dividend that may have been declared shall be given to each Shareholder as specified in Regulation 21.1 and all dividends unclaimed for 3 years after having been declared may be forfeited by Resolution of Directors for the benefit of the Company.

 

19.4	No dividend shall bear interest as against the Company and no dividend shall be paid on Treasury Shares.

 

20.	ACCOUNTS AND AUDIT

 

20.1	The Company shall keep records that are sufficient to show and explain the Company’s transactions and that will, at any time, enable the financial position of the Company to be determined with reasonable accuracy.

 

20.2

The Company may by Resolution of Shareholders call for the directors to prepare periodically and make available a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for a financial period and a true and fair view of the assets and liabilities of the Company as at the end of a financial period.

 

20.3	The Company may by Resolution of Shareholders call for the accounts to be examined by auditors.

 

20.4	Subject to provisions in the Memorandum, the first auditors shall be appointed by Resolution of Directors; subsequent auditors shall be appointed by a Resolution of Shareholders or by Resolution of Directors.

 

20.5	The auditors may be Shareholders, but no director or other officer shall be eligible to be an auditor of the Company during their continuance in office.

 

20.6	The remuneration of the auditors of the Company maybe fixed by Resolution of Directors.

 

20.7	The auditors shall examine each profit and loss account and balance sheet required to be laid before a meeting of the Shareholders or otherwise given to Shareholders and shall state in a written report whether or not:

 

(a)

in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the assets and liabilities of the Company at the end of that period; and

 

(b)

all the information and explanations required by the auditors have been obtained.

 

20.8	The report of the auditors shall be annexed to the accounts and shall be read at the meeting of Shareholders at which the accounts are laid before the Company or shall be otherwise given to the Shareholders.

 

20.9

Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors.

 

20.10

The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of Shareholders at which the Company’s profit and loss account and balance sheet are to be presented.

 

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21.

NOTICES

 

21.1	Subject to provisions in the Memorandum, any notice, information or written statement to be given by the Company to Shareholders may be given by personal service or by mail addressed to each Shareholder at the address shown in the register of members.

 

21.2

Subject to provisions in the Memorandum, any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.

 

21.3

Subject to provisions in the Memorandum, service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid.

 

22.	VOLUNTARY LIQUIDATION

Subject to provisions in the Memorandum, the Company may by Resolution of Shareholders appoint a voluntary liquidator.

 

23.	CONTINUATION

The Company may by Resolution of Shareholders or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws.

 

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EXHIBIT C

FORM OF THIRD AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

Exhibit C

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MOMO TECHNOLOGY COMPANY LIMITED

THIRD AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

This THIRD AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT (the “Agreement”) is made as of May 15^th, 2014 by and among Momo Technology Company Limited (the “Company”), the Investors listed on Schedule 1 attached to this Agreement (each an “Investor” and collectively the “Investors”), the Persons listed on Schedule 2(A) attached to this Agreement (each a “Founder” and collectively the “Founders”), the Persons listed on Schedule 2(B) attached to this Agreement (each a “Founder Holdco” and collectively the “Founder Holdcos”, and together with the Founders, the “Founder Parties”), Momo Technology HK Company Limited ( ) (the “HK Co”), Beijing Momo Technology Co., Ltd. ( ) (the “Domestic Company”), and Beijing Momo Information Technology Co., Ltd. ( ) (the “WFOE”). This Agreement shall be effective as to all parties as of the date hereof.

RECITALS

WHEREAS, the Company, the Investors (other than the Series D Investors), the Founders, the HK Co, the Domestic Company and the WFOE entered into a Second Amended and Restated Shareholders’ Agreement (the “Prior Shareholders’ Agreement”), dated October 8, 2013;

WHEREAS, the Company, the Series D Investors, the Founder Parties, the HK Co, the WFOE, and the Domestic Company entered into a Series D Preferred Share Purchase Agreement dated as of April 22, 2014 (the “Purchase Agreement”), pursuant to which each Series D Investor will purchase from the Company the corresponding number of Series D Preferred Shares as set forth on Schedule 1 attached to this Agreement; and

WHEREAS, the Purchase Agreement provides that the execution and delivery of this Agreement by the Parties shall be a condition precedent to the consummation of the transactions contemplated under the Purchase Agreement.

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

 

1.	DEFINITIONS.

For purposes of this Agreement, capitalized terms shall have the meanings set forth in Exhibit A attached hereto.

 

2.	REGISTRATION RIGHTS.

The registration rights of the Investors with respect to the Company and the rights and obligations of the Parties with respect to registration of the Company’s Ordinary Shares are set forth on Exhibit B attached hereto. The rights set forth in Exhibit B shall terminate upon the earlier of: (i) the date of the completion of a Liquidation Event, (ii) as to any Holder, when all Registrable Securities held by such Holder (together with any Affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under SEC Rule 144(k) within a ninety (90) day period, and (iii) the date that is five (5) years following the consummation of the Qualified IPO of the Company.

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3.	INFORMATION RIGHTS.

 

3.1	Delivery of Financial Statements.

The Company shall deliver to the Investors:

 

(a)

as soon as practicable, but in any event within ninety (90) days after the end of each financial year of the Company, (i) an audited annual consolidated balance sheet as of the last day of such year; (ii) an audited consolidated income statement for such year; and (iii) an audited consolidated statement of cash flows for such year; such year-end financial statements to be in reasonable detail, prepared in accordance with US GAAP or IFRS, acceptable to the Investors and consistently applied and in each case setting forth in comparative form figures for the previous year and audited and certified by independent public accountants of internationally recognized standing selected by the Company with the approval of the Board of Directors, including the affirmative consent of at least one (1) AIL Director, one (1) Matrix Director, the Sequoia Director and the Yunfeng Director, and accompanied by a report and opinion thereon by such independent public accountants;

 

(b)

as soon as practicable, but in any event within thirty (30) days after the end of each quarter of each financial year of the Company, (i) an unaudited consolidated balance sheet as of the last day of such quarter; (ii) an unaudited consolidated income statement for such quarter; and (iii) an unaudited consolidated statement of cash flows for such quarter;

 

(c)

as soon as practicable, but in any event forty-five (45) days prior to the end of each financial year, a proposed budget and business plan for the next financial year to be submitted to the Board for approval (collectively, the “Budget”), prepared on a monthly basis including, revenues, expenses, cash position, balance sheets and sources and applications of funds statements (including any anticipated or planned capital expenditure or borrowings) for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company;

 

(d)

with respect to the financial statements called for in Sections 3.1 (a), (b) and (c) an instrument executed by the chief executive officer or the financial controller of the Company and certifying that such financials were prepared in accordance with US GAAP or IFRS, acceptable to the Investors and consistently applied with prior practice for earlier periods (with the exception, for unaudited statements, such statements may be subject to normal year-end audit adjustments and exclude all footnotes required by applicable accounting standard). Management shall also provide an analysis of results, highlighting notable events and a thorough explanation of any material differences between actual figures, on the one hand and figures for the prior year and figures presented in the Budget on the other hand;

 

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(e)

such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investors or any assignee of the Investors may from time to time reasonably request, provided, however, that the Company shall not be obligated under this Section 3.1(e) to (i) provide information which the Company reasonably deems in good faith to be a trade secret or similar confidential information or (ii) would adversely affect the attorney-client privilege between the Company and its counsel;

 

(f)

if for any period the Company shall have any Subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated Subsidiaries; and

 

(g)

notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date that is sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of the registration effecting the IPO, to the extent required under the applicable rules of the jurisdiction in which the registration statement (or similar application for listing of the Ordinary Shares) is to be filed; provided that the Company is actively employing its reasonable best efforts to cause such registration statement to become effective.

 

3.2	Inspection.

The Company and any other Group Company shall permit the Investors, at the Investors’ expense, to visit and inspect the Company or any other Group Company’s properties, to examine its books of account and records and to discuss the Company or any other Group Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be reasonably requested by the Investors; provided, that, the Investors shall inform the Company ten (10) days prior to the inspection; provided, however, that the Company and any other Group Company shall not be obligated pursuant to this Section 3.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information, or would adversely affect the attorney-client privilege between the Company or any other Group Company and its counsel.

 

3.3	U.S. Tax Matters.

 

(a)

The Company shall, upon the request of any U.S. Investor, (a) determine, with respect to such taxable year whether the Company (or any of its Affiliates) is a passive foreign investment company (“PFIC”) as described in Section 1297 of the United States Internal Revenue Code of 1986, as amended (the “Code”) (including whether any exception to PFIC status may apply) or is or may be classified as a partnership or branch for U.S. federal income tax purposes, and (b) provide such information reasonably available to the Company as any U.S. Investor may reasonably request to permit such U.S. Investor to elect to treat the Company and/or any such entity (including a Subsidiary of the Company) as a “qualified electing fund” (within the meaning of Section 1295 of the Code) (a “QEF Election”) for U.S. federal income tax purposes. The Company shall also, reasonably promptly upon request, obtain and provide any and all other information reasonably deemed necessary by the U.S. Investor to comply with the provisions of this Section 3.3(a). The Company shall, upon the request of any U.S. Investor, appoint an internationally reputable accounting firm acceptable to the U.S. Investor to prepare and submit its U.S. tax filings.

 

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(b)

If a determination is made by the Company that the Company is a PFIC for a particular taxable year, then for such year and for each year thereafter, the Company shall also provide each known U.S. Investor within 60 days upon the request of such U.S. Investor with a completed “PFIC Annual Information Statement” as required by Treasury Regulation Section 1.1295-1(g) and any other information reasonably required by a U.S. Investor to comply with any reporting or other requirements in connection with the QEF Election.

 

(c)

The Company shall promptly provide the U.S. Investor with written notice if it (or any of its Subsidiaries) becomes aware that it is a controlled foreign corporation as described in Section 957 of the Code (“CFC”). The Company shall, upon the reasonable request of a U.S. Investor, furnish on a timely basis all information requested by the U.S. Investor to satisfy its U.S. federal income tax return filing requirements, if any, arising from its investment in the Company and relating to the Company or any Group Company’s classification as a CFC.

 

(d)

The Company, upon a reasonable request of any U.S. Investor, will comply and will cause its Subsidiaries to comply with all record-keeping, reporting, and other requests reasonably necessary for the Company and its Subsidiaries to allow such U.S. Investor to comply with any applicable U.S. federal income tax Law. The Company, will also provide any known U.S. Investor with any information reasonably requested to allow such U.S. Investor to comply with any applicable U.S. federal income tax Law (including but not limited to information relating to the transfer of any equity interests of the Company (or any Subsidiary) and the issuance or redemption by the Company (or any Subsidiary) of any equity interests).

 

(e)

The Company shall, if reasonably requested by a U.S. Investor, cooperate in determining whether it would be desirable, reasonable and appropriate for the Company and/or any Subsidiary to elect to be classified as a partnership or branch for U.S. federal income tax purposes and, if so, to take all reasonable steps to cause any such elections to be made, including by filing or by causing to be filed, Internal Revenue Service Form 8832 (or any successor form), and the Company shall not permit such election, once made, to be terminated or revoked without the written consent of the U.S. Investor; provided that the Company shall notify all U.S. Investors prior to the making of any such election.

 

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(f)

The Company shall, and shall cause each Group Company to, timely and accurately file tax returns in each jurisdiction in which such returns are required to be filed.

 

(g)

All out-of-pocket expenses incurred by the Company or any Subsidiary, resulting from the affirmative requests of a U.S. Investor pursuant to Sections 3.3(a)-(f) above, shall be borne by the Company.

 

3.4	Termination of Information and Inspection.

The covenants set forth in Section 3.1 and Section 3.2 shall terminate and be of no further force or effect immediately prior to (i) the consummation of the sale of Ordinary Shares in the Company’s Qualified IPO, or (ii) upon a Liquidation Event, whichever event shall first occur.

 

3.5	Confidentiality.

 

(a)

The Investors agree that they will keep confidential and will not disclose, divulge or use for any purpose, other than to monitor its investment in the Company, any confidential information obtained from the Company pursuant to the terms of this Agreement, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.5(a) by the Investors), (ii) is or has been independently developed or conceived by the Investors without use of the Company’s confidential information or (iii) is or has been made known or disclosed to the Investors by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that each Investor may disclose confidential information (a) to its legal advisers, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring their investment in the Company, (b) to any prospective investor of any Registrable Securities from such Investor as long as such prospective investor agrees to be bound by the provisions of this Section 3.5(a), (c) to any partner, member, shareholder, fund manager or wholly owned Subsidiary of such Investor or their respective Affiliates in such Investor’s ordinary course of business, or (d) as may otherwise be required by law, provided that such Investor takes reasonable steps to minimize the extent of any such required disclosure, and provided that such Investor ensures that all such Persons named above to whom such Investor discloses confidential information are bound by the same provisions of this Section 3.5(a).

 

(b)

The Company agrees that it will keep confidential and will not disclose, divulge or use for any purpose, other than for the discharge of its obligations under this Agreement, any confidential information obtained from the Investors pursuant to the terms of this Agreement, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.5(b) by the Company), (ii) is or has been independently developed or conceived by the Company without use of the Investors’ confidential information or (iii) is or has been made known or disclosed to the Company by a third party without a breach of any obligation of confidentiality such third party may have to the Investors; provided, however, that the Company may disclose confidential information (a) to its legal advisers, accountants, consultants, and other professionals to the extent necessary for the discharge of their obligations under this Agreement, (b) to any Affiliate, partner, member, shareholder or wholly-owned Subsidiary of the Company in the ordinary course of business, or (c) as may otherwise be required by Law, provided that the Company takes reasonable steps to minimize the extent of any such required disclosure, and provided that the Company ensures that all such Persons named above to whom the Company discloses confidential information are bound by the same provisions of this Section 3.5(b).

 

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4.	RIGHT OF FIRST OFFER.

 

4.1	Right of First Offer.

Subject to the terms and conditions specified in this Section 4.1 and applicable securities laws, in the event the Company proposes to offer or sell any Additional Equity Securities, the Company shall first make an offering of such Additional Equity Securities (the “Offered Securities”) to the Founder Holdcos and the Investors (the “Offerees”) in accordance with the following provisions of this Section 4.1. Any Offeree shall be entitled to apportion the right of first offer hereby granted to it among their partners, members and Affiliates in such proportions as it deems appropriate.

 

(a)

The Company shall deliver a notice, in accordance with the provisions of Section 8.4 hereof, (the “Offer Notice”) to the Offerees stating (i) its bona fide intention to offer such Offered Securities, (ii) the number of such Offered Securities to be offered to the Offerees, and (iii) the price and terms, if any, upon which it proposes to offer such Offered Securities.

 

(b)

By written notification received by the Company, within twenty (20) calendar days after mailing of the Offer Notice, each Offeree may elect to purchase or obtain its pro-rata share of the Offered Securities, at the price and on the terms specified in the Offer Notice. For purpose of this Section 4.1(b), the “pro-rata share” shall be the ratio of (a) the number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) held by such Offeree, bearing to (b) the total number of Ordinary Shares of the Company (calculated on a fully-diluted and as-converted basis) then outstanding immediately prior to the issuance of Additional Equity Securities. The Company shall promptly, in writing, inform each Offeree that elects to purchase all the shares available to it (each, a “Fully-Exercising Holder”) of any other Offeree’s failure to do likewise. During the ten (10) day-period commencing immediately after receipt of such information, each Fully-Exercising Holder shall be entitled to obtain that portion of the Offered Securities for which any of the Offerees were entitled to subscribe but which were not subscribed for by the Offerees which is equal to the proportion calculated by dividing the number of Ordinary Shares issued and held, or issuable upon conversion of Preferred Shares then held by such Fully-Exercising Holder by the total number of Ordinary Shares issued and held, or issuable upon conversion of the Preferred Shares then held by all Fully-Exercising Holders who wish to purchase such unsubscribed Offered Securities.

 

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(c)

If all Offered Securities referred to in the Offer Notice are not elected to be purchased or obtained as provided in Section 4.1(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in Section 4.1(b) hereof, offer the remaining unsubscribed portion of such Offered Securities (collectively, the “Refused Securities”) to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the Offered Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Offered Securities shall not be offered to any Person unless first reoffered to the Offerees in accordance with this Section 4.1.

 

(d)

The right of first offer set forth in this Section 4.1 may not be assigned or transferred except that such right is assignable by an Investor to any Affiliate of such Investor.

 

4.2	Termination.

The provisions of this Section 4 shall terminate upon the earlier of: (a) the consummation of a Qualified IPO or (b) upon a Liquidation Event.

 

5.	BOARD COMPOSITION AND VOTING MATTERS.

 

5.1	Board Composition.

Each Shareholder agrees to vote all of his, her or its Shares in the Company (whether now owned or hereafter acquired or which the Shareholder may be empowered to vote), from time to time and at all times, in whatever manner shall be necessary to ensure that at each annual or special meeting of shareholders at which an election of directors is held or pursuant to any written consent of the shareholders, the following persons shall be elected to the Board:

 

(a)

AIL shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “AIL Directors”), initially to be Hongping Zhang and Yongming Wu.

 

(b)

Matrix shall be entitled to nominate and elect two (2) directors of the Board of the Company (the “Matrix Directors”), initially to be David Ying Zhang and Harry Man.

 

(c)

Sequoia shall be entitled to nominate and elect one (1) director of the Board of the Company (the “Sequoia Director”), initially to be Nanpeng Shen.

 

(d)

Yunfeng shall be entitled to nominate and elect one (1) director of the Board of the Company (the “Yunfeng Director”), initially to be Feng Yu.

 

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(e)

Tang Yan, one of the holders of Ordinary Shares, shall be entitled to elect three (3) directors of the Board of the Company (the “Ordinary Share Directors”), initially to be Tang Yan, Yong Li and Sichuan Zhang, and Tang Yan shall have five (5) votes for each of the matters submitted to the Board of Directors.

 

(f)

Tiger shall be entitled to appoint one (1) observer (the “Board Observer”) of the Board of the Company. The Board Observer shall have the right to (i) receive any notices, documents and information that the Company delivers to the members of the Board and (ii) attend and speak at meetings of the Board.

 

5.2	Size of the Board; Subsidiaries.

Each Shareholder agrees to vote all of its Shares from time to time and at all times, in whatever manner shall be necessary to ensure that the size of the Board shall be set at nine (9) directors. It is further agreed that, upon request of the Investors and to the extent legally feasible, the Investors shall be entitled to appoint the same number of directors to any Subsidiaries of the Company (other than the Domestic Company) as determined in accordance with Section 5.1. The Company and the Founder Parties shall procure that such nominee(s) are appointed to the relevant boards of directors.

 

5.3	Removal of Board Members.

Each Shareholder also agrees to vote all of his, her or its Shares from time to time and at all times in whatever manner as shall be necessary to ensure that (i) no director elected pursuant to Section 5.1 of this Agreement may be removed from office unless (A) such removal is directed or approved by the affirmative vote of the holders of fifty percent (50%) or more of the shares entitled under Section 5.1 to designate that director or (B) the person(s) or entity(ies) originally entitled to designate or approve such director or occupy such Board seat pursuant to Section 5.1 is no longer so entitled to designate or approve such director or occupy such Board seat; and (ii) any vacancies created by the resignation, removal or death of a director elected pursuant to Section 5.1 shall be filled pursuant to the provisions of Section 5.1. All Shareholders agree to execute any written consents required to effectuate the obligations of this Agreement, and the Company agrees at the request of any Shareholder entitled to designate directors to call a special meeting of shareholders for the purpose of electing directors.

 

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5.4

Drag-Along Right. In the event that at any time following the Closing, (x) the Majority Preferred Holders, (y) the Majority Ordinary Holders and (z) in the case of any Sale of the Company (as defined below) where the valuation of the Company is not greater than US$2,100,000,000, holders of a majority of the Series D Preferred Shares, approve either: (A) a transaction or series of related transactions in which a Person, or a group of related Persons, acquires all or substantially all of the equity or assets or undertaking of the Company, or (B) a transaction that qualifies as a Liquidation Event (such events described in subsections (A) and (B) are referred to in this Agreement as a “Sale of the Company”), then each Shareholder hereby agrees with respect to all Shares that he, she or it holds and any other Company securities over which he, she or it otherwise exercises dispositive power:

 

(a)

in the event the Sale of the Company requires the approval of shareholders, (a) if the matter is to be brought to a vote at a shareholder meeting, after receiving proper notice of any meeting of shareholders of the Company to vote on the approval of a Sale of the Company, to be present, in person or by proxy, as a holder of Shares, at all such meetings and be counted for the purposes of determining the presence of a quorum at such meetings; and (b) to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of such Sale of the Company and in opposition of any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;

 

(b)

in the event that the Sale of the Company is to be effected by the sale of Shares held by another Shareholder (the “Selling Shareholder”), should be obliged to sell all shares of the Company beneficially held by such Shareholder (or in the event that the Selling Shareholder is selling fewer than all of its shares held in the Company, shares in the same proportion as the Selling Shareholder is selling) to the person to whom the Selling Shareholder propose to sell its shares, for the same per-share consideration (on an as-converted basis) and on the same terms and conditions as the Selling Shareholder, except that the Shareholder will not be required to sell its shares unless the liability for indemnification, if any, of the Shareholder in such Sale of the Company is several, not joint, and is pro rata in accordance with the Shareholder’s relative share ownership of the Company, and will not exceed the consideration payable to the Shareholder, if any, in such transaction (except in the case of potential liability for fraud or willful misconduct by the Shareholder);

 

(c)

to refrain from exercising any dissenters’ rights or rights of appraisal under applicable Law at any time with respect to such Sale of the Company;

 

(d)

to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company; and

 

(e)

not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any voting securities owned by such Party or Affiliate in a voting trust or subject any such voting securities to any arrangement or agreement with respect to the voting of such securities, unless specifically requested to do so by the acquiror in connection with a Sale of the Company.

 

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5.5	Increase in Authorized Capital.

Each Shareholder agrees to vote all of its Shares from time to time and at all times, in whatever manner shall be necessary to authorize an increase in the authorized number of shares of the Company so that there will be sufficient Ordinary Shares available for conversion of all of the then-outstanding Preferred Shares at any time that an adjustment to the relevant conversion price with respect to the Preferred Shares is made under the Articles.

 

5.6	Specific Enforcement.

Each Shareholder acknowledges and agrees that each Party hereto will be irreparably damaged in the event any of the provisions of this Section 5 are not performed by the Shareholder in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that each of the Company and the Shareholders shall be entitled to an injunction to prevent breaches of this Section 5 and to specific enforcement of this Section 5 and its terms and provisions in any action instituted in any court of competent jurisdiction, in addition to any other remedy to which the Parties may be entitled at law or in equity. Each of the Parties to this Agreement hereby consents to personal jurisdiction in any such action brought in the courts of Hong Kong.

 

5.7

Term.

The provisions of this Section 5 shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the earlier to occur of (a) the consummation of a Qualified IPO, or (b) a Liquidation Event; provided, however, that the provisions of Section 5.6 shall survive until the Investors have converted all of their Preferred Shares into Ordinary Shares.

 

6.	RIGHT OF FIRST REFUSAL, CO-SALE AND RESTRICTIONS ON SALE.

 

6.1	Restrictions on Transfer.

 

(a)

Transfer of Shares.

Subject to Section 6.6, any proposed assignment, sale, offer to sell, pledge, mortgage, hypothecation, encumbrance, disposition of or any other like transfer or encumbering, through one or a series of transactions, of any interest in any Shares now or hereafter owned or held by a Shareholder, either directly or indirectly (in each case, a “Proposed Transfer”) shall be made in compliance with the terms of this Section 6. For avoidance of doubt, any change in the equity interest of a non-Investor Shareholder that is an entity, including without limitation as a result of (i) the issuance or redemption by such non-Investor Shareholder of any portion of its outstanding shares or equity, or (ii) a transfer of such non-Investor Shareholder’s equity by its equity holder, shall constitute a “Proposed Transfer” for purposes of this Agreement.

 

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(b)

Prohibition on Transfer of Ordinary Shares.

In addition to the restrictions set forth in Sections 6.2 and 6.3, from the date hereof until the earlier of (i) the date that is thirty-six (36) months following the Closing and (ii) the consummation of a Qualified IPO, each of the Founder Holdcos agrees and undertakes to the Investors that it will not sell, assign, pledge, hypothecate, encumber or otherwise transfer any Ordinary Shares of the Company and each of the Founders agrees and undertakes to the Investors that it will not dilute any beneficial ownership, control and discretion over any Ordinary Shares of the Company, either directly or through the Founder Holdco legally and beneficially owned by such Founder, without an affirmative vote by at least two thirds (2/3) of the Directors (including at least one (1) AIL Director, one (1) Matrix Director, the Sequoia Director and the Yunfeng Director). Notwithstanding the foregoing but subject to compliance by a prospective transferee with the requirements of Section 8.10(b), the restrictions on transfer set forth in this Section 6 shall not apply to

 

(i)

a transfer in connection with a Sale of the Company as provided in Section 5.4;

 

(ii)

an exempt transfer that meets the requirements set forth in Section 6.6.

For avoidance of doubt, any proposed direct or indirect transfer by a Founder of an equity interest in any Ordinary Shares, including without limitation any transfer or issuance of an equity interest in the Founder Holdco legally and beneficially owned by such Founder, shall constitute a transfer for purposes of this Section 6.1(b).

 

6.2	Right of First Refusal.

 

(a)

Grant.

Subject to the provisions of the Companies Act and any other applicable Law, each Shareholder (each a “Transferor”) hereby unconditionally and irrevocably grants to the other non-transferring Shareholders (each an “Eligible Holder”) a right of first refusal (the “Right of First Refusal”) to purchase its pro-rata share of the Shares to be included in a Proposed Transfer (the “Transfer Shares”) at the same price and on the same terms and conditions as those offered to the proposed transferee (the “Prospective Transferee”); provided, however, that the shareholding percentage of AIL in the Company after exercising its Right of First Refusal shall be no more than 25% (calculated on a fully-diluted and as-converted basis). In the event that the shareholding percentage of AIL in the Company shall be in excess of 25% (calculated on a fully-diluted and as-converted basis) solely due to exercising its Right of First Refusal under this Section 6.2(a), prior consent from Tang Yan shall be required. For purpose of this Section 6.2(a), the “pro-rata share” shall be the ratio of (i) the number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) held by each Eligible Holder, to (ii) the total number of Ordinary Shares of the Company (calculated on a fully-diluted and as-converted basis) held by all Eligible Holders immediately prior to the Proposed Transfer. Each Eligible Holder shall be entitled to apportion the Right of First Refusal granted to it under this Section 6.2 among its partners, members and Affiliates in such proportions as it deems appropriate. In the event of a conflict between this Agreement and any other agreement that may have been entered into by a Shareholder with the Company that contains a preexisting right of first refusal, the terms of this Agreement shall control and the preexisting right of first refusal shall be deemed satisfied by compliance with this Section 6.2(a).

 

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(b)

Notice.

Each Transferor must deliver a notice (the “Proposed Transfer Notice”) to the Company and the Eligible Holders not later than forty-five (45) days prior to the proposed closing date of such Proposed Transfer as set forth in the Proposed Transfer Notice. Such Proposed Transfer Notice shall contain the material terms and conditions of the Proposed Transfer, amount of Shares proposed to be transferred, the proposed closing date of such Proposed Transfer and the identity of the Prospective Transferee.

 

(c)

To exercise its respective Right of First Refusal, an Eligible Holder must deliver a notice (an “Exercise Notice”) to the Transferor and the Company within ten (10) days (the “Investor Notice Period”) after receipt of the Proposed Transfer Notice. Such right shall at all times be exercised in accordance with the provisions of the Companies Act and any other applicable Laws. Failure by an Eligible Holder to give notice within the Investor Notice Period shall be deemed to constitute a decision by the Investor not to exercise its Right of First Refusal.

 

(d)

Undersubscription of Transfer Shares.

If any Eligible Holder does not elect to exercise its Right of First Refusal in full pursuant to Section 6.2(a) by the end of the Investor Notice Period, then the Company shall, immediately after the expiration of the Investor Notice Period, send written notice (the “Undersubscription Notice”) to those Eligible Holders who fully exercised their Right of First Refusal pursuant to Section 6.2(a) within the Investor Notice Period (the “Exercising Eligible Holders”). Each Exercising Eligible Holders shall have an additional option to purchase all or any part of such unsubscribed Transfer Shares (the “Unsubscribed Shares”) on the terms and conditions set forth in the Proposed Transfer Notice. To exercise such option, an Exercising Eligible Holder must deliver a written notice to the Transferor and the Company within ten (10) days after the receipt of the Undersubscription Notice. In the event two or more Exercising Eligible Holders choose to exercise the last-mentioned option for a total number of Shares in excess of the Unsubscribed Shares, the Unsubscribed Shares shall be allocated to the Exercising Eligible Holders pro rata based on the number of Shares such Exercising Eligible Holders have elected to purchase. If all Transfer Shares are purchased in full by the Exercising Eligible Holders, the Company shall immediately notify all of the Eligible Holders of that fact.

 

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(e)

Consideration; Closing.

If the consideration proposed to be paid for the Transfer Shares is in property, services or other non-cash consideration, the fair market value of the consideration shall be determined in good faith by the Board. If any Eligible Holder cannot, for any reason, pay for the Transfer Shares, in the same form of non-cash consideration, such Eligible Holder may pay the cash value equivalent thereof, as determined by the Board. The closing of the purchase of the Transfer Shares by the Eligible Holder shall take place, and all payments from the Eligible Holders shall have been delivered to the Transferor, by the later of (i) the date specified in the Proposed Transfer Notice as the intended closing date of the Proposed Transfer and (ii) forty-five (45) days after delivery of the Proposed Transfer Notice.

 

6.3	Right of Co-Sale.

 

(a)

If any Transfer Shares subject to a Proposed Transfer are not purchased pursuant to Section 6.2 above (the “Co-Sale Eligible Shares”), each Eligible Holder who has not exercised its rights under Section 6.2 (each, a “Co-Sale Eligible Holder”) may elect to exercise its right of co-sale (a “Right of Co-Sale”) and participate on a pro-rata basis in the Proposed Transfer on the same terms and conditions specified in the Proposed Transfer Notice. To exercise its Right of Co-Sale, the Co-Sale Eligible Holder must give the Transferor and the Company written notice to that effect within fifteen (15) calendar days (the “Co-Sale Period”) after receiving the Proposed Transfer Notice as provided in Section 6.2(b), and upon giving such notice the Co-Sale Eligible Holder shall be deemed to have effectively exercised its respective Right of Co-Sale.

 

(b)

Each Co-Sale Eligible Holder, by timely exercising its Right of Co-Sale (each Co-Sale Eligible Holder exercising its Right of Co-Sale, an “Exercising Co-Sale Holder”), may include in the Proposed Transfer all or any part of its Shares not to exceed the product obtained by multiplying (i) the aggregate number of Co-Sale Eligible Shares by (ii) a fraction, the numerator of which is the number of Shares owned by such Exercising Co-Sale Holder immediately before consummation of the Proposed Transfer and the denominator of which is the total number of Shares owned by the Transferor and all Exercising Co-Sale Holders immediately prior to the consummation of the Proposed Transfer. To the extent that one or more of the Co-Sale Eligible Holders exercises such right of participation in accordance with the terms and conditions set forth herein, the number of Co-Sale Eligible Shares that the Transferor may sell in the Proposed Transfer shall be correspondingly reduced.

 

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(c)

The sale of the Co-Sale Eligible Shares and remaining Transfer Shares shall occur within twenty-five (25) calendar days from the beginning of the Co–Sale Period (the “Co-Sale Closing”). An Exercising Co-Sale Holder shall effect its participation in the Proposed Transfer by delivering to the Transferor at the Co-Sale Closing one or more share certificate(s) together with other necessary documents required by the registered agent of the Company for a share transfer to the Prospective Transferee, which share certificate(s) shall represent:

 

(i)

the number of Ordinary Shares that such Exercising Co-Sale Holder elect to include in the Proposed Transfer; or

 

(ii)

the number of the Preferred Shares that are at such time convertible into the number of Ordinary Shares that such Exercising Co-Sale Holder elects to include in the Proposed Transfer; provided, however, that if the Prospective Transferee objects to the delivery of convertible Preferred Shares in lieu of Ordinary Shares, such Exercising Co-Sale Holder shall first convert the Preferred Shares into Ordinary Shares and deliver Ordinary Shares as provided above. The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such shares to the Prospective Transferee.

 

(d)

The terms and conditions of any sale pursuant to this Section 6.3 will be contained in, and governed by, a written purchase and sale agreement with customary terms and provisions for such a transaction.

 

(e)

The securities to be sold by the Transferor and the Exercising Co-Sale Holders pursuant to this Section 6.3 will be transferred to the Prospective Transferee against payment therefor pursuant to the terms and conditions specified in the Proposed Transfer Notice and the purchase and sale agreement set forth in Section 6.3(d), and the Transferor shall remit to each Exercising Co-Sale Holders of the sale proceeds to which such Exercising Co-Sale Holders is entitled by reason of its participation in such sale. If any Prospective Transferee refuses to purchase securities subject to the Right of Co-Sale from any Exercising Co-Sale Holder, no Transferor may sell any Transfer Shares to such Prospective Transferee unless and until, simultaneously with such sale, such Transferor purchases all securities subject to the Right of Co-Sale from such Exercising Co-Sale Holders.

 

(f)

For avoidance of doubt, the Right of Co–Sale shall not apply with respect to Transfer Shares sold or to be sold to the Eligible Holders under the Right of First Refusal in Section 6.2.

 

6.4	Proposed Transfer—Compliance Period.

If any Proposed Transfer is not consummated within seventy-five (75) days after receipt of the Proposed Transfer Notice by the Company and the Eligible Holders, the Transferor proposing to make a Proposed Transfer may not sell any Transfer Shares unless such Transferor complies in full with each provision of this Section 6. The exercise or election not to exercise any right by the Investors hereunder shall not adversely affect its right to participate in any other sales of Transfer Shares subject to this Section 6.

 

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6.5	Effect of Failure to Comply.

 

(a)

Any Proposed Transfer not made in compliance with the requirements of this Agreement (including without limitation this Section 6) shall be null and void ab initio, shall not be recorded on the books or register of the Company or its transfer agent and shall not be recognized by the Company. Each Party hereto acknowledges and agrees that any breach of this Agreement would result in substantial harm to the other Parties hereto for which monetary damages alone could not adequately compensate. Therefore, the Parties hereto unconditionally and irrevocably agree that any non-breaching Party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity (including, without limitation, seeking specific performance or the rescission of purchases, sales and other transfers of Shares not made in strict compliance with this Agreement).

 

(b)

If any Founder becomes obligated to sell any Shares to the Company under this Agreement and fails to deliver such Shares in accordance with the terms of this Agreement, the Company may, at its option, in addition to all other remedies it may have, send to such Founder the purchase price for such Shares as is herein specified and cancel on its books or registers the certificate or certificates representing the Shares to be sold.

 

(c)

If any Founder purports to sell any Shares in contravention of the Right of Co-Sale (a “Prohibited Transfer”), the Investors, in addition to such remedies as may be available by law, in equity or hereunder, is entitled to require such Transferor to purchase Shares from the Investors, as provided below, and such Transferor will be bound by the terms of such option. If a Transferor makes a Prohibited Transfer, the Investors, upon timely exercise of their Right of Co-Sale under Section 6.3, may require such Transferor to purchase from the Investors the type and number of Shares that the Investors would have been entitled to sell to the Prospective Transferee under Section 6.3 had the Prohibited Transfer been effected pursuant to and in compliance with the terms of Section 6.3. The sale will be made on the same terms and subject to the same conditions as would have applied had the Transferor not made the Prohibited Transfer, except that the sale (including, without limitation, the delivery of the purchase price) must be made within ninety (90) days after the Investors learn of the Prohibited Transfer, as opposed to the timeframe prescribed in Section 6.3. Such Transferor shall also reimburse the Investors for any and all fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Investors’ rights under Section 6.3.

 

6.6	Exempt Transfers.

Notwithstanding the foregoing or anything to the contrary herein, the provisions of Section 6.1(b), Section 6.2 and Section 6.3 shall not apply: (i) to a repurchase of Shares from a Transferor by the Company at a price no greater than that originally paid by such Transferor for such Shares and pursuant to an agreement containing vesting and/or repurchase provisions approved by a majority of the Board, (ii) in the case of a Transferor that is a natural person, upon a transfer of Shares by such Transferor, either during his or her lifetime or on death by will or intestacy, to his or her Immediate Family Members or any other relatives approved by the Board of the Company, or any custodian or trustee for the account of a Transferor or a Transferor’s Immediate Family Members, (iii) the sale of any Shares to the public in a Qualified IPO or in connection with a Sale of the Company, or (iv) subject to Section 7.3(b)(i), any transfer of Shares by an Investor to its Affiliate.

 

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6.7	Transfer upon Early Termination of Employment

Each Founder hereby confirms and agrees that, in the event such Founder’s employment or consulting relationship with the Company is terminated before April 17, 2015, such Founder shall forfeit 50% of his beneficial equity interest in the Company by transferring 50% of the Ordinary Shares held by the Founder Holdco which is legally and beneficially owned by such Founder to the Company at a price of USD0.0001 per share or such lowest price permitted under applicable Law. In the event such Founder’s employment or consulting relationship with the Company is terminated after April 17, 2015 but before April 17, 2016, such Founder shall forfeit25% of his beneficial equity interest in the Company by transferring 25% of the Ordinary Shares held the Founder Holdco legally and beneficially owned by such Founder to the Company for a price of USD0.0001 per share or such lowest price permitted under applicable Law. For purpose of this Section 6.7, the calculation of number of Ordinary Shares to be transferred pursuant to this Section 6.7 shall be based on the aggregate number of Ordinary Shares held by each Founder Holdco immediately after the Closing. Nothing in this Section 6.7 shall be deemed to limit any rights or remedies available to the Company or any of the Investors in connection with any employment, consulting, service or other agreement entered into by a Founder or Founder Holdco.

 

6.8

Term.

The provisions of this Section 6 (other than Section 6.7) shall terminate upon the earlier of (i) the consummation of a Qualified IPO and (ii) the occurrence of a Liquidation Event.

 

7.	ADDITIONAL COVENANTS.

 

7.1	Share Incentive Plan.

Unless approved by the Board, all officers, directors, employees and consultants of the Company who shall purchase, or receive options to purchase, shares of the Company under the share incentive option plan adopted by the Company’s shareholders on November 1, 2012, as amended and restated on October 9, 2013 (the “Share Plan”) under which the Company may reserve not more than 44,758,220 Ordinary Shares (the “Plan Share Limit”) for issuance to its officers, directors, employees and consultants shall be required to execute share purchase or option agreements providing for (i) vesting of shares over not less than a four-year period with the first twenty five percent (25%) of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, and (ii) a one-hundred eighty (180) day lockup period in connection with the Company’s Qualified IPO. The Company shall retain a “right of first refusal” on employee transfers until the Company’s Qualified IPO and the right to repurchase unvested shares at cost.

 

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Without the approval of the holders representing at least eighty-five percent (85%) of the then outstanding Preferred Shares (voting together as a single class on an as-converted basis), the Company shall not (i) grant any option or other equity-based awards to any person with the underlying Shares representing 0.5% or more of the total share capital of the Company on a single basis, (ii) grant any option or other equity-based awards to any person with the underlying Shares representing 1% or more of the total share capital of the Company on a cumulative basis; or (iii) grant any option or other equity-based awards to any person that is not in standard terms of the employee share option plans with respect to the vesting schedule, the exercise price or any other aspects. Notwithstanding anything contained herein to the contrary, without the approval of each of the Investors, the Company shall not (i) increase the Plan Share Limit or (ii) approve any new equity-based compensation plan or any bonus or incentive plan.

Schedule 4 sets forth the capitalization of the Company immediately following the Closing including the number of shares of the following: (i) issued and outstanding Ordinary Shares, including, with respect to restricted Ordinary Shares (if any), vesting schedule and repurchase price; (ii) Ordinary Shares reserved for issuance under the Share Plan; (iii) each series of Preferred Shares; and (iv) warrants or stock purchase rights, if any.

 

7.2

Publicity. Without the prior written consent of AIL, each of the Group Companies, each of the holders of Ordinary Shares, and each Investor (other than AIL) shall not, and each foregoing Person shall cause any of its Affiliates to not, (i) use in advertising, publicity, announcements, or otherwise, the name of AIL or any Affiliate of AIL, including without limitation,  “ ” (Chinese equivalent for “Alibaba”), “ ”(Chinese equivalent for “Taobao”), “ ” (Chinese equivalent for “Ali”), “ ” (Chinese brand for “AliExpress”), “ ” (Chinese equivalent for “Tao”), “ ” (Chinese equivalent for “Tmall”), “ ” (Chinese equivalent for “eTao”), “ ” (Chinese equivalent for “Juhuasuan”), “ ” (Chinese equivalent for “Alimama ” ), “ ” (Chinese equivalent for “Aliyun”), “ OS” (Chinese equivalent for “YunOS”), “ ” (Chinese brand for “HiChina”), “ ” (Chinese equivalent for “Koubei’), “ ” (Chinese equivalent for “Xiami”), “ ” (Chinese brand for “Alipay”), “ ” (Chinese equivalent for “Xiao Wei Jin Fu”), “1688”, “ ” (Chinese equivalent for “ Laiwang ” ), “Alibaba ” , Taobao ” , “ Ali ” , “AliExpress”, “Tao”, “Tmall”, “eTao”, “Juhuasuan”, “Alimama”, “Aliyun”, “YunOS”, “HiChina”, “Koubei”, “Xiami”, “Alipay”, “Xiao Wei Jin Fu”, “Laiwang”, the associated devices and logos of the above brands (including the smiling face device of Alibaba Group, cow device of Alibaba.com, ant device of Taobao, Tao doll device of Taobao, cat device of Tmall, Juxiaomeng device of Juhuasuan, lion device of Alipay and Zhixiaobao device of Alipay), or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned or used by AIL or any of its Affiliates, or (ii) represent, directly or indirectly, that any product or services provided by any Group Company has been approved or endorsed by AIL or any of its Affiliates. Without the prior written consent of GIC Special Investments Pte Ltd., each of the Group Companies, each of the holders of Ordinary Shares, and each Investor (other than SC China Growth III Co-Investment 2014-A, L.P.) shall not, and each foregoing Person shall cause any of its Affiliates to not, (i) use in advertising, publicity, announcements, or otherwise, the name of GIC Private Limited (or any Affiliate thereof), including without limitation, “GIC”, “GIC Special Investments”, “GIC Private”, “SC China Growth III Co-Investment 2014-A, L.P.” or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned or used by GIC Private Ltd. or any of its Affiliates, or (ii) represent, directly or indirectly, that any product or services provided by any Group Company has been approved or endorsed by GIC Private Ltd. or any of its Affiliates. The rights and obligations of each Group Company and each Shareholder under this Section 7.2 shall survive the termination of this Agreement.

 

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7.3	Protective Provisions.

 

(a)

In addition to any other vote or consent required elsewhere in the Articles or by any applicable statute, each Group Company shall not, and each holder of Ordinary Shares shall procure that each Group Company does not, directly or indirectly, (1) without the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (i), (ii), (iii), (iv), (v), (xi), (xiv), (xv), (xvii), (xix) and (xx) below; and (2) without the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis), which approval shall not be unreasonably withheld, take any of the actions under the subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii) below:

 

(i)

cease to conduct or substantially change the business of the Company and/or any Group Company, as such business is normally conducted, or deviate from the business plan previously approved by the Board of Director of the Company;

 

(ii)

sell or dispose of the whole or substantial part of the undertaking goodwill or the assets of the Company and/or any Group Company;

 

(iii)

increase, reduce or cancel the authorized or issued share capital of the Company and/or any Group Company 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 or grant or issue any options rights or warrants, 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 any Investor in the Company (with the exception of any shares issued upon conversion of the Preferred Shares);

 

(iv)

make any distribution of profits amongst the shareholders by way of dividend, (interim and final) capitalization of reserves or otherwise;

 

(v)

appoint or settle the terms of appointment of the chief executive officer (except for appointing Tang Yan as the chief executive officer of the Company and/or any Group Company), the chief operative officer and the chief technology officer of the Company and/or any Group Company;

 

(vi)

approve or amend the employee share option plans or approve any new equity-based compensation plan or any bonus or incentive plan;

 

(vii)

select or change the external auditor, or make any material changes to the accounting policies or change the financial year of the Group Companies;

 

(viii)

invest in or acquire any other Person, or any assets, business, business organization or division of any other Person in an amount in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or form any new subsidiary of any Group Company;

 

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(ix)

create, incur or authorize the creation of any debt (including without limitation the issuance of any debt securities) if the Group’s aggregate indebtedness would exceed US$1,000,000, or guarantee any indebtedness, except for trade accounts of the Group Companies arising in the ordinary course of business;

 

(x)

create any liens over assets to serve any indebtedness otherwise permitted or previously approved pursuant to paragraph (ix) above;

 

(xi)

make any loan or advance in an amount in excess of US$500,000 other than trade credit given in the ordinary course of business, except to wholly-owned subsidiaries of the Company;

 

(xii)

sell, transfer, license out (other than non-exclusive license granted in the ordinary course of business), pledge or encumber technology or intellectual property;

 

(xiii)

purchase any real property;

 

(xiv)

pass any resolution for the winding up of the Company and /or any Group Company or undertake any merger, reconstruction or liquidation exercise concerning the Company and/or any Group Company or apply for the appointment of a receiver, manager or judicial manager or like officer;

 

(xv)

make any alteration or amendment to the memorandum and articles of association of the Company or any of the Group Companies (provided however that with respect to the memorandum and articles of association of the Domestic Company, only the alteration or amendment related to the items listed in this Section 7.3(a) shall require the approval of the Investors in accordance with this Section 7.3(a));

 

(xvi)

approve, extend or amend any transaction or agreement which is in an amount in excess of US$1,000,000 in a single transaction, or US$3,000,000 in a series of related transactions, with a Shareholder, director, officer, employee or Affiliate of any Group Company or any relative thereof, except pursuant to the Company’s employee share option plans, provided however that, any connected transaction or agreement which is not in an amount in excess of US$1,000,000 shall be fully disclosed to the Investors and shall be arm’s length transaction;

 

(xvii)

make any equity investments in any other companies in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, or the establishment of any brands for companies other than the Group Companies;

 

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(xviii)

enter into any joint venture or partnership of which the total investment amount is in excess of US$1,500,000 in a single transaction, or US$3,000,000 in a series of related transactions, other than any strategic alliance not involving any equity or equity-related investment;

 

(xix)

dispose or dilute the Company’s interest, directly or indirectly, in any of the Group Company including but not limited to by way of amending or terminating the Restated Control Documents;

 

(xx)

approve any transfer of shares in the Company or any of the Group Company; or

 

(xxi)

authorize, agree or undertake to do any of the foregoing.

Actions under subsection (xxi) shall require the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (including Preferred Shares held by AIL, and voting together as a single class on an as-converted basis) if the subject matter is related to the matters listed in subsections (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xvi) and (xviii), otherwise, actions under the subsection (xxi) shall require the approval of the holders holding at least eighty-five percent (85%) of the then outstanding Preferred Shares (excluding Preferred Shares held by AIL, and voting together as a single class on an as-converted basis).

 

(b)

In addition to any other vote or consent required elsewhere in the Articles or by any applicable statute, each Group Company shall not, and the Company shall procure that each Group Company does not, directly or indirectly, without AIL’s approval, take any of the following actions:

 

(i)

Issue, sell, transfer or otherwise dispose of, directly or indirectly, any equity securities, security convertible into or exercisable for any equity securities, assets or good will of any Group Company to, or merge, amalgamate or consolidate any Group Company with or into Tencent Holdings Limited, or any Person controlled by Tencent Holdings Limited (the “Tencent Group”) (notwithstanding any provision to the contrary in the opening paragraph of this Section, AIL has the absolute right to withhold its approval of the actions set forth in this subsection (i) for any reason whatsoever; it being understood that, solely for purposes of this Section 7.3(b)(i), “control” refers to management rights, ownership of more than 50% of equity or voting rights.

 

(ii)

Notwithstanding the foregoing, in the event that Tencent Group enters into a written term sheet or other similar document (the “Tencent Offer”) with the Company through bona fide negotiations for a Sale of the Company, pursuant to which, the Company has received a non-refundable deposit (unless to be otherwise refunded in the form of the Tencent Indemnification under the second paragraph of this Section) in an amount of no less than 2.5% of the total consideration of the transaction under the Tencent Offer (the “Tencent Deposit”), the Company shall deliver a written notice to AIL, describing material terms of Tencent Offer, with a copy of the executed Tencent Offer (the “Sale Notice”) and bank statement or other evidence on receipt of the Tencent Deposit (the “Evidence of Receipt”). AIL shall have the right of first refusal to purchase all such equity interests, securities or assets proposed to be purchased by Tencent Group on the same terms and conditions set forth in the Tencent Offer (the “AIL Option”), by paying a deposit in the same amount as the Tencent Deposit to the Company within twenty-five (25) calendar days after its receipt of the Sale Notice and the Evidence of Receipt (the “AIL Notice Period”), provided that the Company shall have first entered into a written term sheet or other similar document with AIL (the “AIL Offer”).

 

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If AIL decides to exercise the AIL Option, all the commercially reasonable indemnification, penalty and other similar payment payable by the Company and the shareholders of the Company (if the shareholders are parties to the Tencent Offer) to Tencent Group under the Tencent Offer for not completing the transaction contemplated thereunder (the “Tencent Indemnification”), the total amount of which shall be no more than the Tencent Deposit plus its accrued interests during the AIL Notice Period, if any, calculated using the then effective base demand deposit interest rate published by the People’s Bank of China, shall be borne by the Company.

If AIL decides to exercise the AIL Option, but the transaction is not completed solely due to AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the definitive transaction agreements between AIL and the Company (the “AIL Purchase Agreement”), the Company shall not refund the deposit paid by AIL. If the transaction is not completed due to reasons other than AIL’s failure to comply with the AIL Offer or the terms and conditions set forth in the AIL Purchase Agreement, the Company shall refund the deposit paid by AIL, plus its accrued interests calculated using the then effective base demand deposit interest rate published by the People’s Bank of China.

If AIL decides not to exercise the AIL Option, or fails to pay the deposit to the Company pursuant to the AIL Offer within the AIL Notice Period, the Company can proceed with the transaction with Tencent Group upon terms and conditions not more favorable than those set forth in the Sale Notice. If the Company does not enter into any definitive transaction agreement with Tencent Group within the sixty (60) calendar days following the expiration of the AIL Notice Period, or if such agreement is not consummated within ninety (90) calendar days of the execution thereof, AIL’s right of first refusal provided under this Section 7.3(b) shall be deemed to be revived and the Company shall re-deliver a Sale Notice to AIL in accordance with this Section 7.3(b).

 

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(c)

For the avoidance of doubt, the Shareholders agree that without the prior written consent of each holder of the Series B Preferred Shares, the Series C Preferred Shares or the Series D Preferred Shares, as applicable, no Shareholder shall pass resolutions or otherwise take actions to amend, alter or repeal rights, privileges and obligations of the Series B Preferred Shares, Series C Preferred Shares or Series D Preferred Shares, as applicable, or any holder of the Series B Preferred Shares, Series C Preferred Shares or Series D Preferred Shares hereunder, it being understood that rounds of investors further to the current Series A, B, C and D are not deemed to constitute the above amendment, alteration or repeal.

 

(d)

The Parties acknowledge and agree that (a) the name “Sequoia Capital” is commonly used to describe a variety of entities (collectively, the “Sequoia Entities”) that are affiliated by ownership or operational relationship and engaged in a broad range of activities related to investing and securities trading and (b) notwithstanding any other provision of this Agreement to the contrary, this Agreement shall not be binding on, or restrict the activities of, any (i) Sequoia Entity outside of the Sequoia China Sector Group or (ii) entity primarily engaged in investment and trading in the secondary securities market. For purposes of the foregoing, the “Sequoia China Sector Group” means all Sequoia Entities (whether currently existing or formed in the future) that are principally focused on companies located in, or with connections to, the PRC.

 

7.4	Meetings of the Board.

Unless otherwise determined by the vote of a majority of the directors then in office, the Board shall meet at least quarterly in accordance with an agreed upon schedule.

 

7.5	Successor Indemnification.

In the event that the Company or any of its successors or assigns (i) consolidates with or merges into any other entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person or entity, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately prior to such transaction, whether in the Company’s Articles or elsewhere, as the case may be.

 

7.6	Business Principles.

The Company agrees and undertakes to the Investors that the business of the Company will be designed and carried on in accordance with the following business principles (collectively, the “Business Principles”), namely, in a way that:

 

(a)

provides safe and healthy working conditions for its employees and contractors;

 

(b)

encourages the efficient use of natural resources and promotes the protection of the environment;

 

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(c)

treats all employees fairly in terms of recruitment, progression, remuneration and conditions of work, irrespective of gender, race, color, language, disability, political opinion, age, religion, or national/social origin;

 

(d)

allows consultative work-place structures and associations that provide employees with an opportunity to present their views to management;

 

(e)

takes account of the impact of its operations on the local community and seeks to ensure that potentially harmful occupational health and safety, environmental and social effects are properly assessed, addressed and monitored;

 

(f)

upholds high standards of business integrity and honesty, and operates in accordance with local Laws and international good practice (including those intended to fight extortion, bribery and financial crime);

 

(g)

implements a social and environmental management system that enables effective identification, management and monitoring of any risks and provides a framework for action; and

 

(h)

provides for the reporting of the Company’s compliances with the Business Principles in an annual report by the Company to its Board in a manner that allows a reader to make an informed assessment of the business of the Company and, to the extent relevant, its Subsidiary undertakings as against the requirements of the Business Principles.

 

7.7	Amendment to Restated Control Documents.

In the event that any provision under the Restated Control Documents (as defined in the Purchase Agreement) is ruled by any relevant Governmental Authority as invalid or unenforceable under the Laws of the PRC, the Founders and the Group Companies shall, subject to the Laws of the PRC, use their best efforts to take, or cause to be taken, such action, to execute and deliver, or cause to be executed and delivered, such documents and instruments and to do, or cause to be done, all things necessary, proper or advisable to ensure that substantially all of the income generated by the Domestic Company is consolidated into the WFOE.

 

7.8	Option to Purchase the Domestic Company.

The Company shall maintain an option, exercisable by the Company or any other entity designated by it at any time after the Closing, to purchase one hundred percent (100%) of the shares or ownership of the Domestic Company, for the lowest price that is in compliance with PRC Law. The shareholders of each of the Group Companies shall return any proceeds from the Company’s exercise of this option to the Company.

 

7.9	Employee Agreements.

The Company shall cause (i) all the Key Employees employed by it or any Group Company (or engaged by the Company or any Group Company as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a non-disclosure and proprietary rights assignment agreement and (ii) each Key Employee to enter into a two (2) year non-competition and non-solicitation agreement.

 

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7.10	Bank Account Signatory.

All accounts holding cash of the Company, the HK Co and capital account ( ) of the WFOE shall be established such that any disbursement in excess of US$3,000,000 shall require the signature of a representative designated by Matrix.

 

7.11	Qualified IPO.

The Company and Founders undertake to use their best efforts to, within 48 months from the date of Closing (as defined in the Purchase Agreement) to complete a Qualified IPO.

 

7.12	Termination of Covenants.

The covenants set forth in this Section 7 (other than Section 7.7) shall terminate and be of no further force or effect upon (a) the consummation of a Qualified IPO, or (b) upon the consummation of a Liquidation Event, whichever event shall first occur.

 

8.	MISCELLANEOUS.

 

8.1	Governing Law.

This Agreement shall be governed by and construed in accordance with the laws of Hong Kong.

 

8.2	Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile or other electronic signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

8.3	Headings and Subheadings.

The headings and subheadings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

8.4

Notices.

All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the Party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next Business Day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective Parties at their address, or to such email address, facsimile number or address as set forth on Schedule 3 hereto or as subsequently modified by written notice given in accordance with this Section 8.4.

 

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8.5	Costs of Enforcement.

If any Party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing Party shall pay all costs and expenses incurred by the prevailing Party, including, without limitation, all reasonable legal advisor’s fees.

 

8.6	Amendments and Waivers.

Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) the Company, (ii) the Majority Ordinary Holders, and (iii) each of the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then Outstanding, each future holder of all such Registrable Securities, and the Company. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any Party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 8.6 shall be binding on all parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

 

8.7	Severability.

The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

 

8.8	Aggregation of Shares.

All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

 

8.9	Entire Agreement.

This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement between the Parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the Parties are expressly canceled. Without limiting the generality of the foregoing, this Agreement supersedes, in its entirety, the Prior Shareholders’ Agreement, which shall be null and void and have no further force or effect whatsoever as of the date of this Agreement. The Parties hereto hereby irrevocably waive any and all rights that they may have against any other party under the Prior Shareholders’ Agreement.

 

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8.10	Transfers, Successors and Assigns.

 

(a)

The terms and conditions of this Agreement shall insure to the benefit of and be binding upon the respective successors and assigns of the Parties.

 

(b)

Each transferee or assignee of the Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Assumption Agreement substantially in the form attached hereto as Exhibit C. Upon the execution and delivery of an Assumption Agreement by any transferee, such transferee shall be deemed to be a Party hereto as if such transferee’s signature appeared on the signature pages of this Agreement. By execution of this Agreement or of any Assumption Agreement, each of the Parties appoints the Company as its attorney in fact for the purpose of executing any Assumption Agreement that may be required to be delivered under the terms of this Agreement. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until such transferee shall have complied with the terms of this Section 8.10. Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 8.11.

 

(c)

Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the Parties or their respective executors, administrators, heirs, successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

8.11

Legend.

 

(a)

Each certificate representing Shares of the Founder Holdcos issued by the Company shall be endorsed with the following legend:

THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO, AND IN CERTAIN CASES PROHIBITED BY, THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDERS’ AGREEMENT BY AND AMONG THE SHAREHOLDER, THE COMPANY AND CERTAIN OTHER HOLDERS OF SHARES OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

 

(b)

Each Founder Holdco 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 8.11(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 this Agreement at the request of the Holder.

 

26

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8.12	Dispute Resolution.

 

(a)

Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall first be subject to resolution through consultation of the parties to such dispute, controversy or claim. Such consultation shall begin within seven (7) days after one Party hereto has delivered to the other Parties involved a written request for such consultation. If within thirty (30) days following the commencement of such consultation the dispute cannot be resolved, the dispute shall be submitted to arbitration upon the request of any Party with notice to the other Parties.

 

(b)

The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “HKIAC”). There shall be three arbitrators. The complainant and the respondent to such dispute shall each select one arbitrator within thirty (30) days after giving or receiving the demand for arbitration. Such arbitrators shall be freely selected, and the Parties shall not be limited in their selection to any prescribed list. The Chairman of the HKIAC shall select the third arbitrator, who shall be qualified to practice Law in Hong Kong. If either party to the arbitration does not appoint an arbitrator who has consented to participate within thirty (30) days after selection of the first arbitrator, the relevant appointment shall be made by the Chairman of the HKIAC.

 

(c)

The arbitration proceedings shall be conducted in English. The arbitration tribunal shall apply the Arbitration Rules of the HKIAC in effect at the time of the arbitration. However, if such rules are in conflict with the provisions of this Section 8.12, including the provisions concerning the appointment of arbitrators, the provisions of this Section 8.12 shall prevail.

 

(d)

The arbitrators shall decide any dispute submitted by the parties to the arbitration strictly in accordance with the substantive Law of Hong Kong and shall not apply any other substantive law.

 

(e)

Each Party hereto shall cooperate with any party to the dispute in making full disclosure of and providing complete access to all information and documents requested by such party in connection with such arbitration proceedings, subject only to any confidentiality obligations binding on the Party receiving the request.

 

(f)

The award of the arbitration tribunal shall be final and binding upon the disputing parties, and any party to the dispute may apply to a court of competent jurisdiction for enforcement of such award.

 

(g)

Any party to the dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal.

 

27

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8.13	Delays or Omissions.

No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Party, shall be cumulative and not alternative.

 

8.14	Conflict with Articles of Association.

In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the Company’s Articles or other constitutional documents, the terms of this Agreement shall prevail as between the shareholders of the Company only. The Investors and the Founder Parties shall, notwithstanding the conflict or inconsistency, act so as to effect the intent of this Agreement to the greatest extent possible under the circumstances and shall promptly amend the conflicting constitutional documents to conform to this Agreement to the greatest extent possible.

[Remainder of Page Intentionally Left Blank]

 

28

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IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first above written.

 

COMPANY:		MOMO TECHNOLOGY COMPANY LIMITED
		By:
		Name:		Yan Tang
		Title:		Director
HK CO:		MOMO TECHNOLOGY HK COMPANY LIMITED
		( )
		By:
		Name:		Yan Tang
		Title:		Director
DOMESTIC COMPANY:		BEIJING MOMO TECHNOLOGY CO., LTD.
		( )
		By:
		Name:		Yan Tang
		Title:		Legal Representative
		Affix Seal:
WFOE:		BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.
		( )
		By:
		Name:		Yan Tang
		Title:		Legal Representative
		Affix Seal:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

FOUNDER HOLDCOS:		GALLANT FUTURE HOLDINGS LIMITED
		By:

		Name:

		Title:

		JOYOUS HARVEST HOLDINGS LIMITED
		By:

		Name:

		Title:

		FIRST OPTIMAL HOLDINGS LIMITED
		By:

		Name:

		Title:

		FAST PROSPEROUS HOLDINGS LIMITED
		By:

		Name:

		Title:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

FOUNDERS

 

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				MATRIX PARTNERS CHINA II HONG KONG LIMITED
				By:
						Name:
						Title:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				GOTHIC PARTNERS, L.P.
				By:
						Name: Paul J. Ferri
						Title: General Partner

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				PJF ACORN I TRUST
				By:
						Name: Jessica Ferri
						Title: Trustee

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				GANSETT PARTNERS, L.L.C
				By:
						Name:
						Title:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				PH MOMO INVESTMENT LTD
				By:
						Name:
						Title:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:		TENZING HOLDING 2011 LTD.
		By:
				Name:
				Title:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:		ALIBABA INVESTMENT LIMITED
		By:
				Name: Zhang Hongping
				Title:

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:		DST TEAM FUND LIMITED
		By:
				Name: Sean Hogao
				Title: Director

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

INVESTOR:

 

                        

FEINI ZHENG

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				SEQUOIA CAPITAL CHINA INVESTMENT HOLDCO II, LTD.
				a Cayman Islands company
				By:
				Name: Kok Wai Yee
				Title: Authorized Signatory

 

				SEQUOIA CAPITAL CHINA GF HOLDCO III-A, LTD.
				a Cayman Islands company
				By:
				Name: Kok Wai Yee
				Title: Authorized Signatory

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR:				SC CHINA GROWTH III CO-INVESTMENT 2014-A, L.P.
				a Cayman Islands limited partnership
				By: SC China Growth III Management, L.P. a Cayman Islands limited partnership its general partner
				By: SC China Holding Limited a Cayman Islands company its general partner
				By:
				Name: Kok Wai Yee
				Title: Authorized Signatory

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR				RICH MOON LIMITED
				By:
						Name: Huang Xin
						Title: Director

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

IN WITNESS WHEREOF, the parties have executed this Shareholders’ Agreement as of the date first written above.

 

INVESTOR				TIGER GLOBAL EIGHT HOLDINGS
				By:
						Name: Moussa Taujoo
						Title: Director

 

 

SIGNATURE PAGES TO THE SHAREHOLDERS’ AGREEMENT

---

SCHEDULE 1

LIST OF INVESTORS

 

Name		Number of Series A-1 Preferred Shares of the Company				Number of Series A-2 Preferred Shares of the Company				Number of Series A-3 Preferred Shares of the Company				Number of Series B Preferred Shares of the Company				Number of Series C Preferred Shares of the Company				Number of Series D Preferred Shares of the Company
Matrix Partners China II Hong Kong Limited			22,272,730				8,909,090				19,797,980				4,588,600				10,402,497				—
Gothic Partners, L.P.			—				—				—				—				800,192				—
PJF Acorn I Trust			—				—				—				—				800,192				—
Gansett Partners, L.L.C			—				—				—				—				1,600,384				—
PH momo investment Ltd.			—				—				—				—				4,801,153				—
Tenzing Holding 2011 Ltd.			—				—				—				—				1,600,384				—
Feini Zheng			7,298,857				—				—				—				—				—
Alibaba Investment Limited			—				—				—				60,859,813				8,001,920				—
DST Team Fund Limited			—				—				—				4,588,600				8,001,920				—
Sequoia Capital China Investment Holdco II, Ltd.			—				—				—				—				—				2,063,441
Sequoia Capital China GF Holdco III-A, Ltd.			—				—				—				—				—				11,348,923
SC China Growth III Co-Investment 2014-A, L.P.			—				—				—				—				—				5,158,602
Rich Moon Limited			—				—				—				—				—				18,570,966
Tiger Global Eight Holdings			—				—				—				—				—				6,551,424

 

 

SCHEDULE 1

---

SCHEDULE 2(A)

LIST OF FOUNDERS

 

Name		PRC Identification Number
Yan Tang		***
Yong Li		***
Xiaoliang Lei		***
Zhiwei Li		***

SCHEDULE 2(A)

LIST OF FOUNDER HOLDCOS

 

Name		Sole Shareholder
Gallant Future Holdings Limited		Yan Tang
Joyous Harvest Holdings Limited		Yong Li
First Optimal Holdings Limited		Xiaoliang Lei
Fast Prosperous Holdings Limited		Zhiwei Li

 

 

SCHEDULE 2

---

SCHEDULE 3

NOTICES

 

Group Companies and the Founder Parties Address: Level 8 Tower D, Vantone Center, No. 6 Chaoyangmen Outer Ave., Chaoyang District, Beijing, P. R. China 100020		Investors Matrix and Matrix Affiliates
		Address: Suite 08, 20th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Attn: Matrix Partners HK Management Limited Harry Man Tel: (852) 3960 6592 Fax: (852) 3669 8008 Email:harry.man@matrixpartners.com.cn; huadong.wang@matrixpartners.com.cn
		Feini Zheng Address: Unit A, 8/F, Urban City Center 45 Nan Chang Road, Shanghai, China 200020
		Alibaba Investment Limited Address: c/o Alibaba Group Services Limited 26/F, Tower One, Times Square 1 Matheson Street, Causeway Bay Hong Kong Attention: Mr. Tim Steinert Tel: (852) 2215 5100 Fax: (852) 2215 5200 Email: tim.steinert@hk.alibaba-inc.com
		DST Team Fund Limited Address: c/o Tulloch & Co 4 Hill Street London W1J 5NE United Kingdom
		Sequoia Controlled Entities Address: Address: Suite 2215, 22/F, Two Pacific Place, 88 Queensway Hong Kong Telephone: 852-2501-8971 Fax No.: 852-2501-5249 Email: wkok@sequoiacap.com Contact Person: Kok Wai Yee

 

 

SCHEDULE 3

---

		With a copy to: Wilson Sonsini Goodrich & Rosati, P.C. Unit 1001, 10/F Henley Building 5 Queen’s Road Central Hong Kong Fax No.: 852-3972-4999 Contact Person: Weiheng Chen
		Rich Moon Limited Address: Room 3501, K. Wah Center, 1010 Huaihaizhong Road Shanghai, 200031, China Telephone: 8621-3127 0909 Fax No.: 8621-3127 1750 Contact Person: Huang Xin
		Tiger Global Eight Holdings Address: Twenty Seven, Cybercity, Ebene, Mauritius Attention: Moussa Taujoo Facsimile: +230-467-4000   With a copy to: Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, L.L.P Address: Suite 2101, Building C Yintai Center, #2 Jianguomenwai Ave Beijing 100022 China Attention: Steven Liu Fax: + 8610-5680-3889

 

 

SCHEDULE 3

---

SCHEDULE 4

CAPITALIZATION TABLE

 

Shareholder		Common Shares				Preferred Shares Series A-1/A-2				Preferred Shares Series A-3				Preferred Shares Series B				Preferred Shares Series C				Preferred Shares Series D				Total Issued and Outstanding Shares				% (Issued and Outstanding Shares)				Options (Common Stock)				Fully Diluted Shares				% Fully Diluted Shares
Yan TANG			96,886,370				—				—				—				—				—				96,886,370				29.18	%			—				96,886,370				25.71	%
Yong LI			16,846,899				—				—				—				—				—				16,846,899				5.07	%			—				16,846,899				4.47	%
Xiaoliang LEI			9,587,116				—				—				—				—				—				9,587,116				2.89	%			—				9,587,116				2.54	%
Zhiwei LI			8,028,026				—				—				—				—				—				8,028,026				2.42	%			—				8,028,026				2.13	%
Matrix			—				31,181,820				19,797,980				4,588,600				10,402,497				—				65,970,897				19.87	%			—				65,970,897				17.51	%
Matrix Affiliates			—				—				—				—				9,602,305				—				9,602,305				2.89	%			—				9,602,305				2.55	%
Alibaba			—				—				—				60,859,813				8,001,920				—				68,861,733				20.74	%			—				68,861,733				18.27	%
DST			—				—				—				4,588,600				8,001,920				—				12,590,520				3.79	%			—				12,590,520				3.34	%
Sequoia Entity A			—				—				—				—				—				2,063,441				2,063,441				0.62	%							2,063,441				0.55	%
Sequoia Entity B			—				—				—				—				—				11,348,923				11,348,923				3.42	%							11,348,923				3.01	%
Sequoia Entity C			—				—				—				—				—				5,158,602				5,158,602				1.55	%							5,158,602				1.37	%
Yunfeng			—				—				—				—				—				18,570,966				18,570,966				5.59	%							18,570,966				4.93	%
Tiger																							6,551,424				6,551,424				1.97	%							6,551,424				1.74	%
Option pool			—				—				—				—				—				—				—				0.00	%			44,758,220								11.88	%
Total			131,348,411				31,181,820				19,797,980				70,037,013				36,008,642				43,693,356				332,067,222				100.00	%			44,758,220				376,825,442				100.00	%

 

 

SCHEDULE 4

---

EXHIBIT A

DEFINITIONS

For purposes of this Agreement, capitalized terms shall have the meanings set forth in this Exhibit A.

 

1.

The term “Additional Equity Securities” means any security issued by the Company after the Closing, including (i) the Ordinary Share; (ii) warrant, option and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Share, including, without limitation, the Preferred Share; provided that the term “Additional Equity Securities” does not include (i) Employee Compensation Share (as defined in the Articles); (ii) securities issued upon conversion of the Preferred Shares; (iii) securities issued as a dividend or distribution on the Preferred Shares; (iv) securities issued in connection with any share split, share dividend, combination, recapitalization or other similar transaction of the Company; or (v) warrants or options to purchase securities granted to strategic partners of the Company in connection with mergers and acquisitions of other companies.

 

2.	The term “AIL” means Alibaba Investment Limited.

 

3.	The term “AIL Directors” has the meaning ascribed to such term in Section 5.1(a).

 

4.	The term “AIL Notice Period” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

5.	The term “AIL Offer” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

6.	The term “AIL Option” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

7.	The term “AIL Purchase Agreement” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

8.

The term “Affiliate” means, with respect to any individual, corporation, partnership, association, trust, or any other entity, any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation any general partner, limited partner, officer or director of such Person and any venture capital fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person.

 

9.	The term “Agreement” has the meaning ascribed to such term in the Preamble to this Agreement.

 

10.	The term “Articles” means the Seventh Amended and Restated Memorandum of Association (the “Memorandum”) and the Seventh Amended and Restated Articles of Association of the Company, as amended from time to time.

 

 

EXHIBIT A

---

11.	The term “Board” or “Board of Director” means the Company’s Board of Directors.

 

12.	The term “Board Observer” has the meaning ascribed to such term in Section 5.1(f).

 

13.	The term “Budget” has the meaning ascribed to such term in Section 3.1(c).

 

14.	The term “Business Day” means any day, other than a Saturday, Sunday or other day on which the commercial banks in Beijing, New York or Hong Kong are authorized or required to be closed for the conduct of regular banking business.

 

15.	The term “Business Principles” has the meaning ascribed to such term in Section 7.6.

 

16.	The term “CFC” has the meaning ascribed to such term in Section 3.3(c).

 

17.	The term “Closing” means the closing of the sale and purchase of certain Series D Preferred Shares in accordance with the Purchase Agreement.

 

18.	The term “Code” has the meaning ascribed to such term in Section 3.3(a).

 

19.	The term “Company” means Momo Technology Company Limited, a company duly incorporated with limited liability and validly existing under the Laws of the British Virgin Islands.

 

20.	The term “Companies Act” means the British Virgin Islands Business Companies Act, 2004.The term “Co-Sale Eligible Holder” has the meaning ascribed to such term in Section 6.3(a).

 

21.	The term “Co-Sale Eligible Shares” has the meaning ascribed to such term in Section 6.3(a).

 

22.	The term “Co-Sale Period” has the meaning ascribed to such term in Section 6.3(a).

 

23.	The term “Director” means a director on the Board.

 

24.	The term “Domestic Company” has the meaning ascribed to such term in the Preamble to this Agreement.

 

25.	The term “DST” means DST Team Fund Limited.

 

26.	The term “Eligible Holder” has the meaning ascribed to such term in Section 6.2(a).

 

27.	The term “Exchange Act” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, or any comparable law of any other jurisdiction in which the Company’s Shares are subject to regulation.

 

28.	The term “Exercising Co-Sale Holder” has the meaning ascribed to such term in Section 6.3(b).

 

29.	The term “Exercising Eligible Holder” has the meaning ascribed to such term in Section 6.2(d).

 

 

EXHIBIT A

---

30.	The term “Exercise Notice” has the meaning ascribed to such term in Section 6.2(c).

 

31.

The term “Form F-3” means such form under the Securities Act as in effect on the date hereof or any 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.

 

32.	The term “Evidence of Receipt” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

33.	The term “Fully-Exercising Holder” has the meaning ascribed to such term in Section 4.1(b).

 

34.	The term “Founder” or “Founders” means the Persons named on Schedule 2(A) hereto.

 

35.	The term “Founder Holdco” or “Founder Holdcos” means the Persons named on Schedule 2(B) hereto and the respective transferees of such Persons’ Shares pursuant to Section 6 hereof.

 

36.

The term “Governmental Authority” means the government of any nation, province, state, city, locality or other political subdivision of any thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, regulation or compliance, and any corporation or other entity owned or controlled, through share or capital ownership or otherwise, by any of the foregoing.

 

37.	The term “Group Companies” means the Company, the WFOE, the Domestic Company, the HK Co, and any other direct or indirect Subsidiary of a Group Company collectively, and a Group Company means any one of them.

 

38.	The term “HK Co” has the meaning ascribed to such term in the Preamble to this Agreement.

 

39.	The term “HKIAC” has the meaning ascribed to such term in Section 8.12(b).

 

40.	The term “Holder” means any Person owning or having the rights to acquire Registrable Securities or any permitted assignee of record of such Registrable Securities to whom rights under Exhibit B have been duly assigned in accordance with this Agreement.

 

41.	The term “Hong Kong” means the Hong Kong Special Administrative Region of the PRC.

 

42.	The term “IFRS” means the International Financial Reporting Standards in effect from time to time.

 

43.	The term “Immediate Family Member” means a child, stepchild, grandchild, parent, step-parent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a person referred to herein.

 

 

EXHIBIT A

---

44.	The term “Initiating Holders” has the meaning ascribed to such term in Section 2.2(a) of Exhibit B.

 

45.	The term “Investor” or “Investors” means the persons named on Schedule 1 hereto.

 

46.	The term “Investor Notice Period” has the meaning ascribed to such term in Section 6.2(c).

 

47.	The term “IPO” means the Company’s first underwritten public offering of its Ordinary Shares and listing on an internationally-recognized securities exchange.

 

48.	The term “Key Employee” has the meaning set forth in the Purchase Agreement.

 

49.	The term “Liquidation Event” has the meaning ascribed to such term in Clause 9(b)(ii) of the Articles.

 

50.	The term “Law” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Authority.

 

51.	The term “Majority Ordinary Holders” shall mean the holders of at least fifty percent (50%) of the then outstanding ordinary shares.

 

52.

The term “Majority Preferred Holders” shall mean the holders of at least fifty percent (50%) of the then outstanding (i) Series A-1, A-2 and A-3 Preferred Shares, (ii) Series B Preferred Shares held by Matrix only, (iii) Series C Preferred Shares held by Matrix only, and (iv) Series D Preferred Shares, voting together as a single class, including any Ordinary Shares issued or issuable upon conversion of the foregoing.

 

53.	The term “Matrix” shall mean Matrix Partners China II Hong Kong Limited, Matrix Affiliates and its affiliated or successor funds, companies or entities.

 

54.	The term “Matrix Affiliates” means Gothic Partners, L.P., PJF Acorn I Trust, Gansett Partners, L.L.C, PH momo investment Ltd. and Tenzing Holding 2011 Ltd.

 

55.	The term “Matrix Directors” has the meaning ascribed to such term in Section 5.1(b).

 

56.	The term “Offer Notice” has the meaning ascribed to such term in Section 4.1(a).

 

57.	The term “Offered Securities” has the meaning ascribed to such term in Section 4.1.

 

58.	The term “Offerees” has the meaning ascribed to such term in Section 4.1.

 

59.	The term “Offered Securities” has the meaning ascribed to such term in Section 4.1.

 

60.	The term “on an as converted basis” shall mean assuming the conversion, exercise and exchange of all securities, directly or indirectly, convertible, exercisable or exchangeable into or for Ordinary Shares, including without limitation the Preferred Shares.

 

 

EXHIBIT A

---

61.	The term “Ordinary Shares” means ordinary shares of the Company, par value US$0.0001 per share.

 

62.	The term “Ordinary Share Directors” has the meaning ascribed to such term in Section 5.1(e).

 

63.	The term “Party” or “Parties” shall mean the parties to this Agreement, as set forth in the Preamble.

 

64.	The term “Person” means any natural person, firm, partnership, association, corporation, company, trust, public body or government.

 

65.	The term “PFIC” has the meaning ascribed to such term in Section 3.3(a).

 

66.	The term “PRC” means the People’s Republic of China, which for purposes of this Agreement excludes Hong Kong, the Macau Special Administrative Region and Taiwan.

 

67.

The term “Preferred Shares” means, collectively, the Series A-1 Preferred Shares of par value US$0.0001 per share of the Company, the Series A-2 Preferred Shares of par value US$0.0001 per share of the Company, the Series A-3 Preferred Shares of par value US$0.0001 per share of the Company, the Series B Preferred Shares of par value US$0.0001 per share of the Company, the Series C Preferred Shares of par value US$0.0001 per share of the Company and the Series D Preferred Shares of par value US$0.0001 per share of the Company.

 

68.	The term “Prior Shareholders’ Agreement” has the meaning ascribed to such term in the Recitals to this Agreement.

 

69.	The term “Prohibited Transfer” has the meaning ascribed to such term in Section 6.5(c).

 

70.	The term “Proposed Transfer” has the meaning ascribed to such term in Section 6.1(a).

 

71.	The term “Proposed Transfer Notice” has the meaning ascribed to such term in Section 6.2(b).

 

72.	The term “Prospective Transferee” has the meaning ascribed to such term in Section 6.2(a).

 

73.	The term “Purchase Agreement” has the meaning ascribed to such term in Recitals.

 

74.	The term “QEF Election” has the meaning ascribed to such term in Section 3.3(a).

 

75.

The term “Qualified IPO” means a firm commitment underwritten registered public offering by the Company of its Ordinary Shares on the NASDAQ National Market System in the United States or in Hong Kong or any other exchange in any other jurisdiction (on any combination of such exchanges and jurisdictions) acceptable to the Majority Preferred Holders with aggregate offering proceeds (before deduction of fees, commissions or expenses) to the Company and selling shareholders, if any, of not less than US$50,000,000 (or any cash proceeds of other currency of equivalent value).

 

 

EXHIBIT A

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76.	The term “Refused Securities” has the meaning ascribed to such term in Section 4.1(c)

 

77.	The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement which is in a form which complies with, and is declared effective by the SEC in accordance with, the Securities Act.

 

78.

The term “Registrable Securities” means: (1) any Ordinary Shares of the Company issued or issuable pursuant to conversion of any Preferred Shares, (2) any Ordinary Shares of the Company issued (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 Preferred Shares, and (3) any other Ordinary Shares owned or hereafter acquired by the Investors excluding any Shares sold by a Person in a transaction in which rights under Exhibit B are not assigned in accordance with this Agreement and any Shares which are sold in a registered public offering under the Securities Act or analogous statute of another jurisdiction, or sold pursuant to SEC Rule 144 promulgated under the Securities Act or analogous rule of another jurisdiction.

 

79.

The term “Registrable Securities then Outstanding” means the number of Ordinary Shares of the Company that are Registrable Securities and are then issued and outstanding, issuable upon conversion of Preferred Shares then issued and outstanding or issuable upon conversion or exercise of any warrant, right or other security then outstanding.

 

80.

The term “Registration Expenses” shall mean all expenses incurred by the Company in complying with Sections 2, 3 and 4 of Exhibit B, including, without limitation, all registration and filing fees, printing expenses, fees, and disbursements of counsel for the Company, reasonable fees and disbursements of one (1) counsel for the Holders, “blue sky” fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).

 

81.	The term “Request Notice” has the meaning ascribed to such term in Section 2.1 of Exhibit B.

 

82.	The term “Right of Co-Sale” has the meaning ascribed to such term in Section 6.3(a).

 

83.	The term “Right of First Refusal” has the meaning ascribed to such term in Section 6.2(a).

 

84.	The term “Sale of the Company” has the meaning ascribed to such term in Section 5.4.

 

85.	The term “Sale Notice” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

86.	The term “SEC” means the United States Securities and Exchange Commission, or comparable regulatory authority in any other jurisdiction having oversight over the trading of the Company’s Shares.

 

87.	The term “SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States).

 

 

EXHIBIT A

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88.	The term “SEC Rule 144(k)” means Rule 144(k) promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States).

 

89.	The term “Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (or comparable law in a jurisdiction other than the United States).

 

90.	The term “Selling Expenses” shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to Sections 2, 3 and 4 of Exhibit B.

 

91.	The term “Selling Shareholder” has the meaning ascribed to such term in Section 5.4(b).

 

92.	The term “Sequoia” means Sequoia Capital China Investment Holdco II, Ltd., Sequoia Capital China GF Holdco III-A, Ltd. and SC China Growth III Co-Investment 2014-A, L.P.

 

93.	The term “Sequoia Director” has the meaning ascribed to such term in Section 5.1(c).

 

94.	The term “Series A-1 Preferred Share” shall mean the Series A-1 Preferred Shares of the Company par value US$0.0001 each.

 

95.	The term “Series A-2 Preferred Shares” means Series A-2 Preferred Shares of the Company par value of US$0.0001 each.

 

96.	The term “Series A-3 Preferred Shares” means Series A-3 Preferred Shares of the Company par value of US$0.0001 each.

 

97.	The term “Series B Preferred Shares” means Series B Preferred Shares of the Company par value of US$0.0001 each.

 

98.	The term “Series C Preferred Shares” means Series C Preferred Shares of the Company par value of US$0.0001 each.

 

99.	The term “Series D Investors” means Sequoia and Yunfeng.

 

100.	The term “Series D Preferred Shares” means Series D Preferred Shares of the Company par value of US$0.0001 each.

 

101.	The term “Shareholder” shall mean each of the Founder Holdcos and the Investors.

 

102.

The term “Shares” means (i) Ordinary Shares (whether now outstanding or hereafter issued in any context), (ii) Ordinary Shares issued or issuable upon conversion of the Preferred Shares and (iii) Ordinary Shares issued or issuable upon exercise or conversion, as applicable, of share options, warrants or other convertible securities of the Company, in each case now owned or subsequently acquired by any Founder, any Investor, or their respective successors or permitted transferees or assigns.

 

103.	The term “Share Plan” has the meaning ascribed to such term in Section 7.1

 

 

EXHIBIT A

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104.

The term “Subsidiary” or “subsidiary” means, as of the relevant date of determination, with respect to any Person (the “subject entity”), (i) any Person: (1) more than 50% of whose shares or other interests entitled to vote in the election of directors or (2) more than a fifty percent (50%) interest in the profits or capital of such Person are owned or controlled directly or indirectly by the subject entity or through one (1) or more Subsidiaries of the subject entity, (ii) any Person 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 U.S. GAAP or IFRS, or (iii) any Person 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. For the avoidance of doubt, the Subsidiaries of the Company shall include the Group Companies.

 

105.	The term “Tencent Deposit” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

106.	The term “Tencent Group” has the meaning ascribed to such term in Section 7.3(b)(i).

 

107.	The term “Tencent Indemnification” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

108.	The term “Tencent Offer” has the meaning ascribed to such term in Section 7.3(b)(ii).

 

109.	The term “Tiger” means Tiger Global Eight Holdings.

 

110.	The term “Transfer Shares” has the meaning ascribed to such term in Section 6.2(a)

 

111.	The term “Transferor” has the meaning ascribed to such term in Section 6.2(a).

 

112.	The term “Undersubscription Notice” has the meaning ascribed to such term in Section 6.2(d).

 

113.	The term “United States Person” means any person described in Section 7701(a)(30) of the Code.

 

114.	The term “Unsubscribed Shares” has the meaning ascribed to such term in Section 6.2(d)

 

115.	The term “US$” means the United States dollar, the lawful currency of the United States of America.

 

116.	The term “US GAAP” mean the generally accepted accounting principles in the United States of America.

 

117.	The term “U.S. Investor” means (A) any Investor that is a United States Person and (B) any Investor, one or more of the owners of which are, or controlled by, United States Persons.

 

118.	The term “Violation” has the meaning ascribed to such term in Section 8.1 of Exhibit B.

 

 

EXHIBIT A

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119.	The term “WFOE” has the meaning ascribed to such term in the Preamble to this Agreement.

 

120.	The term “Yunfeng” means Rich Moon Limited.

 

121.	The term “Yunfeng Director” has the meaning ascribed to such term in Section 5.1(d).

 

 

EXHIBIT A

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EXHIBIT B

REGISTRATION RIGHTS

 

1.	Applicability of Rights; Non-U.S. Registrations.

 

1.1

The Holders shall be entitled to the following rights with respect to any potential public offering of the Company’s Ordinary Shares in the United States and shall be entitled to reasonably analogous or equivalent rights with respect to any other offering of Company securities in any other jurisdiction pursuant to which the Company undertakes to publicly offer or list such securities for trading on a recognized securities exchange.

 

1.2

For purposes of this Agreement and Exhibit B, reference to registration of securities under the Securities Act and the Exchange Act shall be deemed to mean the equivalent registration in a jurisdiction other than the United States as designated by such Holders, it being understood and agreed that in each such case all references in this Agreement to the Securities Act, the Exchange Act and rules, forms of registration statements and registration of securities thereunder, U.S. law and the SEC, shall be deemed to refer, to the equivalent statutes, rules, forms of registration statements, registration of securities and laws of and equivalent government authority in the applicable non-U.S. jurisdiction.

 

2.	Demand Registration.

 

2.1	Request by Holders.

If the Company shall, at any time after the earlier of (i) the fourth anniversary after the Closing or (ii) following the taking effect of a registration statement for a Qualified IPO, receive a written request from the Holders of at least ten percent (10%) of the Registrable Securities then Outstanding that the Company file a registration statement under the Securities Act covering the registration of at least ten percent (10%) of the Registrable Securities pursuant to this Section 2, (or any lesser percentage if the anticipated gross receipts from the offering are to exceed US$1,000,000) then the Company shall, within ten (10) Business Days of the receipt of such written request, give written notice of such request (the “Request Notice”) to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered and included in such registration by written notice given by such Holders to the Company within twenty (20) days after receipt of the Request Notice, subject only to the limitations of this Section 2; provided 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 2 or Section 4 or in which the Holders had an opportunity to participate pursuant to the provisions of Section 3, other than a registration from which the Registrable Securities of the 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 Sections 2.2(b) or 3.2(b).

 

 

EXHIBIT B

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2.2	Underwriting.

 

(a)

If the Holders initiating the registration request under this Section 2 (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 2 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the 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.

 

(b)

Notwithstanding any other provision of this Section 2, 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 (i) first, to the Investors on a pro rata basis according to the number of Registrable Securities then Outstanding held by the Investors requesting registration and (ii) then, to the other Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then Outstanding held by each such Holder requesting registration; provided, however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities are first entirely excluded from the underwriting and registration including, without limitation, all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company or any subsidiary of the Company; provided further, that at least twenty-five percent (25%) of shares of Registrable Securities requested by the Holders to be included in such underwriting and registration shall be so included. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by 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.

 

2.3	Maximum Number of Demand Registrations.

The Company shall not be obligated to effect more than two (2) such registrations pursuant to this Section 2.

 

 

EXHIBIT B

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2.4

Deferral.

Notwithstanding the foregoing, if the Company shall furnish to Holders requesting registration pursuant to this Section 2, 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 at such time, 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 twice in any twelve (12) month period; provided further, that the Company shall not register any other of its shares during such twelve (12) month period. A demand right shall not be deemed to have been exercised until such deferred registration shall have been effected.

 

3.	Piggyback Registrations.

 

3.1

The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2 or Section 3 of this Exhibit B or to any employee benefit plan or a corporate reorganization) and shall 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 it shall within twenty (20) 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.

 

3.2	Underwriting.

 

(a)

If a registration statement under which the Company gives notice under this Section 3 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 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 for such underwriting.

 

 

EXHIBIT B

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(b)

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, second, to each of the Investors requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by the Investors, third, to the other Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by each such Holder and fourth, to holders of other securities of the Company; 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 shares of Registrable Securities for which inclusion has been requested; and (ii) all shares that are not Registrable Securities and are held by any other person, including, without limitation, 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, unless otherwise approved by the holders of a majority of the Registrable Securities. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by 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.

 

3.3	Not Demand Registration.

Registration pursuant to this Section 3 shall not be deemed to be a demand registration as described in Section 2 above. There shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 3.

 

4.	Form F-3 Registration.

In case the Company shall receive from any Holder or Holders of at least ten percent (10%) of all Registrable Securities then Outstanding a written request or requests that the Company effect a registration on Form F-3 (or an equivalent registration in a jurisdiction outside of the United States) and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will:

 

 

EXHIBIT B

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4.1

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

 

4.2	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 Company provides the notice contemplated by Section 4.1; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 4:

 

(a)

if Form F-3 is not available for such offering by the Holders;

 

(b)

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 to the public of less than US$1,000,000;

 

(c)

if the Company shall furnish to the Holders a certificate signed by the president or chief executive officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such Form F-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form F-3 registration statement no more than once during any twelve (12) month period for a period of not more than sixty (60) days after receipt of the request of the Holder or Holders under this Section 4; provided that the Company shall not register any of its other shares during such sixty (60) day period.

 

(d)

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 Sections 2.2 and 3.2; or

 

(e)

in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

 

4.3	Not a Demand Registration.

Form F-3 registrations shall not be deemed to be demand registrations as described in Section 2 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 4.

 

 

EXHIBIT B

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4.4	Underwriting.

If the Holders of Registrable Securities requesting registration under this Section 4 intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Section 2.2 shall apply to such registration.

 

5.

Expenses.

All Registration Expenses incurred in connection with any registration pursuant to Sections 2, 3 or 4 (but excluding Selling Expenses) shall be borne by the Company. Each Holder participating in a registration pursuant to Sections 2, 3 or 4 shall bear such Holder’s proportionate share (based on the total number of shares sold in such registration other than for the account of the Company) of all Selling Expenses or other amounts payable to underwriter(s) or brokers, in connection with such offering by the Holders. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 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 Section 2; 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, then the Holders shall not be required to pay any of such expenses and such registration shall not constitute the use of a demand registration pursuant to Section 2.

 

6.	Obligations of the Company.

Whenever required to effect the registration of any Registrable Securities under this Agreement the Company shall, as expeditiously as reasonably possible:

 

6.1	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, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days or, in the case of Registrable Securities registered under Form F-3 in accordance with Rule 415 under the Securities Act or a successor rule, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such ninety (90) day period shall be extended for a period of time equal to the period any Holder refrains from selling any securities included in such registration at the request of the underwriter(s), and (ii) in the case of any registration of Registrable Securities on Form F-3 which are intended to be offered on a continuous or delayed basis, such ninety (90) day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold.

 

 

EXHIBIT B

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6.2	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 securities covered by such registration statement.

 

6.3	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.

 

6.4

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 unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act.

 

6.5	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.

 

6.6	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 (i) the issuance of any stop order by the SEC in respect of such registration statement, or (ii) 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.

 

6.7	Opinion 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 securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel 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 a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) letters dated as of (1) the effective date of the registration statement covering such Registrable Securities and (2) the closing date of the offering 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 a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.

 

 

EXHIBIT B

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7.	Furnish Information.

It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2, 3 or 4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable Securities.

 

8.	Indemnification.

In the event any Registrable Securities are included in a registration statement under Sections 2, 3 or 4:

 

8.1	By the Company.

To the extent permitted by law, the Company shall indemnify and hold harmless each Holder, its partners, officers, directors, legal counsel, any underwriter (as defined 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 United States federal or state 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”):

 

(a)

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;

 

(b)

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

 

(c)

any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any United States federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any United States federal or state securities law in connection with the offering covered by such registration statement;

 

 

EXHIBIT B

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and the Company will reimburse each such Holder, its partner, officer, director, legal counsel, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 8.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), 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 or any partner, officer, director, counsel, underwriter or controlling person of such Holder.

 

8.2	By Selling Holders.

To the extent permitted by law, each selling Holder will, if Registrable Securities held by Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, 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 United States federal or state 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 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 agreement contained in this Section 8.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further, that in no event shall any indemnity under this Section 8.2 exceed the net proceeds received by such Holder in the registered offering out of which the applicable Violation arises.

 

 

EXHIBIT B

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8.3

Notice.

Promptly after receipt by an indemnified party under this Section 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 indemnified party under this Section 8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the 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, 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 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 8 to the extent the indemnifying party is prejudiced as a result thereof, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 8.

 

8.4	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 indemnified party makes a claim for indemnification pursuant to this Section 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 8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party in circumstances for which indemnification is provided under this Section 8; then, and in each such case, the indemnified party and the indemnifying party will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the indemnifying Party and of the indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying Party or by the indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case: (A) no Holder will be required to contribute any amount in excess of the net proceeds to such Holder from the sale of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of 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.

 

 

EXHIBIT B

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8.5

Survival.

The obligations of the Company and Holders under this Section 8 shall survive 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. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

 

9.	No Registration Rights to Third Parties.

Without the prior written consent of the Holders of a majority in interest 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 F-3 registration rights described in this Exhibit B, or otherwise) relating to any securities of the Company which are senior to, or on a parity with, those granted to the Holders of Registrable Securities.

 

10.	Rule 144 Reporting.

With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration or pursuant to a registration on Form F-3, after such time as a public market exists for the Ordinary Shares, the Company agrees to:

 

10.1	Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

 

10.2	File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and

 

10.3

So long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the Company’s initial public offering), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or its qualification as a registrant whose securities may be resold pursuant to Form F-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to Form F-3.

 

 

EXHIBIT B

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11.	Market Stand-Off.

Each Shareholder agrees that, so long as it holds any voting securities of the Company, upon request by the Company or the underwriters managing the initial public offering of the Company’s securities, it will not sell or otherwise transfer or dispose of any securities of the Company (other than those permitted to be included in the registration and other transfers to Affiliates permitted by law) without the prior written consent of the Company or such underwriters, as the case may be, for a period of time specified by the representative of the underwriters not to exceed one hundred and eighty (180) days from the effective date of the registration statement covering such initial public offering or the pricing date of such offering as may be requested by the underwriters. The foregoing provision of this Section 11 shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, and shall only be applicable to the Holders if all officers, directors and holders of one percent (1%) or more of the Company’s outstanding share capital enter into similar agreements, and if the Company or any underwriter releases any officer, director or holder of one percent (1%) or more of the Company’s outstanding share capital from his or her sale restrictions so undertaken, then each Holder shall be notified prior to such release and shall itself be simultaneously released to the same proportional extent. The Company shall require all future acquirers of the Company’s securities holding at least one percent (1%) of the then outstanding share capital of the Company to execute prior to a Qualified IPO a market stand-off agreement containing substantially similar provisions as those contained in this Section 11.

 

 

EXHIBIT B

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EXHIBIT C

FORM OF ASSUMPTION AGREEMENT

THIS ASSUMPTION AGREEMENT is made the     day of             , by and between Momo Technology Company Limited (the “Company”); and <            > (the <“New Investor”><“New Shareholder”>).

The Company and the New Investor shall be referred to collectively as the Parties.

WHEREAS

 

(A)	As of [—], 2014, the Company, certain existing shareholders of the Company and certain other parties entered into a Third Amended and Restated Shareholders’ Agreement (the “Shareholders Agreement”), attached hereto as Exhibit A.

 

(B)

The <New Investor><New Shareholder> wishes to acquire an aggregate of             <Ordinary Shares> <Preferred Shares> (as defined in the Shareholders Agreement) in the capital of the Company and in accordance with the Shareholders Agreement has agreed to enter into this Assumption Agreement (the “Assumption Agreement”).

 

(C)	The Company is entering into this Assumption Agreement on behalf of itself and as agent for all the existing Shareholders of the Company.

NOW, THEREFORE, the Parties hereby agree as follows:

 

1.	INTERPRETATION

In this Assumption Agreement, except as the context may otherwise require, all words and expressions defined in the Shareholders Agreement shall have the same meanings when used herein.

 

2.

COVENANT

The <New Investor>< New Shareholder > hereby covenants to the Company as trustee for all other persons who are at present or who may hereafter become bound by the Shareholders Agreement, and to the Company itself, to adhere to and be bound by all the duties, burdens and obligations of an party holding <Ordinary Shares> <Preferred Shares> imposed pursuant to the provisions of the Shareholders Agreement and all documents expressed in writing to be supplemental or ancillary thereto as if the <New Investor>< New Shareholder > had been an original party to the Shareholders Agreement as a <New Investor>< New Shareholder > since the date thereof.

 

3.	ENFORCEABILITY

Each existing Investor, Founder and the Company shall be entitled to enforce the Shareholders Agreement against the <New Investor>< New Shareholder >, and the <New Investor>< New Shareholder > shall be entitled to all rights and benefits of a <New Investor>< New Shareholder > under the Shareholders Agreement in each case as if such <New Investor>< New Shareholder > had been an original party to the Shareholders Agreement since the date hereof.

 

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4.	GOVERNING LAW

This Assumption Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflicts of law thereunder.

 

5.	COUNTERPARTS

This Assumption Agreement may be signed in any number of counterparts which together shall form one and the same agreement.

 

6.	FURTHER ASSURANCE

Each party agrees to take all such further action as may be reasonably necessary to give full effect to this Assumption Agreement on its terms and conditions.

 

7.

HEADINGS

The headings used in this Assumption Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

[Reminder of page intentionally left blank]

 

 

EXHIBIT C

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IN WITNESS whereof the parties have executed and delivered this Assumption9 Agreement on the day and year first hereinbefore mentioned.

 

COMPANY:		MOMO TECHNOLOGY COMPANY LIMITED
		By:
		Name:
		Capacity:
		Address:
		Fax:
<NEW INVESTOR:>		<            >
< NEW SHAREHOLDER:>
		By:
		Name:
		Title:

[SIGNATURE PAGE TO ASSUMPTION AGREEMENT]

 

EXHIBIT C

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EXHIBIT D

DISCLOSURE SCHEDULE

 

Exhibit D

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EXHIBIT E-1

FORM OF OPINION OF PRC COUNSEL

 

Exhibit E-1

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To:

Momo Technology Company Limited

P.O. Box 957, Offshore Incorporations Centre,

Road Town, Tortola,

British Virgin Islands

Date:             , 2014

Re: Series D shares Financing of Momo Technology Company Limited

Dear Sirs,

We are lawyers qualified to practice the laws of the People’s Republic of China (the “PRC”, excluding Taiwan, Hong Kong and Macao Special Administrative Region for the purpose of these opinions only).

We have been requested by Momo Technology Company Limited (the “Company”), to provide these legal opinions with respect to the issue of series D Preferred Shares to Sequoia Capital China Investment Holdco II, Ltd., Sequoia Capital China GF Holdco III-A, Ltd., SC China Growth III Co-Investment 2014-A, L.P., Rich Moon Limited and Tiger Global Eight Holdings (collectively the “Investors”).

Save as expressly mentioned in these opinions, we did not make any independent search or investigation of the facts for the purpose of these opinions.

All capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Series D Preferred Share Purchase Agreement (the “SPA”) dated April 23^rd, 2014 entered into by and among the Company, the Investors, the Persons listed in Schedule I(A) attached to the SPA (each a “Founder” and collectively the “Founders”) , the entities listed in Schedule I(B) attached to the SPA (each a “Founder Holdco”, and collectively the “Founder Holdcos”) ; Momo Technology HK Company Limited ( , the “HK Co.”), Beijing Momo Technology Co., Ltd. ( , the “Domestic Company”), and Beijing Momo Information Technology Co., Ltd. ( , the “WFOE”, together with the Domestic Company and Chengdu Momo Technology Co., Ltd. ( , the “Chengdu Momo”), the “PRC Companies”, each a “PRC Company”). The following terms shall have the meanings set forth below:

 

(i).

“Control Documents” means the following contracts collectively: (a) the Exclusive Technology Consulting and Service Agreement by and between the WFOE and the Domestic Company dated April 18, 2012, (b) the Equity Pledge Agreement by and among the WFOE, the Founders, , and dated April 18, 2012, (c) the Share Option Agreements by and Between each of the Founders,

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, respectively, and the WFOE dated April 18, 2012, (d) the Operation Agreement by and among the WFOE, the Domestic Company, the Founders, , dated April 18, 2012, and (e) the Powers of Attorney issued by each of the Founders, , and respectively of the Domestic Company to the WFOE dated April 18, 2012;

 

(ii).

“PRC Laws” means all laws, statutes, regulations, rules, orders, decrees, notices, circulars, judicial interpretations, and subordinate legislations of the PRC, publicly available, publicly promulgated and in force in the People’s Republic of China (not including Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan) as of the date of this Legal Opinion;

 

(iii).

“Restated Control Documents” means the amended and restated the Control Documents in substantially the same form set forth in Exhibit I to the SPA;

 

(iv).

“SAFE” means the State Administration of Foreign Exchange of the PRC or its local branch;

 

(v).	“Circular 75” means SAFE’s Notice on Relevant Issues concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles issued on October 21, 2005 and its implementing rules, as amended;

 

1.	DOCUMENTS EXAMINED

For the purposes of this opinion, we have examined the following documents provided by the Domestic Company:

 

(i).

Copies of the Restated Control Documents;

 

(ii).

Copies of Control Documents;

 

(iii).

Copies of (A) the executed (1) SPA, (2) the Third Amended and Restated Shareholders Agreement entered into on April     , 2014; (B) the Seventh Amended and Restated Memorandum of Association, and the Articles of Association; and (C) the Disclosure Schedule;

 

(iv).

Copies of incorporation documents in connection with the Domestic Company and the WFOE listed in Schedule A of this opinion and copies of other due diligence documents provided to us by the Company and the PRC Companies; and

 

(v).

The oversea investment foreign exchange registration forms for each of the Founders in connection with their equity interests in the Company as follows:

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a.

The oversea investment foreign exchange registration form of Yan Tang, issued by Beijing Branch of SAFE, No.: GEZI(2011)628B3 on January 6, 2014,

 

b.

The oversea investment foreign exchange registration form of Yong Li, issued by Beijing Branch of SAFE, No.: GEZI(2011)629B3 on January 6, 2014,

 

c.

The oversea investment foreign exchange registration form of Xiaoliang Lei, issued by Beijing Branch of SAFE, No.: GEZI(2011)630B3 on January 6, 2014,

 

d.

The oversea investment foreign exchange registration form of Zhiwei Li, issued by Beijing Branch of SAFE, No.: GEZI(2011)631B3 on January 6, 2014;

 

(vi).

The documents listed in items (iii) above are herein collectively referred to as “Transaction Documents”; the Transaction Documents, together with the documents listed in items (i), (ii), (iv) and (v) above are herein collectively referred to as “Documents”.

 

2.	ASSUMPTIONS

In examination of the Documents and for the purposes of giving this opinion, we have assumed without further inquiry that:

 

(i).

The genuineness of all the signatures, seals and chops and the authenticity of all Documents provided to us as originals, the conformity with the originals of all Documents provided to us as copies and the authenticity of such originals;

 

(ii).

The Documents as presented to us remain in full force and effect after they were submitted for this opinion and have not been revoked, amended, carried or supplemented;

 

(iii).

The truthfulness, accuracy and completeness of all factual statements in the Documents;

 

(iv).

All the Documents expressed to be governed by laws other than the PRC laws are lawful, valid and enforceable under the laws of such jurisdictions; and

 

(v).

That, in response to our due diligence inquiries, requests and investigation for the purpose of this opinion, all the relevant information and materials have been provided to us are true, accurate, complete and not misleading, and that nothing has been withheld that, if disclosed to us, would reasonably cause us to alter this opinion in whole or in part.

 

3.

OPINIONS

Based on the above presumptions and subject to the Disclosure Schedule and the qualifications below, as the date hereof, we are of the following opinions:

Part One-the Domestic Company and the WFOE

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(i).

The WFOE is a wholly foreign-owned enterprise duly incorporated and validly existing under the PRC Laws with limited liability. The Company, through the HK Co, legally and beneficially owns 100% of the equity interests in the WFOE. The equity interests of the WFOE are free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity, or any third party right. There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in the WFOE. The WFOE was established on March 9, 2012 with a term of 30 years. The total amount of the investment of the WFOE is US$99,990,000 and the registered capital is US$40,300,000. The registered capital of the WFOE has been fully paid in accordance with its Articles of Association and the PRC Laws. The WFOE is an independent legal entity capable of entering into any contractual relationship binding on itself with any party, and has the power and authority to assume civil liability with respect to its assets.

 

(ii).

The articles of association, the business license and the approval certificate of the WFOE are in compliance with the requirements of applicable PRC Laws and are in full force and effect.

 

(iii).

Except that the WFOE shall file with competent governmental authority for the changes of registered capital and registered address to the extent applicable to relevant licenses, permits and registrations under Section 7.6 of the SPA, the WFOE has obtained all necessary licenses, authorizations, approvals, registrations, and permits in the PRC for the establishment and the maintenance of the enterprise legal person status.

 

(iv).

The Domestic Company is a legal person with limited liability duly incorporated and validly existing under the PRC Laws. The Domestic Company was established on July 7, 2011 with a term of 20 years. Its registered capital is RMB 1,111,100, which has been paid in full by its shareholders in accordance with Articles of Association and the PRC Laws. Yan Tang owns 72% of the equity interests, Yong Li owns 16% of the equity interests, Zhiwei Li owns 5.6% of the equity interests, and Xiaoliang Lei owns 6.4% of the equity interests in the Domestic Company. All of the equity interests of the Domestic Company is free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity, or any third party right and was not issued in violation of preemptive or similar rights except for those set forth in the Restated Control Documents. There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in the Domestic Company except for those set forth in the Restated Control Documents. Except that the Domestic Company shall file with competent governmental authority for the changes of registered address to the extent applicable to relevant licenses, permits and registrations under Section 7.6 of the SPA, all approvals as required by the PRC Laws for the Domestic Company’s establishment, existence, change of shareholding, capital increase and change of other material company particulars as of date hereof have been duly obtained and are in full force and effect. The Domestic Company is an independent legal entity capable of entering into any contractual relationship binding on itself with any party, and has the power and authority to assume civil liability with respect to its assets.

 

(v).	The articles of association and the business license of the Domestic Company are in

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compliance with the requirements of applicable PRC Laws and are in full force and effect.

 

(vi).

Chengdu Momo is a legal person with limited liability duly incorporated and validly existing under the PRC Laws. Chengdu Momo was established on May 9, 2013 and is wholly owned by the Domestic Company. Its registered capital is RMB 10,000,000, which has been paid in full by its shareholder in accordance with Articles of Association and the PRC Laws. All of the equity interests of Chengdu Momo are free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity, or any third party right. There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in Chengdu Momo. All approvals as required by the PRC Laws for Chengdu Momo’s establishment and existence as of date hereof have been duly obtained and are in full force and effect. Chengdu Momo is an independent legal entity capable of entering into any contractual relationship binding on itself with any party, and has the power and authority to assume civil liability with respect to its assets.

 

(vii).

The articles of association and the business license of Chengdu Momo are in compliance with the requirements of applicable PRC Laws and are in full force and effect.

 

(viii).

Each shareholder of each PRC Company has obtained all necessary Approvals from competent Governmental Authorities which are required under the PRC Laws to be obtained from Government Authorities for his, her or its ownership of the equity interests in such PRC Company.

 

(ix).

All registrations or records with and applications to the relevant PRC authorities in respect of Company Intellectual Property have been made, are valid, and in full force an effect. The Domestic Company possesses, or has the appropriate rights to use the Company Intellectual Property.

 

(x).

Except for the Internet Culture Operation License which will be applied for by the Domestic Company for its involvement in internet game operation business, each of the PRC Companies has obtained all necessary Approvals, has the power and authority and has satisfied all conditions and done all material things required by the PRC Laws in order for it to own, use, lease and operate its material assets and to conduct its existing business as it is currently conducted. Such Approvals are in full force and effect; no violation exists in respect of any such Approvals; and no such Approvals are subject to suspension, revocation or withdrawal. The lack of the Internet Culture Operation License does not materially affect or limit the normal business operations of the Domestic Company and the other PRC Companies.

 

(xi).

Each of the PRC Companies has completed and passed annual inspection for each of its Approval from Governmental Authorities, if required by the PRC Law. None of the PRC Companies has received notice of any legal or administrative proceedings relating to the revocation, suspension or modification of any Approvals, and to the best of our knowledge, no circumstances have arisen as of the date hereof such that any of such Approvals may be

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revoked, suspended, cancelled or withdrawn or (where relevant) cannot be renewed upon its expiration date.

 

(xii).

To the best of our knowledge, each of the PRC Companies has good and marketable title to all of its material properties and assets, free and clear of all liens and encumbrances, except such encumbrances as contemplated in the Restated Control Documents.

 

(xiii).

Each of the PRC Companies has legal and valid title to the intellectual properties which such PRC Company is disclosed as the right owner as set forth in the Disclosure Schedule (the “Owned Registered IPs”), and none of the Owned Registered IPs is subject to any lien, security interest, option, third party right or third party claim. All of the Owned Registered IP is owned by and registered solely in the name of the relevant PRC Companies. All of the intellectual property applications set forth in the Disclosure Schedule are solely applied for in the name of the relevant PRC Companies. To the best of our knowledge after due inquiry, (A) there are no rights of third parties to any of the Owned Registered IP; (B) there is no pending or threatened action, suit, proceeding or claim by others challenging the PRC Companies’ rights to, any Owned Registered IP; and (C) there is no pending or threatened action, suit, proceeding or claim by others challenging the validity, enforceability or scope of any of the PRC Companies’ Owned Registered IP.

 

(xiv).

Each of the PRC Companies holds valid leasehold interests in the respective real properties that it is currently using, and is in compliance in all material respects with such leases. The PRC Companies do not have the title to or ownership in any of the real properties that they use.

 

(xv).

The WFOE and the Key Employees have duly executed and delivered employment agreements, IP assignment, non-competition and confidentiality agreements (collectively, the “Employment Agreements”). Each Employment Agreement (i) is legal, binding and enforceable under the PRC Laws against each party thereto in accordance with its terms, and (ii) does not violate any PRC Laws, rule, regulation, or governmental policy and is binding upon any party there or to which any of the parties thereto is subject.

 

(xvi).

To the best of our knowledge, each of the PRC Companies is not in breach of or in default under, (i) any applicable PRC Laws, (ii) any Approval granted by any PRC Governmental Authority or its business license, (iii) its articles of association or other constitutional documents.

 

(xvii).

Each of the PRC Companies is capable of suing and being sued and can be the subject of any legal proceedings in PRC courts except and to the extent that the subject matter of any such suit or legal proceeding is required by an enforceable agreements to which such PRC Company is bound to be settled by arbitration.

 

(xviii).

Neither the PRC Company nor any Founder is entitled to any immunity on the ground of sovereignty from any action, suit or other legal proceedings or from enforcement, execution

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or attachment.

 

(xix).

To the best of our knowledge, there is no claim, litigation, arbitration, administrative proceedings or other legal process or threatened by or against the PRC Companies, or to which any of the property of any of them may be subject, before any court or governmental agency in the PRC. Each of the PRC Companies has not taken any action, passed any resolution, nor have any steps been taken or legal or administrative proceedings been commenced or threatened for the winding up, dissolution or liquidation of the PRC Companies, or for the suspension, withdrawal, revocation or cancellation of their business licenses, operational permit or other governmental approvals.

Part Two-Transaction Documents

 

(i).

Each of the PRC Companies has full corporate power and authority to enter into, execute, deliver and perform the Transaction Documents to which it is a party. Each of the Founders and Founder Holdcos has the power and authority to enter into, execute, deliver and perform the Transaction Documents to which it is a party. The execution and delivery by the PRC Companies, of each of the Transaction Documents and the performance by the PRC Companies of their obligations therein have been duly authorized by all requisite corporate action on the part of the PRC Companies. The Transaction Documents executed and delivered by each PRC Company, Founder, and Founder Holdco that is a party thereto constitutes the legal, valid, binding and enforceable obligations of such PRC Company, Founder or Founder Holdco, as applicable, in accordance with the terms thereof.

 

(ii).

The execution, delivery and performance of and compliance with the terms of the Transaction Documents by each of the PRC Companies, the Founders and Founder Holdcos that is a party thereto and the consummation of the transactions contemplated therein are not in contravention of any Approvals or applicable PRC Laws, and did not and do not violate or conflict with, or constitute by itself or upon notice or passage of time, or both, a default under any Approvals, PRC Laws or any provision in the articles of association of any PRC Company or to the best of our knowledge, any agreement, instrument, arbitration award or judgment, order or decree of any court of the PRC to which any of the PRC Companies, the Founders and Founder Holdcos, as the case may be, is a party or which is binding on any of the PRC Companies the Founders and Founder Holdcos or any of their assets.

 

(iii).

No approval of, or filing with, any governmental authority in the PRC is required for the validity of any of the Transaction Documents by the PRC Companies, the issuance of the Series A-1, Series A-2, Series A-3, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares, the valid authorization, reservation, issuance and delivery of the Ordinary Shares upon conversion, or the consummation of the other transactions contemplated by the Transaction Documents.

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(iv).

Except for the establishment of the Founder Holdcos, the Founders have duly registered with the Beijing SAFE, for the establishment of the overseas special purpose vehicles and for the round-trip investment in the PRC in connection with the Domestic Company for the shares they indirectly hold in the Company through their respective Founder Holdcos, as required under the Circular 75.

 

(v).

The WFOE is allowed to pay dividends to the HK Co. as its sole shareholder after the WFOE has paid up all its taxes, levies and charges and made statutorily required allocation to funds. The WFOE is allowed to convert the dividends from RMB into foreign currencies and to remit the dividends to its shareholder out of the PRC, so far as it complies with the procedures required under the PRC Laws relating to foreign exchange.

 

(vi).

The Restated Control Documents, individually or taken as a whole, are legal and in conformity with PRC Laws, and have been duly executed and delivered by the PRC Companies and the Founders to which each of them is a party, and such obligations constitute valid legal and binding obligations enforceable against each of them in accordance with the terms of each of the Restated Control Documents. The performance by each of the PRC Companies of its obligations under each of the Restated Control Documents to which it is a party does not conflict with the PRC Laws. All Approvals from the Governmental Authorities required under any PRC Laws in connection with the due execution and performance of each of the Restated Control Documents by each of the parties thereto have been obtained. None of the parties to the Control Documents has, to date, encountered any interference or encumbrance from any Governmental Authority in operating the business of the Domestic Company through the contractual arrangements under the Control Documents.

 

(vii).

The choice of the Laws of Hong Kong as the governing law of the SPA and the Shareholders Agreement is a valid choice of law and would be recognized and given effect to in any action brought before a court of competent jurisdiction in the PRC. The submission to arbitration administered by the Hong Kong International Arbitration Center in Hong Kong in accordance with terms of the Transaction Agreements dose not contravenes any PRC Laws. The courts of the PRC would recognize a final and conclusive arbitral award obtained in accordance with the SPA and the Shareholders Agreement against the parties thereto, and would enforce such award without re-examination or re-litigation of any matter which is the substantive subject of such award, provided that such recognition and enforcement will be conducted in accordance with the Mutual Enforcement of Arbitration Award between the Mainland China and Hong Kong promulgated by the PRC Supreme People’s Court.

 

(viii).

There is no material action, suit, government investigation, proceeding, claim or penalty pending or threatened in the PRC with respect to taxes payable by the PRC Companies or with respect to any tax return required to be filed by the PRC Companies.

4. FURTHER QUALIFICATIONS

---

 

 

This opinion expressed above is subject to the following additional qualifications:

 

(i).

These opinions are subject to the restriction of (A) any applicable bankruptcy, insolvency, reorganization, or similar laws affecting creditors’ rights generally (including without limitation, all laws relating to fraudulent transfers) and (B) any judicial or administrative actions affecting creditors’ rights generally.

 

(ii).

These opinions are subject to the effects of judicial discretion with respect to the availability of specific performance, injunctive relief, indemnifications, remedies or defenses, the calculation of damages, the entitlement of attorneys’ fees or other costs, the waiver of immunity from jurisdiction of any court or from legal proceedings.

 

(iii).

These opinions are confined to and given on the basis of the PRC Laws as of the date hereof. The PRC Laws referred to herein are laws and regulations publicly available and currently in force on the date hereof and there is no guarantee that any of such laws and regulations or the interpretation or enforcement thereof, will not be changed, amended or revoked in the future with or without retrospective effect. The interpretation and implementation of the PRC Laws, and their application to and effect on the legality, binding effect and enforceability of contracts and transactions are subject to the discretion of competent PRC legislative, administrative and judicial authorities. We do not express or imply any opinion on the laws of any other jurisdiction and we are under no obligation to update this opinion in any way subsequent to the date hereof.

These opinions are limited to the matters addressed herein and are not to be read as opinion with respect to any other matter. These opinions are addressed to the addressee listed at the beginning of these opinions and may not be relied upon by anyone else.

Yours faithfully,

Concord & Partners

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Chinese text (Translation: English Text)

 

 

Schedule A

List of Documents

Document list of Beijing Momo Information Technology Co., Ltd.

 

1.	[Approval Reply re the Articles of Association and Members of Board of Directors of Beijing Momo Information Technology Co., Ltd. (Chao Shang Fu Zi [2012] No. 1090) issued by Beijing Chaoyang District Commerce Committee]

 

2.	[Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People’s Republic of China (Shang Wai Zi Jing Zi Zi [2012]No. 05112)]

 

3.	[Approval Reply re the Amendment to the Articles of Association of (Chao Shang Fu Zi [2012] No. 3024) issued by Beijing Chaoyang District Commerce Committee]

 

4.	[Articles of Association and its Amendments of Beijing Momo Information Technology Co., Ltd.]

 

5.	[Business License (Registration No. 110000450200208)]

 

6.	[Organizational Institution Code Certificate (Code No. 59064254-7)]

 

7.	[Tax Registration Certificate (Jing Shui Zheng Zi No. 110105590642547)]

 

8.	[Foreign Exchange Certificate/Foreign Exchange Certificate IC Card]

 

9.	[Statistics Registration Certificate of Beijing Municipality (Statistics Registration No. 315590642547)]

 

10.	[Financial Registration Certificate of Foreign Invested Enterprise (Registration Certificate No. 1101059510)]

---

Chinese text (Translation: English Text)

 

 

 

11.	[Social Insurance Registration Certificate]

 

12.	[Acceptance Notices on Application for Work Copyright Registration (Acceptance No.: 2013Z11S019845, 2013Z11S019846, 2013Z11S019847, 2013Z11S019848, 2013Z11S019849, 2013Z11S019850, 2013Z11S016531, 2013Z, 1S016530, 2013Z11S016532, 2013Z11S016533, 2013Z11S016534, 2013Z11S016535)]

 

13.

[Copyright Registration Certificates (Guo Zuo Deng Zi-2013-F-00099742, Guo Zuo Deng Zi-2013-F-00099743, Guo Zuo Deng Zi-2013-F-00099744, Guo Zuo Deng Zi-2013-F-00114337, Guo Zuo Deng Zi-2013-F-00107143, Guo Zuo Deng Zi-2013-F-00112662, Guo Zuo Deng Zi-2013-F-00112663, Guo Zuo Deng Zi-2013-F-00112665, Guo Zuo Deng Zi-2013-F-00112664, Guo Zuo Deng Zi-2013-F-00112666, Guo Zuo Deng Zi-2013-F-00112667, Guo Zuo Deng Zi-2013-F-00096401, Guo Zuo Deng Zi-2013-F-00096400, Guo Zuo Deng Zi-2013-F-00096396, Guo Zuo Deng Zi-2013-F-00096397, Guo Zuo Deng Zi-2013-F-00096398, Guo Zuo Deng Zi-2013-F-00096399)]

[Document List of Beijing Momo Technology Co., Ltd.]

 

1.	[Business License (Registration No. 110105014033048)]

 

2.	[Articles of Association and its Amendments of

---

Chinese text (Translation: English Text)

 

 

 

Beijing Momo Technology Co., Ltd.]

 

3.	[Tax Registration Certificate (Jing Shui Zheng Zi No. 110105579055157)]

 

4.	[Organizational Institution Code Certificate (Code No. 57905515-7)]

 

5.	[Telecommunications and Information Service Business Operation Certificate (Operation Certificate No.: Jing ICP Zheng 120107)]

 

6.	[Social Insurance Registration Certificate]

 

7.	[Agreement on Transfer of Equity Interest entered into by Tang Yan, Lei Xiaoliang, Li Zhiwei, Li Yong and respectively dated February 1, 2012]

 

8.	[Shareholders Resolutions executed in February 1, 2012]

 

9.	[Capital Increase Agreement entered into by Tang Yan, Lei Xiaoliang, Li Zhiwei, Li Yong, and respectively dated May, 2012]

 

10.	[Shareholders Resolutions executed on May 2, 2012]

 

11.	[Equity Pledge Agreement entered into by and among Tang Yan, Lei Xiaoliang, Li Zhiwei, Li Yong, , and Beijing Momo Information Technology Co., Ltd dated February 22, 2012]

 

12.	[Employment Agreements entered into by Beijing Momo Technology Co., Ltd and Tang Yan, Lei Xiaoliang, Li Zhiwei, Zhang Sichuan, Wang Li, Liu Hanhui, Lin Zhilin, Zhang Ying]

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Chinese text (Translation: English Text)

 

 

 

13.	[Agreements on Transfer of Intellectual Property, Non-Competition and Confidentiality entered into by Beijing Momo Technology Co., Ltd and Tang Yan, Lei Xiaoliang, Li Zhiwei, Zhang Sichuan, Wang Li, Liu Hanhui, Lin Zhilin, Zhang Ying]

 

14.	[Trademark Registration Certificates (Registration No.: 10679466, 10679546, 10679590, 10679614, 10679677, 9945658, 9940833, 9945544, 9945602, 9945573, 9940938)]

 

15.	[Acceptance Notices on Application for Trademark Registration (Application No.: 10679415, 10679546, 10679466, 10679590, 10679614, 10679677, 12095059, 12095003, 12094962, 12095035, 12095116, 12095074, 9945658, 9940833, 9945544, 9945602, 9945573, 9940938 )]

 

16.	[Acceptance Notices on Software Registration (Acceptance No.: 2013R11S084181, 2013R11S084182)]

 

17.	[Copyright Registration Certificates (Registration No.:Guo Zuo Deng Zi -2012-F-00072269, Guo Zuo Deng Zi -2012-F-00068170, Guo Zuo Deng Zi -2012-F-00071043)]

 

18.	[Computer Software Copyright Registration Certificates (Certificate No.: Ruan Zhu Deng Zi No. 0463696, Ruan Zhu Deng Zi No. 0463791, Ruan Zhu Deng Zi No. 0607391, Ruan Zhu Deng Zi No. 0607421, Ruan Zhu Deng Zi No. 0672734)]

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EXHIBIT E-2

FORM OF OPINION OF BRITISH VIRGIN ISLANDS COUNSEL

 

Exhibit E-2

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		Harney Westwood & Riegels
		3601 Two Exchange Square
		8 Connaught Place
		Central, Hong Kong
		Tel: +852 3195 7200
		Fax: 852 3195 7210

 

By courier
			monica.chu@harneys.com
			+852 3195 7231
			044284-0004-MYC

Sequoia Capital China Investment Holdco II, Ltd.

Sequoia Capital China GF Holdco III-A, Ltd.,

SC China Growth III Co-Investment 2014-A, L.P.

Rich Moon Limited

Tiger Global Eight Holdings

Dear Sirs

Momo Technology Company Limited, Company No 1682215 (the Company)

We are lawyers qualified to practice in the British Virgin Islands and have been asked to provide this legal opinion to you with regard to the laws of the British Virgin Islands in relation to the Transaction Documents (as defined in Schedule 1) being entered into by the Company.

For the purposes of giving this opinion, we have examined the Transaction Documents and the Corporate Documents (as defined in Schedule 1). We have not examined any other documents, official or corporate records or external or internal registers and have not undertaken or been instructed to undertake any further enquiry or due diligence in relation to the transaction which is the subject of this opinion.

In giving this opinion we have relied upon the assumptions set out in Schedule 2 which we have not verified.

Based solely upon the foregoing examinations and assumptions and having regard to legal considerations which we deem relevant, and subject to the qualifications set out in Schedule 3, we are of the opinion that under the laws of the British Virgin Islands:

 

1	Existence and Good Standing. The Company is a company duly incorporated with limited liability, and is validly existing and in good standing under the laws of the British Virgin Islands. It is a separate legal entity and is subject to suit in its own name.

 

2	Capacity and Power. The execution and delivery of the Transaction Documents by the Company and the performance of its obligations thereunder are within the corporate capacity and power of the Company and have been duly authorised and approved by all necessary corporate action of the Company.

 

3	No Conflict. The execution, performance and delivery of the Transaction Documents do not violate, conflict with or result in a breach of:

 

(a)

any of the provisions of the Company’s Memorandum and Articles of Association;

 

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(b)

any law or regulation applicable to the Company in the British Virgin Islands currently in force; or

 

(c)

any existing order or decree of any governmental or regulatory authority or agency in the British Virgin Islands.

 

4	Due Execution. The Transaction Documents have been duly executed for and on behalf of the Company.

 

5	Enforceability. The Transaction Documents will be treated by the courts of the British Virgin Islands as the legally binding, valid and enforceable obligations of the Company enforceable in accordance with their terms.

 

6

Authorisation and Approvals. No authorisations, consents, orders, permissions or approvals are required from any governmental, regulatory or judicial authority or agency in the British Virgin Islands and no notice to or other filing with or action by any British Virgin Islands governmental, regulatory or judicial authority are required in connection with:

 

(a)

the execution and delivery of the Transaction Documents;

 

(b)

the exercise of any of the Company’s rights under the Transaction Documents;

 

(c)

the performance of any of the Company’s obligations under the Transaction Documents; or

 

(d)

the payment of any amount under the Transaction Documents.

 

7	Filings. It is not necessary to ensure the legality, validity, enforceability or admissibility in evidence of the Transaction Documents that any document be filed, recorded or enrolled with any governmental, regulatory or judicial authority in the British Virgin Islands.

 

8

Judgment Currency. Any monetary judgment in a court of the British Virgin Islands in respect of a claim brought in connection with the Transaction Documents is likely to be expressed in the currency in which such claim is made as such courts have discretion to grant a monetary judgment expressed otherwise than in the currency of the British Virgin Islands.

 

9

Taxes. There are no stamp duties, income taxes, withholdings, levies, registration taxes or other duties or similar taxes or charges now imposed, or which under the present laws of the British Virgin Islands could in the future become imposed, in connection with the enforcement or admissibility in evidence of the Transaction Documents or on any payment to be made by the Company or any other person pursuant to the Transaction Documents.

 

10	Interest. There is no applicable usury or interest limitation law in the British Virgin Islands which would restrict the recovery of payments or performance by the Company of its obligations under the Transaction Documents.

 

11

Enforcement of Arbitral Awards. There are several ways in which an arbitration award obtained in Hong Kong may be enforced in the British Virgin Islands. The principal method is under Part IX of the Arbitration Act 1976 whereby any final and conclusive monetary award obtained against the Company in arbitration proceedings in Hong Kong in respect of the Transaction Documents for a definite sum may, with the leave of the High Court in the British Virgin Islands, be enforced in the same manner as a judgment of the British Virgin Islands court under the procedure set out in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. The High Court may only exercise its discretion to refuse leave if:

 

(a)

a party to the arbitration agreement was, under the law applicable to him, under some incapacity;

 

2

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(b)

the arbitration agreement was not valid under the governing law of the arbitration agreement;

 

(c)

the Company was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case;

 

(d)

the award deals with an issue not contemplated by or not falling within the terms of the submission to arbitration, or contains matters beyond the scope of the arbitration, subject to the proviso that an award which contains decisions on such matters may be enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those matters not so submitted;

 

(e)

the composition of the arbitral authority was not in accordance with the agreement of the parties or, failing such agreement, with the law of Hong Kong;

 

(f)

the award has not yet become binding upon the parties, or has been set aside or suspended by a competent authority, either in Hong Kong, or pursuant to the law of the arbitration agreement;

 

(g)

the subject matter of the award was not capable of resolution by arbitration; or

 

(h)

enforcement would be contrary to public policy.

 

12

Adverse Consequences. Under the laws of the British Virgin Islands, none of the parties to the Transaction Documents (other than the Company) will be deemed to be resident, domiciled or carrying on any commercial activity in the British Virgin Islands or subject to any tax in the British Virgin Islands by reason only of the execution, and performance of the Transaction Documents nor is it necessary for the execution, performance and enforcement of the Transaction Documents that any such party be authorised or qualified to carry on business in the British Virgin Islands.

 

13

Choice of Law and Jurisdiction. The choice of the law of Hong Kong as the proper law of the Transaction Documents would be upheld as a valid choice of law by the courts of the British Virgin Islands and applied by such courts in proceedings in relation to the Transaction Documents as the proper law thereof.

 

14	Pari Passu Obligations. The obligations of the Company under the Transaction Documents constitute direct obligations that (save as expressly subordinated thereby) rank at least pari passu with all its other unsecured obligations (other than those preferred by law).

 

15	Exchange Controls. There are no foreign exchange controls or foreign exchange regulations under the currently applicable laws of the British Virgin Islands.

 

16

Sovereign Immunity. The Company is not entitled to claim immunity from suit or enforcement of a judgment on the ground of sovereignty or otherwise in the courts of the British Virgin Islands in respect of proceedings against it in relation to the Transaction Documents and the execution of the Transaction Documents and performance of its obligations under the Transaction Documents by the Company constitute private and commercial acts.

 

17

Searches.

 

(a)

No court proceedings pending against the Company are indicated by our searches of the British Virgin Islands High Court Registry referred to at paragraph 4 of Schedule 1.

 

(b)

On the basis of our searches of the British Virgin Islands Registry of Corporate Affairs and the British Virgin Islands High Court Registry referred to at paragraphs 3 and 4 of Schedule 1, no currently valid order or resolution for liquidation of the Company and no current notice of

 

3

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appointment of a receiver over the Company or any of its assets appears on the records maintained in respect of the Company at the Registry of Corporate Affairs.

This opinion is confined to the matters expressly opined on herein and given on the basis of the laws of the British Virgin Islands as they are in force and applied by the British Virgin Islands courts at the date of this opinion. We have made no investigation of, and express no opinion on, the laws of any other jurisdiction. We express no opinion as to matters of fact. 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 the Transaction Documents. We express no opinion with respect to the commercial terms of the transactions the subject of this opinion.

This opinion is rendered for your benefit and the benefit of your legal counsel (in that capacity only) in connection with the transactions contemplated by the Transaction Documents. It may be disclosed to your successors and assigns only with our prior written consent. It may not be disclosed to or relied on by any other party or for any other purpose.

 

Yours faithfully

Harney Westwood & Riegels

 

4

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SCHEDULE 1

List of Documents and Records Examined

 

1	a copy of the Certificate of Incorporation and the Sixth Amended and Restate Memorandum and Articles of Association of the Company obtained from the Registry of Corporate Affairs on 19 March 2014, which our searches dated                  indicated were not subsequently amended;

 

2	the records and information certified by Offshore Incorporations Limited, the registered agent of the Company, on                  of the statutory documents and records maintained by the Company at its registered office (the Registered Agent’s Certificate);

 

3	the public records of the Company on file and available for inspection at the Registry of Corporate Affairs, Road Town, Tortola, British Virgin Islands on                 ;

 

4	the records of proceedings on file with, and available for inspection on                  at the High Court of Justice, British Virgin Islands;

 

5

a copy of the unanimous written resolutions of the board of directors of the Company dated                  and a copy of the unanimous written resolutions of the shareholders of the Company dated              approving the Company’s entry into, and authorising the execution and delivery by, the Company of the Transaction Documents and adopting the seventh amended and restated Memorandum and Articles of Association of the Company (the Resolutions);

 

6	a copy of the draft seventh amended and restated Memorandum and Articles of Association of the Company;

(1- 6 above the Corporate Documents), and

 

7	copies of the executed Transaction Documents consisting of the following;

 

(a)

a Series D Preferred Share Purchase Agreement dated                  entered into between the Company, Momo Technology HK Company Limited (the HK Co), Beijing Momo Informational Technology Co., Ltd. (the WFOE), Beijing Momo Technology Co., Ltd. (the Domestic Company), the individuals listed in Schedule I(A) therein, the entities listed in Schedule I(B) therein and the investors listed in Schedule II therein;

 

(b)

a third amended and restated shareholders’ agreement dated                  entered into between the Company, the investors listed in Schedule 1 therein, the persons listed on Schedule 2(A) therein, the HK Co, the Domestic Company and the WFOE;

 

(c)

a management rights letter dated                  executed by the Company, the HK Co., the WFOE and the Domestic Company addressed to                 ; and

 

(d)

an indemnity agreement dated                  entered into between the Company,                  and Alibaba Investment Limited

((a) – (d) above are the Transaction Documents).

The Corporate Documents and the Transaction Documents are collectively referred to in this opinion as the Documents.

 

5

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SCHEDULE 2

Assumptions

 

1

Validity under Foreign Laws. That (i) each party to the Transaction Documents (other than the Company) has the necessary capacity, power and authority to enter into the Transaction Documents and perform its obligations thereunder, and each such party has duly executed the Transaction Documents; (ii) the Transaction Documents constitute valid, legally binding and enforceable obligations of each of the parties thereto under the laws of Hong Kong by which law they are expressed to be governed; (iii) all formalities required under the laws of Hong Kong and any other applicable laws (other than the laws of the British Virgin Islands) have been complied with; and (iv) no other matters arising under any foreign law will affect the views expressed in this opinion.

 

2

Choice of Laws. The choice of the laws of Hong Kong selected to govern the Transaction Documents has been made in good faith and will be regarded as a valid and binding selection which will be upheld in the courts of that jurisdiction and all other relevant jurisdictions (other than the British Virgin Islands) and that the entry into and performance of the Transaction Documents will not cause any of the parties thereto to be in breach of any agreement or undertaking.

 

3

Directors. The board of directors of the Company considers the execution of the Transaction Documents and the transactions contemplated thereby to be in the best interests of the Company and no director has a financial interest in or other relationship to a party or the transactions contemplated by the Transaction Documents which has not been properly disclosed in the Resolutions.

 

4	Bona Fide Transaction. No disposition of property effected by the Transaction Documents is made for an improper purpose or wilfully to defeat an obligation owed to a creditor.

 

5	Solvency. The Company was on the date of execution of the Transaction Documents able to pay its debts as they fall due, and entering into the Transaction Documents will not cause the Company to become unable to pay its debts as they fall due.

 

6

Authenticity of Documents. All original Documents are authentic, that all signatures, initials and seals are genuine, that all copies of Documents are true and correct copies and that the Transaction Documents conform in every material respect to the latest drafts of the same produced to us and that where the Transaction Documents have been provided to us in successive drafts marked-up to indicate changes to such documents all such changes have been so indicated.

 

7

Corporate Documents. All matters required by law to be recorded in the Corporate Documents are so recorded, and that all corporate minutes, resolutions, certificates, documents and records which we have reviewed are accurate and complete, and that all facts expressed in or implied thereby are accurate and complete, and that the information recorded in the Registered Agent’s Certificate was accurate as at the date of the passing of the Resolutions.

 

8	Stamp Duty. The Company does not own (directly or indirectly) an interest in land in the British Virgin Islands.

 

9	No Steps to Wind-up. The directors and shareholders of the Company have not taken any steps to appoint a liquidator of the Company and no receiver has been appointed over any of the Company’s property or assets.

 

10	Resolutions. The Resolutions remain in full force and effect.

 

6

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11	Unseen Documents. Save for the Documents provided to us there are no resolutions, agreements, documents or arrangements which materially affect, amend or vary the transactions envisaged in the Documents.

 

7

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SCHEDULE 3

Qualifications

 

1

Enforceability. The term enforceable as used above means that the obligations assumed by the Company under the relevant instrument are of a type which the courts of the British Virgin Islands enforce. It does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their terms. In particular:

 

(a)

Insolvency. Rights and obligations may be limited by bankruptcy, insolvency, liquidation, winding-up, reorganisation, moratorium, readjustment of debts, arrangements and other similar laws of general application affecting the rights of creditors.

 

(b)

Limitation Periods. Claims under the Transaction Documents may become barred under the Limitation Act 1961 relating to the limitation of actions in the British Virgin Islands or may be or become subject to defences of set-off, estoppel or counterclaim.

 

(c)

Equitable Rights and Remedies. Equitable rights may be defeated by a bona fide purchaser for value without notice. Equitable remedies such as injunctions and orders for specific performance are discretionary and will not normally be available where damages are considered an adequate remedy.

 

(d)

Fair Dealing. Strict legal rights may be qualified by doctrines of good faith and fair dealing - for example a certificate or calculation as to any matter might be held by a British Virgin Islands court not to be conclusive if it could be shown to have an unreasonable or arbitrary basis, or in the event of manifest error.

 

(e)

Prevention of Enforcement. Enforcement may be prevented by reason of fraud, coercion, duress, undue influence, unreasonable restraint of trade, misrepresentation, public policy or mistake or limited by the doctrine of frustration of contracts.

 

(f)

Penal Provisions. Provisions, for example, for the payment of additional interest in certain circumstances, may be unenforceable to the extent a court of the British Virgin Islands determines such provisions to be penal.

 

(g)

Currency. A British Virgin Islands court retains a discretion to denominate any judgment in US dollars.

 

(h)

Confidentiality. Provisions imposing confidentiality obligations may be overridden by the requirements of legal process.

 

(i)

Award of costs. In principle the courts of the British Virgin Islands will award costs and disbursements in litigation in accordance with the relevant contractual provisions but there remains some uncertainty as to the way in which the rules of the High Court will be applied in practice.

 

(j)

Inappropriate Forum. The courts of the British Virgin Islands may decline to exercise jurisdiction in relation to substantive proceedings brought under or in relation to the Transaction Documents in matters where they determine such proceedings may be tried in a more appropriate forum.

 

(k)

Financial Services Business. An agreement made by a person in the course of carrying on unlicensed financial services business is unenforceable against the other party to the agreement under section 50F of the Financial Services Commission Act 2001.

 

8

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2	Public Records. Records reviewed by us may not be complete for various reasons. In particular you should note that:

 

(a)

in special circumstances the court may order the sealing of the court record, which would mean that a record of the court action would not appear on the High Court register;

 

(b)

failure to file notice of appointment of a receiver with the Registry of Corporate Affairs does not invalidate the receivership but merely gives rise to penalties on the part of the receiver;

 

(c)

a liquidator of a British Virgin Islands company has 14 days after their appointment within which they must file notice of their appointment at the Registry of Corporate Affairs; and

 

(d)

although amendments to the Memorandum and Articles of Association of a company are normally effective from the date of registration with the Registry of Corporate Affairs, it is possible for a British Virgin Islands court to order that they be treated as being effective from an earlier date, and searches would not reveal the amendments until the court order was subsequently filed,

and accordingly our searches would not indicate such issues.

 

3	Severability. The courts in the British Virgin Islands will determine in their discretion whether or not an illegal or unenforceable provision may be severed.

 

4

Several Remedies. In certain circumstances provisions in the Transaction Documents that (i) the election of a particular remedy does not preclude recourse to one or more others, or (ii) delay or failure to exercise a right or remedy will not operate as a waiver of any such right or remedy, may not be enforceable.

 

5	Foreign Statutes. We express no opinion in relation to provisions making reference to foreign statutes in the Transaction Documents.

 

6

Amendment. A British Virgin Islands court would not treat as definitive a statement in a contract that it could only be amended or waived in writing but would be able to consider all the facts of the case particularly where consideration had passed to determine whether a verbal amendment or waiver had been effected and if it found that it had such verbal amendment or waiver would be deemed to have also amended the stated requirement for a written agreement.

 

7	Good Standing. To maintain the Company in good standing under the laws of the British Virgin Islands, annual licence fees must be paid to the Registrar of Corporate Affairs.

 

8	Statutory Powers. Any provision in the Transaction Documents which purports to fetter a statutory power of the Company may not be enforceable under the common law rule in Russell v Northern Bank Development Corp Ltd [1992] 1 WLR 588 (HL).

 

9

Conflict of Laws. An expression of an opinion on a matter of British Virgin Islands law in relation to a particular issue in this opinion should not necessarily be construed to imply that the British Virgin Islands courts would treat British Virgin Islands law as the proper law to determine that issue under its conflict of laws rules.

 

10	Sanctions. The obligations of the Company may be subject to restrictions pursuant to United Nations and European Union sanctions as implemented under the laws of the British Virgin Islands.

 

9

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EXHIBIT F

FORM OF INDEMNIFICATION AGREEMENT

 

Exhibit F

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INDEMNIFICATION AGREEMENT

INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of April     , 2014, by and among Momo Technology Company Limited (the “Company”), Yu Feng (the “Director”), and Rich Moon Limited (the “Investor”). The Director and the Investor shall be referred to herein individually as the “Indemnitee” and collectively as the “Indemnitees.”

RECITALS

A. The Company and the Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors and officers, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.

B. The Company and the Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees, controlling persons, shareholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.

C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and the Indemnitees and other directors and officers of the Company may not be willing to serve in such capacities without additional protection.

D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Director, to serve the Company and, in part, in order to induce the Director to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent permitted by law as provided herein.

D. The Director is affiliated with the Investor, and has agreed to serve as a director of the Company in connection with the Investor’s investment in the Company.

E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.

NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:

1. Indemnification.

a. Indemnification of Expenses.

(i) Third-Party Claims. Subject to Section 8 below, the Company shall indemnify and hold harmless the Director to the fullest extent permitted by law if the Director was or is or becomes a party to or witness, or other participant in, or is threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative

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dispute resolution mechanism, or any hearing, inquiry or investigation that such Director reasonably believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a “Claim”) (other than an action by right of the Company) by reason of (or arising in part out of or in connection with) the fact that the Director is or was a director or officer of the Company, or any subsidiary or affiliate of the Company, or is or was serving at the request of the Company as a director, officer, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of the Director while serving in such capacity (hereinafter, an “Agent”) or as a direct or indirect result of any Claim made by any shareholder of the Company against the Director and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-participation, or non-pro rata participation, in such round by such shareholder), or made by a third party against the Director based on any misstatement or omission of a material fact by the Company or any subsidiary or affiliate of the Company in violation of any duty of disclosure imposed on the Company by securities or common laws (hereinafter an “Indemnification Event”) against any and all expenses (including, without limitation, attorneys’ fees, travel and deposition costs, and all other costs, expenses and obligations), judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Director in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in, or otherwise participate in such Claim, costs of attachment or similar bonds or equivalent, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, and any applicable taxes of any jurisdiction imposed on Director as a result of the actual or deemed receipt of any payments, under this Agreement, the Company’s Memorandum and Articles of Association as now or hereafter in effect (the “M&A”), applicable law or otherwise (collectively, hereinafter the “Expenses”) if the Director acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

(ii) Derivative Actions. If the Director is a person who was or is a party or is threatened to be made a party to any Claim by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was an Agent of the Company, or by reason of anything done or not done by him or her in any such capacity, the Company shall indemnify the Director against any amounts paid in settlement of any such Claim and all Expenses actually and reasonably incurred by him or her in connection with the investigation, defense, settlement or appeal of such Claim if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his 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 court

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shall deem proper.

(iii) Indemnification of Investors. The Company agrees that, if and whenever any of the Investors is or was a party or is threatened to be made a party to or is in any way involved in any Claim (including without limitation any such Claim brought by or in the right of the Company), by reason of the fact that (i) the Director is or was an Agent, (ii) by reason of anything done or not done by the Director in such capacity, or (iii) by reason of the fact that any of the Investors is or was acting as an express agent of the Company upon the request of the Company and solely for the benefit of the Company (provided that the fact that the Investors will incidentally benefit as a shareholder from such action will not alone mean that such action is not or was not solely for the benefit of the Company), the Company shall indemnify the Investors against all Expenses actually and reasonably incurred by the Investors or on the Investors’ behalf in connection with such Claim (including but not limited to in connection with the investigation, defense, settlement or appeal of such Claim) except to the extent that any such Expenses arise from a Claim for which the Director is not entitled to indemnification hereunder pursuant to Section 8 hereof or under applicable law.

(b) Reviewing Party.

Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the Reviewing Party (as described in Section 10(e) hereof) shall not have determined that the Indemnitee would not be permitted to be indemnified under applicable law or pursuant to Section 8 hereof, and (ii) each Indemnitee acknowledges and agrees that the obligation of the Company to make an advance payment of Expenses to an Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that such Indemnitee would not be permitted to be so indemnified under applicable law or Section 8 hereof, the Company shall be entitled to be reimbursed by the Indemnitee (who each hereby agree to promptly reimburse the Company) for all such amounts theretofore paid; provided, however, that if the Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that such Indemnitee should be indemnified under applicable law or Section 8 hereof, any determination made by the Reviewing Party that the Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and the Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). The Indemnitees’ obligation to reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c) hereof), the Reviewing Party shall be selected by the a majority of the Board of Directors (excluding the Director), and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors (other than the Director) who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law or Section 8 hereof, the Indemnitee shall

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have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitees.

(c) Contribution.

If the indemnification provided for in Section 1(a) above for any reason other than the statutory limitations of applicable law or as provided in Section 8, is held by a court of competent jurisdiction to be unavailable to an Indemnitee in respect of any losses, claims, damages, expenses or liabilities in which the Company is jointly liable with such Indemnitee, as the case may be (or would be jointly liable if joined), then the Company, in lieu of indemnifying the Indemnitee thereunder, shall contribute to the amount actually and reasonably incurred and paid or payable by the Indemnitee as a result of such losses, claims, damages, expenses or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Company and the Indemnitee, and (ii) the relative fault of the Company and such Indemnitee in connection with the action or inaction that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Indemnitee shall be determined, by such court or by Independent Legal Counsel, by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such losses, claims, damages, expenses or liabilities.

The Company and the Indemnitees agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the U.S. Securities Act of 1933, as amended (the “Securities Act”)) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

(d) Survival Regardless of Investigation.

The indemnification and contribution provided for in this Section 1 shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnitees.

(e) Change in Control.

The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter

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arising concerning the rights of Indemnitees to payments of Expenses under this Agreement, any other agreement or under the Company’s M&A, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). The Company agrees to abide by the determination of the Independent Legal Counsel and to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including, without limitation, attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(f) Mandatory Payment of Expenses.

Notwithstanding any other provision of this Agreement, to the extent an Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice or the settlement of an action without an admission of liability, in the defense of any Claim referred to in Section 1(a) hereof or in the defense of any claim, issue or matter therein, such Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by such Indemnitee in connection herewith.

2. Expenses; Indemnification Procedure.

(a) Advancement of Expenses.

Subject to Section 8 and except as prohibited by applicable law, the Company shall advance all Expenses incurred by an Indemnitee in connection with the investigation, defense, settlement or appeal of any Claim to which such Indemnitee is a party or is threatened to be made a party by reason of the fact that the Director is or was an Agent of the Company or by reason of anything done or not done by him or her in any such capacity. The Indemnitee hereby undertakes to promptly repay such portion of the Expense Advance, only if, and to the extent that, it shall ultimately be determined by a final judicial decision that such Indemnitee is not entitled to be indemnified by the Company, in whole or in part, under the provisions of this Agreement, the M&A, the bylaws, applicable law or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee as soon as practicable but in any event no later than thirty (30) days after written demand by the Indemnitee therefor to the Company.

(b) Notice/Cooperation by Indemnitee.

The Indemnitee shall give the Company notice in writing promptly after receipt of notice of commencement of any Claim, or the threat of the commencement of any Claim, made against such Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other person and/or address as the Company shall designate in writing to the Indemnitee). The failure of Indemnitees to give such notice, or to provide such information or cooperation, shall not affect Indemnitees’ rights to indemnification under this Agreement, or the obligations of the Company hereunder, except to the

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extent that the Company is materially prejudiced thereby.

(c) No Presumptions; Burden of Proof.

If a claim for indemnification or Expense Advance under this Agreement is not paid by the Company within thirty (30) days after receipt of written notice by the Company, the rights provided by this Agreement shall be enforceable by the relevant Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be conducted de novo. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not (i) create a presumption that the Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law, or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or Expense Advance under this Agreement. In addition, neither the failure of the Reviewing Party to have made a determination as to whether the Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee had not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by the Indemnitee to secure a judicial determination that the Indemnitee should be indemnified under applicable law, shall be a defense to the Indemnitee’s claim or create a presumption that the Indemnitee had not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that the Indemnitee is not so entitled by clear and convincing evidence.

The Company further agrees to stipulate in any such judicial proceeding that it is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.

(d) Notice to Insurers.

If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.

(e) Selection of Counsel.

In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim, with legal counsel reasonably approved by the Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such legal counsel by the Indemnitee, and the retention of such legal counsel by the Company, the Company will not be liable to such

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Indemnitee under this Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such Indemnitee’s legal counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own legal counsel in connection with any such proceeding, at the expense of the Company, if such legal counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; and (iii) if (A) the employment of legal counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not in fact continue to retain such legal counsel to defend such Claim, then the fees and expenses of the Indemnitee’s legal counsel shall be at the expense of the Company.

The Company shall not be entitled to settle any claim against any Indemnitee without the reasonable consent of such Indemnitee, unless the settlement involves only the payment of monetary relief for which such Indemnitee will be indemnified and does not include a statement or an admission of fault or culpability by or on behalf of such Indemnitee.

3. Additional Indemnification Rights; Non-exclusivity.

(a) Scope.

The Company hereby agrees to indemnify the Director to the fullest extent permitted by law (except as provided in Section 8) with respect to Claims for Indemnification Events, even if such indemnification is not specifically authorized by the other provisions of this Agreement or any other agreement, the Company’s M&A, or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a British Virgin Islands company to indemnify a member of its Board of Directors or an officer or Agent, it is the intent of the parties hereto that Indemnitees shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a British Virgin Islands company to indemnify a member of its Board of Directors or an officer, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 8 hereof.

(b) Non-exclusivity.

Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which the Indemnitees may be entitled under the Company’s M&A, any agreement, any vote of shareholders or disinterested directors, applicable laws, or otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action the Director took or did not take while serving in an indemnified capacity even though such Director may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each Indemnitee from and after the Director’s first day of service as a director with the Company or affiliation with a

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director from and after the date the Director commences services as a director with the Company.

4. No Duplication of Payments.

The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, M&A, bylaws or otherwise) of the amounts otherwise indemnifiable hereunder. The Company acknowledges and agrees that while under certain circumstances, Indemnitees may be entitled to indemnification and expense advancement and/or reimbursement from the Investor and/or its general partner or other affiliates thereof (collectively, “Investor Related Parties”) in connection with Claims made against Indemnitees, the obligations of the Company hereunder with respect to any Claim are primary to any obligations of any Investor Related Party with respect thereto, and Indemnitees will not be obligated to seek indemnification from or expense advancements or reimbursement by any Investor Related Party with respect to any Claim unless and until the Company shall have fulfilled all of its obligations hereunder, including without limitation, with respect to any insurance provided pursuant hereto or otherwise. In addition, the Company hereby waives any rights of contribution, subrogation, or any other recovery of any kind in respect thereof from or against each and every Investor Related Party with respect to any Claim. Each of the Investor Related Parties is an intended third party beneficiary of this Agreement and the Company agrees to execute all documents required and to take such further action as may be requested by any Investor Related Party to effectuate the contractual arrangement between the Company and the Investor Related Parties as set forth herein.

5. Partial Indemnification.

If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which such Indemnitee is entitled.

6. Mutual Acknowledgement.

The Company and each Indemnitee acknowledge that in certain instances, applicable law or public policy may prohibit the Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.

7. Liability Insurance.

To the extent the Company maintains liability insurance applicable to its directors and other Agents, the Company shall use commercially reasonable efforts to provide that the Director shall be covered by such policies in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director; or of the Company’s Agents, if such Indemnitee is not a director of the Company but is an Agent.

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8. Exceptions.

Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Claims Under Section 16(b).

To indemnify either Indemnitee for expenses and the payment of profits or an accounting thereof arising from the purchase and sale by such Indemnitee of securities in violation the provisions of Section 16(b) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any similar provisions of any international, federal, state or local statutory law;

(b) Unauthorized Settlements.

To indemnify the Indemnitees hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld;

(c) Unlawful Indemnification.

To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitees have been advised that the U.S. 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;

(d) Fraud.

To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has knowingly committed fraud on the Company;

(e) Insurance.

To indemnify an Indemnitee for which payment is actually and fully made to such Indemnitee under a valid and collectible insurance policy; or

(f) Company Contracts.

Subject to the provisions of this Agreement, to indemnify an Indemnitee with respect to any Claim related to any dispute or breach arising under any contract or similar obligation between the Company and such Indemnitee.

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9. Period of Limitations.

No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against the Director, the Director’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

10. Construction of Certain Phrases.

(a) For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers, so that if the Director is or was or may be deemed a director or officer of such constituent corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as the Director would have with respect to such constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on the Indemnitees with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as an Agent of the Company which imposes duties on, or involves services by, such Agent with respect to an employee benefit plan, its participants or its beneficiaries; and if the Indemnitees acted in good faith and in a manner such Indemnitees reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, the Indemnitees shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

(c) For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than thirty percent (30%) of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then still in

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office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least two-thirds of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company’s assets; provided that in no event shall a Change in Control be deemed to include (A) a merger, consolidation or reorganization of the Company for the purpose of changing the Company’s state of incorporation and in which there is no substantial change in the shareholders of the Company or its successor (as the case may be), or (B) the Company’s first firm commitment underwritten public offering of any of its securities to the general public pursuant to (x) a registration statement filed under the Securities Act, or (y) the securities laws applicable to an offering of securities in another jurisdiction pursuant to which such securities will be listed on an internationally recognized securities exchange (the “IPO”).

(d) For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last two (2) (other than with respect to matters concerning the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

(e) For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body, consistent with applicable law, consisting of a member or members of the Company’s Board of Directors (other than the Director) or any other person or body appointed by the Board of Directors who is not a named party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.

(f) For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

11. Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12. Binding Effect; Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets

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of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance reasonably satisfactory to each Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnification Events regardless of whether any Indemnitee continues to serve as an Agent of the Company or of any other enterprise, including subsidiaries or affiliates of the Company, at the Company’s request.

13. Attorneys’ Fees.

Subject to Section 8 and except as prohibited by applicable law, in the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, such Indemnitee shall be entitled to be paid all Expenses actually and reasonably incurred by such Indemnitee with respect to such action if such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses actually and reasonably incurred by such Indemnitee in defense of such action (including costs and expenses incurred with respect to the Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the extent that such Indemnitee is ultimately successful in such action.

14. Notice.

All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one (1) day after the business day of delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Director’s and the Investor’ addresses as set forth beneath their signatures to this Agreement and if to the Company at the address of its principal corporate offices (attention: Chief Executive Officer), or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

15. Severability.

The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining

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provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

16. Choice of Law.

This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of Hong Kong without regard to the conflict of laws principles thereof.

17. 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 Indemnitees who each 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; provided, however, that the Company expressly waives any rights of subrogation with respect to any rights of recovery of any Indemnitee against any Investor Related Party or any insurer providing liability insurance in respect of or in support of any such obligations of a Investor Related Party.

18. Amendment and Termination.

Except as provided in Section 21, no amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

19. No Construction as Employment Agreement.

Nothing contained in this Agreement shall be construed as giving the Indemnitees any right to be retained in the employment or service of the Company or any of its subsidiaries.

20. Corporate Authority.

The Board of Directors of the Company and its shareholders in accordance with British Virgin Islands law have approved the terms of this Agreement.

21. Termination of Agreement.

This Agreement shall terminate and be of no further force or effect upon the closing of the IPO, provided that each Indemnitee will be entitled to all of the benefits and rights accorded such party under this Agreement with respect to any Claims for any Indemnification Events arising or related

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to events, circumstances and actions or omissions which have occurred or alleged and to have occurred prior to the closing of the IPO.

22. Dispute Resolution.

Any dispute or claim arising out of or relating to this Agreement shall be settled in accordance with the procedure set forth in Section 8.12 of the Second Amended and Restated Shareholders’ Agreement dated on October, 8^th, 2013 by and among the Company, certain members of the Investor, and certain other parties.

23. Entire Agreement.

This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

24. Interpretation.

(a) The headings preceding the text of the sections included in this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. Reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof.

(b) The use of the masculine, feminine or neuter gender or the singular or plural form of words herein shall not limit any provision of this Agreement. The use of the terms “including” or “include” shall, in all cases herein, mean “including, without limitation” or “include, without limitation,” respectively. The use of the terms “hereunder”, “hereof”, “hereto” and words of similar import shall refer to this Agreement as a whole and not to any particular section, subsection paragraph or clause of, this Agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.

 

COMPANY:				MOMO TECHNOLOGY
				COMPANY LIMITED
				a British Virgin Islands company
				By:
				Name:		Yan Tang
				Title:		Director

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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.

 

DIRECTOR:				as individual
				Name:		Yu Feng
INVESTOR:				RICH MOON LIMITED
				c/o Unit 3501, K. Wah Centre, 1010 Huai Hai Zhong Road, Shanghai 200031, China.
				Name:		Huang Xin
				Title:		Director

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EXHIBIT G

FORM OF KEY EMPLOYEE EMPLOYMENT AGREEMENT

 

Exhibit G

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This is an English translation of the original Chinese text.

Contract Number:             

BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.

EMPLOYMENT CONTRACT

Party A (Employer): Beijing Momo Information Technology Co., Ltd. (the “Company”)

Party B (Employee):                     

 

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It is confirmed by the Parties that prior to execution of this Contract, Party A has made to Party B inclusive and true descriptions of the jobs, conditions, location, potential occupational hazard, safe production status, employment compensation and any other information requested by Party B in relation to the employment.

 

Party A:		Beijing Momo Information Technology Co., Ltd.
Legal representative:		Yan TANG
Office address:		Rooms 801-803 Block D, A6 Chaoyang Men Wai Avenue, Chaoyang District, Beijing
Party B:
Gender:
ID number:
Mailing address:

(Party A and Party B collectively, the “Parties”)

In accordance with the Employment Law of the People’s Republic of China, the Employment Contract Law of the People’s Republic of China and applicable laws and regulations, the Parties, after negotiations based on the principles of equality, fairness, self-willingness and good faith, and intend to be legally bound hereby, agree as follows:

TERM OF EMPLOYMENT CONTRACT

 

1)	The Parties agree to define the term of the Contract according to the following option b:

 

a.

Perpetual period: the term of this Contract commences on                      and ends on                     ;

 

b.

Fixed period: the term of this Contract shall be three years commencing on                      and ending on                     , with/without a probation from                      through                     .

 

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JOB DESCRIPTION AND WORK LOCATION

 

2)	Party A will engage Party B as                      of                      department.

 

3)

The job descriptions and responsibilities of Party B are specified in the position statement or otherwise agreed in writing between the Parties. Party B shall submit to Party A’s management and arrangements, and complete the relevant work at the time, quality and quantity required by Party A according to the job descriptions and responsibilities set forth in the position statement or otherwise agreed in writing, on the basis of which Party B will receive assessment by Party A.

 

4)	The work location of Party B shall be at Beijing.

 

5)

Party A may make reasonable adjustment to Party B’s position if it finds Party B unqualified for this position after its review, and also adjust Party B’s compensation accordingly, which adjustment and review shall be conducted according to applicable procedures adopted by Party A pursuant to relevant laws. Party B shall submit to Party A’s such arrangements, failing to do which Party A may terminate this Contract.

WORKING HOURS, LEAVES AND VACATIONS

 

6)	Party B’s working hours are standard working hours, which is determined based on the actual situation of Party A’s position.

 

7)	During the term of this Contract and subject to approval from employment administrative department, the working hours of Party B will be adjusted as of the date on which such approval is received.

 

8)

Party A may adjust the starting and ending time of Party B’s working hours according to work requirement, provided that Party B shall arrange Party B to work within normal working hours as much as possible. If Party B is required to work beyond normal working hours as necessary, a compensatory time-off with equivalent hours worked overtime shall be given, or an overtime payment shall be made to Party B according to relevant regulations. Party B’s overtime work must be approved or subsequently recognized by Party A, and the overtime work so approved or recognized shall be entitled to a compensatory time-off with equivalent hours worked overtime or an overtime payment; Party B’s overtime work not so approved or recognized or that results from his/her failure to finish his/her due work for his/her own reasons will not be entitled to any compensatory time-off or overtime payment.

 

9)	Party B shall be entitled to all kinds of mandatory leaves, vacations and holidays during the term of this Contract.

EMPLOYMENT COMPENSATION

 

10)	Party B’s salary will consist of basic salary and allowance.

 

11)	Party B’s basic before-tax salary during normal working hours will be RMB          per month. The salary during the probation period shall be determined according to the following option a.

 

a.

The before-tax salary during the probation period shall be RMB          per month; or

 

b.

No probation.

 

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12)	Party A will pay the Party B’s salary in monetary funds no later than 10th day of the next month, which will be postponed when such day is a public holiday.

 

13)	Party A will withhold the income tax and the amount of contribution to the social security insurance payable by Party B.

SOCIAL INSURANCE AND BENEFITS

 

14)

Party A shall provide social security insurance and housing fund for Party B in accordance with the Employment Law of the People’s Republic of China, the Employment Contract Law of the People’s Republic of China and applicable national and local regulations. Each of the Parties shall pay their respective mandatory contribution amount.

 

15)	Party B shall provide his true information required for maintaining social security insurance.

 

16)	Upon termination or expiration of the Employment Contract, Party A shall effect the mandatory procedures necessary to transfer Party B’s social security insurance and housing fund.

 

17)	If Party B is sick or injured out of working hours, his salary will be paid according to relevant national regulations and Party A’s rules.

 

18)	If Party B becomes victim of occupational disease or is injured during working hours, he will be compensated according to relevant national and local regulations.

 

19)	Party B’s other benefits will be provided according to relevant national regulations and Party A’s rules.

WORK DISCIPLINE

 

20)

Party A will formulate rules, policies and disciplinary measures according to work requirement and in compliance with relevant laws. Party B acknowledges that he/she has fully understood, and will diligently comply with, the existing rules and regulations of Party A. If Party B is in breach of any of the disciplinary measures or Party A’s rules and regulations, Party A shall have the right to deal with the breach according to its rules and regulations, up to terminating this Contract.

WARRANTIES BY PARTY B

 

21)	Party B warrants that as of the date hereof, he/she has no relationship of employment or engagement with any third party, and there are no other matters with his/her former employer that suffice to affect the effectiveness and performance of this Contract.

 

22)	Party B warrants that he/she did not conceal any severe medical history from Party A at the execution hereof.

 

23)	Party B warrants that the execution and performance of this Contract will not breach the obligations under any other contract or agreement executed by him/her with a third party, and Party B has not executed a non-compete agreement with any third party.

 

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24)

Party B warrants that after employed by Party A, his/her engagement of any work assigned by Party A will not infringe upon the trade secrets or other legitimate rights and interests of his/her former employer. In case of breach of the preceding sentence, Party B will undertake corresponding responsibilities thus incurred.

 

25)	Party B warrants that all information and qualifications, credentials and certificates provided by him/her in relation to him/herself are true and contain no errors.

NON-DISCLOSURE AND NON COMPETE

 

26)	All the works or inventions accomplished by Party B during his/her employment with Party A for its duties, or primarily by using Party A’s materials and resources shall belong to works of product or works of invention, the intellectual property rights of which shall belong to Party A.

 

27)

Party B undertakes to be in strict compliance with all non-disclosure requirements maintained by Party A under applicable laws, keep any of Party A’s business secrets in strict confidence, and shall not disclose, use or permit any other party to use any of Party A’s business secrets during the term hereof and after the end or termination of this Agreement.

 

28)

As long as the position held by Party B involves access to any of Party A’s business secrets, the Parties agree to restrict Party B in his use of any of Party A’s business secrets or engagement of any business or conduct which is competition with Party A during the term hereof as well as a certain period after the end or termination of this Agreement. For this purpose, the Parties may enter into a separate agreement of non-compete and non-disclosure, whereby Party A shall pay economic compensation during the term of non-compete and Party B will be liable for damages if he is in breach of such requirement. Such agreement of non-compete and non-disclosure shall be attached hereto and constitute an integral part of this Contract.

AMENDMENT, TERMINATION, EXPIRATION AND RENEWAL OF THIS CONTRACT

 

29)	This Contract may be amended in accordance with the Employment Contract Law or agreement of the Parties. Any amendment hereto shall be made in agreement signed by the Parties.

 

30)	During the term of this Contract, the Parties may terminate this Contract upon agreement.

 

31)	Party A may terminate this Contract if Party B:

 

a.

fails to meet the qualifications required for his job during his probation;

 

b.

provides fake CV or information in job seeking;

 

c.

provides fake CV or information in entering into this Contract;

 

d.

fails to provide the severance proof with the former employer;

 

e.

fails to provide documents necessary for handling social security insurance within the mandatory period of time prescribed by the State;

 

f.

contracts a mental disease or an infectious disease of A or B category classified by Law on the Control of Communicable Diseases;

 

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g.

has a non-compete agreement with the former employer;

 

h.

conceals severe medical history from Party A when executing this Contract with Party A;

 

i.

is absent from work for three days consecutively and five days accumulatively in a single calendar year;

 

j.

discloses to a third person the salary offered by the Company, the business information of the Company and such other trade secrets without authorization or written consent of the Company;

 

k.

is in material breach of regulations and rules of Party A;

 

l.

is in gross negligence or corruption which causes material damage to Party A;

 

m.

is concurrently in employment relationship with other entity, which relationship has material impact on his performance of his job in Party A, or refuses to rectify such relationship at request from Party A;

 

n.

is held criminally liable according to laws; and

 

o.

is under any other circumstance provided in applicable laws and regulations.

 

32)	Party B may terminate this Contract with three (3) calendar days’ prior written notice to Party A during his probation, or with thirty (30) calendar days’ prior written notice to Party A if Party B terminates this Contract after the end of the probation.

 

33)	This Contract shall automatically terminate if:

 

a.

Upon the end of its term;

 

b.

Party B is entitled to benefiting from basic pension insurance;

 

c.

Party B is dead or declared dead or missing by the competent people’s court;

 

d.

Party A declares bankruptcy according to law;

 

e.

Party A is revoked of business license, or is ordered for closure or cancellation, or decides for dissolution; and

 

f.

There occurs any other circumstance under which this Contract shall automatically terminate.

 

34)	Party A may terminate this Contract with thirty (30) days’ prior written notice or payment equal to one-month salary to Party B if Party B:

 

a.

fails to perform his original job duty or any other job duty assigned by Party A after Party B returns to work after treatment of any illness or injury not afflicted during his work;

 

b.

fails to perform his job duty, or still fails to do so after training or re-assignment; and

 

6

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c.

Party A and Party B fail to reach agreement to amend this Contract if this Contract becomes un-performable due to material change of circumstances on which this Contract is based.

 

7

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35)

Upon termination or end of this Contract for any reason whatsoever, Party A shall, on the same day as the cause of such end or termination occurs or the decision of such end or termination is rendered, produce or provide by service of process the evidence for such termination or end to Party B, and effect the procedures to transfer the files and social security insurance of Party B within fifteen (15) calendar days. Party A shall not be held liable if it fails to effect the procedures to transfer such files and social security insurance due to any reason attributable to Party B. Party B shall diligently complete the work handover and job leaving formalities as required by Party A, and accept Party A’s inspection on the properties dealt with or managed, and financial and operating activities conducted by him/her during his/her employment. If upon such inspection, Party B is found to have committed any acts detrimental to Party A’s interests, Party A may claim indemnification against Party B; Party A shall have the right to require Party B to undertake relevant legal consequences for any losses incurred to Party A as a result of Party B’s failure to complete the job leaving formalities or work handover.

 

36)	Subject to agreement of the Parties, this Contract may be renewed. No probation will be included upon renewal of this Contract.

ECONOMIC INDEMNIFICATION AND COMPENSATION

 

37)	At the end or termination of this Contract, any economic compensation duly required to be paid by Party A to Party B shall be paid to Party B when Party B completes his/her work handover formalities in compliance with Employment Law and Employment Contract Law and relevant rules of Party A.

 

38)	Party B shall indemnify Party A for any economic losses incurred to Party A due to Party B’s termination of this Contract in breach of the conditions agreed herein or Party B’s breach of non-disclosure requirements herein, according to the extent of such losses.

 

39)

If Party B violates Party A’s rules and regulations and thus incurs loss to Party A, Party A may decide to give Party B such penalties as warning, salary reduction, demotion, cease of salary increase up to dismissal according to the seriousness of such violation and losses thus incurred. Party B shall also compensate Party A for any losses thus incurred.

DISPUTE RESOLUTION

 

40)

If any dispute arises in connection with performance of this Contract, such dispute shall be resolved through negotiations of the Parties or, if the negotiations fail, by submission by any of the Parties to arbitration at the competent arbitration commission where Party A is domiciled or, if the arbitration award is challenged by any of the Parties, by submission to the jurisdiction of the people’s court where Party A is domiciled within 15 days upon the receipt of the arbitration award.

SPECIAL PROVISIONS

 

41)

Party B shall notify Party A in writing of any change of the mailing address, mobile phone or other telephone number, email address or other contact information of Party B within ten (10) calendar days from occurrence of such change. If Party B fails to do so, any document delivered by Party A to the mailing address set forth in this Contract or last notified by Party B shall be deemed duly given.

 

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MISCELLANEOUS

 

42)	If any provision of this Contract is held invalid or unenforceable, it will not affect the validity of the remainder of this Contract.

 

43)	The Parties may enter into any supplement hereto regarding any matter not provided under this Contract, and any such supplement shall have the same effect with this Contract.

 

44)	Each of the Amendment to this Contract, Non-Disclosure Agreement, Employee Manual and such other documents, notices, decisions, agreements in relation to anything of this Contract shall be an attachment to and have the same effect with this Contract.

 

45)	This Contract shall be effective as of signature (and affixture of seal) by each of the Parties. This Contract shall be in two originals, with one original for each of the Parties.

 

Party A: (seal)		Party B: (signature)
Date:		Date:             , 20

 

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EXHIBIT H

FORM OF MANAGEMENT RIGHTS LETTER

 

Exhibit H

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MANAGEMENT RIGHTS LETTER

 

Sequoia Capital China Investment Holdco II, Ltd.,		, 2014
Sequoia Capital China GF Holdco III-A, Ltd., SC
China Growth III Co-Investment 2014-A, L.P.
Suite 2215, 22/F, Two Pacific Place, 88 Queensway
Hong Kong
Telephone: 852-2501-8971
Fax No.: 852-2501-5249
Attention: Kok Wai Yee
Rich Moon Limited
Room 3501, K. Wah Center, 1010 Huaihaizhong
Road, Shanghai, 200031, China
Telephone: 8621-3127 0909
Fax No.: 8621-3127 1750
Attention: Huang Xin
Tiger Global Eight Holdings:
Twenty Seven, Cybercity, Ebene, Mauritius
Attention: Moussa Taujoo
Facsimile: +230-467-4000

Re: Management Rights

Ladies and Gentlemen:

This letter will confirm our agreement that in connection with your subscription of shares of an aggregate 43,693,355 Series D Preferred Shares (the “Subscription Shares”) of Momo Technology Company Limited (the “Company”), each of you will be entitled to the following contractual management rights, in addition to (but not in limitation of) rights to certain non-public financial information, inspection rights and other rights specifically provided to you under the Series D Preferred Share Purchase Agreement.

(1) If and for so long as you do not have (or do not have the contractual right to designate) a representative on the Company’s Board of Directors (“Unrepresented Party”), you shall be permitted to select one representative (“Representative”) to consult with and advise management of the Company on significant business issues, including management’s proposed annual operating plans, and management will make itself available to meet with your Representative regularly during each year at the Company’s facilities at mutually agreeable times for such consultation and advice and to review progress in achieving said plans.

(2) If and for so long as you are an Unrepresented Party, your Representative may examine the books and records of the Company and inspect its facilities and may

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request information at reasonable times and intervals concerning the general status of the Company’s financial condition and operations.

(3) If and for so long as you are an Unrepresented Party, the Company shall invite you to send your Representative to attend in a nonvoting observer capacity all meetings of its Board of Directors and, in this respect, shall give your Representative copies of all notices, minutes, consents, and other material that it provides to the member of its Board of Directors; provided, however, that the Company reserves the right to exclude your Representative from access to any material or meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is reasonably necessary to preserve the attorney-client privilege. Your Representative may participate in discussions of matters brought to the Board of Directors.

The rights described herein shall terminate and be of no further force or effect when the sale of securities to the general public pursuant to a registration statement filed by the Company under the Securities Act of 1933 in connection with a firm commitment underwritten Qualified Offering (as defined in the legal documents relating to the purchase of the Subscription Shares) is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, whichever event shall occur first.

(4) Any dispute or claim arising out of or relating to this letter shall be settled in accordance with the procedure set forth in Section 8.12 of the Third Amended and Restated Shareholders’ Agreement dated on April     , 2014 by and among the Company, and relevant parties.

[The remainder of this page is intentionally left blank]

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MOMO TECHNOLOGY COMPANY LIMITED						MOMO TECHNOLOGY HK COMPANY LIMITED
By:
Name:		Yan Tang				By:
Title:		Director				Name:		Yan Tang
						Title:		Director
BEIJING MOMO TECHNOLOGY CO., LTD.						BEIJING MOMO INFORMATION TECHNOLOGY CO., LTD.
By:						By:
Name:		Yan Tang				Name:		Yan Tang
Title:		Legal Representative				Title:		Legal Representative
Affix Seal:						Affix Seal:

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INVESTOR:				SEQUOIA CAPITAL CHINA INVESTMENT HOLDCO II, LTD.
				a Cayman Islands company
				By:
				Name:
				Title:		Authorized Signatory
				SEQUOIA CAPITAL CHINA GF HOLDCO III-A, LTD.
				a Cayman Islands company
				By:
				Name:
				Title:		Authorized Signatory

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INVESTOR:				SC CHINA GROWTH III CO-INVESTMENT 2014-A, L.P.
				a Cayman Islands limited partnership
				By: SC China Growth III Management, L.P.
				a Cayman Islands limited partnership
				its general partner
				By: SC China Holding Limited
				a Cayman Islands company
				its general partner
				By:
				Name:
				Title:		Authorized Signatory
INVESTOR:				RICH MOON LIMITED
				By:
				Name:		Xin Huang
				Title:		Director
INVESTOR:				TIGER GLOBAL EIGHT HOLDINGS
				By:
				Name:
				Title:

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EXHIBIT I

FORM OF RESTATED CONTROL DOCUMENTS

 

Exhibit I

Exhibit 10.7

This is an English translation of the original Chinese text.

EXCLUSIVE COOPERATION AGREEMENT

Beijing Momo Technology Co., Ltd.

and

Beijing Momo Information Technology Co., Ltd.

 

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EXCLUSIVE COOPERATION AGREEMENT

This Service Agreement (“Agreement”), effective on August 31, 2014 (“Effective Date”), is concluded by and between Beijing Momo Technology Co., Ltd. (“Momo Tech.”), a company incorporated under the laws of the People’s Republic of China, with its principal place of business at Rm 222002, 20F, Building B, Tower 2, No. 1 East Futong Avenue, Chaoyang District, Beijing, P. R. China and Beijing Momo Information Technology Co., Ltd. (“Momo Info.”), a company incorporated under the laws of the People’s Republic of China, with its principal place of business at Rm 232005, 20F, Building B, Tower 2, No. 1 East Futong Avenue, Chaoyang District, Beijing, P. R. China (each “a Party” and collectively, “the Parties”).

BACKGROUND

Whereas, Momo Tech. is responsible for operating the Momo App in China by obtaining and maintaining the Internet Content Provider (“ICP”) license required to operate Social Networking Business in China.

Whereas, Momo Tech. acquires the Licensing of Intellectual properties (Momo App and Emoticon) as well as the Services of Momo Info. to carry out the location-based Social Networking Business in China.

Whereas, this Agreement sets forth the terms and conditions under which Momo Info. has agreed to provide, and Momo Tech. has agreed to receive, the Licensing and the Services;

Whereas, the capitalized terms used and not otherwise defined in these recitals are defined in Article 1 of this Agreement;

Now, therefore, in consideration of the mutual promises, covenants, conditions and terms set forth herein, the Parties agree as follows:

 

1	DEFINITIONS.

Capitalized terms used in this Agreement have the meanings set forth in this Article 1 or as otherwise defined in the context of the provision.

“Social Networking Business” means all the location-based social networking services made available from the Momo App in China.

“Momo App” means the location-based social networking software which is designed to be installed and used on mobile phone.

“Effective Date” is August 31, 2014.

 

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“Governing Laws” is defined in Section 6.a.

“Licensing” means Momo Info. agrees to grant the use right of its intellectual properties to Momo Tech. under this Agreement, including Momo App and Emoticon (licensing details will be set forth in supplemental agreements to this Agreement).

“Services” means those technical and non-technical services to be provided by Momo Info. to Momo Tech. under this Agreement. Technical services include: (i) assistance in the maintenance of Momo App, as well as statistics analysis on Momo App users; (ii) technical support and maintenance of hardware and software; (iii) call center management services; (iv) after-sale services including training and consulting, etc. Non-technical services include: i) marketing and advertising services; (ii) sales and payment channel management and development; (iii) administrative services including legal, finance, HR and admin to support Momo Tech. in the operation of the Momo App in China; and (iv) other services as the Parties may agree from time to time.

“License Fee” is defined in Section 4.

“Service Fee” is defined in Section 4.

“Term” is defined in Section 2.a.

 

2	TERM AND TERMINATION.

 

a.

Term. The term of this Agreement will begin on the Effective Date and will remain effective for ten (10) years. After the effective period, Momo Info. may decide if this Agreement will be renewed and how long it will be renewed for (“Term”).

 

b.

Termination for Convenience. Momo Info. may terminate this Agreement upon thirty (30) days’ written notice. Momo Tech. shall not terminate this Agreement under any circumstances.

 

c.

Prior Agreements. This Agreement supersedes and terminates any and all prior agreements or contracts, oral or written, entered into between The Parties relating to the subject matter thereof.

 

3	EXCLUSIVE COOPERATION AND INTELLECTUAL PROPERTY RIGHTS.

 

a.

During the Term, Momo Info. shall provide the Licensing of intellectual properties and the Services to Momo Tech. as agreed by the Parties from time to time. Without Momo Info.’s consent, Momo Tech. is not entitled to the right to engage any other third parties to perform, any licensing of intellectual properties and services similar to the Licensing or the Services.

 

b.

Momo. Info. reserves all the intellectual property rights developed under this agreement, including but not limited to copyright, patent right, right of patent application, knowhow, business secret, etc.

 

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4	LICENSE FEE, SERVICE FEE AND PAYMENT.

 

a.

Pursuant to this Agreement, Momo Info. grants to Momo Tech. the use right of its intellectual properties including Momo App and Emoticons. Momo Tech. agrees to pay Momo Info. a license fee (“License Fee”) in consideration of the rights granted. The calculation methodology of the License Fee will be set forth in supplemental agreements to this Agreement.

 

b.

Pursuant to this Agreement and Momo Tech’s request from time to time, Momo Info. provides Momo Tech. with the Services. Momo Tech. intends to pay Momo Info. a level of compensation commensurate with the value of the Services it provides, which are essential and fundamental to the economic success or failure of Momo Tech.’s business in China.

 

c.

To ensure the high quality of the Licensing and the Services, Momo Info. agrees to be compensated for the Licensing and the Services only if Momo Tech. achieves a level of operating profit above a certain rate, initially agreed to be three point five percent (3.5%) (“Expected Profit Rate”) of total revenue derived by Momo Tech. for operating the Momo App in China. The License Fee and the Service Fee will be calculated such that after it is paid, Momo Tech.’s operating profit rate will not be lower than the Expected Profit Rate (“Service Fee”). If Momo Tech. achieves a level of operating profit above the Expected Profit Rate, the excess profit will be paid to Momo Info. in the form of License Fee and Service Fee. The calculation methodology of the License Fee and Service Fee will be set forth in supplemental agreements to this Agreement. If Momo Tech. is unable to achieve the Expected Profit Rate due to Momo Info.’s failure in providing the high quality services, Momo Info. will not be entitled to any License Fee or Service Fee. The Parties agree to review the Expected Profit Rate from time to time.

Operating profit rate = (Revenues – Cost of revenues – Sales tax and surcharges – Sales expense – G&A expense – R&D expense) / Revenues.

 

d.

Payments Due. Payment notice for the License Fee and the Service Fee shall be presented on a monthly basis. The Parties agrees to pay the total amounts shown as due within sixty (60) days from the end of such month. The Parties agrees to pay or offset the payments from time to time, as requested by either Party.

 

e.

Currency. All computations and payments made pursuant to this Article 4 shall be in Chinese RMB. A netting of any amount payable under this Agreement against existing accounts payable and accounts receivable shall be an acceptable manner of payment, effective as of the date of the netting on the books of the Parties.

 

f.

Retrospection. The Parties agree the License Fee and the Service Fee defined in this Section shall be retrospective to the Parties from the date January 1, 2014.

 

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5

TAXES.

 

a.

Momo Info’s Tax Responsibility. Momo Info. is liable for any value-added tax, excise tax, tariff, duty or any other similar tax imposed by any governmental authority arising from the performance of Services under this Agreement.

 

b.

Momo Tech’s Tax Responsibility. Momo Tech. is liable for any value-added tax, excise tax, tariff, duty or any other similar tax imposed by any governmental authority arising from its performance of this Agreement.

 

6	COMPLIANCE WITH LAWS.

 

a.

Compliance. Each Party will perform its obligations under this Agreement in a manner that complies with all laws applicable to that Party’s business. Without limiting the foregoing, the Parties will respectively identify and comply with all laws applicable to the Parties including: (a) laws requiring the procurement of inspections, certificates and approvals needed to perform the Services, and (b) laws regarding healthcare, workplace safety, immigration, labor standards, wage and hour laws, insurance, data protection and privacy (collectively, “Governing Laws”).

 

b.

Change in Law. The Parties will work together to identify the effect of changes in laws on this Agreement, and will promptly discuss the changes to the terms and provisions of this Agreement, if any, required to comply with all laws.

 

7	CONSTRUCTION.

 

a.

Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to Law, then the remaining provisions of this Agreement, if capable of substantial performance, will remain in full force and effect.

 

b.

Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the People’s Republic of China without regard to conflict of laws principles.

 

c.

Resolution of Disputes. This Agreement shall be governed by the laws of the Peoples’s Republic of China. All the disputes arising from the conclusion, performance or interpretation of this Agreement shall be settled by the Parties through consultation. If the consultation fails, the disputes shall be referred to China International Economic and Trade Arbitration Commission for arbitration. The place of arbitration shall be in Beijing. The arbitral award shall be final and binding upon both Parties.

 

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Each of Momo Info. and Momo Tech. has caused this Agreement to be signed and delivered by its duly authorized representative to be effective as of the Effective Date.

 

By:		(seal of Beijing Momo Technology Co., Ltd.)				By:		(seal of Beijing Momo Information Technology Co., Ltd.)
Title:						Title:
For and on behalf of						For and on behalf of
Beijing Momo Technology Co., Ltd.						Beijing Momo Information Technology Co., Ltd.

 

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Supplemental Agreement

Party A: Beijing Momo Technology Co., Ltd.

Address: Rm 222002, 20F, Building B, Tower 2, No. 1 East Futong Avenue, Chaoyang District, Beijing, P. R. China

Party B: Beijing Momo Information Technology Co., Ltd.

Address: Rm 232005, 20F, Building B, Tower 2, No. 1 East Futong Avenue, Chaoyang District, Beijing, P. R. China

An Exclusive Cooperation Agreement (“the Agreement”) was concluded between Party A and Party B (“the Parties”) on August 31, 2014. The Parties agree on this supplemental agreement in accordance with the Contract Law of the PRC and other relevant laws and regulations for mutual benefit.

 

1.	Supplementary Terms

 

a)

According to Section 1 of the Agreement, Party B agrees to license the use right of Momo App (including but not limited to the following version) to Party A starting from the effective date of this supplemental agreement.

 

Momo App IOS V4.0		Momo App Android V4.0
Momo App IOS V4.1		Momo App Android V4.3
Momo App IOS V4.2		Momo App Android V4.4
Momo App IOS V4.3		Momo App Android V4.7
Momo App IOS V4.4		Momo App Android V4.8
Momo App IOS V4.5		Momo App Android V4.9
Momo App Windows Phone V2.0		—

Under the license: (i) Party B is responsible for the design, development and maintenance of Momo App; (ii) Party A is granted with the right to operate Momo App and to generate income from in-App features sold to users.

According to Article 4.a of the Agreement, Party A agrees to pay Party B a license fee in consideration of the rights granted. The license fee will be twelve point five percent (12.5%) of the gross revenues generated by Party A from Momo App. The Parties agree to review the pricing of license fee from time to time.

 

b)

According to Section 1 of the Agreement, Party B agrees to license the use right of Emoticon (Emoticon details are listed in Appendix A) to Party A starting from the effective date of this supplemental agreement.

According to Article 4.a of the Agreement, Party A agrees to pay Party B a license fee in consideration of the rights granted. The license fee will be twelve point five percent (12.5%) of the gross revenues generated by Party A from sales of the emoticons. The Parties agree to review the pricing of license fee from time to time.

 

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c)

Without written consent of Party B, Party A shall not sublicense, transfer or disclose the right to any third party, or try to develop, modify or decompile on the basis of Party B’s intellectual properties. Party A agrees with all the exclusive ownership and interest of Party B, including all intellectual property, proprietary technology, development rights and other related rights. Party A shall not be involved in any activities that harm the interest of Party B under any circumstances.

 

2.	Above are the supplementary terms to the Agreement. The Parties shall still comply with the terms of the Agreement concluded on August 31, 2014, which will not be affected by this supplemental agreement.

 

3.

This supplemental agreement is an indivisible part of the Agreement concluded by the Parties on August 31, 2014. The Parties agree that the license fee set forth in this supplemental agreement shall be retrospective from January 1, 2014. This supplemental agreement is made out in two (2) sets of originals with equal validity. Party A and Party B each have one of the originals. By signing below, the Parties agree to the terms of this supplemental agreement effective from the date of signature.

 

By:		(seal of Beijing Momo Technology Co., Ltd.)				By:		(seal of Beijing Momo Information Technology Co., Ltd.)
Title:						Title:
For and on behalf of						For and on behalf of
Beijing Momo Technology Co., Ltd.						Beijing Momo Information Technology Co., Ltd.

 

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Appendix A:

Licensed emoticon list:

 

 

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Exhibit 10.8

This is an English translation of the original Chinese text.

EXCLUSIVE COOPERATION AGREEMENT

Chengdu Momo Technology Co., Ltd.

and

Beijing Momo Information Technology Co., Ltd.

 

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EXCLUSIVE COOPERATION AGREEMENT

This Service Agreement (“Agreement”), effective on August 31, 2014 (“Effective Date”), is concluded by and between Chengdu Momo Technology Co., Ltd. (“Momo Chengdu”), a company incorporated under the laws of the People’s Republic of China, with its principal place of business at Room 12-18, 9/F, Building E2, Tianfu Software Park, Tianfu Avenue, Hi-Tech Zone, Chengdu, Sichuan Province, P. R. China and Beijing Momo Information Technology Co., Ltd. (“Momo Info.”), a company incorporated under the laws of the People’s Republic of China, with its principal place of business at Rm 232005, 20F, Building B, Tower 2, No. 1 East Futong Avenue, Chaoyang District, Beijing, P. R. China (each “a Party” and collectively, “the Parties”).

BACKGROUND

Whereas, Momo Chengdu is responsible for operating the Momo App Game Center in China by obtaining and maintaining the Internet Content Provider (“ICP”) license and Internet Culture Business License required to operate Online Game Business in China.

Whereas, Momo Chengdu acquires the Licensing of Intellectual properties (Momo App and online game products) as well as the Services of Momo Info. to carry out the Online Game Business in China.

Whereas, this Agreement sets forth the terms and conditions under which Momo Info. has agreed to provide, and Momo Chengdu has agreed to receive, the Licensing and the Services;

Whereas, the capitalized terms used and not otherwise defined in these recitals are defined in Article 1 of this Agreement;

Now, therefore, in consideration of the mutual promises, covenants, conditions and terms set forth herein, the Parties agree as follows:

 

1	DEFINITIONS.

Capitalized terms used in this Agreement have the meanings set forth in this Article 1 or as otherwise defined in the context of the provision.

“Online Game Business” means all the online game operation business and online game virtual coins issuance business made available from the Momo App Game Center in China.

“Momo App Game Center” means the game center software embedded in Momo App, which is a location-based social networking software designed to be installed and used on mobile phone.

“Effective Date” is August 31, 2014.

 

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“Governing Laws” is defined in Section 6.a.

“Licensing” means Momo Info. agrees to grant the use right of its intellectual properties to Momo Chengdu under this Agreement, including Momo App and online game products (licensing details will be set forth in supplemental agreements to this Agreement).

“Services” means those technical and non-technical services to be provided by Momo Info. to Momo Chengdu under this Agreement. Technical services include: (i) assistance in the maintenance of Momo App Game Center, as well as statistics analysis on Momo App Game Center users; (ii) technical support and maintenance of hardware and software; (iii) call center management services; (iv) after-sale services including training and consulting, etc. Non-technical services include: i) marketing and advertising services; (ii) sales and payment channel management and development; (iii) administrative services including legal, finance, HR and admin to support Momo Chengdu in the operation of the Online Game Business in China; and (iv) other services as the Parties may agree from time to time.

“License Fee” is defined in Section 4.

“Service Fee” is defined in Section 4.

“Term” is defined in Section 2.a.

 

2	TERM AND TERMINATION.

 

a.

Term. The term of this Agreement will begin on the Effective Date and will remain effective for ten (10) years. After the effective period, Momo Info. may decide if this Agreement will be renewed and how long it will be renewed for (“Term”).

 

b.

Termination for Convenience. Momo Info. may terminate this Agreement upon thirty (30) days’ written notice. Momo Chengdu shall not terminate this Agreement under any circumstances.

 

c.

Prior Agreements. This Agreement supersedes and terminates any and all prior agreements or contracts, oral or written, entered into between The Parties relating to the subject matter thereof.

 

3	EXCLUSIVE COOPERATION AND INTELLECTUAL PROPERTY RIGHTS.

 

a.

During the Term, Momo Info. shall provide the Licensing of intellectual properties and the Services to Momo Chengdu as agreed by the Parties from time to time. Without Momo Info.’s consent, Momo Chengdu is not entitled to the right to engage any other third parties to perform, any licensing of intellectual properties and services similar to the Licensing or the Services.

 

b.

Momo. Info. reserves all the intellectual property rights developed under this agreement, including but not limited to copyright, patent right, right of patent application, knowhow, business secret, etc.

 

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4	LICENSE FEE, SERVICE FEE AND PAYMENT.

 

a.

Pursuant to this Agreement, Momo Info. grants to Momo Chengdu the use right of its intellectual properties including Momo App and online game products. Momo Chengdu agrees to pay Momo Info. a license fee (“License Fee”) in consideration of the rights granted. The calculation methodology of the License Fee will be set forth in supplemental agreements to this Agreement.

 

b.

Pursuant to this Agreement and Momo Chengdu’s request from time to time, Momo Info. provides Momo Chengdu with the Services. Momo Chengdu intends to pay Momo Info. a level of compensation commensurate with the value of the Services it provides, which are essential and fundamental to the economic success or failure of Momo Chengdu’s business in China.

 

c.

To ensure the high quality of the Licensing and the Services, Momo Info. agrees to be compensated for the Services only if Momo Chengdu achieves a level of operating profit above a certain rate, initially agreed to be five point five percent (5.5%) (“Expected Profit Rate”) of total revenue derived by Momo Chengdu for operating the Momo App Game Center in China. The License Fee and the Service Fee will be calculated such that after it is paid, Momo Chengdu’s operating profit rate will not be lower than the Expected Profit Rate (“Service Fee”). If Momo Chengdu achieves a level of operating profit above the Expected Profit Rate, the excess profit will be paid to Momo Info. in the form of License Fee and Service Fee. The calculation methodology of the License Fee and Service Fee will be set forth in supplemental agreements to this Agreement. If Momo Chengdu is unable to achieve the Expected Profit Rate due to Momo Info.’s failure in providing the high quality services, Momo Info. will not be entitled to any License Fee or Service Fee. The Parties agree to review the Expected Profit Rate from time to time.

Operating profit rate = (Revenues – Cost of revenues – Sales tax and surcharges – Sales expense – G&A expense – R&D expense) / Revenues.

 

d.

Payments Due. Payment notice for the License Fee and the Service Fee shall be presented on a monthly basis. The Parties agrees to pay the total amounts shown as due within sixty (60) days from the end of such month. The Parties agrees to pay or offset the payments from time to time, as requested by either Party.

 

e.

Currency. All computations and payments made pursuant to this Article 4 shall be in Chinese RMB. A netting of any amount payable under this Agreement against existing accounts payable and accounts receivable shall be an acceptable manner of payment, effective as of the date of the netting on the books of the Parties.

 

f.

Retrospection. The Parties agree the License Fee and the Service Fee defined in this Section shall be retrospective to the Parties from the date January 1, 2014.

 

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5

TAXES.

 

a.

Momo Info’s Tax Responsibility. Momo Info. is liable for any value-added tax, excise tax, tariff, duty or any other similar tax imposed by any governmental authority arising from the performance of Services under this Agreement.

 

b.

Momo Chengdu’s Tax Responsibility. Momo Chengdu is liable for any value-added tax, excise tax, tariff, duty or any other similar tax imposed by any governmental authority arising from its performance of this Agreement.

 

6	COMPLIANCE WITH LAWS.

 

a.

Compliance. Each Party will perform its obligations under this Agreement in a manner that complies with all laws applicable to that Party’s business. Without limiting the foregoing, the Parties will respectively identify and comply with all laws applicable to the Parties including: (a) laws requiring the procurement of inspections, certificates and approvals needed to perform the Services, and (b) laws regarding healthcare, workplace safety, immigration, labor standards, wage and hour laws, insurance, data protection and privacy (collectively, “Governing Laws”).

 

b.

Change in Law. The Parties will work together to identify the effect of changes in laws on this Agreement, and will promptly discuss the changes to the terms and provisions of this Agreement, if any, required to comply with all laws.

 

7	CONSTRUCTION.

 

a.

Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to Law, then the remaining provisions of this Agreement, if capable of substantial performance, will remain in full force and effect.

 

b.

Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the People’s Republic of China without regard to conflict of laws principles.

 

c.

Resolution of Disputes. This Agreement shall be governed by the laws of the Peoples’s Republic of China. All the disputes arising from the conclusion, performance or interpretation of this Agreement shall be settled by the Parties through consultation. If the consultation fails, the disputes shall be referred to China International Economic and Trade Arbitration Commission for arbitration. The place of arbitration shall be in Beijing. The arbitral award shall be final and binding upon both Parties.

 

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Each of Momo Info. and Momo Chengdu has caused this Agreement to be signed and delivered by its duly authorized representative to be effective as of the Effective Date.

 

By:		(seal of Chengdu Momo Technology Co., Ltd.)				By:		(seal of Beijing Momo Information Technology Co., Ltd.)
Title:						Title:
For and on behalf of Chengdu Momo Technology Co., Ltd.						For and on behalf of Beijing Momo Information Technology Co., Ltd.

 

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Supplemental Agreement

Party A: Chengdu Momo Technology Co., Ltd.

Address: Rm 12-18, 9/F, Building E2, Tianfu Software Park, Tianfu Avenue, Hi-Tech Zone, Chengdu, Sichuan Province, P. R. China Rm 222002, 20F, Building B, Tower 2, No. 1 East Futong Avenue, Chaoyang District, Beijing, P. R. China

Party B: Beijing Momo Information Technology Co., Ltd.

Address: Rm 232005, 20F, Building B, Tower 2, No. 1 East Futong Avenue, Chaoyang District, Beijing, P. R. China

An Exclusive Cooperation Agreement (“the Agreement”) was concluded between Party A and Party B (“the Parties”) on August 31, 2014. The Parties agree on this supplemental agreement in accordance with the Contract Law of the PRC and other relevant laws and regulations for mutual benefit.

 

1.	Supplementary Terms

 

a)

According to Section 1 of the Agreement, Party B agrees to license the use right of Momo App (including but not limited to the following version) to Party A starting from the effective date of this supplemental agreement.

 

Momo App IOS V4.0		Momo App Android V4.0
Momo App IOS V4.1		Momo App Android V4.3
Momo App IOS V4.2		Momo App Android V4.4
Momo App IOS V4.3		Momo App Android V4.7
Momo App IOS V4.4		Momo App Android V4.8
Momo App IOS V4.5		Momo App Android V4.9
Momo App Windows Phone V2.0		—

Under the license: (i) Party B is responsible for the design, development and maintenance of Momo App; (ii) Party A is granted with the right to publish and operate online games through the game center embedded in Momo App and to generate income from the online games.

According to Article 4.a of the Agreement, Party A agrees to pay Party B a license fee in consideration of the rights granted. The license fee will be twelve point five percent (12.5%) of the gross revenues generated by Party A from Momo App online games.

 

b)

The Parties agree to review the pricing of license fee from time to time.

 

c)

Without written consent of Party B, Party A shall not sublicense, transfer or disclose the right to any third party, or try to develop, modify or decompile on the basis of Party B’s intellectual properties. Party A agrees with all the exclusive ownership and interest of Party B, including all intellectual property, proprietary technology, development rights and other related rights. Party A shall not be involved in any activities that harm the interest of Party B under any circumstances.

 

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2.	Above are the supplementary terms to the Agreement. The Parties shall still comply with the terms of the Agreement concluded on August 31, 2014, which will not be affected by this supplemental agreement.

 

3.

This supplemental agreement is an indivisible part of the Agreement concluded by the Parties on August 31, 2014. The Parties agree that the license fee set forth in this supplemental agreement shall be retrospective from January 1, 2014. This supplemental agreement is made out in two (2) sets of originals with equal validity. Party A and Party B each have one of the originals. By signing below, the Parties agree to the terms of this supplemental agreement effective from the date of signature.

 

By:		(seal of Chengdu Momo Technology Co., Ltd.)				By:		(seal of Beijing Momo Information Technology Co., Ltd.)
Title:						Title:
For and on behalf of Chengdu Momo Technology Co., Ltd.						For and on behalf of Beijing Momo Information Technology Co., Ltd.

 

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