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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on September 30, 2019

Registration No. 333-            


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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



Aesthetic Medical International Holdings Group Limited
(Exact name of registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  7389
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

1122 Nanshan Boulevard
Nanshan District, Shenzhen
Guangdong Province, China 518052
Telephone: +86 (755) 2559 8065

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



Puglisi & Associates
850 Library Ave., Suite 204
Newark, DE 19711
Telephone: (302) 738-6680

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



Copies to:

Ke Geng, Esq.
O'Melveny & Myers
Yin Tai Center, 37th Floor
No. 2 Jianguomenwai Ave
Chao Yang District
Beijing, China 100022
Telephone: +86 (10) 6563 4200
  Ke Zhu, Esq.
Li Han, Esq.
O'Melveny & Myers LLP
31/F, AIA Central
1 Connaught Road, Central
Hong Kong
Telephone: +852 3512 2300
  Michael Benjamin, Esq.
Ian Schuman, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
Telephone: +1 (212) 906 1311
  Benjamin Su, Esq.
Latham & Watkins LLP
18th Floor, One Exchange Square
8 Connaught Place
Central, Hong Kong
Telephone: +852 2912 2728

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

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

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

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

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

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

           Emerging growth company ý

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

CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee

 

Ordinary Shares, par value US$0.001 per share(2)(3)

  US$80,000,000   US$9,696.00

 

(1)
Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(2)
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 ordinary shares are first bona fide offered to the public, and also includes ordinary shares that may be purchased by the underwriters upon the exercise of the underwriters' option to purchase additional shares. These ordinary shares are not being registered for the purpose of sales outside the United States.

(3)
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.

           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, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


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


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to completion
Preliminary prospectus dated                    , 2019

Aesthetic Medical International Holdings Group Limited

American Depositary Shares
Representing                Ordinary Shares

        This is the initial public offering of American depositary shares, or ADSs, of Aesthetic Medical International Holdings Group Limited.

        We are offering            ADSs. Each ADS represents            of our ordinary shares, par value US$0.001 per share.

        Prior to this offering, there has been no public market currently exists for the ADSs or our ordinary shares.

        We expect the initial public offering price to be between US$            and US$            per ADS. We have applied to list the ADSs on the Nasdaq Global Market under the symbol "AIH."

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

        Following the completion of this offering we will be a "controlled company" as defined under the Nasdaq Stock Market Rules because, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will control more than 50% of the voting power for the election of directors of our company.

        Investing in the ADSs involves risks that are described in the "Risk factors" section beginning on page 15 of this prospectus.

       
 
 
  Per ADS
  Total
 

Public offering price

  US$               US$            
 

Underwriting discounts and commissions(1)

  US$               US$            
 

Proceeds, before expenses, to us

  US$               US$            

 

(1)
See "Underwriting" for a detailed description of compensation payable to the underwriters.

        To the extent that the underwriters sell more than            ADSs, the underwriters have the option to purchase up to an aggregate of            additional ADSs from us at the initial public offering price less the underwriting discounts and commissions within 30 days after the date of this prospectus.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The underwriters expect to deliver the ADSs against payment in New York, New York to the purchasers on or about                , 2019.

Cantor   Haitong International

Prime Number Capital

Maxim Group LLC   CMBI   Zinvest Global

The date of this prospectus is                , 2019


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PROSPECTUS SUMMARY

    1  

RISK FACTORS

    15  

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

    57  

USE OF PROCEEDS

    59  

DIVIDEND POLICY

    61  

CAPITALIZATION

    62  

DILUTION

    64  

ENFORCEABILITY OF CIVIL LIABILITIES

    67  

OUR HISTORY AND CORPORATE STRUCTURE

    69  

SELECTED CONSOLIDATED FINANCIAL DATA

    74  

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

    77  

INDUSTRY

    103  

BUSINESS

    107  

REGULATION

    129  

MANAGEMENT

    159  

PRINCIPAL SHAREHOLDERS

    168  

RELATED PARTY TRANSACTIONS

    172  

DESCRIPTION OF SHARE CAPITAL

    174  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

    186  

SHARES ELIGIBLE FOR FUTURE SALE

    197  

TAXATION

    199  

UNDERWRITING

    207  

LEGAL MATTERS

    217  

EXPERTS

    217  

EXPENSES RELATING TO THIS OFFERING

    218  

WHERE YOU CAN FIND MORE INFORMATION

    218  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  

        We are responsible for the information contained in this prospectus and in any free-writing prospectus we prepare or authorize. You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information, and we and the underwriters take no responsibility for any other information others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer and sale is not permitted. The information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since such date.

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

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

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Prospectus Summary

        This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in our ADSs, and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially "Risk Factors," "Selected Consolidated Financial Data," and the financial statements and the related notes appearing elsewhere in this prospectus, before deciding to buy the ADSs. This prospectus contains certain estimates and information from the industry report commissioned by us and prepared by Frost & Sullivan. Unless the context requires otherwise, references in this prospectus to "our company," "we," "us" and "our" refer to Aesthetic Medical International Holdings Group Limited and its consolidated subsidiaries.

Our Mission

        Our mission is to bring beauty, health and confidence to everyone by delivering safe, high quality aesthetic medical services. We plan to achieve the mission by maintaining and strengthening our leading market position and brand in the aesthetic medical treatment market in China and by growing our presence globally.

Our Business

        We are a leading provider of aesthetic medical services in China. Leveraging over 20 years of clinical experience, we provide one-stop aesthetic service offerings, including (i) surgical aesthetic treatments, such as eye surgery, rhinoplasty, breast augmentation and liposuction, (ii) non-surgical aesthetic treatments, which comprise minimally invasive treatments and energy-based treatments such as laser, ultrasound and ultraviolet light treatments, and (iii) other aesthetic services such as cosmetic dentistry, as well as general medical services. According to Frost & Sullivan, we are the third-largest private aesthetic medical services provider in China in terms of revenue in 2018. The total aesthetic medical services market in China, which includes both public and private services providers, grew at a compound annual growth rate, or CAGR, of 23.6%, from RMB52.1 billion in 2014 to RMB121.7 billion in 2018 and is expected to grow to RMB360.1 billion in 2023, representing a CAGR of 24.2% from 2018 to 2023, according to Frost & Sullivan. The market size for private aesthetic medical services providers in China grew at a CAGR of 25.5% from RMB40.0 billion in 2014 to RMB99.2 billion in 2018 and is expected to grow to RMB316.6 billion in 2023, representing a CAGR of 26.1% from 2018 to 2023. In 2018, China was the second-largest market for aesthetic medical services based on revenue, with the global market for aesthetic medical services totaling US$136.2 billion (RMB935.0 billion), according to Frost & Sullivan. As one of the market leaders in China, we believe we are well-positioned to benefit from the favorable tailwinds, including the growing social acceptance of aesthetic medical services.

        We generate our revenue primarily from providing aesthetic treatments. In the six months ended June 30, 2019, we generated 40.1%, 51.2% and 8.7% of our revenue from providing surgical and non-surgical aesthetic treatments, and general healthcare and other aesthetic services, respectively, as compared with 41.2%, 49.1% and 9.7% for the year ended December 31, 2018. The majority of our revenue came from out-of-pocket payments by our customers, who pay in advance for treatments.

        We have grown our network significantly since we commenced operations in 1997. As of the date of this prospectus, we have a strategically established network comprising 21 aesthetic medical treatment centers (including 19 wholly or majority owned centers). Our treatment centers spread across 15 cities in mainland China, Hong Kong and Singapore. As we continue to expand our network, one of our core business strategies is to develop our "flagship" medical institutions, which are typically large-scale full-service treatment centers that contribute a significant proportion of our revenue and are

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staffed with our most experienced doctors. We believe that developing flagship medical institutions will not only improve brand awareness in the surrounding area, but also enable us to provide high-end as well as specialized or complex medical services to customers referred from smaller-scale treatment centers within our network. We currently have three flagship medical institutions—Pengcheng Hospital, Shenzhen Pengai and Chongqing Pengai. Our scalable business model is built on our highly standardized operating procedures across a centralized network, which we believe has allowed us to quickly and successfully expand our network. We intend to continue to expand our network into new cities throughout China and selected global markets through organic growth as well as strategic acquisitions.

        The map below illustrates geographical coverage of our network of treatment centers as of the date of this prospectus.

GRAPHIC

        Since our inception, we have been committed to delivering high quality services to our customers. As of June 30, 2019, we had 567 medical staff, including 203 doctors. Our doctors have rich experience in providing both surgical and non-surgical aesthetic medical services, with an average industry experience of approximately ten years. We believe our team of highly qualified and experienced medical professionals, as well as our stringent safety control, have underpinned our strong reputation as we continue to attract and retain customers and receive industry recognition for our high quality services. We have received a number of high-profile awards, including "The most prestigious aesthetic medical services beauty brand in 2016" by the Tencent Network and "The aesthetic medical services brand of technological innovation in 2016" by Hong Kong WenWeiPo newspapers.

        Our active customer base, defined as customers who have received at least one procedure from us in the relevant year, has increased from 108,291 in 2016 to 128,892 in 2017 and further to 178,657 in 2018, and from 85,635 in the six months ended June 30, 2018 to 100,048 in the six months ended June 30, 2019. Repeat customers, defined as customers who have previously received at least one procedure from us, accounted for 54.1% and 52.8% of our active customer base in 2018 and the six months ended June 30, 2019, respectively.

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        Our revenue grew from RMB584.9 million in 2016 to RMB697.4 million in 2017, and further to RMB761.3 million (US$110.9 million) in 2018, and from RMB356.3 million in the six months ended June 30, 2018 to RMB393.1 million (US$57.3 million) in the six months ended June 30, 2019. We reported a profit of RMB50.5 million for 2016, a loss of RMB72.4 million and RMB252.5 million (US$36.8 million) for 2017 and 2018, respectively, and a profit of RMB16.9 million and RMB80.2 million (US$11.7 million) for the six months ended June 30, 2018 and 2019, respectively. Our adjusted EBITDA for the year/period amounted to RMB96.1 million, RMB112.1 million and RMB113.1 million (US$16.5 million) for 2016, 2017 and 2018, respectively, and increased from RMB49.9 million for the six months ended June 30, 2018 to RMB101.6 million (US$14.8 million) for the six months ended June 30, 2019. See "Prospectus Summary—Consolidated statement of comprehensive income data" for information related to non-IFRS financial measures.

Our Industry

        The aesthetic medical services market is forecasted to experience robust growth over the next five years, both globally and in China. As one of the fastest growing aesthetic medical services markets in the world, the aesthetic medical services market in China ranked second globally in terms of both total volume of aesthetic medical procedures and total revenue from aesthetic medical procedures in 2017. The China aesthetic medical services market is highly under-penetrated. According to Frost & Sullivan, every 1,000 people in China had undergone an average of 11.7 medical aesthetic treatments in 2017, whereas the penetration per thousand people rates in South Korea, the U.S., Brazil, and Japan were 80.4, 50.1, 43.6, and 27.0, respectively, in 2017. The significantly lower penetration rate in China compared to other countries with more developed medical aesthetic markets, shows tremendous growth potential in the near future as the industry continues to develop and as social acceptance of medical aesthetic procedures permeates.

        According to Frost & Sullivan, the total volume of aesthetic medical procedures in China, including both surgical and non-surgical procedures, is expected to grow at a CAGR of 25.7% from 20.2 million in 2018 to reach 63.5 million by 2023.

        We believe we are well-positioned to benefit from the following factors which have historically contributed to and are expected to continue to drive the growth of China's aesthetic medical services market:

Competitive Strengths

        We believe the following competitive strengths have contributed to our success and differentiated us from our competitors:

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Our Strategies

        We intend to grow our business by implementing the following key strategies:

Challenges

        Our ability to achieve our mission and execute on our strategies is subject to risks and uncertainties, including the following:

        See "Risk factors" and other information included in this prospectus for a discussion of these and other risks and uncertainties.

Corporate Information

        Our principal executive offices are located at 1122 Nanshan Boulevard, Nanshan District, Shenzhen, Guangdong Province, China. Our telephone number at that address is +86 (755) 2559 8065.

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Our registered office in the Cayman Islands is at the offices of Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205 Cayman Islands.

        Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website address is http://www.pengai.com.cn. Our website and the information contained on our website do not constitute a part of this prospectus. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Ave., Suite 204, Newark, DE 19711.

Our History and Corporate Structure

        We commenced operations in 1997 through Shenzhen Pengcheng Clinic, which became Pengcheng Hospital in 2003. Since then, we have expanded our business operations through acquisitions and organic growth. In particular, we established our second flagship hospital, Shenzhen Pengai Hospital, in 2005.

        In May 2011, our company was incorporated in the Cayman Islands under the name of Pengai Hospital Management Corporation as our offshore holding company. Following certain name changes, our company changed its name to Aesthetic Medical International Holdings Group Limited in July 2018.

        Peng Oi Investment (Hong Kong) Holdings Limited (formerly known as Peng Cheng Investment (Hong Kong) Holdings Limited) was incorporated in Hong Kong in July 2004. In July 2011, we acquired the entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited from Dr. Zhou Pengwu and Ms. Ding Wenting.

        Dragon Jade Holdings Limited was incorporated in the BVI in January 2014. Later in 2014, we transferred to Dragon Jade Holdings Limited our entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited in exchange for Dragon Jade Holdings Limited issuing and allotting one fully paid share of US$1.00 to our company. Upon completion of the share swap, Dragon Jade Holdings Limited became a direct wholly-owned subsidiary of our company.

        Peng Yida Business Consulting (Shenzhen) Co., Ltd. is a direct wholly-owned subsidiary of Peng Oi Investment (Hong Kong) Holdings Limited, which was established in the PRC in December 2010.

        Shenzhen Pengai Hospital Investment Management Co., Ltd. (formerly known as Shenzhen Pengcheng Hospital Investment Co., Ltd.), or Shenzhen Pengai Investment, is a direct wholly-owned subsidiary of Peng Yida Business Consulting (Shenzhen) Co., Ltd., which was established in the PRC in December 2004. Shenzhen Pengai Investment is the holding company of our operating subsidiaries in the PRC.

        We acquired the entire equity interest in Newa Medical Aesthetics Limited in October 2015 to further extend our footprint to Hong Kong.

        We incorporated Stargaze Wealth Limited in the BVI in April 2017 and Aesthetic Medical International Holdings (Singapore) Pte Ltd, formerly known as China Aesthetic Healthcare Holdings (Singapore) Pte Ltd, in Singapore in May 2017 to invest in our Singapore medical center. As of the date of this prospectus, we owned 44.4% of equity interest in Singapore Mendis.

        In February 2019, we entered into an agreement for an investment in LZP Holding, Inc., or LZP, which owns and operates five plastic surgery centers in California under the name WAVE Plastic Surgery & Aesthetic Laser Centers. Under the terms of the agreement, we will invest US$5 million for a 20% equity stake in LZP consisting of US$4 million in cash for LZP's shares and a further US$1 million in promissory notes secured against LZP's shares, repayable either in shares or in cash. In addition, we have an option to acquire a further 20% equity stake under the same terms, subject to the

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completion of a re-financing of LZP. As of the date of this prospectus, the closing of the transaction is subject to certain conditions including the refinancing of certain of LZP's indebtedness.

        As of the date of this prospectus, we have a strategically established network, comprising 21 aesthetic medical treatment centers, including 19 wholly or majority owned centers. Our treatment centers spread across 15 cities in mainland China, and we also have presence in Hong Kong and Singapore. All of our treatment centers are wholly or majority owned with the exception of Baotou Pengai Yueji Aesthetic Medical Clinic Co., Ltd., or Baotou Pengai Mendis Aesthetics Pte. Ltd., or Singapore Mendis, formerly known as Mendis Singapore Pte. Ltd.

        The following diagram illustrates our corporate structure immediately upon completion of this offering, assuming no exercise of the over-allotment option granted to the underwriters.

GRAPHIC


Notes:

(1)
As of the date of this prospectus, Yantai Pengai Jiayan Aesthetic Medical Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., Chongqing Pengai Aesthetic Medical Hospital Co., Ltd., Changsha Pengai Aesthetic Medical Hospital Co., Ltd., Shanghai Pengai Aesthetic Medical Clinic Co., Ltd., Shenzhen Pengai Xiuqi Aesthetic Medical Hospital Co., Ltd., Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. and Jinan Pengai Cosmetic Surgery Hospital Co., Ltd, collectively "Relevant Subsidiaries," or each a "Relevant Subsidiary," was held by Dr. Zhou Pengwu, our chairman and chief executive officer, as to 24.0%, 30%, 30.0%, 9.0%, 10.0%, 22.0%, 21.0% and 25%, respectively. We refer

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(2)
As of the date of this prospectus, except for the Target Equity Interests (as defined above) representing all of Dr. Zhou Pengwu's equity interests in the Relevant Subsidiaries which we consolidate through Contractual Arrangements as further described below, the remaining equity interest in our PRC operating subsidiaries was held by independent third parties and certain of our employees.

(3)
Haikou Pengai Aesthetic Medical Hospital Co., Ltd. was established before the effective date of the Foreign Investment Catalogue 2015 and thus, it is not subject to the 70% foreign shareholding restrictions.

        Pursuant to the Foreign Investment Catalog 2015 which became effective in April 2015, foreign investors in PRC medical institutions can only conduct investment activities through joint ventures. Since the effective date of the Foreign Investment Catalog 2015, the foreign shareholding in these entities is limited to 70.0% as stipulated in the JV Interim Measures. See "Regulation." We historically held more than 70.0% equity interest in certain of the Relevant Subsidiaries that are medical institutions which we acquired or established after the effective date of the Foreign Investment Catalog 2015. Due to such restriction, we had decreased our shareholding to no more than 70.0% in such PRC subsidiaries by transferring excessive equity interests to Dr. Zhou Pengwu and certain of our employees in 2018. In connection with such equity transfer and Dr. Zhou's shareholding in Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd, Jinan Pengai Cosmetic Surgery Hospital Co., Ltd., Shenzhen Pengai Xiuqi Aesthetic Medical Hospital Co., Ltd., Chongqing Pengai Aesthetic Medical Hospital Co., Ltd. and Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. which he subsequently acquired from other shareholders in 2018 and 2019, we entered into a series of Contractual Arrangements with Dr. Zhou Pengwu, Shenzhen Pengai Investment, the Relevant Subsidiaries and Ms. Ding Wenting in 2018 and 2019 with respect to the Target Equity Interests. These Contractual Arrangements enable us to (i) exercise control over the Target Equity Interests in the Relevant Subsidiaries; (ii) receive economic benefits from the Target Equity Interests in Relevant Subsidiaries; and (iii) have an exclusive option to purchase all or part of the Target Equity Interests when and to the extent permitted by PRC laws. See "Our history and corporate structure—Contractual arrangements with respect to Target Equity Interest."

        Our revenue generated from the Relevant Subsidiaries aggregately accounted for approximately 19.0% and 26.1% of our total revenue in 2017 and 2018, respectively. We do not rely on the Contractual Arrangements to exercise control over the Relevant Subsidiaries as we hold 70.0% equity interest in each of the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively) and consolidate the Target Equity Interests in each of the Relevant Subsidiaries held by Dr. Zhou Pengwu through the Contractual Arrangements. However, with respect to our control over the Target Equity Interests, the Contractual Arrangements may not be as effective as direct ownership. If the Relevant Subsidiaries and/or Dr. Zhou Pengwu fail to perform their respective obligations under the Contractual Arrangements, we may have to incur substantial costs and expend additional resources to enforce such Contractual Arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. See "Risk Factors—Risks relating to our corporate structure—The Contractual Arrangements may not be as effective in providing control as direct ownership and the Relevant Subsidiaries or Dr. Zhou Pengwu may fail to perform their respective obligations under the Contractual Arrangements."

Recent developments

        As part of our efforts in establishing satellite clinics in third- and fourth-tier cities in China, we established our first satellite clinic in Ninghai, Zhejiang province in April 2019, which commenced its operation in July 2019. For more information regarding our satellite clinics, see "Business—Our Strategies—Grow the number of aesthetic medical treatment centers organically and through acquisitions."

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        In August 2019, we entered into a strategic cooperation agreement with So-Young, a leading online platform in China for medical aesthetic services and a major sales and marketing channel of ours, pursuant to which So-Young helps us promote our brand to the users on its platform, while we offer certain discounts to the users they introduce to us.

        In August 2019, we entered into a strategic cooperation agreement with Yujia Entertainment, or Yujia, a live streamer agent company, pursuant to which we agreed to offer discounts when providing our aesthetic services to the live streamers signed by Yujia, and Yujia agreed to have their live streamers promote our brand and services to their viewers.

Implications of being an emerging growth company

        As a company with less than US$1.07 billion in revenue during our most recently completed fiscal year as of the initial filing date of the registration statement of which this prospectus forms a part, we are an "emerging growth company," as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies that are not emerging growth companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of an emerging growth company's internal control over financial reporting. The JOBS ACT permits an emerging growth company not to comply with any new or revised accounting standards issued by the Financial Accounting Standards Board until those standards apply to private companies. However, we are exempt from complying with new or revised financial accounting standards issued by Financial Accounting Standards Board because we prepare our financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standard Board ("IFRS").

Implications of Being a Controlled Company

        Following the completion of this offering, we will be a "controlled company" as defined under the Nasdaq Listing Rules because our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will control more than 50% of the voting power for the election of directors of our Company. As a result, we will be permitted to elect not to comply with certain corporate governance requirements. See "Risk Factors—Risks relating to the ADSs and this offering—Our shareholders may not have the same protections generally available to stockholders of other U.S.-listed companies because we will be a "controlled company" within the meaning of the Nasdaq Listing Rules".

Conventions that apply to this prospectus

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

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

        Unless otherwise indicated or the context otherwise requires, operating data contained in this prospectus, including number of doctors and medical support staff, number of treatments, average spending, among others, encompass only data from our consolidated group.

        Our reporting currency is the renminbi. This prospectus also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from renminbi to U.S. dollars were made at RMB6.8650 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 28, 2019. We make no representation that the renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or renminbi, as the case may be, at any particular rate or at all. On September 20, 2019, the noon buying rate in New York for cable transfers payable in Renminbi was RMB7.0909 to US$1.00.

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The offering

Offering price

  US$            per ADSs.

ADSs offered by us

 

            ADSs.

ADSs to be outstanding immediately after completion of this offering

 

            ADSs (or            ADSs if the underwriters exercise their option to purchase additional ADSs in full).

Ordinary shares to be outstanding immediately after completion of this offering

 

            ordinary shares (or            ordinary shares if the underwriters exercise their option to purchase additional ADSs in full). Immediately after completion of this offering and assuming the underwriters do not exercise their option to purchase additional ADSs, approximately        % of our ordinary shares represented by ADSs will be held by our public shareholders.

The ADSs

 

Each ADS represents            ordinary shares, par value US$0.001 per share. The ADSs may be evidenced by ADRs.

 

The depositary will hold the ordinary shares underlying your ADSs, and you will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and the holders and beneficial owners of ADSs.

 

If we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.

 

You may turn in your ADSs to the depositary for cancellation and receipt of the corresponding ordinary shares. The depositary will charge you fees for the cancellation of ADSs and delivery of the corresponding ordinary shares.

 

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

 

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

Depositary

 

Deutsche Bank Trust Company Americas.

Option to purchase
additional ADSs

 

The underwriters have an option to purchase up to an additional            ADSs from us within a period of 30 days after the date of this prospectus.

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Use of proceeds

 

We estimate that the net proceeds from this offering will be approximately US$            million, or approximately US$            million if the underwriters exercise their option to purchase additional ADSs in full, at an assumed initial public offering price of US$            per ADS, the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We currently intend to use the net proceeds of this offering to finance the strategic expansion of our aesthetic medical treatment center network, both organically through the implementation of facility upgrades at existing treatment centers and the potential establishment of new treatment centers, and through acquisitions, for redemption of our convertible note, and for general corporate purposes, including working capital. See "Use of proceeds" for additional information.

Dividend policy

 

We do not expect to pay any dividends on the ADSs in the foreseeable future.

Risk factors

 

You should read the "Risk Factors" section and other information included in this prospectus for a discussion of risks you should consider carefully before deciding to invest in our ADSs.

Lock-up

 

We, our directors and executive officers, all of our existing shareholders, certain holders of our share-based awards and certain other securityholders have agreed to lock-up restrictions in respect of our ordinary shares, ADSs, and/or any securities convertible into or exchangeable or exercisable for any of our ordinary shares or ADSs, during the period ending 180 days after the date of this prospectus, subject to certain exceptions.

Proposed Nasdaq Global Market trading symbol

 

AIH.

        Unless otherwise indicated, this prospectus reflects and assumes the following:

Our summary consolidated financial data

        The following summary consolidated financial data for the years ended December 31, 2016, 2017, 2018 and for the six months ended June 30, 2018 and 2019, and the selected financial position data as of December 31, 2017, 2018 and as of June 30, 2018 and 2019, have been derived from our audited consolidated financial statements and unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus. Our consolidated financial statements appearing in this prospectus have been prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

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        Our historical results for any prior period are not necessarily indicative of results to be expected in any future period. The following information should be read in conjunction with "Selected Consolidated Financial Data," "Risk Factors," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

Consolidated statement of comprehensive income data

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except percentages)
   
 

Revenue

    584,857     697,396     761,306     110,897     356,309     393,074     57,258  

Cost of sales and services rendered

    (217,339 )   (234,522 )   (258,567 )   (37,665 )   (125,883 )   (126,545 )   (18,433 )

Gross profit

    367,518     462,874     502,739     73,232     230,426     266,529     38,825  

Selling expenses

    (231,229 )   (300,362 )   (333,526 )   (48,584 )   (158,424 )   (165,286 )   (24,077 )

General and administrative expenses

    (121,763 )   (92,836 )   (115,485 )   (16,822 )   (52,419 )   (66,303 )   (9,658 )

Finance income

    309     868     322     47     161     213     31  

Finance costs

    (2,920 )   (6,581 )   (9,244 )   (1,347 )   (4,186 )   (12,250 )   (1,784 )

Other gains, net

    1,704     9,334     12,118     1,765     6,845     16,532     2,408  

Fair value gain/(loss) of the convertible redeemable preferred shares

    49,027     (85,461 )   (226,248 )   (32,957 )       43,056     6,272  

Fair value loss of convertible note

        (1,283 )   (9,152 )   (1,333 )       (5,358 )   (780 )

Fair value (loss)/gain of exchangeable note liabilities

        (38,307 )   (56,925 )   (8,292 )       16,193     2,359  

Fair value loss of derivative financial instrument

            (301 )   (44 )       (14 )   (2 )

Share of profits/(losses) of investments accounted for using the equity method

    1,594     (1,415 )   1,730     252     766     (1,368 )   (199 )

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Income tax expense

    (13,713 )   (19,260 )   (18,508 )   (2,696 )   (6,273 )   (11,780 )   (1,716 )

Profit/(loss) for the year/period

    50,527     (72,429 )   (252,480 )   (36,779 )   16,896     80,164     11,679  

Earnings per share for profit attributable to owners of the company (in RMB per share)

                                           

Basic

    1.23     (1.87 )   (6.22 )         0.39     1.89        

Diluted

    0.02     (1.87 )   (6.22 )         0.29     0.35        

Unaudited pro forma basic(1)

                (0.51 )               0.63        

Unaudited pro forma diluted(1)

                (0.51 )               0.35        

Shares used in profit/(loss) per share computation:

                                           

Basic

    41,000,000     41,000,000     41,060,255           41,000,000     41,798,219        

Diluted

    56,844,957     41,000,000     41,060,255           56,600,000     57,398,219        

Non-IFRS Financial Measure:

                                           

EBITDA(1)

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Adjusted EBITDA(1)

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

Note:

(1)
See note 10 to our audited consolidated financial statements and note 11 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus.

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Summary consolidated financial position data

 
  As of December 31,   As of June 30,  
 
  2017   2018   2019  
 
  RMB
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Cash and cash equivalents

    105,345     101,886     14,841     78,656     11,458  

Total current assets

    227,698     282,967     41,219     213,304     31,071  

Total non-current assets

    350,286     393,572     57,330     762,541     111,077  

Total assets

    577,984     676,539     98,549     975,845     142,148  

Total deficit

    (22,240 )   (249,356 )   (36,323 )   (153,507 )   (22,361 )

Total current liabilities

    133,466     171,292     24,951     240,670     35,058  

Total non-current liabilities

    466,758     754,603     109,921     888,682     129,451  

Total liabilities

    600,224     925,895     134,872     1,129,352     164,509  

Total equity and liabilities

    577,984     676,539     98,549     975,845     142,148  

Summary consolidated cash flow data

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Net cash generated from operating activities

    52,084     76,979     4,894     713     12,323     45,691     6,656  

Net cash used in investing activities

    (38,865 )   (69,195 )   (76,182 )   (11,097 )   (56,047 )   (72,823 )   (10,608 )

Net cash generated from/(used in) financing activities

    58,626     (28,187 )   66,741     9,722     18,734     3,991     581  

Net increase/(decrease) in cash and cash equivalents

    71,845     (20,403 )   (4,547 )   (662 )   (24,990 )   (23,141 )   (3,371 )

Cash and cash equivalents at beginning of the year/period

    60,465     129,626     106,006     15,442     105,345     101,886     14,938  

Cash and cash equivalents at the end of the year/period

    129,626     106,006     102,547     14,938     80,221     78,656     11,458  

(1)
EBITDA represents our profit/(loss) before income tax, adjusted to exclude finance costs and amortization and depreciation. Adjusted EBITDA represents EBITDA, adjusted to exclude one-time compensatory expense arising from the issuance of exchangeable note liabilities, fair value gain/(loss) of convertible redeemable preferred shares, fair value loss of convertible note, fair value loss of exchangeable note liabilities, fair value loss of derivative financial instruments, interest expense on convertible note, share-based compensation expense, and other one-off expenses.

EBITDA and Adjusted EBITDA are non-IFRS financial measures. You should not consider EBITDA and Adjusted EBITDA as a substitute for or superior to net income prepared in accordance with IFRS. Furthermore, because non-IFRS measures are not determined in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measures presented by other companies. We encourage you to review our financial information in its entirety and not rely on a single financial measure. We present Adjusted EBITDA as a supplemental performance measure because we believe that it facilitates

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  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Add: Finance Costs

    2,920     6,581     9,244     1,347     4,186     12,250     1,784  

Add: Amortization and depreciation

    38,729     29,111     32,140     4,682     16,305     40,155     5,849  

EBITDA

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Add: One-time compensatory expenses arising from the issuance of exchangeable note liabilities

    39,202                          

Add: Fair value (gains)/losses of convertible redeemable preferred shares

    (49,027 )   85,461     226,248     32,957         (43,056 )   (6,272 )

Add: Fair value (gains)/losses of convertible note

        1,283     9,152     1,333         5,358     780  

Add: Fair value (gains)/losses of exchangeable note

        38,307     56,925     8,292         (16,193 )   (2,359 )

Add: Fair value of (gains)/losses of derivative financial instrument

            301     44         14     2  

Add: Share-based compensation expense

                        6,281     915  

Add: Other one-off expenses(1)

        4,536     13,055     1,902     6,277     4,855     707  

Adjusted EBITDA

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

(1)
Other one-off expenses include (a) professional fees in relation to our financing activities but are not capitalized; and (b) IT-related expenses paid to a related party pursuant to a service agreement, which has expired in June 2019.

        We have adopted IFRS 16 Leases from January 1, 2019. Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. For the six months period ended June 30, 2019, we recognized depreciation expense of RMB22.3 million for right-of-use asset, finance cost for lease liabilities of RMB6.4 million and payment for lease liabilities of RMB22.8 million.

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Risk Factors

        Investing in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our consolidated financial statements and their related notes appearing at the end of this prospectus, before deciding to invest in the ADSs. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of the ADSs could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

Risks relating to our business and our industry

We depend significantly on the strength of our brand and reputation, and any damage to our brand or reputation could materially and adversely impact our business and results of operations.

        Our brand and reputation are critical to our success in China's rapidly growing aesthetic medical industry. We believe that our success and continued growth depends on the public perception of our brand name and our ability to protect and promote our brand name. Many factors which are important to help maintain and enhance our brand, are beyond our control and may negatively impact our brand and reputation. Such factors include:

        Our failure to develop, maintain and enhance our brand and reputation may materially and adversely affect the level of market recognition of, and trust in, our services, which could result in decreased sales and loss of customers leading to a material adverse effect on our results of operations and cash flows.

        In addition, allegations against us have appeared in online forums and news articles. These allegations have included claims of medical malpractice, dissatisfaction with treatment results, inappropriate sales tactics, arbitrary treatment service prices and the use of illegal pharmaceuticals. Any negative review, comment or allegation regarding our company, treatment centers or services by the media, our customers, our former employees or the public in the media or on online social networks may harm our brand, public image and reputation, which in turn may result in a loss of customers and business partners and have a material adverse effect on our business, financial condition, results of operations and prospects.

        Furthermore, our customers may have expectations regarding the degree of improvement of their physical appearance resulting from our services. However, we cannot guarantee the results of our services since results vary depending on factors such as the medical history of our customers, their adherence to our pre-procedure and post-procedure instructions, their respective responses to procedures, unknown allergies and other factors beyond our control. It is also an inherent risk that the results of our services may lead to undesirable or unexpected outcomes, such as complications and injuries, or otherwise fail to meet our customers' expectations. Such undesirable or unexpected outcomes may result in customer dissatisfaction, requests for refunds, or complaints, claims or legal actions against us, which may lead to negative publicity. Any negative publicity may adversely harm our brand image and reputation and cause a deterioration in the level of market recognition of and trust in

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our services, thereby resulting in decreased sales and potential loss of customers and business partners as well as physicians and staff, and therefore have a material adverse effect on our business, results of operations, financial condition and prospects.

We conduct our business in a heavily regulated industry and incur ongoing compliance costs as well as face penalties for non-compliance.

        We conduct our business in a heavily regulated industry. The rules and regulations relate mainly to the licensing of treatment centers, the quality and the licensing of medical facilities, equipment and services, the pricing, procurement and usage of pharmaceuticals, and the licensing, practice and number of medical professionals. For more details, please see the section headed "Regulation" in this prospectus. Accordingly, our treatment centers are subject to periodic licensing renewal requirements and inspections by various government agencies and departments at the provincial and municipal level. In addition, any changes in laws and regulations could require us to obtain additional licenses, permits, approvals or certificates, impose additional conditions or requirements for the renewal of the licenses of the treatment centers, or result in the invalidation of our currently owned licenses.

        In the past, some of our treatment centers were subject to administrative warnings and penalties due to certain non-compliance incidents. As a result of the growth in our operations, including the number of treatment centers we manage, as well as the tightened PRC laws protecting consumers, we have experienced, and will continue to experience, non-compliance incidents. For instance, several of our treatment centers were subject to administrative penalties due to their failure to comply with certain regulations on medical advertisements, and several of our treatment centers were subject to administrative penalties due to the medical professionals' malpractice, operation beyond the permitted scope of licences or without licenses, use of unqualified medical facilities or pharmaceuticals, use of expired disinfectant, non-compliance with regulations on disposal of medical waste, failure to evaluate occupational hazards, non-compliance with statistic regulations, non-compliance with fire protection regulations, failure to timely file the required annual report of certain treatment centers to the relevant local branch of the State Administration of Market Regulation, failure to meet standards of hygiene, failure to fulfill inspection requirements of the licensing and medical facilities, and non-compliance with tax regulations, failure to meet the standard of drafting and preservation of medical case record and non-compliance with regulations on publicity of service items and fees. In addition, certain of our treatment centers may be subject to administrative penalties due to failure to comply with fire code and environmental regulations. Failure to comply with fire protection design review and inspection requirements could lead to the temporary closure of certain treatment centers. Also, certain information concerning some foreign doctors was published on the website of one of our treatment centers, which could have inadvertently created the impression that those foreign doctors were employed by us.

        In addition, we have experienced incidents of non-compliance which did not result in administrative warnings or penalties but could adversely impact our reputation, create additional compliance costs for us or otherwise impair our business and operations. For example, while we require that all human placenta extract products procured and used in our treatment centers are domestically produced, registered by the China Food and Drug Administration, or CFDA, and legally compliant, we have had instances in the past where certain of our treatment centers used imported human placenta extract products that were unregistered with the CFDA.

        Furthermore, relevant laws with respect to private healthcare facilities are undergoing regulatory changes in Hong Kong. The Private Healthcare Facilities Ordinance was gazetted in November 2018 and is expected to be phased in between 2019 and 2021. The ordinance requires, among other things, application for and subsequent renewal of licenses by private healthcare facilities. We may be required to apply for a license in the future to continue medical operations of Newa Medical Aesthetics Limited in Hong Kong.

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        In June 2018, the business license of our treatment center in Shanghai was temporarily suspended for performing dental implants without the appropriate license, which we promptly rectified. However, we cannot guarantee that any future incidents of non-compliance would not result in temporary or permanent suspension of any of the licenses, permits, approvals and certificates necessary for our business. If we fail to obtain or renew any necessary licenses, permits, approvals and certificates, or are found to be non-compliant with any of these laws, regulations or rules, we may be unable to provide relevant medical services, face penalties, suspension of operations or even revocation of operating licenses or criminal liability, depending on the nature of the findings, any of which could materially and adversely affect our business, financial condition and results of operations.

If we are unable to fully comply with PRC laws and regulations on medical advertisement, our brand image, results of operations and financial conditions could suffer significantly.

        As a medical aesthetic service provider, we must comply with the PRC Advertisement Law, the PRC Administrative Measures on Medical Advertisement and other relevant advertising laws and regulations and constantly monitor our advertising content. According to the Administrative Measures on Medical Advertisement and the Notice on Further Strengthening the Administrative Measures on Medical Advertisement, or Administrative Measures on Medical Advertisement, we must obtain a medical advertisement approval certificate before publishing any medical advertisement. The content in the published advertisement shall be consistent with what has been approved and recorded in the medical advertisement approval certificate. In addition, the Administrative Measures on Medical Advertisement explicitly stipulate that such medical advertisements shall not mention any specific treatment method, any guarantees of the treatment, any name or image of any patient, any particular medical professional, nor using any medical research institution or its personnel or any public association or organization to suggest any treatment is valid. For violations of these laws and regulations, the PRC competent health administrative authority and Chinese medicine administrative authority may issue warnings and require remediation. If the violations are more severe, they may impose measures such as suspension of business until the violations have been remedied, revocation of the license for operating a particular medical department, or even revocation of the Medical Institution Practicing License. In addition, the competent administration for industry and commerce (now known as the administration for market regulation) may also suspend the business and the business licenses of institutions that are repetitive and serious offenders in accordance with the PRC Advertisement Law. See "Regulation—Regulations on medical advertising in the PRC." See "Regulation—Regulations on medical advertising in the PRC."

        In the past, some of our treatment centers have received administrative penalties for non-compliance of these laws and regulations. For instance, several of our treatment centers have been penalized for publishing medical advertisements without having obtained relevant medical advertisement approval certificates, not strictly following the scope and manners as approved and recorded in the relevant medical advertisement approval certificates, and publishing medical advertisements using expressions explicitly prohibited by these laws and regulations, publishing medical advertisements without showing the relevant licensing number on the relevant medical advertisement approval certificate, publishing medical advertisements with untrue or misleading expressions. The results of such non-compliance actions ranged from warnings, fines, deduction of medical institution practice points, suspension of publication of advertisements, remediation, reduction of adverse impact and withdrawal of advertisement, among other things. Any violation of these laws and regulations on medical advertisements, if material or not rectified, may subject us to administrative penalties, impair our brand image, and materially and adversely impact our business, financial condition, results of operations and prospects.

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Our internal control system and compliance team may not be able to prevent all possible non-compliance incidents.

        We are subject to a number of regulations pertaining to the licensing of our treatment centers, the quality and the licensing of medical facilities, equipment and services, the pricing and procurement and usage of pharmaceuticals, and the licensing, conduct and number of medical professionals. We have established internal control process intended to ensure all of our employees and contractors comply with the relevant laws and regulations applicable to us. However, we cannot assure you that such controls will be effective to prevent all instances of non-compliance. Any failure of our internal controls could have a material adverse effect on our business, financial condition and results of operations.

We are subject to customer complaints, claims and legal proceedings in the regular course of our operations from time to time, which could result in significant costs and materially and adversely affect our brand image, reputation and results of operations.

        We rely on our doctors and other medical staff in our treatment centers to make appropriate decisions regarding the treatment of our customers. However, we cannot assure you that every employee at our treatment centers will always act in accordance with the appropriate professional standard of care. Any deviation from the appropriate standard of care by our doctors and other medical staff, or any failure to properly manage our treatment centers' activities, may result in unsatisfactory treatment outcomes, patient injuries or, in extreme cases, deaths. Given the nature of the aesthetic medical industry and subjectiveness of the level of satisfaction with services provided, we are also susceptible to other types of complaints associated with our services from time to time. These include claims relating to (i) dissatisfaction with our customer service; (ii) disputes over charges; (iii) over-promising of treatment outcome; (iv) dissatisfaction with post-treatment recovery periods; and (v) general dissatisfaction with treatment results. In addition, due to the fact that the number of procedures we performed has increased over the years as part of our growth, the absolute number of such complaints, allegations and other claims, regardless of merits, has increased and may continue to increase. Such complains, allegations and claims, if not managed properly, could have a material adverse effect on our reputation, business, results of operations, financial condition and prospects.

        With respect to settlement of client compliants, customers generally accept complimentary gifts, refunds, services or supplemental operations at no additional cost to settle their complaints. However, we may also be required to pay monetary compensation to settle customer complaints and medical disputes. In 2016, we received a complaint from a customer who had received a hyaluronic acid injection treatment at one of our treatment centers and subsequently suffered from ocular ischemia syndrome and secondary retinal detachment in one eye. We entered into a settlement agreement with this customer in January 2017 and paid this customer RMB1.1 million in four monthly installments. In addition, we may be subject to third-party liability claims and may be required to pay compensation to patients who suffer from unexpected adverse reactions to treatment received in our treatment centers, even if we were not at fault. For example, one of our patients filed a complaint in connection with the patient falling into a state of prolonged unconsciousness after receiving a Botulinum Toxin Type A, or Botox, injection at one of our treatment centers and we were brought in as a third-party defendant. The court found that the primary cause of the incident was due to defects in the Botox, that there was no wrongdoing on our part, and that all the liabilities rested with the manufacturer of the Botox. Prior to the final court decision, we had voluntarily provided an aggregate of approximately RMB6.1 million as financial support for the patient out of concern for her well-being. As of the date of this prospectus, we have filed a claim against the manufacturer to recover such amount and other losses incurred by us in connection with the incident, but the final verdict is yet to be delivered. In addition, as of the date of this prospectus, we have been named as the defendant in six ongoing litigations in the PRC. While we believe many of the claims against us do not have merits, and plan to firmly defend our rights in the litigations, we cannot assure that we will be able to achieve satisfactory outcome in those litigations.

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The maximum amount of the damages claimed by the plaintiffs in those six litigations in aggregate amounted to RMB2.6 million (US$0.4 million). Furthermore, some dissatisfied customers may even resort to extreme actions. For example, in 2012, a dissatisfied patient stabbed and injured several employees at our Pengcheng Hospital. To our knowledge, this patient was later convicted and imprisoned. We voluntarily paid approximately RMB150,000 for medical expenses and additional compensation to the injured employees.

        We may be subject to similar customer complaints, serious incidents or lawsuits in the future and may not successfully prevent or address all customer complaints in the future. Any complaint, claim or legal proceeding, regardless of merit, if widely disseminated, could affect our corporate image and reputation in the industry, divert management resources and cause us to incur extra costs to handle these complaints and litigation matters. A settlement or successful claim against us can also result in significant costs, damages, compensation and reputational damage and adversely affect our business, results of operations and financial condition.

If we are unable to recruit and retain an adequate number of managers, doctors, nurses, image consultants and other support staff in our treatment centers, our service quality and business strategy may suffer.

        Our performance is largely dependent on the talent and efforts of highly skilled medical professionals. Our future success will in part depend on our ability to identify, hire and retain highly qualified medical professionals of all areas of our treatment centers. The recruitment of qualified physicians is competitive in the PRC due to their shortage. The near-term supply of specialist physicians is limited due to the length of training required, including academic study and clinical training, which can take more than eight years for certain medical specialties, as well as additional certification and licensing requirements for certain specialties. Competition for such qualified professionals is intense. We believe that physicians generally consider the following key factors when selecting medical institutions to join: reputation and culture, the efficiency of hospital management, the quality of facilities and support staff, the number of patient visits, compensation, training programs and location. Our treatment centers may not effectively compete with other aesthetic medical treatment centers or clinics in hiring qualified professionals. We use physicians who also practice at other hospitals or treatment centers, as PRC regulations allow licensed physicians to register and practice at multiple medical institutions in the same provincial administrative area. If the PRC government imposes restrictions on such practice in the future, we may not be able to retain our current base of multi-site practice physicians. If we are unable to successfully recruit or retain seasoned and qualified physicians, our business, financial condition and results of operations may be adversely affected.

        Our success is also dependent on our ability to recruit and retain qualified medical institution administrators and medical professionals. It has become increasingly costly to recruit and retain medical professionals in recent years and there is no guarantee that we will be able to recruit and retain sufficient medical professionals in the future. If we do not succeed in attracting an appropriate number of qualified treatment center managers, nurses, image consultants or other support staff, our service quality and our ability to execute our business strategy may suffer. A shortage of skilled professionals could also require us to pay higher wages, which would reduce our profits and have a material and adverse effect on our operating results and financial performance.

If our physicians and other medical professionals do not obtain and maintain appropriate licenses, we may be subject to penalties against our treatment center, which could adversely affect our business.

        Medical practice in China is strictly regulated. Physicians, nurses and medical technicians who practice at medical institutions must hold practicing licenses and may only practice within the scope of their licenses and at the specific medical institutions at which their licenses are registered. Please see "Regulation" for more details. In practice, it takes some time for physicians, nurses and medical technicians to transfer their licenses from one medical institution to another or add any further service

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scope or another medical institution to their permitted practicing institutions. From time to time, some of our physicians, nurses and other medical professionals could be required to make such amendments to their licences due to changes to the location or nature of their work. We cannot assure you that all of our medical professionals have completed the transfer of their licenses and related government procedures in a timely manner or at all. In addition, we cannot assure you that our physicians, nurses and other medical professionals will always strictly follow the requirements and will not practice outside the permitted scope of their respective licenses. Our failure to properly manage the employment of our physicians, nurses and other medical professionals may subject us to administrative penalties against our treatment centers, which could adversely affect our business.

We may fail to maintain the quality of the pharmaceuticals, medical equipment, medical supplies, injection materials, skincare products, implants and consumables we use. If these products do not meet the required standards, we could be exposed to liabilities and our business operations and reputation could suffer.

        Although we have adopted a series of measures for selecting suppliers, such as maintaining and updating a list of qualified suppliers, we cannot guarantee that all of the pharmaceuticals, medical equipment, medical supplies, injection materials, skincare products, implants and consumables we use are free of defects or substantially meet the relevant quality standards. We were involved in an lawsuit related to one of our patients who suffered severe complications after receiving a Botox injection at one of our treatment centers. Although the court found that all liability rested with the manufacturer, we cannot assure you that similar incidents will not occur in the future, or that such incidents will not materially and adversely affect us. If the products provided by our suppliers are defective, of poor quality, or cause any adverse drug reaction, we could be subject to liability claims, complaints or related adverse publicity that could result in the imposition of penalties or even suspension of licenses by relevant authorities or compensation awarded by courts against us. We may also need to find suitable replacement products, which may lower our profit margins and result in delays in services to our customers.

        Our suppliers are also subject to extensive laws and regulations. If our suppliers violate applicable laws and regulations, our reputation or procurement may be materially and adversely affected. PRC laws and regulations require us to procure materials from qualified suppliers, with requisite licenses, permits or filings to operate their business. We cannot ensure that all of our suppliers maintain all the licenses required or the validity of their licenses at all times. We have been fined with insignificant amounts by regulators in the past for failure to maintain proper records of our suppliers' qualification expiration dates. It is possible we may in the future fail to comply with this requirement if, for example, our suppliers lose appropriate qualifications without our knowledge, which could result in penalties and fines. See "Regulation." In addition, we may be exposed to reputational damage or even liabilities for defective goods provided by our suppliers or negative publicity associated with our suppliers, and our results of operations could suffer as a result.

We have not entered into any long-term supply agreements with our suppliers. A decrease in supply, or an increase in the cost, or quality supplies may adversely affect our business, financial condition and results of operations.

        For the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2019, our cost of inventories and consumables amounted to RMB79.5 million, RMB91.7 million, RMB107.0 million (US$15.6 million) and RMB48.2 million (US$7.0 million), respectively, representing 36.6%, 38.9%, 42.0% and 38.1% of our total cost of sales and services rendered for the same periods, respectively. Consistent with industry practice, we have not entered into any long-term supply agreements with our suppliers and we cannot assure you that our suppliers will continue to supply to us on commercially reasonable terms, or at all. If any of our suppliers fail to supply sufficient quantities, we may have to obtain replacements for such supplies from alternate suppliers. We cannot assure you

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that we will be able to do so in a timely manner at commercially reasonable terms. Any such disruption in supply may adversely affect the operations of our treatment centers, which may in turn adversely affect our business, results of operations, financial condition and prospects. In addition, should the prices of supplies increase significantly, we cannot assure you that we would be able to pass on any increase in purchase costs to our customers. Any substantial fluctuation in market prices of the supplies required in our operations may significantly increase our costs, resulting in us reducing, suspending or ceasing provision of certain types of services, thereby reducing our sales and profit.

        Furthermore, we source BOTOX®, the only imported brand of botulinum toxin type A in China, from its exclusive licensed distributor in China. We experienced an approximately 16% increase in the procurement price of BOTOX® from 2016 to 2018. We also source a domestic brand of botulinum toxin type A called Hengli. Although the price of Hengli was flat between 2016 and 2018, we cannot guarantee that a shortage of BOTOX® will not arise in the future, or our suppliers will not increase their prices. In the event that we are not able to source from these suppliers on commercially reasonable terms, or at all, our business, financial condition and results of operation will be adversely affected.

Our business, financial condition, results of operations and prospects may be adversely affected by an unfavorable market perception of the overall aesthetic medical industry.

        Aesthetic medical services have been gaining popularity in recent years. According to Frost & Sullivan, the number of aesthetic medical procedures performed in the PRC increased from 8.3 million in 2014 to 20.2 million in 2018, representing a CAGR of 25.1%. However, many consumers remain cautious about the risks inherent in aesthetic medical procedures. Media influences, peer perceptions, research indicating adverse health effects of aesthetic medical procedures or otherwise could lead to deterioration in the market perception of aesthetic medical treatments and to less demand for aesthetic medical services. In addition, if any allegation surfaces in the media or in social media forums of any accident, ineffectiveness of treatment, poor service standards or mishandling of sensitive personal information by any operator of aesthetic medical services, regardless of merit, the entire aesthetic medical industry and any industry participant including us could experience reputational harm. Our business, financial condition, results of operations and prospects may be materially and adversely affected as a result.

We may not be able to maintain proper inventory levels for our operations.

        To ensure adequate inventory supply, we must forecast inventory needs and place orders with our suppliers based on our estimates of future demand for particular products. We may not be able to accurately forecast demand for supplies because of the difficulties of estimating the demand for our services. In 2016, 2017, 2018 and the six months ended June 30, 2019, our average inventory turnover days were 22.8 days, 29.9 days, 32.2 days and 35.4 days, respectively. The volatile economic environment and fast-evolving demands and preferences of our customers have made accurate projection of inventory levels increasingly challenging.

        Inventory levels in excess of customer demand may result in inventory obsolescence, a decline in inventory values, inventory write-downs or write-offs, or expiration of products, which would cause our gross margin to suffer and could impair the strength of our brand. High inventory levels may also require us to commit substantial capital resources, preventing us from using them for other important business purposes. Conversely, if we underestimate customer demand or if our suppliers fail to provide supplies to us in a timely manner, we may experience inventory shortages. Such inventory shortages might result in unfilled customer needs, damage to our reputation, and have a negative impact on customer relationships and reduce our sales. We cannot assure you that we will be able to maintain proper inventory levels for our operations and such failure may have an adverse effect on our business, financial condition, results of operations and profitability.

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We face intense competition, and if we do not compete successfully against new or existing competitors, we may lose our market share and our profitability may be adversely affected.

        We compete with private aesthetic hospitals and clinics and aesthetic medical departments in public general hospitals located in the same geographic areas as our treatment centers. We will also compete with future market entrants as the rapid growth of the aesthetic medical industry in the PRC may attract more domestic or international players to enter. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources and may be able to mimic and adopt our business model. We compete for customers primarily on the basis of location, price, the range and the quality of services that we offer and our brand name. We cannot assure you that we will be able to successfully compete against new or existing competitors. Any inability to successfully compete with new or existing competitors may prevent us from increasing or sustaining our revenue and profitability level and result in a loss of market share.

If we are unable to adapt to changing aesthetic medical trends and our customers' changing needs, we will not be able to compete effectively, which may materially and adversely affect our business, financial condition and results of operations.

        The aesthetic medical market requires us to closely monitor the trends in the market and the needs of our customers, which may require us to introduce new products, technologies, devices, solutions, service categories and treatment procedures and enhance our existing services and procedures. We have active dialogue and exchange of information with experts from well-respected aesthetic medical institutions overseas such as the United States, Europe, Singapore, Japan and South Korea to learn and adopt aesthetic medical solutions, standards and technologies. We must maintain strong relationships with leading overseas aesthetic medical institutions to ensure that we are accessing the latest technology and quickly and cost-effectively responding to our customers' changing needs. We may be required to incur development and acquisition costs to keep pace with new technologies, implement technological innovations or to replace obsolete technologies. If we fail to identify, develop and introduce new products, solutions, service categories, features, enhancements and technologies on a timely and cost-effective basis, demand for our services may decrease and we may not be able to compete effectively or attract customers, which may materially and adversely affect our business and results of operations.

Our revenue is particularly sensitive to changes in economic conditions.

        Demand for our aesthetic medical services and the resulting spending by our customers are particularly sensitive to changes in general economic conditions and our customers' disposable incomes. We cannot assure you that the local economy in the places where we operate can sustain stable growth in consumer spending. During periods of economic downturn, people may reduce their spending on aesthetic medical services, which may materially and adversely affect our ability to generate revenue from these services, and our financial condition and results of operations.

If we are unable to manage our growth effectively, we may not be able to capitalize on new business opportunities and our business and financial results may be materially and adversely affected.

        We have significantly expanded our business in the past few years. Out of our existing network of 21 treatment centers, we have established six treatment centers, acquired eight treatment centers, and obtained minority stakes in one treatment center since January 2014. Our organization may become larger and more complex with the addition of treatment centers in the future. Our expansion may require a significant amount of time from our management and substantial operational, financial and other resources.

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        To manage our growth and expansion, and to attain and maintain profitability, we will continue to place significant demands on our management and on our administrative, operational and financial personnel and infrastructure. Our success also depends on our ability to recruit, train and retain additional qualified management personnel and professionals as well as other administrative, sales and marketing personnel. To accommodate our growth, we need to continue managing our relationships with our suppliers and customers. All of these endeavors will require substantial management attention and effort and significant additional expenditure. We cannot assure you that we will be able to manage any future growth effectively and efficiently, and any failure to do so may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse effect on our business and financial results.

We have operations outside of China and intend to expand our international operations, which exposes us to significant risks.

        We have operations throughout China and our network also covers Hong Kong and Singapore. In addition, we entered into an agreement in February 2019 for an investment in LZP, which owns and operates five plastic surgery centers in California. Our business strategy includes further expanding our operations into new markets outside of China. Our company may become larger and more complex with our intended plans to expand into new geographic areas, through a combination of acquisitions and organic growth. The success of our business therefore depends, in large part, on our ability to operate successfully from geographically disparate locations and to further expand our international operations and sales. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those that we face in the China. We cannot assure you that further international expansion will be successful. Among the risks we believe are most likely to affect us are:

        Our failure to manage any of these risks successfully could harm our operations, reduce our revenue, and have other adverse effects on our operating results.

Execution of our strategies to grow our business depends on our ability to successfully expand into new geographic areas in a timely, cost-effective and non-disruptive manner.

        Execution of our strategies to grow our business depends partly on our ability to expand into new geographic areas in a timely, cost-effective and non-disruptive manner, through a combination of

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acquisitions and organic growth. Our ability to successfully expand into new markets depends on many factors including, among others, our ability to:

        If we fail to expand into new markets in a timely and cost-effective manner, whether through organic growth or through acquisitions, our overall business growth strategy and prospects could be materially and adversely affected.

We may be unable to identify or execute acquisition opportunities, businesses we acquire may have unknown or contingent liabilities, and we may not realize the benefits we anticipate from such acquisitions, which may materially and adversely affect our business, financial condition, results of operations and prospects.

        Our success depends on our ability to continually enhance and broaden our service offerings in response to changing customer demands, competitive pressures and innovation. We may consider opportunities to partner with or acquire other businesses, products or technologies that may enhance our services platform or technology, expand the breadth of our operations or customer base or advance our business strategies. We may not be able to identify suitable targets for acquisition, or negotiate commercially acceptable terms for acquisitions. Even if we are able to identify suitable targets, such acquisitions can be difficult, time consuming and costly and we may not be able to secure necessary financing for the acquisitions. Businesses that we acquire may have unknown or contingent liabilities, including liabilities for failure to comply with relevant laws, rules and regulations. In acquiring the treatment centers, we typically require sellers to indemnify us for any claims and liabilities that are in connection with or arise from a time prior to our acquisitions.

        However, we could suffer reputational harm for actual or alleged inferior service or harm that occurred at treatment centers prior to our acquisition and need to respond to claims initially as unsatisfied customers will likely pursue their claims against the treatment centers and us. Depending on the circumstances of the sellers, the indemnities we receive from them may not be sufficient or forthcoming, due to bankruptcy or disappearance of sellers or otherwise. Historically, certain entities we have acquired failed to comply with certain regulations and the sellers did not provide sufficient indemnities. As a result, we may be liable for historical defects. Even if we have received indemnities, our reputation may be harmed because of the sellers' historical defects. We maintain contact with the sellers of the treatment centers we acquired post acquisitions. Some of the sellers of our acquired treatment centers remain as minority shareholders of these subsidiaries. Moreover, any financial mitigation we receive from sellers of these treatment centers may not mitigate against any reputational harm we may suffer as a result of these claims. In addition, future acquisitions and subsequent integration of newly acquired assets and businesses into our own could be expensive and time-consuming, 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 results we expect. If we are not able to identify, capture or execute opportunities to expand our operations successfully through

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acquisitions, or suffer reputational or financial harm caused by unknown or contingent liabilities of the treatment centers we acquire, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Newly opened and acquired treatment centers may not achieve operating results as anticipated, which could materially and adversely affect our results of operations.

        It typically takes newly opened and acquired treatment centers a period of time to achieve a utilization rate comparable to our existing treatment centers, due to factors such as time needed to build customer awareness in the local community and to integrate new treatment centers' operations into our existing infrastructure. The opening and acquisition of new treatment centers involve regulatory approvals and reviews by various authorities in China, including health authorities. We may not be able to obtain all the required approvals, permits or licenses for opening and acquisitions of treatment centers in a timely manner or at all. We may not be able to fully utilize the newly opened and acquired treatment centers as anticipated due to our inability or material delay in obtaining the required approvals, permits or licenses and any substantial increase in costs to ramp up operations and utilization. In addition, the operating results generated at the newly opened and acquired treatment centers may not be comparable to the operating results generated at any of our existing treatment centers. The treatment centers may even operate at a loss, which could materially and adversely affect our results of operations. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors affecting our results of operations—Our expansion through organic growth and acquisitions." As a result, our results of operations may fluctuate from year to year. For details of our expansion plans, see "Business—Our Strategies." Therefore, period-to-period comparisons of our operating results may not be meaningful and you should not rely on them to predict our future performance or the price of our ADSs.

If we fail to obtain sufficient funding for our expansion plans, our business and growth prospects may be adversely affected.

        We believe that our current cash and cash equivalents, anticipated cash flow from operations, available credit facilities, and the proceeds from this offering will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months from the date of this prospectus. We may, however, require additional cash resources to finance our continued growth or other future developments, including any marketing initiatives or investments we may decide to pursue. The amount and timing of such additional financing needs will vary depending on the timing of our new treatment centers openings, investments in acquired treatment centers and the amount of cash flow from our operations. If our resources are insufficient to satisfy our cash requirements, we may seek additional financing. To the extent that we raise additional financing by selling additional equity, our shareholders may experience dilution. To the extent we engage in debt financing, the incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that may, among other things, restrict our operations or our ability to pay dividends. Servicing such debt obligations could also be burdensome to our operations. If we fail to service the debt obligations or are unable to comply with such debt covenants, we could be in default under the relevant debt obligations and our liquidity and financial conditions may be materially and adversely affected.

        Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, some of which are beyond our control, including general economic and capital market conditions, credit availability from banks or other lenders, the consents of our prior creditors, receipt of necessary PRC government approvals, investors' confidence in us, the performance of the aesthetic medical treatment industry in general, and our operating and financial performance in particular. We cannot assure you that future financing will be available in amounts or on terms acceptable to us, if at all. In the event

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that financing is not available or is not available on terms acceptable to us, our business, results of operations and growth prospects may be adversely affected.

We are dependent on certain key members of our senior management and other key employees, and our business, financial condition and results of operations will suffer greatly if we lose their services.

        We are dependent on certain key members of our senior management team, some of whom have been with us since our inception, to manage our current operations and meet future business challenges. In particular, we rely on the expertise, experience and leadership of Dr. Zhou Pengwu, our chairman and chief executive officer and Ms. Ding Wenting, our vice-chairwoman and spokesperson.

        We do not maintain key personnel insurance. Competition for competent candidates in the industry is intense and the pool of competent candidates is limited. The loss of any key members of our senior management team could materially disrupt our operations and delay the implementation of our business strategies. In addition, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely limit our business and growth. In addition, if any member of our senior management team or key employees joins a competitor or forms a competing business, we may lose know-how, trade secrets, customers and key professionals and staff. We have entered into employment agreements, confidentiality and non-compete agreements with all of the key members of our management team. We cannot assure you, however, the extent to which any of these agreements will be enforceable under the applicable laws. For more details, see "—Risks relating to doing business in the PRC—Uncertainties with respect to the PRC legal system and changes in laws, regulations and policies in China could materially and adversely affect us." If, as a result of similar incidents, or events, we may lose the services of key members of our senior management, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to adequately protect our intellectual property rights, which could harm our brand and our business.

        We believe our trademarks and other intellectual property rights are crucial to our success. Our principal intellectual property rights include our trademarks for the "Pengai" brand. Although we rely on the registration of trademarks and applicable laws to protect our intellectual property rights, these measures may not be sufficient to prevent misappropriation of our intellectual property rights. There is no assurance that third parties will not infringe on our intellectual property rights. Our efforts to enforce or defend our intellectual property rights may not be adequate, may require significant attention from our management and may be costly. We may have to initiate legal proceedings to defend the ownership of our trademarks or brand against any infringement by third parties, which may be costly and time-consuming, and we might be required to devote substantial management time and resources in an attempt to achieve a favorable outcome. Furthermore, the outcome of any legal actions to protect our intellectual property rights may be uncertain. If we are unable to adequately protect or safeguard our intellectual property rights, our business, financial condition, results of operations and prospects may be adversely affected.

        In addition, as permitted by the PRC laws, other parties may register trademarks which may look similar to our registered trademarks under certain circumstances, which may cause confusion among consumers. We may not be able to prevent other parties from using trademarks that are similar to ours and our consumers may confuse our treatment centers with others using similar trademarks. In such case, the goodwill and value of our trademarks and the public perception of our brand and our image may be adversely affected. A negative perception of our brand and image could have a material and adverse effect on our sales, and therefore on our business, financial condition, results of operations and prospects.

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Our business is subject to seasonality.

        Our operating results are exposed to seasonal fluctuations in demand for our services. During 2016, 2017 and 2018, we experienced relatively higher customer visits in the second half of each financial year, which was mainly because (i) customers tend to come to our treatment centers and receive our services in summer, which led to an increased number of procedures performed in the second half of the year; and (ii) we also experienced a higher number of customer visits for the period from October to December, primarily due to the Chinese National Day holiday, Christmas, and in anticipation of the subsequent New Year and Chinese New Year holidays. As such, our revenue was slightly higher in the second half of each financial year during 2016, 2017 and 2018.

Our historical financial and operating results may not be indicative of future performance, and we may not be able to achieve and sustain the historical level of revenue and profitability.

        Our historical results may not be indicative of future performance. Our financial and operating results may not meet the expectations of public market analysts or investors, which could cause the future price of the ADSs to decline. Our revenue, cost, expenses and operating results may vary from period to period in response to a variety of factors beyond our control, including general economic conditions, new trends in the aesthetic medical market and our ability to control costs and operating expenses. Our operations largely depend on our ability to retain current customers and attract new ones, encourage more spending by our customers, continue adopting innovative technologies and introducing new services in response to customer demand, increase brand awareness through marketing and promotional activities and take advantage of any growth in the relevant markets. We cannot assure you that we will achieve any of them in the future. We believe that period-to-period comparisons of our operating results during the past two years may not be indicative of our future performance and you should not rely on them to predict the future performance of our operating results or ADSs.

Landlords' lack of required permits, failure to renew leases, failure to fulfill the procedure of leasing or substantial increases in rents may materially and adversely affect our business and financial performance.

        Most real estate for our treatment centers is leased. The availability of commercially attractive locations for our treatment centers is important to our business. Upon the expiry of each of the lease agreements, we have to negotiate terms of renewal with the relevant landlord. As there has been a general increase in rent for commercial properties in the PRC in recent years, and as a majority of our treatment centers are located on premises leased from independent third parties in central urban locations, there is no guarantee that we can renew the leases or negotiate new leases on similar or favorable terms (including, without limitation, on similar tenure and with similar rent) in the future, if at all, or that the leases will not be terminated early by the landlords. In the event that we are required to seek alternative locations for our treatment centers, there is no guarantee that we can secure comparable locations or negotiate leases on comparable terms. In addition, the use of certain of our leased buildings is inconsistent with the permitted use of such buildings or such land and some landlords or lessors did not obtain sufficient approvals, permits and registrations from the governmental authorities and the other third parties. If any challenge from any government authority or a third party arises, our lease agreement may be invalidated and we may also be required to relocate our operations. Furthermore, certain of our lease agreements have not been filed with the PRC authorities, which may subject us to fines if the relevant PRC authority requires us to rectify and we fail to do so within a specified period of time. In addition, certain of our leased properties are subject to mortgage. We may be forced to relocate in the event that the mortgagees are entitled to exercise their rights under the relevant mortgages. If we were forced to relocate, we might not be able to relocate to desirable locations in a timely and cost-effective manner. All these factors may have an adverse impact upon our business operation, financial position and our future potential growth.

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We are not in full compliance with social insurance, housing provident funds and income tax contributions.

        We are required to make social insurance, housing provident funds and income tax contributions for the benefit of employees of our PRC subsidiaries under PRC laws and regulations. Our PRC subsidiaries have not made social insurance, housing provident funds and income tax contributions in full for all of their employees. Companies operating in the PRC are also required to withhold individual income tax on employees' salaries based on the actual salary of each employee upon payment. Our PRC subsidiaries have not fully withheld the individual income tax in accordance with the relevant PRC laws and regulations.

        Under the relevant PRC laws and regulations, the relevant PRC authorities may determine that we need to make supplemental social insurance and housing fund contributions and that we are subject to fines, supplementary payment and legal sanctions in relation to our failure to make social insurance and housing fund contributions in full for our employees, in which case our business, financial position or operation may be adversely affected. With respect to the underwithheld individual income tax, we may be required by relevant PRC authorities to make up sufficient withholding and pay late fees and fines. In addition, some of our PRC subsidiaries make social insurance for employees of other PRC subsidiaries, in which case we are subject to fines and adverse record on our credit files. If so, our business, financial position or operation may be adversely affected.

Our business is subject to professional and other liabilities for which we may not be insured.

        We are exposed to potential liabilities that are inherent to the aesthetic medical and healthcare industries. Our treatment centers have been the subject of such claims during the three years ended December 31, 2018. As of the date of this prospectus, we maintain professional malpractice liability insurance for key doctors and medical staff in most of our aesthetic medical treatment centers. However, we may face liabilities that exceed our available insurance coverage or arise from claims outside the scope of our insurance coverage. For example, although the scope of our insurance generally covers all of the treatments and services we provide, from time to time, we have commenced operations at new treatment centers before those centers were added to our group insurance coverage package. As a result, the operations at those centers temporarily exceeded the scope of our insurance coverage while we worked with our insurers to extend coverage to those centers. In 2016, 2017, 2018 and the six months ended June 30, 2019, revenue generated from our operations at treatment centers while outside the scope of our insurance coverage amounted to 3.7%, 3.0%, 2.2% and 0.7% of our total revenue, respectively. In 2016, 2017, 2018 and the six months ended June 30, 2019, we incurred costs of RMB0.7 million, RMB0.9 million, RMB1.5 million (US$0.2 million) and RMB0.7 million (US$0.1 million), respectively, in connection with settlements which were not covered by our insurance. Our insurance policies are subject to annual renewal and we may not be able to obtain malpractice insurance in the future on acceptable terms or at all. In addition, our insurance premiums could be subject to increases in the future, which may be material. If the coverage limits are inadequate to cover our liabilities or our insurance costs continue to increase as a result of liability claims or other litigation, then our business, financial condition and results of operations may be adversely affected.

We could be exposed to risks related to our management of customers' medical data.

        Our treatment centers collect and maintain medical data and treatment records of our customers. PRC laws and regulations generally require medical institutions and their medical personnel to protect the privacy of their customers and prohibit unauthorized disclosure of personal information. Such medical institutions and their medical personnel will be liable for damage caused by divulging the customers' private or medical records without consent. We have taken measures to maintain the confidentiality of our customers' medical records, including encrypting such information in our information technology system so that it cannot be viewed without proper authorization and setting internal rules requiring our employees to maintain the confidentiality of our customers' medical

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records. However, these measures may not always be effective in protecting our customers' medical records. Our information technology systems could be breached through hacking. Personal information could be leaked due to any theft or misuse of personal information due to misconduct or negligence. In addition, although we do not make the customers' medical records available to the public, we use such data on an aggregated basis after redacting personally identifiable information for marketing purposes. Although we believe our current usage of customers' medical records is in compliance with applicable laws and regulations governing the use of such information, any change in such laws and regulations could affect our ability to use medical data and subject us to liability for the use of such data. Failure to protect customers' medical records, or any restriction on or liability as a result of, our use of medical data, could have a material adverse effect on our business.

A technological failure, security breach or other disruptions of our computer network infrastructure and centralized information technology systems may interrupt our business.

        Our computer network infrastructure and information technology systems are critical for our operation, such as billing, financial and budgeting data, customer records and inventory. We regularly maintain, upgrade and enhance the capabilities of our information technology systems to meet operational needs. Any failure associated with our information technology systems, including those caused by power disruption or loss, natural disasters, computer viruses or hackers, network failures or other unauthorized tampering, may cause interruptions in our ability to provide services to our clients, keep accurate records, and maintain proper business operations, which may adversely affect our business, financial condition and results of operations.

        In addition, a variety of our software systems are hosted by third-party service providers whose security and information technology systems are subject to similar risks. The failure of our or our service providers' information technology could disrupt our entire operation or result in decreased sales, increased overhead costs and product shortages, all of which could have a material adverse effect on our reputation, business, financial condition and results of operations.

Any future occurrence of force majeure events, natural disasters or outbreaks of contagious diseases in the PRC could prevent us from effectively serving our customers and thus adversely affect our results of operations.

        Any occurrence of force majeure events, natural disasters or outbreaks of epidemics, including those caused by avian influenza or swine influenza, may restrict business activities in the areas affected and materially and adversely affect our business and results of operations. Since early 2013, there have been outbreaks of highly pathogenic avian flu, caused by the H7N9 virus, in certain parts of China, and in early 2009, there were reports of outbreaks of a highly pathogenic swine flu, caused by the H1N1 virus, in certain regions of Asia and Europe. Moreover, the PRC has experienced natural disasters like earthquakes, floods and droughts in the past few years. Any future occurrence of several natural disasters in the PRC may materially and adversely affect its economy and therefore our business. An outbreak of contagious diseases, and other adverse public health developments in China, would have a material adverse effect on our business operations. These could include restrictions on our ability to provide services to our customers, as well as cause temporary closure of our treatment centers. Such closures or service restrictions would severely disrupt our operations and adversely affect our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future occurrence of force majeure events, natural disasters or outbreaks of contagious diseases.

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The significant amount of advertising and marketing expenses spent on enhancing our brand awareness may not be effective and may adversely affect our results of operations.

        We plan to enhance our brand recognition among our existing and target customers along with our expansion into new geographic areas. Our sales and marketing strategies are key to enhancing our brand awareness. In connection with our strategic expansion into new markets, we normally increase advertising of our brand through various advertising media platforms, which requires significant expenses before these newly opened treatment centers reach expected profit levels, thereby affecting our overall profitability. In 2016, 2017, 2018 and the six months ended June 30, 2019, our advertising and marketing expenses were RMB157.8 million, RMB227.5 million, RMB245.9 million (US$35.8 million) and RMB116.5 million (US$17.0 million), respectively. We expect the trend of increased advertising and marketing spending to continue as we spend on an increasingly diverse array of online and mobile search engines, marketing and social media platforms. If we do not adequately spend on such platforms, or effectively select or utilize the right platforms, we may not generate the desired result from our advertising spending. Moreover, it may take months or several years to implement our sales and marketing strategies and such time is hard to predict. As a result, we cannot guarantee that our marketing spending or the marketing strategies we have adopted or plan to adopt will have their anticipated effect or generate sustainable revenue and profit.

If we fail to maintain and further develop our direct sales force and partner networks, our business could suffer. Additionally, our third-party partners may not effectively promote our services or may engage in activities that could harm our reputation and sales of our products and services.

        We rely on our direct sales force and partner networks to generate sales, including referral arrangements with businesses in the beauty industry such as hairdressers. However, if we fail to maintain or develop our sales force and partner networks, or if any of our partners are ineffective in promoting our services or engage in activities that harm our reputation, it could have a material adverse effect on our ability to generate sales, which could have a material adverse effect on our business, financial condition and results of operations.

The shares of certain of our subsidiaries are subject to share charges under the terms of our convertible note.

        On December 8, 2016, we issued a convertible note to Peak Asia Investment Holdings V Limited with an aggregate principal amount of US$8.7 million. As a security interest on the convertible note, we charged all the shares of our subsidiaries, Dragon Jade Holdings Limited, Peng Oi Investment (Hong Kong) Holdings Limited and Peng Yida Business Consulting (Shenzhen) Co, Ltd., which directly and indirectly wholly own our operating companies. See "Our History and Corporate Structure." To the extent we default on the convertible note and the holder of the convertible note seeks to enforce claims against us, the holder of the convertible note could obtain title to these shares, which could dilute our ADR holders' indirect equity ownership in these operating subsidiaries and the interest of the ADR holders will be materially adversely affected.

We may grant employee share options and other share-based compensation awards in the future. Any additional grant of employee share options and other share-based compensation awards in the future may have a material adverse effect on our results of operations.

        We have adopted and may in the future adopt employee share option plans for the purpose of granting share-based compensation awards to our employees, officers, directors and other eligible persons to incentivize their performance and align their interests with ours. As of the date of this prospectus, options to purchase 5,814,952 ordinary shares are issued and outstanding under the Share Incentive Plan. For more information on these share incentive plans, see "Management—Share Incentive Plan." As a result of these grants and potential future grants, we expect to continue to incur significant share-based compensation expenses in the future. We are required to account for share-

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based compensation in accordance with IFRS 2—Share-based Payment, which generally requires a company to recognize, as an expense, the fair value of share options and other equity incentives to employees based on the fair value of equity awards on the date of the grant, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange for the equity award. If we grant options or other equity incentives in the future, we could incur significant compensation charges and our results of operations could be adversely affected. The expenses associated with share-based compensation will decrease our profitability, and the additional awards issued under share-based compensation plans will dilute the ownership interests of our shareholders, including holders of our ADSs. However, if we limit the scope of our share-based compensation plan, we may not be able to attract or retain key personnel who expect to be compensated by such share-based awards.

During the preparation of our consolidated financial statements included in this prospectus, a material weakness was identified in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

        During the preparation of our consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 included in this prospectus, a material weakness was identified in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

        The material weakness identified related to a lack of an effective control procedure to evaluate accounting of complex non-routine transactions. Following the identification of the material weakness, we have taken measures and plan to continue to take measures to remedy the material weakness. 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 weakness in our internal control over financial reporting, and we cannot conclude that it has been fully remedied. Our failure to correct the material weakness or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.

        Upon completion of this offering, we will become subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2019. 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.

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

Risks relating to our corporate structure

If the PRC government deems that the Contractual Arrangements do not comply with PRC laws and regulations, or if these laws and regulations or their interpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests received through the Contractual Arrangements.

        Since the Industry Catalog for Guiding Foreign Investment (Revision 2015), or the Foreign Investment Catalog 2015, became effective in April 2015, PRC law only allows foreign investment in PRC medical institutions through joint venture entities, and the foreign shareholding in these entities is limited to 70.0%, which percentage was stipulated in the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions, or the JV Interim Measures. We historically held more than 70.0% in five of our PRC subsidiaries after the effective date of the Foreign Investment Catalog 2015, namely Yantai Pengai Jiayan Aesthetic Medical Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., Chongqing Pengai Aesthetic Medical Hospital Co., Ltd., Changsha Pengai Aesthetic Medical Hospital Co., Ltd., and Shanghai Pengai Aesthetic Medical Clinic Co., Ltd. We decreased our shareholdings in these PRC subsidiaries to 70.0% by transferring excess equity interests to Dr. Zhou Pengwu and certain of our employees in 2018. In connection with such equity transfer to Dr. Zhou and Dr. Zhou Pengwu's shareholding, in Shenzhen Pengai Xiuqi Aesthetic Medical Hospital Co., Ltd., Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., and Jinan Pengai Cosmetic Surgery Hospital Co., Ltd., which he acquired from other shareholders in 2018 and 2019, we entered into a series of Contractual Arrangements with Dr. Zhou Pengwu and the Relevant Subsidiaries, among other parties, with respect to the Target Equity Interests. For details of the Contractual Arrangements, see "Our History and Corporate Structure—Contractual arrangements with respect to Target Equity Interests."

        In the opinion of Han Kun Law Offices, our PRC legal counsel, the execution, delivery and performance of each of the Contractual Arrangements by the parties thereto, and the consummation of the transactions contemplated thereunder, both currently and immediately after giving effect to this offering, do not and will not result in any violation of any explicit requirement under applicable PRC Laws currently in effect. However, we have been advised by our PRC legal counsel that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules, including those relating to foreign investment restrictions and the Foreign Investment Law (as defined below). There can be no assurance that the PRC regulatory authorities will take a view that is consistent with the opinion of our PRC legal counsel.

        It is uncertain whether any new PRC laws or regulations relating to Contractual Arrangements will be adopted, or if adopted, what they would provide. In particular, the Ministry of Commerce of the

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PRC, or MOFCOM published discussion drafts of a proposed Foreign Investment Law for public review and comments in January 2015. The Standing Committee of National People's Congress published another discussion draft of the Foreign Investment Law and its amendment in December 2018 and January 2019 respectively, and on March 15, 2019, the National People's Congress approved the Foreign Investment Law, which will come into effect on January 1, 2020. See "—Risks relating to doing business in the PRC—Uncertainties with respect to the PRC legal system and changes in laws, regulations and policies in China could materially and adversely affect us".

        If our ownership structure, Contractual Arrangements or businesses of the Relevant Subsidiaries are found to be in violation of any existing or future PRC laws or regulations, or if the Relevant Subsidiaries fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:

        Any of these actions could materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our failure to receive the economic benefits of the Target Equity Interests, we may not be able to consolidate the above in our consolidated financial statements in accordance with IFRS as issued by IASB.

The Contractual Arrangements may not be as effective in providing control as direct ownership and Relevant Subsidiaries or Dr. Zhou Pengwu may fail to perform their respective obligations under the Contractual Arrangements.

        We own and hold 70.0% of equity interests in the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively) and will rely on the Contractual Arrangements to control the Target Equity Interests in the Relevant Subsidiaries. The Contractual Arrangements may not be as effective as direct ownership in controlling over the Target Equity Interests. If the Relevant Subsidiaries and/or Dr. Zhou Pengwu fail to perform their respective obligations under the Contractual Arrangements, we may have to incur substantial costs and expend additional resources to enforce such Contractual Arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. These legal remedies may not be as effective as direct ownership in controlling the Target Equity Interests. All the agreements under the Contractual Arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these Contractual Arrangements will be resolved through arbitration in China. However, the legal framework and system in China are not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce Contractual Arrangements. Meanwhile, there are very few precedents and little formal guidance as to how Contractual Arrangements should be interpreted or enforced under PRC law. Significant uncertainties remain regarding the ultimate outcome of such arbitration. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in the PRC courts through arbitration award recognition proceedings, which would require additional expenses and cause a delay. If we fail to enforce Contractual Arrangements, or if we suffer significant delay or face other obstacles in the

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process of enforcing Contractual Arrangements, our control over the Target Equity Interests may be negatively affected.

Dr. Zhou Pengwu may have potential conflicts of interest with us, which may materially and adversely affect our control over the Target Equity Interests.

        We have control over the Relevant Subsidiaries by holding 70.0% of equity interest in each of the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively), and we control the Target Equity Interests directly held by Dr. Zhou Pengwu through the Contractual Arrangements. Dr. Zhou Pengwu may have potential conflicts of interest with us due to his role as director of our company and director of certain of the Relevant Subsidiaries, as what is in the best interests of the Relevant Subsidiaries may not be in the best interests of our company. Dr. Zhou Pengwu may breach or refuse to renew the existing Contractual Arrangements we have with him and the Relevant Subsidiaries, which would materially and adversely affect our control over the Target Equity Interests and our ability to receive economic benefits in connection with the Target Equity Interests. If Dr. Zhou Pengwu breaches Contractual Agreements or otherwise has disputes with us, we may have to initiate arbitration or other legal proceedings, which involve significant uncertainty. Such disputes and proceedings may significantly distract our management's attention, adversely affect our ability to control the Target Equity Interests and otherwise result in negative publicity and adversely affect the reputation of our treatment centers. There is no assurance that the outcome of any such dispute or proceeding will be in our favor.

Our Contractual Arrangements with the Relevant Subsidiaries may be subject to scrutiny by the PRC tax authorities and they may determine that we owe additional taxes, which could negatively affect our financial condition and the value of your investment.

        Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities, and additional taxes and interest may be imposed. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm's length principles. We may be subject to material and adverse tax consequences if the PRC tax authorities determine that the Contractual Arrangements between Shenzhen Pengai Investment, Dr. Zhou Pengwu and the Relevant Subsidiaries were not entered into on an arm's length basis and make special tax adjustments to the tax positions of Shenzhen Pengai Investment and Dr. Zhou Pengwu.

        In addition, if Shenzhen Pengai Investment exercises the option to purchase all or any part of the Target Equity Interests, the equity interest transfer price may be subject to review and tax adjustment by the relevant tax authority. Dr. Zhou Pengwu will be subject to personal income tax on the difference between the equity interest transfer price and the amount he has paid to obtain the Target Equity Interests. According to the exclusive option agreement under the Contractual Arrangements, Dr. Zhou Pengwu may pay the remaining amount to Shenzhen Pengai Investment, and the amount to be received by Shenzhen Pengai Investment may also be subject to enterprise income tax. Such tax amounts could be substantial, and our financial condition may be adversely affected as a result.

        Furthermore, the PRC tax authorities may impose any late payment fees and other penalties on the Relevant Subsidiaries for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if any of the Relevant Subsidiaries' tax liabilities increase or if late payment fees and other penalties are imposed.

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If the PRC government deems our PRC medical centers as "Sino-Foreign Equity Medical Institutions," we could be subject to certain liabilities for the failure to be compliance with the JV Interim Measures.

        Since the Foreign Investment Catalog 2015 became effective in April 2015, PRC law only allows foreign investment in PRC medical institutions through joint venture entities, and the foreign shareholding in these entities is limited to 70.0%, the percentage stipulated in the JV Interim Measures. We own and hold our equity interests in the PRC treatment centers indirectly through Pengai Investment. Since the JV Interim Measures do not address the equity percentage of a medical institution held indirectly by a non-PRC entity through its subsidiary in the PRC, we do not believe that we, both prior to and after we decreased our indirect shareholding in the Relevant Subsidiaries to 70.0%, are in violation of any explicit provision of the JV Interim Measures. However, we cannot assure you that the PRC regulatory authorities will not take a different view in the future. In the case that the PRC government authorities deem our PRC medical centers as a Sino-Foreign Equity Medical Institution, we may face liabilities for not meeting the requirements or administrative procedures for Sino-Foreign Equity Medical Institutions historically.

Risks relating to doing business in the PRC

The enforcement of the PRC Labor Contract Law, and other labor-related regulations in the PRC may increase our labor costs and limit our flexibility to use labor. Our failure to comply with PRC labor-related laws may expose us to penalties.

        On June 29, 2007, the Standing Committee of the National People's Congress of China enacted the PRC Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28, 2012. The PRC Labor Contract Law introduces specific provisions related to fixed-term employment contracts, part-time employment, probation, consultation with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining, which together represent enhanced enforcement of labor laws and regulations. According to the PRC Labor Contract Law, an employer is obliged to sign an unfixed-term labor contract with any employee who has worked for the employer for 10 consecutive years and will reach the statutory retirement age within ten years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must have an unfixed term, with certain exceptions. The employer must pay economic compensation to an employee where a labor contract is terminated or expires in accordance with the PRC Labor Contract Law, except for certain situations which are specifically regulated. As a result, our ability to terminate employees is significantly restricted. In addition, the government has issued various labor-related regulations to further protect the rights of employees. According to such laws and regulations, employees are entitled to annual leave ranging from five to 15 days and are able to be compensated for any untaken annual leave days in the amount of three times their daily salary, subject to certain exceptions. In the event that we decide to change our employment or labor practices, the PRC Labor Contract Law and its implementation rules may also limit our ability to effect those changes in a manner that we believe to be cost-effective. In addition, as the interpretation and implementation of these new regulations are still evolving, our employment practices may not be at all times deemed in compliance with the new regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our business and financial conditions may be adversely affected.

        Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of their employees up to a maximum amount specified by the local government from time to time. The requirement to maintain employee benefit plans has not been implemented consistently by local governments in China given the different levels of economic

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development in different locations. We did not pay, or were not able to pay, certain past social security and housing fund contributions in strict compliance with the relevant PRC regulations for and on behalf of our employees due to differences in local regulations and inconsistent implementation or interpretation by local authorities in the PRC and varying levels of acceptance of the housing fund system by our employees. We may be subject to fines and penalties for our failure to make payments in accordance with the applicable PRC laws and regulations. We may be required to make up the contributions for these plans as well as to pay late fees and fines. We have not made any accruals for the interest on underpayments and penalties that may be imposed by the relevant PRC government authorities in the financial statements. If we are subject to penalties, late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

The PRC's economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, our ability to operate our business, our liquidity and our access to capital.

        Most of our operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China's economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange allocation of resources, an evolving regulatory resources, and a lack of sufficient transparency in the regulatory process. While the PRC economy has experienced significant growth over the past 40 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are currently applicable to us. In addition, in the past the PRC government implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and results of operation. More generally, if the business environment in China deteriorates from the perspective of domestic or international investment, our business in China may also be adversely affected.

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

        We conduct our business primarily through our subsidiaries in China. PRC laws and regulations govern our operations in China. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China, which may not sufficiently cover all of the aspects of our economic activities in China. In addition, the implementation of laws and regulations may be in part based on government policies and internal rules that are subject to the interpretation and discretion of different government agencies (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability regarding our contractual, property and procedural rights could adversely affect our business and impede our ability to continue our operations. Furthermore, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties could materially and adversely affect our business and results of operations.

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        In January 2015, the Ministry of Commerce of the PRC, or the MOFCOM, published a discussion draft of the proposed Foreign Investment Law, or the 2015 Draft Foreign Investment Law. The National People's Congress published another discussion draft of the Foreign Investment Law and its amendment, or the 2018 Draft Foreign Investment Law, on December 2018 and January 2019 respectively. On March 15, 2019, the National People's Congress approved the Foreign Investment Law, which will come into effect on January 1, 2020, or the 2019 Foreign Investment Law. Among other things, the 2015 Draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company should be treated as a foreign invested enterprise, or FIE. Once an entity falls within the definition of FIE, it may be subject to foreign investment "restrictions" or "prohibitions" set forth in a "negative list" to be separately issued by the State Council. If an FIE proposes to conduct business in an industry subject to foreign investment "restrictions" in the "negative list," the FIE must go through a pre-approval process. The 2019 Foreign Investment Law have revised the definition of "foreign investment" and removed all references to the definitions of "actual control" or "variable interest entity structure" under the 2015 Draft Foreign Investment Law, and have further specified that all "foreign investments" shall be conducted pursuant to the negative list issued or approved to be issued by the State Council.

        Notwithstanding the above, the 2019 Foreign Investment Law stipulates that foreign investment includes foreign investors investing in China through any other methods under laws, administrative regulations or provisions prescribed by the State Council. There are possibilities that the Contractual Arrangements adopted by us will be deemed as a form of foreign investment, at which time it will be uncertain whether our investment in treatment centers in China and the Contractual Arrangements will be deemed to be in violation of the foreign investment regulations and how they will be handled. Therefore, there is no guarantee that the Contractual Arrangements, our business and operation will not be materially and adversely affected in the future due to the changes in PRC laws and regulations.

        In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

Changes in international trade policies and barriers to trade or the emergence of a trade war may dampen growth in China and other markets where we operate, and our business operations and results may be negatively impacted.

        The U.S. administration under President Donald J. Trump has advocated for greater restrictions on international trade in general, which significantly increases import tariffs on certain goods into the U.S., particularly from China. President Trump has also taken steps toward restricting trade in certain goods. For example, in 2018, the U.S. government announced three finalized tariffs that applied exclusively to products imported from China, totaling approximately US$250 billion, and in May 2019 the U.S. government increased the rate of certain import tariffs previously levied on Chinese products from 10% to 25%. In addition, in August 2019, President Trump threatened to impose additional tariffs on remaining Chinese products, totaling approximately US$300 billion, while the U.S. government declared China as a currency manipulator. In light of such events, trade tensions between China and the U.S. may intensify, and the U.S. government may adopt even more drastic measures in the future. China and other countries have retaliated, and may further retaliate, in response to new trade policies, treaties and tariffs implemented by the U.S. government. Such retaliatory measures may further escalate existing tensions between the countries or even lead to a trade war. Such escalation of trade tensions and the proposed tariffs may cause further depreciation of the RMB currency and a contraction of certain PRC industries. As such, there may be potential decrease in the spending power of our target customers, a negative impact on our operations or on our suppliers, and/or a contraction of the PRC aesthetic medical services market. We may have access to fewer business opportunities, and our operations may be negatively impacted. In addition, the current and future actions or escalations by either the United States or China that affect trade relations may cause global economic turmoil and

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potentially have a negative impact on our markets, our business, and/or our results of operations, and we cannot provide any assurances as to whether such actions will occur or the form that they may take.

We may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, or FCPA, Chinese anti-unfair competition laws and relevant tax laws, and any determination that we have violated these laws could have a material adverse effect on our business or our reputation.

        Following this offering, we will be subject to the FCPA. The FCPA generally prohibits us from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We are also subject to the anti-bribery laws of other jurisdictions, particularly China. As our business expands, the applicability of the FCPA and other anti-bribery laws to our operations will increase. Our procedures and controls to monitor anti-bribery compliance may fail to protect us from reckless or criminal acts committed by our employees or agents. If we, due to either our own deliberate or inadvertent acts or those of others, fail to comply with applicable anti-bribery laws, our reputation could be harmed and we could incur criminal or civil penalties, other sanctions and/or significant expenses, which could have a material adverse effect on our business, including our financial condition, results of operations, cash flows and prospects.

        Some of our PRC subsidiaries may pay commissions to or reimburse the expenses and costs incurred by individuals or entities if they recommend customers. Pursuant to the Anti-Unfair Competition Law of the PRC, amended and effective on April 23, 2019, commissions to suppliers are permitted if the parties properly reflect such commissions in their financial records. We are also required to withhold individual income tax in the case the referee is an individual. We have reflected such commissions on our financial records and withheld individual income tax based on our understanding. However, as we do not regard the reimbursement of expenses and costs as part of the commissions, reimbursement paid to the referee may not be reflected on our financial records or have individual income tax withheld. There is no assurance that the relevant PRC authorities will take a view consistent with our understanding. As of the date of this prospectus, we have not received any penalty decisions from any relevant PRC authorities. However, we cannot assure you that we will not be subject to penalty due to allegations of violating relevant commercial bribery or anti-unfair competition laws or tax laws in the future by the local authorities in the regions where we have operations or that we will be able to defend ourselves against such allegations. If we become subject to penalties or fines for violating relevant commercial bribery or anti-unfair competition laws and/or tax laws, our business and reputation may be adversely affected.

Restrictions on currency exchange may limit our ability to receive and use financing in foreign currencies, including proceeds from this offering, effectively.

        Our PRC subsidiaries' ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of transactions under the capital account, requires the approval of and/or registration with PRC government authorities, including the Chinese State Administration of Foreign Exchange, or SAFE. In particular, if we finance our PRC subsidiaries by means of foreign debt from us or other foreign lenders, the amount is not allowed to, among other things, exceed the statutory limits and such loans must be registered with the local counterpart of the SAFE. If we finance our PRC subsidiaries by means of additional capital contributions, the amount of these capital contributions must first be registered or filed by the relevant government authority.

        In the light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations, filings or obtain the necessary government approvals on timely basis, if at all, with respect to future loans or capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations, filings, or obtain such approval, our ability to use the proceeds we receive from this offering and to capitalize or otherwise fund our PRC

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operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC resident beneficial owners or our wholly foreign-owned subsidiaries in China to liability or penalties, limit our ability to inject capital into these subsidiaries, limit these subsidiaries' ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

        In October 2005, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues Concerning the Regulation of Foreign Exchange in Equity Finance and Return Investments by Domestic Residents through Offshore Special Purpose Vehicles, or SAFE Circular 75, that requires PRC citizens or residents 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 equity financing involving a roundtrip investment whereby the offshore entity acquires or controls onshore assets or equity interests held by the PRC citizens or residents.

        In July 2014, SAFE promulgated the Circular on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37 and overruled SAFE Circular 75 on the same date. SAFE Circular 37 requires PRC residents or entities to register with of the SAFE or its local branches in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents' legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a "special purpose vehicle." The term "control" under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE Circular 37 further requires amendment to the registration in the event of any changes with respect to the basic information of or any significant changes with respect to the special purpose vehicle. According to the Circular of Further Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct Investment released in February 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration under SAFE Circular 37 from June 2015. If the shareholders of the offshore holding company who are PRC residents do not complete their registration with the local SAFE branches, our wholly foreign-owned subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to our wholly foreign-owned subsidiaries. Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions.

        To our knowledge, besides Dr. Zhou and Ms. Ding, who have fulfilled the registration under SAFE Circular 75, and besides Shanghai Qiangshi Business Information Consultant Co., Ltd, who has fulfilled the procedure of overseas investment for the purpose of purchasing and holding our company's ordinary shares through Wise Sunny Limited, we are not aware of any PRC residents or entities who hold direct or indirect interests in our company and are subject to SAFE filing or registration requirements, and we will request PRC residents who we know hold direct or indirect interests in our company, if any, to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related rules. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, and we cannot provide any assurance that these PRC residents or entities will comply with our request to make or obtain any applicable registrations or comply with other requirements under SAFE Circular 37 or other related

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rules. The failure or inability of our PRC resident or entities shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us, and we may also be prohibited from injecting additional capital into our wholly foreign-owned subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.

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.

        PRC regulations and rules concerning mergers and acquisitions including the Rules on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, and other recently adopted regulations and rules with respect to 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 the 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 have or may have impact on the 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, according to the Anti-Monopoly Law of PRC promulgated on August 30, 2007 and the Provisions of the State Council on the Threshold of Filings for Undertaking Concentrations, or the Prior Notification Rules issued by the State Council in August 2008 and amended on September 2018, the concentration of business undertakings by way of mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the MOFCOM when the threshold is crossed and such concentration shall not be implemented without the clearance of prior notification. In addition, the Circular of the General Office of the State Council on the Establishment of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors that became effective in March 2011, and the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the Security Review Rules issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign investors may acquire the de facto control over domestic enterprises that raise "national security" concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review by structuring the transaction through, among other things, trusts, entrustment or contractual control arrangements. 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. We believe that our business is not in an industry that raises "national defense and security" or "national security" concerns. However, the 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. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

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Our business benefits from certain financial incentives and discretionary policies granted by local governments. Expiration of, or changes to, these incentives or policies would have an adverse effect on our results of operations.

        In the past, local governments in China granted certain financial incentives from time to time to our PRC subsidiaries as part of their efforts to encourage the development of local businesses. The Circular on the Relevant Tax Policies in Respect of Medical and Hygiene Institutions issued by the State Administration of Taxation, or the SAT and Ministry of Finance that became effective in July 2000 and amended in 2009, specifies that to support the development of profitable medical institution, the following preferential policy shall be applied to the income derived by profitable medical institution as is directly used to improve the medical and hygiene service conditions within three years after the date of obtaining practice registration: (1) the self-produced preparation for its own use shall be exempted from any value-added tax; and (2) the property, land, vehicles and vessels for the profitable medical institution's own use shall be exempted from real estate tax, land-use tax of cities and towns and operation tax of vehicle and ship. Upon the expiration of the term of three years for exempting from tax, the tax collection shall be restored. The Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax issued by the State Administration of Taxation, or the SAT and Ministry of Finance that became effective in May 2016, specifies that medical institutions which provide the medical services are exempted from value-added tax during the pilot scheme period for levying VAT in place of business tax. The timing, amount and criteria of government financial incentives are determined within the sole discretion of the local government authorities and cannot be predicted with certainty before we actually receive any financial incentive. We generally do not have the ability to influence local governments in making these decisions. Local governments may decide to reduce or eliminate incentives at any time. In addition, some of the government financial incentives are granted on a project basis and subject to the satisfaction of certain conditions, including compliance with the applicable financial incentive agreements and completion of the specific project therein. We cannot guarantee that we will satisfy all relevant conditions, and if we do so we may be deprived of the relevant incentives. We cannot assure you of the continued availability of the government incentives currently enjoyed by us. Any reduction or elimination of incentives would have an adverse effect on our results of operations.

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

        The PRC Enterprise Income Tax Law, or the EIT Law and the Regulation on the Implementation of the EIT Law, effective as of January 1, 2008, define the term "de facto management bodies" as "bodies that substantially carry out comprehensive management and control on the business operation, employees, accounts and assets of enterprises." Under the EIT Law, an enterprise incorporated outside of PRC whose "de facto management bodies" are located in PRC is considered a "resident enterprise" and will be subject to a uniform 25% enterprise income tax, or EIT, rate on its global income. On April 22, 2009, PRC's State Administration of Taxation, or the SAT, in the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or SAT Circular 82, further specified certain criteria for the determination of what constitutes "de facto management bodies." If all of these criteria are met, the relevant foreign enterprise may be regarded to have its "de facto management bodies" located in China and therefore be considered a PRC resident enterprise. These criteria include: (i) the enterprise's day-to-day operational management is primarily exercised in China; (ii) decisions relating to the enterprise's financial and human resource matters are made or subject to approval by organizations or personnel in China; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholders' meeting minutes are located or maintained in China; and (iv) 50% or more of voting board members or senior executives of the enterprise habitually reside in China. Although SAT Circular 82 only applies to foreign enterprises that are majority-owned and

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controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in SAT Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises.

        We believe that neither our company nor any of our subsidiaries outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term "de facto management body." If the PRC tax authorities determine that our company or any of its subsidiaries outside of China is a PRC resident enterprise for enterprise income tax purposes, that entity would be subject to a 25% enterprise income tax on its global income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. If such entity derives income other than dividends from its wholly-owned subsidiaries in China, a 25% EIT on its global income may increase our tax burden. Dividends paid to a PRC resident enterprise from its wholly-owned subsidiaries in China may be regarded as tax-exempt income if such dividends are deemed to be "dividends between qualified PRC resident enterprises" under the EIT Law and its implementation rules. However, we cannot assure you that such dividends will not be subject to PRC withholding tax, as the PRC tax authorities, which enforce the withholding tax, have not yet issued relevant guidance.

        In addition, if we are classified as a PRC resident enterprise for PRC tax purposes, we may be required to withhold tax at a rate of 10% from dividends we pay to our shareholders, including the holders of the ADSs, that are non-resident enterprises. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within China. Furthermore, gains derived by our non-PRC individual shareholders from the sale of our shares and ADSs may be subject to a 20% PRC withholding tax. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders (including the ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us), if such gains are deemed to be from PRC sources. These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or ordinary shares.

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

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

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

        In response to the persistent capital outflow in China and renminbi's depreciation against U.S. dollar in the fourth quarter of 2016, the PBOC and the SAFE have promulgated a series of capital control measure over recent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas investments, dividends payments and shareholder loan repayments.

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

We and our shareholders face uncertainties in the PRC with respect to indirect transfers of equity interests in PRC resident enterprises.

        The indirect transfer of equity interest in PRC resident enterprises by a non-PRC resident enterprise, or Indirect Transfer, is potentially subject to income tax in China at a rate of 10% on the gain if such transfer is considered as not having a commercial purpose and is carried out for tax avoidance. The SAT has issued several rules and notices to tighten the scrutiny over acquisition transactions in recent years. SAT Circular 7 sets out the scope of Indirect Transfers, which includes any changes in the shareholder's ownership of a foreign enterprise holding PRC assets directly or indirectly in the course of a group's overseas restructuring, and the factors to consider in determining whether an Indirect Transfer has a commercial purpose. An Indirect Transfer satisfying all the following criteria will be deemed to lack a bona fide commercial purpose and be taxable under PRC laws: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from the PRC taxable assets; (ii) at any time during the one-year period before the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly of investments in China, or 90% or more of its income is derived directly or indirectly from China; (iii) the functions performed and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC taxable assets are limited and are insufficient to prove their economic substance; and (iv) the non-PRC tax payable on the gain derived from the indirect transfer of the PRC taxable assets is lower than the potential PRC income tax on the direct transfer of such assets. Nevertheless, a non-resident enterprise's buying and selling shares or ADSs of the same listed foreign enterprise on the public market will fall under the safe harbor available under SAT Circular 7 and will not be subject to PRC tax pursuant to SAT Circular 7.

        On October 17, 2017, the State Administration of Taxation issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax at Source, or SAT Circular 37, which came into effect on December 1, 2017 and amended on June 15, 2018. SAT Circular 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax.

        However, as these rules and notices are relatively new and there is a lack of clear statutory interpretation, we face uncertainties regarding the reporting required for and impact on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or the sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. For example, the PRC tax authorities may consider that our current offering involves an indirect change of shareholding in our PRC subsidiaries and therefore it may be regarded as an Indirect Transfer under SAT Circular 7 or SAT Circular 37. Although we believe no SAT Circular 7 or SAT Circular 37 reporting is required on the

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basis that the current offering has commercial purposes and is not conducted for tax avoidance, the PRC tax authorities may pursue us to report under SAT Circular 7 or SAT Circular 37 and request that we and our PRC subsidiaries assist in the filing. As a result, we and our subsidiaries may be required to expend significant resources to provide assistance and comply with SAT Circular 7 or SAT Circular 37, or establish that we or our non-resident enterprises should not be subject to tax under SAT Circular 7 or SAT Circular 37, for the current offering or other transactions, which may have an adverse effect on our and their financial condition and day-to-day operations.

Any failure to comply with PRC regulations regarding the registration requirements for our employee equity incentive plans may subject us to fines and other legal or administrative sanctions, which could adversely affect our business, financial condition and results of operations.

        We have adopted a share incentive plan pursuant to which we may grant share options or other equity incentives to our directors, employees or consultants in the future. In February 2012, the 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. In accordance with the Stock Option Rules and relevant rules and regulations, PRC citizens or non-PRC citizens residing in China for a continuous period of not less than one year, who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas publicly listed company, and complete certain procedures. We and our employees who are PRC citizens or who reside in China for a continuous period of not less than one year and who participate in our stock incentive plan will be subject to such regulation. However, any failure to comply with the SAFE registration requirements may subject them to fines and legal sanctions and may limit the ability of our PRC subsidiaries to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors and employees under PRC law.

Proceedings brought by the SEC against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, could result in our inability to file future financial statements in compliance with the requirements of the Exchange Act.

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

        In December 2012, the SEC instituted administrative proceedings under Rule 102(e)(1)(iii) of the SEC's Rules of Practice against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC's rules and regulations thereunder by failing to provide to the SEC the firms' audit work papers with respect to certain PRC-based companies under the SEC's investigation. On January 22, 2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each of the firms had violated the SEC's rules of practice by failing to produce audit workpapers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. On February 12, 2014, the Big Four PRC-based accounting firms appealed the ALJ's initial decision to the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms were to receive matching Section 106 requests, and were required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they failed to meet specified criteria, the SEC retained authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure.

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        Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if the SEC will further challenge the four China-based accounting firms' compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions. If additional remedial measures are imposed on the Chinese affiliates of the "big four" accounting firms, including our independent registered public accounting firm, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

        In the event the Chinese affiliates of the "big four" become subject to additional legal challenges by the SEC or PCAOB, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in 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 PRC-based, United States-listed companies and the market price of the ADSs may be adversely affected.

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

Risks relating to the ADSs and this offering

We have broad discretion to determine how to use the net proceeds from this offering and may use them in ways that may not enhance our results of operations or the price of the ADSs.

        Although we currently intend to use the net proceeds from this offering in the manner described in the section titled "Use of proceeds" in this prospectus, our management will have broad discretion over the use of net proceeds from this offering, and we could spend the net proceeds from this offering in ways the holders of the ADSs may not agree with or that do not yield a favorable return. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering.

Our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will be able to control and exert significance influence over our company following this offering, and their interest may be different from or conflict with that of the holders of our ADSs.

        Our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will jointly control more than 50% of the voting power of our company after the offering. As more than 50% of the voting power for the election of directors is held by Dr. Zhou Pengwu and Ms. Ding Wenting following this offering, we are a "controlled company" as defined under Rule 5615(c)(1) of the Nasdaq Listing Rules. See "Principal Shareholders." In addition, one of our directors, Dr. Zhou Yitao, is the son of Dr. Zhou Pengwu. In addition to the elections of our directors, Dr. Zhou Pengwu and

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Ms. Ding Wenting are and will continue to be able to exert a significant degree of influence or actual control over other management and affairs and control matters requiring an approval from a majority of shareholders, including the merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction. Dr. Zhou Pengwu's and Ms. Ding Wenting's interest might not always be aligned with the interests of our other shareholders.

We will be a "controlled company" as defined under the Nasdaq Stock Market Rules. As a result, we may rely on exemptions from certain corporate governance requirements and holders of our ordinary shares or ADSs may not have the same protections generally available to stockholders of other companies listed on stock exchanges in the United States.

        Because more than 50% of the voting power for the election of our directors will be controlled by our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, following the completion of the offering, we will be a "controlled company" as defined under Rule 5615(c)(1) of the Nasdaq Listing Rules. As a "controlled company", we qualify for, and our board of directors intends to rely upon, exemptions from several of Nasdaq's corporate governance requirements, including requirements that:

        Accordingly, to the extent that we may choose to rely on one or more of these exemptions, our shareholders would not be afforded the same protections generally as shareholders of other Nasdaq-listed companies as long as Dr. Zhou Pengwu and Ms. Ding Wenting together control more than 50% of the voting power of our company and our board determines to rely upon one or more of such exemptions.

After the completion of the offering, we may be at an increased risk of securities class action litigation.

        Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we were to be sued, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our business, the price of the ADSs could decline.

        The trading market for the ADSs will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

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We are an "emerging growth company" as defined in the Securities Act, and we cannot be certain if the reduced disclosure requirements applicable to us as an "emerging growth company" will make the ADSs less attractive to investors.

        We are eligible to be treated as an "emerging growth company," as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, our shareholders may not have access to certain information that they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if our total annual gross revenue exceeds US$1.07 billion, if we issue more than US$1.0 billion in non-convertible debt securities during any three-year period, or if the market value of our ordinary shares held by non-affiliates exceeds US$700.0 million. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and our stock price may be more volatile.

If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

        Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. The presence of material weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we will need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management's attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control.

        If we are unable to conclude that we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price of the ADSs could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the ADSs may not be able to remain listed on the Nasdaq Global Market.

As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.

        As a foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by the Cayman Islands requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely

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basis when our officers, directors and principal shareholders purchase or sell our ordinary shares or ADSs.

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

        As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq listing rules that allow us to follow Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. When the ADSs are listed on the Nasdaq Global Market, we intend to continue to follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Market that listed companies must have a majority of independent directors. Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors. Nor does Cayman Islands law impose specific requirements on the establishment of a compensation committee or nominating committee or nominating process. To the extent we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

        As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer's most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.

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

        Auditors of companies that are registered with the SEC and traded publicly in the United States, including the independent registered public accounting firm of our company, must be registered with the PCAOB, and are subject to the laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with applicable professional standards. Because substantially all of our operations are within the PRC, a jurisdiction where the PCAOB is currently

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unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB.

        In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or CSRC, and the Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB in the United States or the CSRC or the Ministry of Finance in the PRC. The PCAOB continues to be in discussions with the CSRC and the Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

        On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. However, it remains unclear what further actions, if any, the SEC and PCAOB will take to address the problem.

        This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditor. 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.

We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs.

        We have never declared or paid any dividends on our ordinary shares. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ADSs at least in the near term, and the success of an investment in ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our investors purchased their ADSs.

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

        Prior to this offering, there has been no public market for our ordinary shares or ADSs. We have applied to have the ADSs listed on the Nasdaq Global Market. Our ordinary shares will not be listed on any other exchange, or quoted for trading on any over-the-counter trading system, in the United States.

        The initial public offering price for the ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for the ADSs after this initial public offering. We cannot assure you that an active trading market for the ADSs will develop or that the market price of the ADSs will not decline below the initial public offering price. If an active trading market for the ADSs does not develop after this offering, the market price and liquidity of the ADSs will be materially and adversely affected.

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The market price for the ADSs may be volatile which could result in substantial loss to you.

        The market price for the ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the following:

        In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. For example, since August 2008, multiple exchanges in the United States and other countries and regions, including China, experienced sharp declines in response to the growing credit market crisis and the recession in the United States. As recently as August 2015, the exchanges in China experienced a sharp decline. Prolonged global capital markets volatility may affect overall investor sentiment towards the ADSs, which would also negatively affect the trading prices for the ADSs.

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

        The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the renminbi to the U.S. dollar, and the renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the renminbi and U.S. dollar remained within a narrow band. In June 2010, China's People's Bank of China, or PBOC, announced that the PRC government would increase the flexibility of the exchange rate, and thereafter allowed the renminbi to appreciate slowly against the U.S. dollar within the narrow band fixed by the PBOC. However, more recently, on August 11, 12 and 13, 2015, the PBOC significantly devalued the renminbi by fixing its price against the U.S. dollar 1.9%, 1.6%, and 1.1% lower than the previous day's value, respectively. On October 1, 2016, the renminbi joined the International Monetary Fund's basket of currencies that make up the Special Drawing Right, or SDR, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the renminbi depreciated significantly while the U.S. dollar surged and China experienced persistent capital outflows. See "Exchange Rate Information." With the development of the foreign exchange market and progress towards interest rate liberalization and renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system. There is no guarantee that the renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces, PRC and U.S. government's policies and regulations may impact the exchange rate between the renminbi and the U.S. dollar in the future.

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        Significant revaluation of the renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars into renminbi for our operations, appreciation of the renminbi against the U.S. dollar would have an adverse effect on the renminbi amount we would receive from the conversion. Conversely, if we decide to convert our renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, appreciation or depreciation in the value of the renminbi relative to U.S. dollars would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business or results of operations.

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

Since the U.S. initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        If you purchase the ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of US$            per ADS, representing the difference between our net tangible book value per ADS as of June 30, 2019, after giving effect to this offering and an assumed initial public offering price of US$            per ADS. See "Dilution" for a more complete description of how the value of your investment in the ADSs will be diluted upon completion of this offering.

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

        Sales of the ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of the ADSs to decline. Upon the 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 Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale, subject to restrictions as applicable under Rule 144 under the Securities Act, upon the expiration of the 180-day lock-up arrangements entered into among us and the underwriters. There are certain exceptions to these lock-up arrangements. See "Underwriting" and "Shares Eligible for Future Sale" for additional information. 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 the ADSs.

Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.

        Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. As an ADS holder, you will only be able to exercise the voting rights carried by the underlying ordinary shares indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the ordinary shares underlying your ADSs in accordance with your

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

Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the ordinary shares underlying your ADSs if you do not vote at shareholders' meetings, which could adversely affect your interests.

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

        The effect of this discretionary proxy is that 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 will not be subject to this discretionary proxy.

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You may not receive distributions on the ADSs or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distribution available to you.

        Although we do not have any present plan to pay any dividends, the depositary of the 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 the ADSs, after deducting its fees and expenses and any applicable taxes and governmental charges. 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 whose offering would require registration under the Securities Act but are not so properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not reasonably practicable to distribute certain property. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under the U.S. securities laws any offering of ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

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

        We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of the ADSs or ordinary shares.

        Depending upon the value of the ADSs and ordinary shares and the nature and composition 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 assumptions as to our projections of the value of our outstanding ADSs and ordinary shares, our expected use of the proceeds from this offering and of the other cash that we will hold and generate in the ordinary course of our business throughout taxable year 2019, and the composition of our assets and income, we do not expect to be a PFIC for the taxable year ending December 31, 2019 or in the foreseeable future. Despite our expectation, there can be no assurance that we will not be a PFIC in the current taxable year or any future taxable year as PFIC status is a factual determination that must be tested each taxable year and will depend on the composition of our assets and income in each such taxable year. Our PFIC status for the current

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taxable year 2019 will not be determinable until the close of the taxable year ending December 31, 2019.

        We will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on a quarterly value of the assets during the taxable year) is attributable to assets that produce or are held for the production of passive income. In determining the average percentage value of our gross assets, the aggregate value of our assets will generally be deemed to be equal to our market capitalization (determined by the sum of the aggregate values of our outstanding equity) plus our liabilities. Accordingly, we could become a PFIC if our market capitalization were to decrease significantly while we hold substantial cash, cash equivalents or other assets that produce or are held for the production of passive income. In addition, because there are uncertainties in the application of the relevant PFIC rules, it is possible that the Internal Revenue Service, or IRS, may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets, which could result in a determination that we were a PFIC for the current or subsequent taxable years.

        If we were classified as a PFIC in any taxable year in which a U.S. Holder (as defined in "Taxation—United States Federal Income Taxation") holds the ADSs or ordinary shares, the U.S. Holder would generally be subject to additional taxes and interest charges on certain "excess" distributions we make and on the gain, if any, recognized on the disposition or deemed disposition of such U.S. Holder's ADS or ordinary shares, even if we are no longer a PFIC in the year of distribution or disposition. Moreover, such U.S. Holder would also be subject to special U.S. tax reporting requirements. For more information on the U.S. tax consequences to U.S. Holders that would result from our classification as a PFIC, see "Taxation—United States federal income taxation—Passive foreign investment company."

You may have difficulty enforcing judgments obtained against us.

        We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United States. Substantially all of our current operations are conducted in the PRC. In addition, some of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, some of whom currently reside in the United States and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

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

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

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.

        Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding. See "Description of American Depositary Shares" for more information.

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

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

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

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

        Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or

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beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

Techniques employed by short sellers may drive down the market price of the ADSs.

        Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller's interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

        Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

        It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations, and any investment in the ADSs could be greatly reduced or even rendered worthless.

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Special Notes Regarding Forward-looking Statements

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

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

        These factors should not be construed as exhaustive and should be read with the other cautionary statements in this prospectus.

        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. We operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business. 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—Challenges," "Risk Factors," "Management's Discussion and Analysis of Financial

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Condition and Results of Operations," "Business," "Regulation" and other sections in this prospectus. You should read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ADSs. In addition, the rapidly evolving nature of our 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.

        You should not rely upon forward-looking statements as predictions of future events. 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 the net proceeds to us from our issuance and sale of            ADSs in this offering will be approximately US$             million, or approximately US$             million if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. This estimate assumes an initial public offering price of US$            per ADS, the midpoint of the price range set forth on the 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$             million, 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.

        We intend to use the net proceeds of this offering primarily for the following purposes:

        We intend to use the remaining approximately 5% of the net proceeds we receive from this offering for general corporate purposes, including working capital. Overall, our management will have broad discretion in the application of our net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of these proceeds. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. We intend to invest the net proceeds in short- and intermediate-term interest bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government pending their use as described above.

        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 subsidiaries in China only through loans or capital contributions, subject to the requirements of government authorities and limits on the amount of capital contributions and loans. Subject to satisfaction of applicable government requirements, we may extend inter-company loans to our wholly foreign-owned subsidiary in China or make additional capital contributions to our wholly-foreign-owned subsidiary to fund its capital expenditures or working capital. For an increase of registered capital of our wholly foreign-owned subsidiary, we need to submit recordation of modification documents with the Ministry of Commerce of the PRC or its local counterparts within 30 days of such increase of registered capital. If we provide funding to our wholly foreign-owned subsidiary through loans, the total amount of such loans shall be subject to any statutory limits on the amount under PRC laws and regulations. Such loans must be registered with SAFE or its local branches. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk Factors—Risks related to doing business in China—Restrictions on currency exchange may limit our ability to receive and use financing in foreign currencies, including proceeds from this offering, effectively." Additionally, while there is no statutory limit on the amount of capital contribution that we can make to our PRC subsidiaries, loans provided to our PRC subsidiaries and consolidated variable interest entities in the PRC are subject to certain statutory limits. With respect to our PRC subsidiaries, the maximum amount of the loans that they can incur in aggregate from outside China as of June 30, 2019 is (i) approximately US$13 million under the

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total investment minus registered capital approach; or (ii) approximately US$132 million under the net asset approach. We intend to use all of the net proceeds from this offering for investment in our PRC operations by funding our PRC subsidiaries through capital contributions, the amounts of which are not subject to any statutory limit under PRC laws and regulations. We expect the net proceeds from this offering to be used in the PRC will be in the form of RMB and therefore, our PRC subsidiaries will need to convert any capital contributions or loans from U.S. dollars into Renminbi in accordance with applicable PRC laws and regulations. All of the net proceeds from this offering would be available for investment in our operations in the PRC, subject to the foregoing statutory limits on the amount of loans provided to our PRC subsidiaries in the PRC and the laws and regulations on the conversion from U.S. dollars into Renminbi.

        For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and capital resources."

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Dividend Policy

        We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or the ADSs representing our ordinary shares. 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 rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. Dividend distributions from our PRC subsidiary to us are subject to PRC taxes, including withholding tax. In addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits as determined in accordance with its articles of association and the accounting standards and regulations in China. For more details, see "Regulation" and "Risk Factors—Risks relating to doing business in the PRC."

        Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, subject to the provisions in our articles of association, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares represented by the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the ordinary shares represented by the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

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Capitalization

        The following table sets forth our capitalization as of June 30, 2019:

        The information below is illustrative only, and assumes an initial public offering price at the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our capitalization following this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing, including the amount by which actual offering expenses are higher or lower than estimated. The table should be read in conjunction with the information contained in "Use of Proceeds," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as our consolidated financial statements and the related notes included elsewhere in this prospectus.

 
  As of June 30, 2019  
 
  Actual   Pro forma   Pro forma as
adjusted(1)(2)
 
 
  RMB
  US$
  RMB
  US$
  RMB
  US$
 
 
  (in thousands, except for share and per share data)
 

Convertible redeemable preferred shares

    433,056     63,082                      

Exchangeable note liabilities

    169,552     24,698     169,552     24,698              

Convertible note(3)

    75,956     11,064     75,956     11,064              

Long-term Borrowings

    30,496     4,442     30,496     4,442              

Equity attributable to owners of our company:

                                     

Share capital

    306     45     408     60              

Treasury shares

    (41 )   (6 )   (41 )   (6 )            

Other reserves

    99,635     14,513     532,589     77,580              

Accumulated losses

    (297,240 )   (43,298 )   (297,240 )   (43,298 )            

Non-controlling interests

    43,833     6,385     43,833     6,385              

Total (deficit)/equity

    (153,507 )   (22,361 )   279,549     40,721              

Total capitalization

    555,553     80,925     555,553     80,925              

(1)
The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

(2)
A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS, the midpoint of the estimated price range shown on the cover page of this prospectus, would increase (decrease) the amount of share capital, total (deficit)/equity and total capitalization on a pro forma as adjusted basis by approximately US$             million, assuming

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(3)
For a discussion of the terms of the convertible note, including the conversion rights of the holders and our redemption rights, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness—Convertible note." The table above does not give effect to the conversion or redemption of the convertible note.

        Certain institutional investors have indicated an interest in purchasing up to an aggregate of US$             million in ADSs in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no ADSs in this offering to any of these investors, or any of these investors may determine to purchase more, less or no ADSs in this offering, including as a result of the pricing terms. The foregoing discussion and tables do not reflect any potential purchases by these investors to the extent any such investor is an existing investor.

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Dilution

        If you invest in our ADSs, your investment will be diluted for each ADS you purchase 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.

        As of June 30, 2019, our net tangible book value was a deficit of RMB324.7 million, or RMB6.8 per ordinary share and US$            per ADS. We calculate net tangible book value per ordinary shares by dividing our total consolidated assets, excluding our intangible assets, less our total consolidated liabilities by the number of our ordinary shares outstanding. Pro forma as adjusted net tangible book value per ordinary share is calculated after giving effect to the conversion of all our issued and outstanding series A preferred shares and the issuance of ordinary shares in the form of ADSs by us in this offering. Dilution is determined by subtracting pro forma as adjusted 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 per ordinary share.

        Without taking into account any other changes in such net tangible book value after June 30, 2019, other than to give effect to (i) the automatic re-designation of our issued and outstanding series A preferred shares into 15,600,000 ordinary shares on a one to one basis immediately prior to the completion of this offering; (ii) the automatic exchange of the exchangeable notes into 5,976,960 of our series B preferred shares, which will be re-designated as ordinary shares immediately prior to the completion of this offering, as detailed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors affecting our results of operations—Indebtedness—Exchangeable Notes"; and (iii) the issuance and sale of            ADSs in this offering at an assumed initial public offering price of US$            per ADS, the midpoint of the price range set forth on the front cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming the underwriters' option to purchase additional ADSs is not exercised, our pro forma as adjusted net tangible book value at June 30, 2019 would have been US$             million, or US$            per ordinary share, including ordinary shares underlying the outstanding ADSs, or US$            per ADS. This represents an immediate increase in net tangible book value of US$            per ordinary share and US$            per ADS, to existing shareholders and an immediate dilution in net tangible book value of US$            per

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ordinary share and US$            per ADS, to investors purchasing ADSs in this offering. The pro forma as adjusted information discussed above is illustrative only. The following table illustrates such dilution:

 
  Per ordinary
share
  Per ADS  

Assumed initial public offering price

  US$     US$    

Historical net tangible book value per ordinary share as of December 31, 2018

  US$                US$    

Pro forma net tangible book value after giving effect to the re-designation of all of our issued and outstanding preferred shares as of December 31, 2018

  US$           US$    

Pro forma as adjusted net tangible book value after giving effect to (i) the re-designation of all of our issued and outstanding preferred shares as of December 31, 2018; the automatic exchange of the exchangeable notes into our series B preferred shares, which will be re-designated as ordinary shares and (iii) this offering

  US$     US$    

Increase in net tangible book value attributable to (i) the re-designation of all of our issued and outstanding preferred shares as of December 31, 2018; the automatic exchange of the exchangeable notes into our series B preferred shares, which will be re-designated as ordinary shares and (iii) this offering

  US$           US$    

Amount of dilution to new investors in this offering

  US$     US$    

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS would increase (decrease) our pro forma as adjusted net tangible book value as described above by US$             million, the pro forma as adjusted net tangible book value per ordinary share and per ADS by US$            per ordinary share and by US$            per ADS, and the dilution per ordinary share and per ADS to new investors in this offering by US$            per ordinary share and US$            per ADS, respectively, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.

        The following table summarizes, on a pro forma as adjusted basis as of June 30, 2019, the differences between the existing shareholders as of June 30, 2019 and the new investors with respect to the number of ordinary shares (in the form of ADSs or ordinary shares) purchased from us in this offering, the total consideration paid to us and the average price per ordinary share and per ADS paid ADS at an assumed initial public offering price of US$            per ADS, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 
  Ordinary shares
purchased
  Total
consideration
   
   
 
 
  Average
price per
ordinary
share
   
 
 
  Average
price per
ADS
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

                   %                  %            

New investors

                   %                  %            

Total

          100.0 %         100.0 %            

        The above discussion and tables are based on 63,338,671 ordinary shares issued and outstanding as of June 30, 2019, as well as (i) the assumed exchange of exchangeable notes into 5,976,960 series B preferred shares, and (ii) the assumed re-designation of all of our outstanding preferred shares to an aggregate of 21,576,960 ordinary shares upon completion of this offering.

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        The above discussion and tables do not give effect to:

        The total number of ordinary shares does not include ordinary shares represented by the ADSs issuable upon the exercise of the option to purchase additional ADSs which we granted to the underwriters.

        Certain institutional investors have indicated an interest in purchasing up to an aggregate of US$             million in ADSs in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no ADSs in this offering to any of these investors, or any of these investors may determine to purchase more, less or no ADSs in this offering, including as a result of the pricing terms. The foregoing discussion and tables do not reflect any potential purchases by these investors to the extent any such investor is an existing investor.

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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:

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

        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 Puglisi & Associates as our agent to receive service of process with respect to any action brought against us in the U.S. District Court for the Southern District of New York in connection with this offering under the federal securities laws of the United States or the securities laws of any State in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York in connection with this offering under the securities laws of the State of New York.

        Conyers Dill & Pearman, 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:

        Conyers Dill & Pearman has informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States courts under the 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

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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. Conyers Dill & Pearman has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.

        In addition, Conyers Dill & Pearman has advised us that there is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the Cayman Islands will generally recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws of the Cayman Islands.

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

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

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Our History and Corporate Structure

        We commenced operations in 1997 through Shenzhen Pengcheng Clinic, which became Pengcheng Hospital in 2003. Since then, we have expanded our business operations through acquisitions and organic growth. In particular, we established our second flagship hospital, Shenzhen Pengai Hospital, in 2005.

        In May 2011, our company was incorporated in the Cayman Islands under the name of Pengai Hospital Management Corporation as our offshore holding company. Following certain name changes, our company changed its name to Aesthetic Medical International Holdings Group Limited in July 2018.

        Peng Oi Investment (Hong Kong) Holdings Limited (formerly known as Peng Cheng Investment (Hong Kong) Holdings Limited) was incorporated in Hong Kong in July 2004. In July 2011, we acquired the entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited from Dr. Zhou Pengwu and Ms. Ding Wenting.

        Dragon Jade Holdings Limited was incorporated in the BVI in January 2014. Later in 2014, we transferred to Dragon Jade Holdings Limited our entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited in exchange for Dragon Jade Holdings Limited to issue and allot one fully paid share of US$1.00 to our company. Upon completion of the share swap, Dragon Jade Holdings Limited became a direct wholly-owned subsidiary of our company.

        Peng Yida Business Consulting (Shenzhen) Co., Ltd. is a direct wholly-owned subsidiary of Peng Oi Investment (Hong Kong) Holdings Limited, which was established in the PRC in December 2010.

        Shenzhen Pengai Hospital Investment Management Co., Ltd. (formerly known as Shenzhen Pengcheng Hospital Investment Co., Ltd.), or Shenzhen Pengai Investment, is a direct wholly-owned subsidiary of Peng Yida Business Consulting (Shenzhen) Co., Ltd., which was established in the PRC in December 2004. Shenzhen Pengai Investment is the holding company of our operating subsidiaries in the PRC.

        We acquired the entire equity interest in Newa Medical Aesthetics Limited in October 2015 to further extend our footprint to Hong Kong.

        We incorporated Stargaze Wealth Limited in the BVI in April 2017 and Aesthetic Medical International Holdings (Singapore) Pte. Ltd., formerly known as China Aesthetic Healthcare Holding (Singapore) Pte. Ltd., in Singapore in May 2017 to invest in our Singapore medical center. As of the date of this prospectus, we owned 44.4% of equity interest in Singapore Mendis.

        In February 2019, we entered into an agreement for an investment in LZP Holding, Inc., or LZP, which owns and operates five plastic surgery centers in California under the name WAVE Plastic Surgery & Aesthetic Laser Centers. Under the terms of the agreement, we will invest US$5 million for a 20% equity stake in LZP consisting of US$4 million in cash for LZP's shares and a further US$1 million in promissory notes secured against LZP's shares, repayable either in shares or in cash. In addition, we have an option to acquire a further 20% equity stake under the same terms, subject to the completion of a re-financing of LZP. As of the date of this prospectus, the closing of the transaction is subject to certain conditions including the refinancing of certain of LZP's indebtedness.

        As of the date of this prospectus, we have a strategically established network, comprising 21 treatment centers including 19 wholly or majority owned centers. Our treatment centers spread across 15 cities in mainland China, Hong Kong and Singapore. All of our treatment centers are wholly or majority owned with the exception of Baotou Pengai Yueji Aesthetic Medical Clinic Co., Ltd., or Baotou Pengai and Mendis Aesthetics Pte. Ltd., or Singapore Mendis, formerly known as Mendis Singapore Pte. Ltd.,

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        The following diagram illustrates our shareholding structure after giving effect to the exchange of exchangeable notes and the corresponding conversion of preferred shares into ordinary shares immediately prior to the completion of this offering:

GRAPHIC


Notes:

(1)
For more information on their respective beneficial ownerships, see "Principal Shareholders."

(2)
The beneficial owners of China Concentric Capital Group Ltd. and SCI Aesthetic Holding Co., Ltd. are our independent third parties.

(3)
Represent shareholding on an as-converted basis.

        The following diagram illustrates our corporate structure immediately upon completion of this offering, assuming no exercise of the over-allotment option granted to the underwriters.

GRAPHIC


Notes:

(1)
As of the date of this prospectus, Yantai Pengai Jiayan Aesthetic Medical Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., Chongqing Pengai Aesthetic Medical Hospital Co., Ltd., Changsha Pengai Aesthetic Medical

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(2)
As of the date of this prospectus, except for the Target Equity Interests (as defined above) representing all of Dr. Zhou Pengwu's equity interests in the Relevant Subsidiaries which we consolidate through Contractual Arrangements as further described below, the remaining equity interest in our PRC operating subsidiaries was held by independent third parties and certain of our employees.

(3)
Haikou Pengai Aesthetic Medical Hospital Co., Ltd. was established before the effective date of the Foreign Investment Catalogue 2015 and thus, it is not subject to the 70% foreign shareholding restrictions.

Contractual arrangements with respect to Target Equity Interests

        Pursuant to the Foreign Investment Catalog 2015 which became effective in April 2015, foreign investors in PRC medical institutions can only conduct investment activities through joint ventures. The foreign shareholding in these entities is limited to 70.0% as stipulated in the JV Interim Measures since the effective date of the Foreign Investment Catalog 2015. We historically held more than 70.0% equity interest in certain of our PRC subsidiaries that are medical institutions which we acquired or established after the effective date of the Foreign Investment Catalog 2015. Due to such restriction, we had decreased our shareholding to no more than 70.0% in such PRC subsidiaries by transferring excessive equity interests to Dr. Zhou Pengwu and certain of our employees in 2018. In connection with such equity transfer and Dr. Zhou's shareholding in Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd, Jinan Pengai Cosmetic Surgery Hospital Co., Ltd., Shenzhen Pengai Xiuqi Aesthetic Medical Hospital Co., Ltd., Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. and Chongqing Pengai Aesthetic Medical Hospital Co., Ltd. which he subsequently acquired from other shareholders in 2018 and 2019, we entered into a series of Contractual Arrangements with Dr. Zhou Pengwu, Shenzhen Pengai Investment, the Relevant Subsidiaries and Ms. Ding Wenting in 2018 and 2019 with respect to the Target Equity Interests. These Contractual Arrangements enable us to (i) exercise control over the Target Equity Interests in the Relevant Subsidiaries; (ii) receive economic benefits from the Target Equity Interests in the Relevant Subsidiaries; and (iii) have an exclusive option to purchase all or part of the Target Equity Interests when and to the extent permitted by PRC laws.

        Our revenue generated from the Relevant Subsidiaries aggregately accounted for approximately 19.0% and 26.1% of our total revenue in 2017 and 2018, respectively. We do not rely on the Contractual Arrangements to exercise control over the Relevant Subsidiaries as we hold 70.0% equity interest in each of the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively) and consolidate the Target Equity Interests in each of the Relevant Subsidiaries held by Dr. Zhou Pengwu through the Contractual Arrangements. However, with respect to our control over the Target Equity Interests, the Contractual Arrangements may not be as effective as direct ownership. If the Relevant Subsidiaries and/or Dr. Zhou Pengwu fail to perform their respective obligations under the Contractual Arrangements, we may have to incur substantial costs and expend additional resources to enforce such Contractual Arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. See "Risk Factors—Risks relating to our corporate structure—The Contractual Arrangements may not be as effective in providing control as direct ownership and the Relevant Subsidiaries or Dr. Zhou Pengwu may fail to perform their respective obligations under the Contractual Arrangements."

        The following is a summary of the currently effective Contractual Arrangements with respect to the Target Equity Interests.

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Loan agreement

        Shenzhen Pengai Investment, as the lender, entered into certain loan agreements with Dr. Zhou Pengwu, as the borrower. Pursuant to each of these loan agreements, Shenzhen Pengai Investment agrees to extend a loan to Dr. Zhou Pengwu in an equivalent amount to the purchase price to be paid by Dr. Zhou Pengwu for acquiring the Target Equity Interests. Pursuant to each of these loan agreements, Dr. Zhou Pengwu shall repay the loan by transferring the current and future economic interest of the Target Equity Interests to Shenzhen Pengai Investment.

Economic interest transfer agreement

        Dr. Zhou Pengwu, Shenzhen Pengai Investment and each of the Relevant Subsidiaries entered into certain economic interest transfer agreements. Pursuant to each of these economic interest transfer agreements, the economic interest in relation to the Target Equity Interests currently held and subsequently acquired by Dr. Zhou Pengwu, including but not limited to (i) incomes arising from the disposal of the Target Equity Interests (including derivative equity interest of the Target Equity Interests) under any circumstance; (ii) dividends and bonus obtained on the basis of the Target Equity Interests (including derivative equity interest of the Target Equity Interests) under any circumstance; (iii) residual assets and other economic profits allocated after the liquidation of the Relevant Subsidiary, and (iv) any other cash income, property and economic benefit arising from the Target Equity Interests (including derivative equity interest of the Target Equity Interests), shall be transferred to Shenzhen Pengai Investment. Upon the execution of each economic interest transfer agreement, the repayment obligation of Dr. Zhou Pengwu under each loan agreement is deemed fully discharged.

Exclusive option agreement

        Dr. Zhou Pengwu, Shenzhen Pengai Investment and each of the Relevant Subsidiaries entered into certain exclusive option agreements. Pursuant to these exclusive option agreements, Dr. Zhou Pengwu irrevocably granted Shenzhen Pengai Investment an exclusive right to purchase, or have its designated person(s) to purchase, at its discretion, all or part of his equity interest in the Relevant Subsidiary, and the purchase price shall be the lowest price permitted by applicable PRC law. Each of Dr. Zhou Pengwu and the Relevant Subsidiary undertakes that, among others, without the prior written consent of Shenzhen Pengai Investment, he or it shall or shall cause the Relevant Subsidiary not to declare any dividends or distribute any residual profits, change or amend its articles of association, increase or decrease its registered capital, or change its structure of registered capital in other manners. In the event that Dr. Zhou Pengwu increases its capital injection into the Relevant Subsidiary, Dr. Zhou Pengwu undertakes and confirms that any additional equity so acquired shall be subject to the purchase option. Unless terminated by Shenzhen Pengai Investment at its sole discretion, the exclusive option agreement will remain effective until all equity interest in the Relevant Subsidiary held by Dr. Zhou Pengwu are transferred or assigned to Shenzhen Pengai Investment or its designated person(s).

Equity interest pledge agreement

        Dr. Zhou Pengwu as pledgor, Shenzhen Pengai Investment as pledgee, and each of the Relevant Subsidiaries entered into certain equity interest pledge agreements. Pursuant to these equity interest pledge agreements, Dr. Zhou Pengwu has pledged all of the Target Equity Interests in Relevant Subsidiaries and agreed to pledge all future equity interest in the Relevant Subsidiary acquired by him to Shenzhen Pengai Investment to guarantee the performance by Dr. Zhou Pengwu and the Relevant Subsidiary of their respective obligations under the loan agreement, the economic interest transfer agreement, the exclusive option agreement and the power of attorney. If the Relevant Subsidiary or Dr. Zhou Pengwu breaches any obligations under these agreements, Shenzhen Pengai Investment, as pledgee, will be entitled to dispose of the pledged equity and have priority to be compensated by the proceeds from the disposal of the pledged equity. Dr. Zhou Pengwu shall not permit the existence of

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any security interest or other encumbrance on the pledged equity interest or any portion thereof, without the prior written consent of Shenzhen Pengai Investment and the Relevant Subsidiary shall not assent to or assist in such actions. These equity interest pledge agreements will remain effective until Dr. Zhou Pengwu discharge all the obligations under the loan agreement, the economic interest transfer agreement, the exclusive option agreement and the power of attorney and the full payment of all direct, indirect and derivative losses and losses of anticipated profits, suffered by the pledgee, incurred as a result of any breach by Dr. Zhou Pengwu or the Relevant Subsidiary under these agreements or invalidity, revocation and termination of any of these agreements. As of the date of this prospectus, except for the equity pledges of part of the equity interest in Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd, Chongqing Pengai Aesthetic Medical Hospital Co., Ltd, Hangzhou Pengai Aesthetic Medical Hospital Co., Ltd and Jinan Pengai Cosmetic Surgery Hospital Co., Ltd. are in the process of registration with local PRC authorities, the equity pledges of other Target Equity Interests have been registered.

Power of attorney

        Pursuant to relevant power of attorney executed by Dr. Zhou Pengwu, he has irrevocably authorized Shenzhen Pengai Investment or its designated person(s) to exercise all of such shareholder's voting and other rights associated with the Target Equity Interests in each of the Relevant Subsidiaries, including but not limited to, the right to attend shareholder meetings, the right to vote, the right to sell, transfer, pledge or depose of the Target Equity Interests and the right to appoint legal representatives, directors and other management. The proxy agreement remains effective as long as Dr. Zhou Pengwu remains a shareholder of the Relevant Subsidiary, unless Pengai Investment has given contrary written instructions.

Spousal consent letter

        Pursuant to relevant spousal consent letters executed by Ms. Ding Wenting, she unconditionally and irrevocably agreed that the equity interest in each of the Relevant Subsidiaries held or to be held by Dr. Zhou Pengwu and registered or to be registered in his name will be disposed of pursuant to the loan agreement, the economic interest transfer agreement, the exclusive option agreement and the power of attorney. Ms. Ding Wenting agreed not to assert any rights over the equity interest in the Relevant Subsidiaries held or to be held by Dr. Zhou Pengwu. In addition, in the event that Ms. Ding Wenting obtains any equity interest in each of the Relevant Subsidiaries for any reason, she agreed to be bound by the Contractual Arrangements.

        In the opinion of Han Kun Law Offices, our PRC counsel, (i) the above Contractual Arrangements currently do not, and immediately after giving effect to this offering, will not result in any violation of the applicable PRC laws or regulations currently in effect; and (ii) the agreements under the Contractual Arrangements among Dr. Zhou Pengwu, Shenzhen Pengai Investment and Relevant Subsidiaries are governed by PRC laws or regulations, are valid and binding upon each party to such arrangements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations currently in effect, and immediately after giving effect to this offering, will not contravene applicable PRC laws or regulations currently in effect.

        There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. We have been further advised by our PRC legal counsel that if the PRC government finds that the above Contractual Arrangements or the agreements under the Contractual Arrangements that establish the structure for operating aesthetic medical services, do not comply with PRC government restrictions on foreign investment in such businesses, we could be subject to severe penalties including being prohibited from continuing operations. For a description of the risks related to these contractual arrangements and our corporate structure, please see "Risk Factors—Risks related to our corporate structure."

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Selected Consolidated Financial Data

        The following selected consolidated financial data for the years ended December 31, 2016, 2017, 2018 and for the six months ended June 30, 2018 and 2019, and the selected financial position data as of December 31, 2016, 2017, 2018 and as of June 30, 2018 and 2019, have been derived from our audited consolidated financial statements and unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus. Our consolidated financial statements appearing in this prospectus have been prepared and presented in accordance with IFRS as issued by IASB.

        Our historical results for any prior period are not necessarily indicative of results to be expected in any future period. The following information should be read in conjunction with "Risk Factors," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

Consolidated statement of comprehensive income data

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Revenue

    584,857     697,396     761,306     110,897     356,309     393,074     57,258  

Cost of sales and services rendered

    (217,339 )   (234,522 )   (258,567 )   (37,665 )   (125,883 )   (126,545 )   (18,433 )

Gross profit

    367,518     462,874     502,739     73,232     230,426     266,529     38,825  

Selling expenses

    (231,229 )   (300,362 )   (333,526 )   (48,584 )   (158,424 )   (165,286 )   (24,077 )

General and administrative expenses

    (121,763 )   (92,836 )   (115,485 )   (16,822 )   (52,419 )   (66,303 )   (9,658 )

Finance income

    309     868     322     47     161     213     31  

Finance costs

    (2,920 )   (6,581 )   (9,244 )   (1,347 )   (4,186 )   (12,250 )   (1,784 )

Other gains, net

    1,704     9,334     12,118     1,765     6,845     16,532     2,408  

Fair value gain/(loss) of the convertible redeemable preferred shares

    49,027     (85,461 )   (226,248 )   (32,957 )       43,056     6,272  

Fair value loss of convertible note

        (1,283 )   (9,152 )   (1,333 )       (5,358 )   (780 )

Fair value (loss)/gain of exchangeable note liabilities

        (38,307 )   (56,925 )   (8,292 )       16,193     2,359  

Fair value loss of derivative financial instrument

            (301 )   (44 )       (14 )   (2 )

Share of profits/(losses) of investments accounted for using the equity method

    1,594     (1,415 )   1,730     252     766     (1,368 )   (199 )

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Income tax expense

    (13,713 )   (19,260 )   (18,508 )   (2,696 )   (6,273 )   (11,780 )   (1,716 )

Profit/(loss) for the year/period

    50,527     (72,429 )   (252,480 )   (36,779 )   16,896     80,164     11,679  

Earnings per share for profit attributable to owners of the company (in RMB per share)

                                           

Basic

    1.23     (1.87 )   (6.22 )         0.39     1.89        

Diluted

    0.02     (1.87 )   (6.22 )         0.29     0.35        

Unaudited pro forma basic(1)

                (0.51 )               0.63        

Unaudited pro forma diluted(1)

                (0.51 )               0.35        

Shares used in profit/(loss) per share computation:

                                           

Basic

    41,000,000     41,000,000     41,060,255           41,000,000     41,798,219        

Diluted

    56,844,957     41,000,000     41,060,255           56,600,000     57,398,219        

Non-IFRS Financial Measure:

                                           

EBITDA(1)

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Adjusted EBITDA(1)

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

Note:

(1)
See note 10 to our audited consolidated financial statements and note 11 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus.

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Selected consolidated financial position data

 
  As of December 31,   As of June 30,  
 
  2017   2018   2019  
 
  RMB
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Cash and cash equivalents

    105,345     101,886     14,841     78,656     11,458  

Total current assets

    227,698     282,967     41,219     213,304     31,071  

Total non-current assets

    350,286     393,572     57,330     762,541     111,077  

Total assets

    577,984     676,539     98,549     975,845     142,148  

Total deficit

    (22,240 )   (249,356 )   (36,323 )   (153,507 )   (22,361 )

Total current liabilities

    133,466     171,292     24,951     240,670     35,058  

Total non-current liabilities

    466,758     754,603     109,921     888,682     129,451  

Total liabilities

    600,224     925,895     134,872     1,129,352     164,509  

Total equity and liabilities

    577,984     676,539     98,549     975,845     142,148  

Selected consolidated cash flow data

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Net cash generated from operating activities

    52,084     76,979     4,894     713     12,323     45,691     6,656  

Net cash used in investing activities

    (38,865 )   (69,195 )   (76,182 )   (11,097 )   (56,047 )   (72,823 )   (10,608 )

Net cash generated from/(used in) financing activities

    58,626     (28,187 )   66,741     9,722     18,734     3,991     581  

Net increase/(decrease) in cash and cash equivalents

    71,845     (20,403 )   (4,547 )   (662 )   (24,990 )   (23,141 )   (3,371 )

Cash and cash equivalents at beginning of the year/period

    60,465     129,626     106,006     15,442     105,345     101,886     14,938  

Cash and cash equivalents at the end of the year/period

    129,626     106,006     102,547     14,938     80,221     78,656     11,458  

(1)
EBITDA represents our profit/(loss) before income tax, adjusted to exclude finance costs and amortization and depreciation. Adjusted EBITDA represents EBITDA, adjusted to exclude one-time compensatory expense arising from the issuance of exchangeable note liabilities, fair value gain/(loss) of convertible redeemable preferred shares, fair value loss of convertible note, fair value loss of exchangeable note liabilities, fair value loss of derivative financial instruments, interest expense on convertible note, share-based compensation expense, and other one-off expenses.

EBITDA and Adjusted EBITDA are non IFRS financial measures. You should not consider EBITDA and Adjusted EBITDA as a substitute for or superior to net income prepared in accordance with IFRS. Furthermore, because non-IFRS measures are not determined in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measures presented by other companies. We encourage you to review our financial information in its entirety and not rely on a single financial measure. We present Adjusted EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by various items.

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  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Add: Finance Costs

    2,920     6,581     9,244     1,347     4,186     12,250     1,784  

Add: Amortization and depreciation

    38,729     29,111     32,140     4,682     16,305     40,155     5,849  

EBITDA

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Add: One-time compensatory expenses arising from the issuance of exchangeable note liabilities

    39,202                          

Add: Fair value (gains)/losses of convertible redeemable preferred shares

    (49,027 )   85,461     226,248     32,957         (43,056 )   (6,272 )

Add: Fair value (gains)/losses of convertible note

        1,283     9,152     1,333         5,358     780  

Add: Fair value (gains)/losses of exchangeable note

        38,307     56,925     8,292         (16,193 )   (2,359 )

Add: Fair value of (gains)/losses of derivative financial instrument

            301     44         14     2  

Add: Share-based compensation expense

                        6,281     915  

Add: Other one-off expenses(1)

        4,536     13,055     1,902     6,277     4,855     707  

Adjusted EBITDA

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

(1)
Other one-off expenses include (a) professional fees in relation to the Company's financing activities but are not capitalized; and (b) IT-related expenses paid to a related party pursuant to a service agreement, which has expired in June 2019.

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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 together with "Selected consolidated financial data," and our financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the "Risk factors" and "Cautionary note regarding forward-looking statements" sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The terms "our company", "we", "our" or "us" as used herein refer to Aesthetic Medical International Holdings Group Limited and its consolidated subsidiaries unless otherwise stated or indicated by context.

Overview

        We are a leading provider of aesthetic medical services in China. We provide aesthetic medical services through 21 treatment centers (including 19 wholly or majority owned centers) in China, Hong Kong and Singapore. According to Frost & Sullivan, we are the third-largest private aesthetic medical services provider in China based on revenue in 2018.

        We generate revenue primarily from the provision of the following services, which represent our core business:

        We also generate revenue from our non-core business of providing general healthcare and other aesthetic services. General healthcare comprises a range of medical services, such as internal medicine and traditional Chinese medicine, and other aesthetic medical treatments comprise aesthetic dentistry, aesthetic traditional Chinese medicine and hair loss treatments.

        We generate our revenue primarily from providing aesthetic treatments. In the six months ended June 30, 2019, we generated 40.1%, 51.2% and 8.7% of our revenue from providing surgical aesthetic treatments, non-surgical aesthetic treatments, and general healthcare and other aesthetic services, respectively, as compared with 41.2%, 49.1% and 9.7% for the year ended December 31, 2018. The majority of our revenue came from out-of-pocket payments by our customers, who pay in advance for treatments.

        Our business has grown significantly in recent years through the expansion of our active customer base as well as our extensive treatment center network. Our active customer base, defined as customers who have received at least one procedure in the relevant year, has increased from 108,291 in 2016 to 178,657 in 2018, and from 85,635 in the six months ended June 30, 2018 to 100,048 in the six months ended June 30, 2019. Repeat customer, defined as active customers who have previously received at least one procedure, accounted for 54.1% and 52.8% of our active customer base in 2018 and the six months ended June 30, 2019, respectively, compared to 53.0% in 2016.

        The number of non-surgical aesthetic treatments we performed on our customers increased by 34.3%, from 124,116 in the year ended December 31, 2016 to 166,629 in the year ended December 31, 2017 and further increased by 41.3% to 235,367 in the year ended December 31, 2018. The number of non-surgical aesthetic treatments increased by 30.6% to 147,436 in the six months ended June 30, 2019 from 112,900 in the six months ended June 30, 2018. We have also seen strong growth in our surgical

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aesthetic treatments segment, with the number of procedures increasing 23.9%, from 27,337 in the year ended December 31, 2016 to 33,857 in the year ended December 31, 2017 and by 87.7% to 63,553 in the year ended December 31, 2018. The number of our surgical treatments increased by 14.1% to 27,984 in the six months ended June 30, 2019 from 24,531 in the six months ended June 30, 2018. Our revenue grew 19.2% from RMB584.9 million for the year ended December 31, 2016 to RMB697.4 million for the year ended December 31, 2017. Our revenue also grew 9.2% from RMB697.4 million for the year ended December 31, 2017 to RMB761.3 million for the year ended December 31, 2018. Our revenue grew 10.3% from RMB356.3 million for the six months ended June 30, 2018 to RMB393.1 million (US$57.3 million) for the six months ended June 30, 2019. We reported a profit of RMB50.5 million, a loss of RMB72.4 million, a loss of RMB252.5 million (US$36.8 million) and a profit of RMB80.2 million (US$11.7 million) in 2016, 2017, 2018 and the six months ended June 30, 2019, respectively, and an adjusted EBITDA of RMB96.1 million, RMB112.1 million, RMB113.1 million (US$16.5 million), RMB49.9 million and RMB101.6 million (US$14.8 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. See "Prospectus Summary—Consolidated statement of comprehensive income data" for information related to non-IFRS financial measures.

Factors affecting our results of operations

        We believe our financial condition and operations are affected by the following factors:

Our expansion through organic growth and acquisitions

        From January 1, 2016 to December 31, 2018, organic growth and the acquisition of new treatment centers were important contributors to our revenue growth. During these three years, we opened three and acquired three treatment centers, which contributed RMB18.4 million and RMB106.9 million (US$15.6 million) additional revenue in 2017 and 2018, respectively. During the six months ended June 30, 2019, we acquired one treatment center and increased our shareholding in another treatment center from 30% to 60%, which contributed RMB24.1 million (US$3.5 million) additional revenue in the six months ended June 30, 2019. We plan to continue to grow and strengthen our market position in the aesthetic medical market through both organic growth and strategic acquisitions of and investments in treatment centers in fast-growing, populous regions of China as well as in selected global markets to further extend our footprint. We believe continued expansion through organic growth and acquisitions will be an important factor affecting our future operating results.

Number of procedures performed and average spending per procedure

        Revenue from surgical and non-surgical aesthetic medical services is affected by the number of such procedures performed and the average spending per procedure. The number of procedures is generally affected by market demand, the number of our treatment centers and our marketing efforts. Average spending per procedure is generally affected by our product and service mix, customers' consumption habits, our marketing strategies and our pricing policy. The provision of general healthcare services has recently been affected by the current medical regulatory environment in China, which is not favorable to privately owned general hospitals. As a result, we have decided to decrease the general healthcare services we provide. However, we will continue to focus on other aesthetic medical services, and expect to continue generating revenue from these services.

Cost of sales and services rendered

        Our ability to control costs and expenses affects our profitability. Salaries in the medical treatment industry in China have generally been increasing in recent years, and we offer competitive wages and other benefits to recruit and retain quality medical professionals. In addition, when we open or acquire new treatment centers we hire additional employees who may initially be less productive than existing

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employees. In addition, our cost of inventories and consumables is significant, comprising 36.6%, 39.1%, 41.4%, 42.7% and 38.1% of our cost of sales and services rendered in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. Cost of inventories and consumables is affected primarily by the number of procedures we perform, but the costs of materials we use in our services have been declining over time.

Successful marketing of our services

        In order to enhance public recognition of our brand and new treatment procedures or services in both existing and new markets, we advertise through various media platforms. We utilize various marketing tools, including advertising on traditional media and online channels, hosting promotional events and circulating promotional materials, to attract new customers, retain our existing customers and increase customers' spending. We have been seeking to optimize the marketing channels we use, and to deepen our cooperation with new media marketing channels such as So-Young, in order to improve the efficiency of our sales and marketing efforts. Our advertising and marketing expenses were RMB157.8 million, RMB227.5 million, RMB245.9 million (US$35.8 million), RMB112.2 million and RMB116.5 million (US$17.0 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively, accounting for 27.0%, 32.6%, 32.3%, 31.5% and 29.6% respectively, of our revenue for the same periods. The effectiveness of our marketing and promotional efforts will directly impact our revenue and profitability.

Ability to introduce and develop innovative aesthetic medical service techniques

        Success in the aesthetic medical market requires us to monitor closely market trends and customer preferences, introduce new treatment procedures and services, and enhance our existing services and procedures. We regularly consult with experts at well-respected foreign aesthetic medical institutions in the United States, Europe, South Korea and Japan to learn and adopt new aesthetic medical solutions, standards and technologies. Our ability to adopt the latest technologies and quickly and cost-effectively respond to our customers' ever changing preferences are key to our success.

Certain statements of comprehensive income line items

Revenue

        We have one reporting segment and generate revenue from three service offerings: (i) non-surgical aesthetic medical services, comprising minimally invasive aesthetic treatments and energy-based treatments, (ii) surgical aesthetic medical services, and (iii) general healthcare services and other aesthetic medical services. We regard our non-surgical and surgical aesthetic medical services as our core business that we believe will have the greatest impact on our future results of operations. The following table sets forth a breakdown of our revenue, as an amount and as a percentage of total revenue, by service offering for the periods indicated.

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
   
  RMB
   
  RMB
  US$
   
  RMB
   
  RMB
  US$
   
 
 
  (in thousands, except percentages)
 

Non-surgical aesthetic medical services

                                                                         

Minimally invasive aesthetic treatments

    171,160     29.3 %   189,668     27.2 %   199,119     29,005     26.2 %   91,279     25.6 %   102,456     14,925     26.1 %

Energy-based treatments

    126,887     21.7 %   141,760     20.3 %   174,229     25,379     22.9 %   78,608     22.1 %   98,684     14,375     25.1 %

Sub-total

    298,047     51.0 %   331,428     47.5 %   373,348     54,384     49.1 %   169,887     47.7 %   201,140     29,300     51.2 %

Surgical aesthetic medical services

    174,072     29.7 %   239,094     34.3 %   313,897     45,724     41.2 %   138,343     38.8 %   157,524     22,946     40.1 %

General healthcare services and other aesthetic medical services

    112,738     19.3 %   126,874     18.2 %   74,061     10,788     9.7 %   48,079     13.5 %   34,410     5,012     8.7 %

Total

    584,857     100.0 %   697,396     100.0 %   761,306     110,897     100.0 %   356,309     100.0 %   393,074     57,258     100.0 %

        Our revenue primarily depends on the number of procedures performed and average spending by our customers per procedure.

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        The following table sets forth certain of our operating data for the periods indicated.

 
  For the year ended
December 31,
  For the six months
ended June 30,
 
 
  2016   2017   2018   2018   2019  

Number of procedures performed

                               

Non-surgical aesthetic medical services

                               

Minimally invasive aesthetic treatments          

    41,983     59,463     77,111     37,015     44,206  

Energy-based treatments

    82,133     107,166     158,256     75,885     103,230  

Sub-total

    124,116     166,629     235,367     112,900     147,436  

Surgical aesthetic medical services

    27,337     33,857     63,553     24,531     27,984  

 

 
  For the year ended
December 31,
  For the six months
ended June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 

Average spending by our customers per procedure

                                           

Non-surgical aesthetic medical services

    2,401     1,989     1,586     231     1,505     1,364     199  

Minimally invasive aesthetic treatments

    4,077     3,190     2,582     376     2,466     2,318     338  

Energy-based treatments

    1,545     1,323     1,101     160     1,036     956     139  

Surgical aesthetic medical services

    6,368     7,062     4,939     719     5,640     5,629     820  

        From 2016 to 2018, and from the six months ended June 30, 2018 to the six months ended June 30, 2019, average spending by our customers per procedure had generally declined due to a number of factors. For example, as part of our marketing strategy, we encourage potential customers to try out our services by offering a small number of low-ASP treatments; in addition, in order to increase utilization of our equipment, we from time to time offer promotional events to attract new customers; and as such we may adjust our pricing policy in response to increased competition and the decrease in cost of materials, such as hyaluronic acid. These measures have negatively contributed to our overall average spending by customers per procedure, but we believe these measures are beneficial to our overall profitability and long-term growth.

Aesthetic medical services (surgical and non-surgical)

        Our aesthetic medical services consist of surgical and non-surgical aesthetic medical services. Our revenue from aesthetic medical services was RMB472.1 million, RMB570.5 million, RMB687.2 million (US$100.1 million), RMB308.2 million and RMB358.7 million (US$52.3 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. Revenue from aesthetic medical services as a percentage of our total revenue was 80.7%, 81.8%, 90.3%, 86.5% and 91.3% in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively.

Non-surgical aesthetic medical services

        Our non-surgical aesthetic medical services primarily consist of services such as injection treatments, energy-based treatments and thread lifts. Our revenue from non-surgical aesthetic medical services was RMB298.0 million, RMB331.4 million, RMB373.3 million (US$54.4 million), RMB169.9 million and RMB201.1 million (US$29.3 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. Revenue from non-surgical aesthetic medical services as a percentage of our total revenue was 51.0%, 47.5%, 49.1%, 47.7% and 51.2% in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively.

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Surgical aesthetic medical services

        Our surgical aesthetic medical services primarily consist of services such as eye surgery (for example, double eyelid surgery), nose surgery (rhinoplasty), breast augmentation and liposuction. Our revenue from surgical aesthetic medical services was RMB174.1 million, RMB239.1 million, RMB313.9 million (US$45.7 million), RMB138.3 million and RMB157.5 million (US$22.9 million), respectively, representing 29.8%, 34.3%, 41.2%, 38.8% and 40.1%, of our total revenue, respectively, in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019.

General healthcare services and other aesthetic medical services

        General healthcare services and other aesthetic medical services primarily consist of a range of medical services, such as internal medicine, urology, gynecology and obstetrics treatments, as well as various other aesthetic medical treatments, such as dentistry, dermatology and hair loss treatments. Our revenue from general healthcare services and other aesthetic medical services was RMB112.7 million, RMB126.9 million, RMB74.1 million (US$10.8 million), RMB48.1 million and RMB34.4 million (US$5.0 million), respectively, representing 19.3%, 18.2%, 9.7%, 13.5% and 8.7% of our total revenue, respectively, in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019.

Cost of sales and services rendered

        Our cost of sales and services rendered primarily consists of employee benefit expenses for our medical staff, cost of inventories and consumables, inspection fee paid to third party inspection service providers, as well as operating lease and rental expenses, depreciation and amortization, and utilities and office expenses incurred in relation to our medical staff.

        In 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, our cost of sales and services rendered amounted to RMB217.3 million, RMB234.5 million, RMB258.6 million (US$37.7 million), RMB125.9 million and RMB126.5 million (US$18.4 million), respectively, representing 37.2%, 33.6%, 34.0%, 35.3% and 32.2% of our total revenue, respectively.

Gross margin

        The table below sets forth a breakdown of our gross margin by service offering for the periods indicated.

 
  Gross margin
for the year
ended
December 31,
  Gross margin
for the six
months ended
June 30,
 
 
  2016   2017   2018   2018   2019  

Non-surgical aesthetic medical services

    66.2 %   66.2 %   67.4 %   64.5 %   72.4 %

Minimally invasive aesthetic treatments

    69.3 %   67.5 %   70.1 %   65.0 %   72.7 %

Energy-based treatments

    62.0 %   66.0 %   64.2 %   64.0 %   72.2 %

Surgical aesthetic medical services

    60.8 %   66.0 %   66.4 %   64.0 %   62.7 %

General healthcare services and other aesthetic medical services

    57.0 %   65.7 %   57.7 %   67.0 %   64.3 %

Overall

    62.8 %   66.4 %   66.0 %   64.7 %   67.8 %

Selling expenses

        Selling expenses primarily consist of advertising and marketing expenses, and the employee benefit expenses for our sales team. In 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, our selling expenses amounted to RMB231.2 million, RMB300.4 million, RMB333.5 million (US$48.6 million), RMB158.4 million and RMB165.3 million (US$24.1 million), respectively, representing 39.5%, 43.1%, 43.8%, 44.5% and 42.0% of our revenue in the corresponding period.

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General and administrative expenses

        General and administrative expenses primarily consist of employee benefit expenses for our management team, as well as the utility and office expense and rental expense incurred in relation to our administrative staff. In 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, our general and administrative expenses amounted to RMB121.8 million, RMB92.8 million, RMB115.5 million (US$16.8 million), RMB52.4 million and RMB66.3 million (US$9.7 million), respectively, representing 20.8%, 13.3%, 15.2%, 14.7% and 16.9% of our revenue in the corresponding period.

Fair value gain/(loss) of convertible redeemable preferred shares

        We designated our convertible redeemable preferred shares as financial liabilities at fair value through profit or loss. They were initially recognized at fair value. They are carried at fair value with changes in fair value recognized in profit or loss. We recorded a fair value gain of the convertible redeemable preferred shares of RMB49.0 million in 2016 and a fair value loss of the convertible redeemable preferred shares of RMB85.5 million and RMB226.2 million (US$32.9 million), in 2017 and 2018, respectively. We recorded a fair value gain of the convertible redeemable preferred shares of RMB43.1 million (US$6.3 million) in the six months ended June 30, 2019. Immediately prior to the completion of the offering, the convertible redeemable preferred shares will be automatically converted into our company's ordinary shares on a one-to-one basis (subject to adjustment for dilutive issuances) and their carrying amount will be transferred to our company's equity. Accordingly, there will be no fair value gain or loss of the convertible redeemable preferred shares for any period following completion of this offering.

Fair value loss of convertible note

        We designated our convertible note as a financial liability at fair value through profit or loss. It was initially recognized at fair value. It is carried at fair value with changes in fair value recognized in profit or loss. We recorded a fair value loss of the convertible note of RMB1.3 million, RMB9.2 million (US$1.3 million), RMB5.4 million (US$0.8 million) in 2017, 2018 and the six months ended June 30, 2019, respectively.

Fair value gain/(loss) of exchangeable note liabilities

        We designated our exchangeable note liabilities as financial liabilities at fair value through profit or loss. They were initially recognized at fair value. They are carried at fair value with changes in fair value recognized in profit or loss. We recorded a fair value loss of exchangeable note liabilities of RMB38.3 million and RMB56.9 million (US$8.3 million) in 2017 and 2018, respectively. We recorded a fair value gain of exchangeable note liabilities of RMB16.2 million (US$2.4 million) in the six months ended June 30, 2019.

Income tax expense

        Our income tax expense consists of current income taxation and deferred income tax credit or charge. Our subsidiaries established and operated in the PRC are subject to PRC corporate income tax at the rate of 25%.

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        The following table shows a breakdown of our income tax expense for the periods indicated.

 
  For the year ended on
December 31,
  For the six months
ended on June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Current income taxation:

                                           

—PRC corporate income tax

    20,251     18,713     21,073     3,070     9,797     16,318     2,377  

Deferred income tax (credit)/charge

    (6,538 )   547     (2,565 )   (374 )   (3,524 )   (4,538 )   (661 )

Total

    13,713     19,260     18,508     2,696     6,273     11,780     1,716  

        Our effective tax rates were 21.3%, (36.2%), (7.9)%, 27.1% and 12.8% for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively, which fluctuation was mainly due to the non-taxable fair value changes in relation to our convertible redeemable preferred shares, convertible note, exchangeable note liabilities, and derivative financial instruments, as well as certain other non-tax deductible expenses such as the interest expense on convertible note, share-based compensation expenses, and professional fees in relation to the Company's financing activities but are not capitalized.

        The income tax expense as a percentage of adjusted profit before income tax is presented as a supplemental disclosure because it is used by us to analyze the fluctuation of income tax expenses. However, adjusted profit before income tax is a non-IFRS financial measure and should not be considered in isolation or construed as an alternative to profit/(loss) before income tax as an indicator normally included in IFRS-based financial results. Adjusted profit before income tax presented in this prospectus may not be comparable to other similarly titled measurements of other companies. The following table provides a quantitative reconciliation of adjusted profit before income tax to its most directly comparable IFRS measurement, profit/(loss) before income tax:

 
  For the year ended December 31,   For the six months
ended June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Profit/(loss) before income tax for the year

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Adjusted for:

                                           

One-time compensatory expense arising from the issuance of exchangeable note liabilities

    39,202                          

Fair value (gain)/loss of convertible redeemable preferred shares

    (49,027 )   85,461     226,248     32,957         (43,056 )   (6,272 )

Fair value loss of convertible note

        1,283     9,152     1,333         5,358     780  

Fair value (gain)/loss of exchangeable note liabilities

        38,307     56,925     8,292         (16,193 )   (2,359 )

Fair value loss of derivative financial instrument

            301     44         14     2  

Interest expense on convertible note

        4,815     4,660     679     2,185     2,370     345  

Share-based compensation expense

                        6,281     915  

Professional fees

        2,036     8,055     1,173     3,777     2,355     343  

Adjusted profit before income tax for the year/period

    54,415     78,733     71,369     10,395     29,131     49,073     7,149  

Effective tax rate based on adjusted profit before income tax

    25.2 %   24.5 %   25.9 %         21.5 %   24.0 %      

        Our income tax expense as a percentage of the adjusted profit before income tax for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019 were 25.2%, 24.5%, 25.9%, 21.5% and 24.0%, respectively.

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Taxation

Cayman Islands

        We are an exempt company with limited liability incorporated in the Cayman Islands. Under Cayman Islands law, we are not subject to income or capital gains tax in the Cayman Islands.

Hong Kong

        Hong Kong profits tax rate is 16.5%. During the periods under review, we did not incur any profit tax as there was no estimated assessable profit that was subject to Hong Kong profit tax.

PRC

        Pursuant to the EIT Law, a uniform 25% EIT rate is generally applied to both foreign-invested except where a special preferential rate applies. Our PRC subsidiaries were subject to this uniform 25% EIT rate during the periods under review.

        Under the EIT Law, the profits of a foreign-invested enterprise that are distributed to its immediate holding company outside the PRC will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the PRC, such rate is reduced to 5% if a Hong Kong resident enterprise owns over 25% of a PRC company during the 12 consecutive months preceding the receipt of the dividends and is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements.

Results of operations

        The following table sets forth our results of operations for the periods indicated in absolute amounts and as a percentage of revenue.

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except percentages)
   
 

Revenue

    584,857     697,396     761,306     110,897     356,309     393,074     57,258  

Cost of sales and services rendered

    (217,339 )   (234,522 )   (258,567 )   (37,665 )   (125,883 )   (126,545 )   (18,433 )

Gross profit

    367,518     462,874     502,739     73,232     230,426     266,529     38,825  

Selling expenses

    (231,229 )   (300,362 )   (333,526 )   (48,584 )   (158,424 )   (165,286 )   (24,077 )

General and administrative expenses

    (121,763 )   (92,836 )   (115,485 )   (16,822 )   (52,419 )   (66,303 )   (9,658 )

Finance income

    309     868     322     47     161     213     31  

Finance costs

    (2,920 )   (6,581 )   (9,244 )   (1,347 )   (4,186 )   (12,250 )   (1,784 )

Other gains, net

    1,704     9,334     12,118     1,765     6,845     16,532     2,408  

Fair value gain/(loss) of the convertible redeemable preferred shares

    49,027     (85,461 )   (226,248 )   (32,957 )       43,056     6,272  

Fair value loss of convertible note

        (1,283 )   (9,152 )   (1,333 )       (5,358 )   (780 )

Fair value gain/(loss) of exchangeable note liabilities

        (38,307 )   (56,925 )   (8,292 )       16,193     2,359  

Fair value loss of derivative financial instrument

            (301 )   (44 )       (14 )   (2 )

Share of profits/(losses) of investments accounted for using the equity method

    1,594     (1,415 )   1,730     252     766     (1,368 )   (199 )

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Income tax expense

    (13,713 )   (19,260 )   (18,508 )   (2,696 )   (6,273 )   (11,780 )   (1,716 )

Profit/(loss) for the year/period

    50,527     (72,429 )   (252,480 )   (36,779 )   16,896     80,164     11,679  

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Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Revenue

        Our revenue increased by 10.3% to RMB393.1 million (US$57.3 million) in the six months ended June 30, 2019 from RMB356.3 million in the six months ended June 30, 2018. The increase reflects increases in revenue from each of our service offerings, as discussed below.

Non-surgical aesthetic medical services

        Our revenue from non-surgical aesthetic medical services increased by 18.4% to RMB201.1 million (US$29.3 million) in the six months ended June 30, 2019 from RMB169.9 million in the six months ended June 30, 2018, among which revenue from minimally invasive aesthetic medical services increased by 12.2% to RMB102.5 million (US$14.9 million) in the six months ended June 30, 2019 from RMB91.3 million in the six months ended June 30, 2018, and revenue from energy-based treatments increased by 25.5% to RMB98.7 million (US$14.4 million) in the six months ended June 30, 2019 from RMB78.6 million in the six months ended June 30, 2018.

        Such increase in revenue from non-surgical aesthetic medical services was primarily resulting from the increase in the number of procedures performed, which was in turn because we were able to attract more customers as our brand awareness continues to grow and as a result of our successful marketing efforts, particularly the increased use of new media channels. Such revenue increase was partially offset by a decrease in the average spending per procedure, which was in turn due to a combination of different factors, including the shift of our product and service mix, changes in customers' consumption habits, the marketing campaigns we organized, as well as changes in our pricing policies in response to the intensified competition.

Surgical aesthetic medical services

        Our revenue from surgical aesthetic medical services increased by 13.9% to RMB157.5 million (US$22.9 million) in the six months ended June 30, 2019 from RMB138.3 million in the six months ended June 30, 2018, primarily as a result of an increase in the number of procedures performed. The average spending per procedure for our surgical aesthetic medical services had remained largely stable in the six months ended June 30, 2018 and 2019.

General healthcare services and other aesthetic medical services

        Our revenue from general healthcare services and other aesthetic medical services decreased by 28.4% to RMB34.4 million (US$5.0 million) in the six months ended June 30, 2019 from RMB48.1 million in the six months ended June 30, 2018. Our revenue from general healthcare services and other aesthetic medical services decreased in absolute amount and as a percentage of our total revenue as a result of our strategic shift towards aesthetic medical services. We will continue to offer general healthcare services and other aesthetic medical services, and expect to continue earning revenue from these services.

Cost of sales and services rendered

        Our cost of sales and services rendered increased slightly by 0.5% to RMB126.5 million (US$18.4 million) in the six months ended June 30, 2019 from RMB125.9 million in the six months ended June 30, 2018. The relatively stable change is due to a number of factors, including (i) our fixed costs being spread over a substantial increase in non-surgical aesthetic medical procedures by 30.6% in the six months ended June 30, 2019 from the six months ended June 30, 2018, which largely outpaced the increase in surgical aesthetic medical procedures by 14.1% in the corresponding period, (ii) the economies of scale as our business expanded (iii) decrease in cost of materials, such as hyaluronic acid.

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Gross profit

        As a result of the foregoing, our gross profit increased by 15.7% to RMB266.5 million (US$38.8 million) in the six months ended June 30, 2019 from RMB230.4 million in the six months ended June 30, 2018. Our gross margin increased to 67.8% in the six months ended June 30, 2019 from 64.7% in the six months ended June 30, 2018 mainly due to the significant increase in the number of non-surgical procedures performed, which had a relatively higher margin.

Non-surgical aesthetic medical services

        Our gross margin for non-surgical aesthetic medical services increased to 72.4% in the six months ended June 30, 2019 from 64.5% in the six months ended June 30, 2018. Our gross margin for minimally invasive aesthetic treatments increased to 72.7% in the six months ended June 30, 2019 from 65.0% in the six months ended June 30, 2018 and our gross margin for energy-based treatments increased to 72.2% in the six months ended June 30, 2019 from 64.0% in the six months ended June 30, 2018. Our gross margin for non-surgical aesthetic medical services increased, primarily because we strategically changed our service mix and increased the provision of several non-surgical aesthetic medical services with higher margins, and because we benefited from the economies of scale as our business expanded.

Surgical aesthetic medical services

        Our gross margin for surgical aesthetic medical services decreased to 62.7% in the six months ended June 30, 2019 from 64.0% in the six months ended June 30, 2018, primarily because we slightly adjusted the pricing of our surgeries in response to the increasingly intensified competition, and because the employee benefit expenses for our medical staff, especially experienced surgeons, had increased.

General healthcare services and other aesthetic medical services

        Our gross margin for general healthcare services and other aesthetic medical services decreased to 64.3% in the six months ended June 30, 2019 from 67.0% in the six months ended June 30, 2018, primarily because since the second half of 2018, the Chinese government promulgated stricter regulations on privately-owned hospitals in the general healthcare industry, which limited the price we can charge for some of the general healthcare services we provide.

Selling expenses

        Our selling expenses increased by 4.3% to RMB165.3 million (US$24.1 million) in the six months ended June 30, 2019 from RMB158.4 million in the six months ended June 30, 2018, primarily as a result of our enhanced sales and marketing efforts. Selling expenses as a percentage of our total revenue decreased to 42.0% in the six months ended June 30, 2019 from 44.5% in the six months ended June 30, 2018, which was primarily resulting from the gradual shift of our major marketing channel from traditional channels to new media channels such as WeChat and So-Young, which we believe are more cost-effective.

General and administrative expenses

        Our general and administrative expenses increased by 26.5% to RMB66.3 million (US$9.7 million) in the six months ended June 30, 2019 from RMB52.4 million in the six months ended June 30, 2018, primarily because we incurred more share-based compensation expenses in the first half of 2019. General and administrative expenses as a percentage of our total revenue increased to 16.9% in the six months ended June 30, 2019 from 14.7% in the six months ended June 30, 2018.

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Finance costs

        Our finance costs increased by 192.6% to RMB12.3 million (US$1.8 million) in the six months ended June 30, 2019 from RMB4.2 million in the six months ended June 30, 2018, primarily due to the impact from application of IFRS 16 and the increase in our outstanding loans.

Other gains, net

        Our other gains, net in the six months ended June 30, 2019 and 2018 was RMB16.5 million and RMB6.8 million (US$1.0 million), respectively, mainly due to fair value gain on remeasurement of our existing 30% equity interest in Shenzhen Pengai Yueji upon the acquisition of an additional 30% equity interest in it.

Fair value gain of convertible redeemable preferred shares

        We recorded a fair value gain of convertible redeemable preferred shares of RMB43.1 million in the six months ended June 30, 2019 compared to nil in the six months ended June 30, 2018, mainly due to fair value measurement of convertible redeemable preferred shares in connection with our issuance of additional ordinary shares for the Share Incentive Plan in June 2019.

Income tax expense

        Our income tax expense increased by 87.8% to RMB11.8 million (US$1.7 million) in the six months ended June 30, 2019 from RMB6.3 million in the six months ended June 30, 2018.

Profit/(loss) for the period

        As a result of the foregoing, our net profit increased by 374.5% to RMB80.2 million in the six months ended June 30, 2019 from RMB16.9 million in the six months ended June 30, 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Revenue

        Our revenue increased by 9.2% to RMB761.3 million (US$110.9 million) in the year ended December 31, 2018 from RMB697.4 million in the year ended December 31, 2017. The increase reflects increases in revenue from each of our service offerings, as discussed below.

Aesthetic medical services (surgical and nonsurgical)

        Our revenue from aesthetic medical services, which include surgical aesthetic medical services and non-surgical aesthetic medical services, increased by 20.5% to RMB687.2 million (US$100.1 million) in the year ended December 31, 2018 from RMB570.5 million in the year ended December 31, 2017. This was because the total number of aesthetic medical services performed increased to 298,920 in the year ended December 31, 2018 from 200,486 in the year ended December 31, 2017, partially offset by an decrease in average spending per procedure to RMB2,299 (US$335) in the year ended December 31, 2018 from RMB2,846 in the year ended December 31, 2017.

Non-surgical aesthetic medical services

        Our revenue from non-surgical aesthetic medical services, which include minimally invasive aesthetic and energy-based treatments, increased by 12.6% to RMB373.3 million (US$54.4 million) in the year ended December 31, 2018 from RMB331.4 million in the year ended December 31, 2017.

        The total number of non-surgical aesthetic medical services performed increased to 235,367 in the year ended December 31, 2018 from 166,629 in the year ended December 31, 2017, while average

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spending per procedure decreased to RMB1,586 (US$231) in the year ended December 31, 2018 from RMB1,989 million in the year ended December 31, 2017. The increase in the number of procedures performed was due to marketing campaigns with promotional discounts, which resulted in additional procedures performed but a decrease in average spending per procedure.

        Revenue from minimally invasive aesthetic medical services increased by 5.0% to RMB199.1 million (US$29.0 million) in the year ended December 31, 2018 from RMB189.7 million in the year ended December 31, 2017 due to an increase in the number of procedures performed, partially offset by a decrease on the average spending per procedure.

        Revenue from energy-based treatments increased by 22.9% to RMB174.2 million (US$25.4 million) in the year ended December 31, 2018 from RMB141.8 million in the year ended December 31, 2017 due to an increase in the number of procedures performed, partially offset by a decrease on the average spending per procedure.

Surgical aesthetic medical services

        Our revenue from surgical aesthetic medical services increased by 31.3% to RMB313.9 million (US$45.7 million) in the year ended December 31, 2018 from RMB239.1 million in the year ended December 31, 2017, primarily as a result of an increase in the number of procedures performed, partially offset by a decrease in average spending per procedure.

General healthcare services and other aesthetic medical services

        Our revenue from general healthcare services and other aesthetic medical services decreased by 41.6% to RMB74.1 million (US$10.8 million) in the year ended December 31, 2018 from RMB126.9 million in the year ended December 31, 2017, primarily as a result of a decrease in average spending per procedure even though there was an increase in number of procedures performed.

        Our revenue from general healthcare services and other aesthetic medical services decreased as a percentage of our total revenue as a result of our strategic shift towards aesthetic medical services. We will continue to offer general healthcare services and other aesthetic medical services, and expect to continue earning revenue from these services.

Cost of sales and services rendered

        Our cost of sales and services rendered increased by 10.3% to RMB258.6 million (US$37.7 million) in the year ended December 31, 2018 from RMB234.5 million in the year ended December 31, 2017, consistent with our business growth.

Gross profit

        As a result of the foregoing, our gross profit increased by 8.6% to RMB502.7 million (US$73.2 million) in the year ended December 31, 2018 from RMB462.9 million in the year ended December 31, 2017. Our gross margin decreased to 66.0% in the year ended December 31, 2018 from 66.4% in the year ended December 31, 2017.

Non-surgical aesthetic medical services

        Our gross margin for non-surgical aesthetic medical services increased to 67.4% in the year ended December 31, 2018 from 66.2% in the year ended December 31, 2017. Our gross margin for minimally invasive aesthetic treatments increased to 70.1% in the year ended December 31, 2018 from 67.5% in the year ended December 31, 2017 and our gross margin for energy-based treatment decreased to 64.2% in the year ended December 31, 2018 from 66.0% in the year ended December 31, 2017.

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        Our gross margin for minimally invasive aesthetic treatments increased mainly as a result of a decrease in cost of inventories and consumables, offset by a decrease in the average spending per procedure. Gross margin for energy-based treatments decreased primarily as a result of a decline in average spending per procedure.

Surgical aesthetic medical services

        Our gross margin for surgical aesthetic medical services increased to 66.4% in the year ended December 31, 2018 from 66.0% in the year ended December 31, 2017. Our gross margin for surgical aesthetic medical services increased primarily as a result of increased number of surgeries performed by doctors and increased utilization of facilities.

General healthcare services and other aesthetic medical services

        Our gross margin for general healthcare services and other aesthetic medical services decreased to 57.7% in the year ended December 31, 2018 from 65.7% in the year ended December 31, 2017. The decrease in gross margin for general healthcare and other aesthetic services is primarily caused by the decrease in gross margin of general healthcare. Revenue for general healthcare declined to RMB23.0 million in 2018 from RMB48.2 million in 2017, and gross profit for general healthcare decreased to RMB10.7 million in 2018 from RMB28.6 million in 2017, leading to the decline of gross margin to 46.3% in 2018 from 59.3% in 2017. The main factor contributing to the decrease in the gross margin of general healthcare was the issuance by the Chinese government of stricter regulations on privately-owned hospitals in the general healthcare industry since the second half of 2018. General healthcare and other aesthetic services is not a core business for our company and we focus more on the growth of our core businesses, including surgical and non-surgical aesthetic medical services. Other aesthetic services also had a decrease in gross margin to 62.8% in 2018 from 69.6% in 2017.

Selling expenses

        Our selling expenses increased by 11% to RMB333.5 million (US$48.6 million) in the year ended December 31, 2018 from RMB300.4 million in the year ended December 31, 2017, primarily as a result of an increase in employee benefit expenses and advertising and marketing expenses as we increased our advertising and marketing activities. Selling expenses as a percentage of our total revenue increased to 43.8% in the year ended December 31, 2018 from 43.1% in the year ended December 31, 2017.

General and administrative expenses

        Our general and administrative expenses increased by 24.4% to RMB115.5 million (US$16.8 million) in the year ended December 31, 2018 from RMB92.8 million in the year ended December 31, 2017, primarily as a result of the increase in average salary level and the remuneration paid to several talented new hires with extensive industry experience in 2018, which resulted in a substantial increase in our total employee expenses. General and administrative expenses as a percentage of our total revenue increased from 13.3% in the year ended December 31, 2017 to 15.2% in the year ended December 31, 2018.

Other gains, net

        Our other gains, net in the year ended December 31, 2017 and 2018 was RMB9.3 million and RMB12.1 million (US$1.8 million), respectively, representing gains primarily generated from the sale of two of our subsidiaries. We recorded RMB3.1 million in rental income in the year ended December 31, 2017 and RMB1.4 million (US$0.2 million) in rental income in the year ended December 31, 2018.

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Fair value gain/(loss) of convertible redeemable preferred shares

        We recorded a fair value loss of convertible redeemable preferred shares of RMB226.2 million (US$32.9 million) in the year ended December 31, 2018 compared to a fair value loss of RMB85.5 million in the year ended December 31, 2017, primarily attributable to an increase in the valuation of our company.

Fair value loss of convertible note

        We recorded a fair value loss of convertible note of RMB9.2 million (US$1.3 million) in the year ended December 31, 2018 compared to a fair value loss of RMB1.3 million in the year ended December 31, 2017, due to an increase in the valuation of our company.

Fair value loss of exchangeable note liabilities

        We recorded a fair value loss of exchangeable note liabilities of RMB56.9 million (US$8.3 million) in the year ended December 31, 2018 compared to a fair value loss of RMB38.3 million in the year ended December 31, 2017, primarily attributable to an increase in the valuation of our company.

Finance costs

        Our finance costs increased by 40.5% to RMB9.2 million (US$1.3 million) in the year ended December 31, 2018 from RMB6.6 million in the year ended December 31, 2017, due to additional bank borrowings from two new banks.

Income tax expense

        Our income tax expense decreased by 3.9% to RMB18.5 million (US$2.7 million) in the year ended December 31, 2018 from RMB19.3 million in the year ended December 31, 2017, primarily due to lower profit before tax after adjusting back the impact of fair value change of convertible redeemable preferred shares, convertible note and exchangeable note liabilities, but partially offset by the increased effective income tax rate.

Profit/(loss) for the year

        As a result of the foregoing, we had a net loss of RMB252.5 million (US$36.8 million) in the year ended December 31, 2018 and a net loss of RMB72.4 million in the year ended December 31, 2017.

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

Revenue

        Our revenue increased by 19.2% to RMB697.4 million in 2017 from RMB584.9 million in 2016. The increase reflects increases in revenue from each of our service offerings, as discussed below.

Non-surgical aesthetic medical services

        Our revenue from non-surgical aesthetic medical services, which include minimally invasive aesthetic and energy-based treatments, increased by 11.2% to RMB331.4 million in 2017 from RMB298.0 million in 2016. Freckle removal treatments accounted for a significant portion of the increase, growing 90.2% from RMB9.7 million in 2016 to RMB18.5 million in 2017. In addition, other medical treatment fees that include nursing fees, examination fees and charges for anesthesia increased by 60.3% from RMB21.7 million in 2016 to RMB34.7 million in 2017.

        The total number of non-surgical aesthetic medical services performed increased to 166,629 in 2017 from 124,116 in 2016 while average spending per procedure decreased to RMB1,989 in 2017 from

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RMB2,401 in 2016. The increase in the number of procedures performed reflected (i) increased procedures at our existing treatment centers and (ii) procedures at treatment centers we established or acquired in 2017, such as those in Guangzhou Pengai, Baotou Pengai, Yinchuan Pengai, Chengdu Pengai and Shenzhen Pengai Xiuqi.

        Revenue from minimally invasive aesthetic medical services increased by 10.8% to RMB189.7 million in 2017 from RMB171.2 million in 2016 due to an increase in the number of minimally invasive treatments performed from 41,983 in 2016 to 59,463 in 2017, partially offset by a decrease in average spending per procedure to RMB3,190 in 2017 from RMB4,077 in 2016.

        Revenue from energy-based treatments increased by 11.7% to RMB141.8 million in 2017 from RMB126.9 million in 2016 due to an increase in the number of energy-based procedures performed from 82,133 in 2016 to 107,166 in 2017, partially offset by a decrease in average spending per procedure to RMB1,323 in 2017 from RMB1,545 in 2016.

Surgical aesthetic medical services

        Our revenue from surgical aesthetic medical services increased by 37.4% to RMB239.1 million in 2017 from RMB174.1 million in 2016, primarily as a result of an increase in the number of procedures performed to 33,857 in 2017 from 27,337 in 2016, as well as an increase in the average spending per procedure to RMB7,062 in 2017 from RMB6,368 in 2016. Fat grafting treatments accounted for a significant portion of the increase, growing 62.6% from RMB21.6 million in 2016 to RMB35.1 million in 2017. In addition, revenue from rhinoplasty increased by 61.8% from RMB37.1 million in 2016 to RMB60.0 million in 2017. Other surgical fees that include pharmaceutical and supply charges increased by 66.3% from RMB4.8 million in 2016 to RMB7.9 million in 2017.

General healthcare services and other aesthetic medical services

        Our revenue from general healthcare services and other aesthetic medical services increased by 12.5% to RMB126.9 million in 2017 from RMB112.7 million in 2016, primarily as a result of increased revenue contribution from other aesthetic medical services such as scar repair, hair loss treatments, and aesthetic dentistry.

        Our revenue from general healthcare services and other aesthetic medical services decreased as a percentage of our total revenue as a result of our strategic shift towards aesthetic medical services. We will continue to offer general healthcare services and other aesthetic medical services, and expect to continue earning revenue from these services.

Cost of sales and services rendered

        Our cost of sales and services rendered increased by 7.9% to RMB234.5 million in 2017 from RMB217.3 million in 2016, consistent with our business growth.

Gross profit

        As a result of the foregoing, our gross profit increased 25.9% from RMB367.5 million in 2016 to RMB462.9 million in 2017. Our gross margin increased to 66.4% in 2017 from 62.8% in 2016.

Non-surgical aesthetic medical services

        Our gross margin for non-surgical aesthetic medical services increased to 66.9% in 2017 from 66.2% in 2016. Our gross margin for minimally invasive aesthetic treatments decreased to 67.5% in 2017 from 69.3% in 2016, and our gross margin for energy-based treatment increased to 66.0% in 2017 from 62.0% in 2016.

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        Gross margin for minimally invasive aesthetic treatments decreased mainly as a result of the cost for injection materials remaining relatively stable, while spending per procedure decreased as a result of pricing competition. Gross margin for energy-based treatments increased primarily as a result of a substantial increase in the number of treatments performed over a fixed equipment costs, partially offset by the decrease in spending per procedure.

Surgical aesthetic medical services

        Our gross margin for surgical aesthetic medical services increased to 66.0% in 2017 from 60.8% in 2016. Our gross margin for surgical aesthetic medical services increased primarily as a result of an increase in average spending per procedure and a slight decline in associated costs.

General healthcare services and other aesthetic medical services

        Our gross margin for general healthcare services and other aesthetic medical services increased to 65.7% in 2017 from 57.0% in 2016. The increase in gross margin for general healthcare services and other aesthetic medical service was primarily due to the increased contribution of other aesthetic medical services with higher margin, such as hair loss treatments and aesthetic dentistry.

Selling expenses

        Our selling expenses increased by 29.9% to RMB300.4 million in 2017 from RMB 231.2 million in 2016, primarily as a result of an increase in (i) advertising and marketing expenses for web-based marketing channels of 39.1% from RMB133.5 million in 2016 to RMB185.8 million, and (ii) increased spending in offline promotion activities of 71.9% from RMB24.3 million in 2016 to RMB41.8 million in 2017. This increase was also a result of increased overall sales and promotion efforts of existing treatment centers, as well as the expansion of our business, including the opening of our three new centers in 2017. Selling expenses as a percentage of our total revenue increased from 39.5% in 2016 to 43.1% in 2017.

General and administrative expenses

        Our general and administrative expenses decreased by 23.8% to RMB92.8 million in 2017 from RMB121.8 million in 2016, primarily as a result of an one-time compensatory expense of RMB39.2 million arising from the issuance of exchangeable note liabilities in 2016, offsetting an increase in travel and professional fees incurred of 194.8% from RMB6.8 million in 2016 to RMB 20.1 million in 2017 as a result of our acquiring and establishing new treatment centers. Administrative expenses as a percentage of our total revenue decreased from 20.8% in 2016 to 13.3% in 2017.

Other gains, net

        Our other gains, net in 2016 and 2017 was RMB1.7 million and RMB9.3 million, respectively, representing gains primarily generated from rental and brand royalty fees. We recorded RMB1.6 million in rental income for 2016 and RMB3.1 million in rental income for 2017.

Fair value gain/(loss) of convertible redeemable preferred shares

        We recorded a fair value loss of convertible redeemable preferred shares of RMB85.5 million in 2017 compared to a gain of RMB49.0 million in 2016, primarily attributable to an increase in the underlying equity value of our company in 2017 as compared to 2016.

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Fair value loss of convertible note

        We recorded a fair value loss of convertible note of RMB1.3 million in 2017 compared to nil in 2016, due to interest accrued on our convertible note we issued in December 2016.

Fair value loss of exchangeable note liabilities

        We recorded a fair value loss of exchangeable note liabilities of RMB38.3 million in 2017 compared to nil in 2016, primarily attributable to the exchangeable note we issued in December 2016.

Finance costs

        Our finance costs increased by 125.4% to RMB6.6 million in 2017 from RMB2.9 million in 2016, due to the interest paid on the convertible note we issued in December 2016.

Income tax expense

        Our income tax expense increased by 40.5% to RMB19.3 million in 2017 from RMB13.7 million in 2016, primarily due to the increase in our taxable income, which excludes fair value gain/(loss) of the convertible redeemable preferred shares.

Profit/(loss) for the year

        As a result of the foregoing, we had a net profit of RMB50.5 million in 2016 and a net loss of RMB72.4 million in 2017.

Liquidity and capital resources

        Our principal sources of liquidity and capital resources have been, and are expected to continue to be, cash flow from operations, issuances of securities and bank borrowings. Our principal uses of cash have been, and we expect will continue to be, for working capital to support an increase in our scale of operations as well as investments for business expansion.

        We had net current liabilities of RMB27.4 million as at 30 June 2019. Our directors have considered our cash flow from future operations and available borrowing facilities to conclude that we have sufficient financial resources to meet our financial obligations as and when they fall due in the coming twelve months.

        Given our current credit status and the current availability of capital, we believe that we will not encounter any major difficulties in obtaining additional bank borrowings. We plan to fund our future business plans, capital expenditures and related expenses as described in this prospectus with cash from operations, the net proceeds from this offering and short-term and long-term indebtedness. We believe that the net proceeds of this offering, together with our existing cash and cash equivalents and cash flow from future operations, will be sufficient to fund our operations.

Selected Quarterly Results of Operations

        The following table sets forth our unaudited financial data for each of the six quarters from January 1, 2018 to June 30, 2019. 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 include all adjustments, consisting only of normal and recurring adjustments that our

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management considered necessary for a fair statement of our results of operation for the quarters presented.

 
  For the three months ended  
 
  March 31,
2018
  June 30,
2018
  September 30,
2018
  December 31,
2018
  March 31,
2019
  June 30,
2019
 
 
  RMB
  RMB
  RMB
  RMB
  RMB
  RMB
 
 
  (unaudited)
 
 
  (in thousands, except for percentages)
 

Revenue

    166,804     189,505     191,521     213,476     180,887     212,187  

Cost of sales and services rendered

    (62,402 )   (63,481 )   (69,889 )   (62,795 )   (59,674 )   (66,871 )

Gross profit

    104,402     126,024     121,632     150,681     121,213     145,316  

Gross margin

    63 %   67 %   64 %   71 %   67 %   68 %

Selling expenses

    (76,424 )   (82,000 )   (79,528 )   (95,574 )   (75,655 )   (89,631 )

General and administrative expenses

    (21,892 )   (30,527 )   (25,404 )   (37,662 )   (28,297 )   (38,006 )

Finance costs, net

    (2,099 )   (1,926 )   (2,458 )   (2,439 )   (5,941 )   (6,096 )

Other gains/(losses), net

    1,328     5,517     2,636     2,637     18,208     (1,676 )

Fair value (loss)/gain of convertible redeemable preferred shares

                (226,248 )       43,056  

Fair value loss of convertible note

                (9,152 )       (5,358 )

Fair value (loss)/gain of exchangeable note liabilities

                (56,925 )       16,193  

Fair value loss of derivative financial instrument

                (301 )       (14 )

Share of profits/(losses) of investments accounted for using the equity method

    383     383     482     482     (1,379 )   11  

Profit/(loss) before income tax

    5,698     17,471     17,360     (274,501 )   28,149     63,795  

Income tax expense

    (2,131 )   (4,142 )   (5,413 )   (6,822 )   (5,440 )   (6,340 )

Profit/(loss) for the period

    3,567     13,329     11,947     (281,323 )   22,709     57,455  

Quarterly Trends

        During the six quarters from January 1, 2018 to June 30, 2019, our revenue generally increased as our business expanded, with some fluctuation primarily due to seasonal factors.

        Our business is typically the slowest during the first quarter of each years, especially during the Chinese New Year, while we generally experience relatively higher customer visits in the second half of each year, especially during the summer time, the Chinese National Day holiday and Christmas.

        During the six quarters from January 1, 2018 to June 30, 2019, our cost of sales and services rendered, selling expenses and general and administrative expenses moved generally in line with our revenue, and we have been able to gradually increase our operating profit.

        We incurred significant fair value loss of convertible redeemable preferred shares, fair value loss of convertible note, and fair value loss of exchangeable note liabilities in the fourth quarter of 2018 due to completion of Series C financing in the quarter.

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

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Cash flows

        The following table presents selected cash flow data from our consolidated statements of cash flows for the periods indicated.

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Net cash generated from operating activities

    52,084     76,979     4,894     713     12,323     45,691     6,656  

Net cash used in investing activities

    (38,865 )   (69,195 )   (76,182 )   (11,097 )   (56,047 )   (72,823 )   (10,608 )

Net cash generated from/(used in) financing activities

    58,626     (28,187 )   66,741     9,722     18,734     3,991     581  

Net increase/(decrease) in cash and cash equivalents

    71,845     (20,403 )   (4,547 )   (662 )   (24,990 )   (23,141 )   (3,371 )

Cash and cash equivalents at beginning of the year/period

    60,465     129,626     106,006     15,442     105,345     101,886     14,938  

Cash and cash equivalents at the end of the year/period

    129,626     106,006     102,547     14,938     80,221     78,656     11,458  

Net cash generated from operating activities

        Our net cash generated from operating activities in the six months ended June 30, 2019 was RMB45.7 million (US$6.7 million), primarily reflecting our profit before income tax as adjusted for non-cash items, including finance costs of RMB12.3 million, depreciation of property, plant and equipment of RMB37.4 million, fair value gain of convertible redeemable preferred shares of RMB43.1 million, fair value gain of exchangeable note of RMB16.2 million, fair value loss of convertible note of RMB5.4 million, and fair value gain on remeasurement of the 30% equity interest in Shenzhen Pengai Yueji of RMB14.3 million.

        Our net cash generated from operating activities in 2018 was RMB4.9 million (US$0.7 million), primarily reflecting our loss before income tax as adjusted for non-cash items, including fair value loss of convertible redeemable preferred shares of RMB226.2 (US$32.9 million), fair value loss of exchangeable note liabilities of RMB56.9 (US$8.3 million), other receivables, deposits and prepayments of RMB35.8 million (US$5.2 million), balances with related parties of RMB25.1 million (US$3.7 million), and depreciation of property, plant and equipment of RMB27.3 (US$4.0 million).

        Our net cash generated from operating activities was RMB77.0 million in 2017. This was primarily attributable to loss before income tax as adjusted for non-cash items, including depreciation of property, plant and equipment of RMB25.5 million and fair value loss of convertible redeemable preferred shares of RMB85.4 million, and increases in inventories of RMB10.9 million, balance with related parties of RMB10.4 million and accruals, other payables and provisions of RMB13.0 million. The increases in inventories and accruals, other payables and provision were mainly a result of our business growth.

        Our net cash generated from operating activities was RMB52.1 million in 2016. This was primarily attributable to profit before income tax as adjusted for non-cash items, including depreciation of property, plant and equipment of RMB34.2 million as well as fair value gain of convertible redeemable preferred shares of RMB49.0 million, and an increase in other receivables, deposits and prepayments of RMB31.3 million.

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Net cash used in investing activities

        Our net cash used in investing activities in the six months ended June 30, 2019 was RMB72.8 million (US$10.6 million), primarily reflecting purchase of property, plant and equipment of RMB52.2 million and net cash used in business combinations of RMB28.9 million primarily for the acquisition of Shenzhen Pengai Yueji.

        Our net cash used in investing activities in 2018 was RMB76.2 million (US$11.1 million), primarily reflecting purchase of property, plant and equipment of RMB45.5 million for facility upgrades and purchase of investment properties of RMB31.5 million. Our net cash used in investing activities was RMB69.2 million in 2017, primarily reflecting purchase of property, plant and equipment of RMB47.5 million primarily for the facility upgrades and net cash used in business combinations of RMB29.6 million primarily for the acquisitions of Guangzhou Pengai and Chengdu Pengai, investment in associates of RMB18.3 million, partially offset by a decrease in pledged bank deposits of RMB20.0 million.

        Our net cash used in investing activities was RMB38.9 million in 2016, primarily reflecting purchases of property, plant and equipment of RMB38.6 million primarily for facility upgrades.

Net cash generated/(used in) from financing activities

        Our net cash generated from financing activities in the six months ended June 30, 2019 was RMB4.0 million (US$0.6 million), primarily reflecting proceeds from borrowing of RMB57.2 million, offset by repayment of borrowings of RMB24.2 million and repayment of lease liabilities of RMB22.8 million.

        Our net cash generated from financing activities in 2018 was RMB66.7 million (US$9.7 million), primarily reflecting proceeds from borrowings of RMB108.6 million and issuance of shares of RMB25.7 million, offset by repayment of borrowings of RMB57.9 million. Our net cash used in financing activities was RMB28.2 million in 2017, primarily reflecting our repayment of borrowings of RMB65.2 million, partially offset by net proceeds from borrowings of RMB46.0 million.

        Our net cash generated from financing activities was RMB58.6 million in 2016, primarily reflecting proceeds from convertible note of RMB60.2 million and proceeds from borrowings of RMB12.0 million, partially offset by acquisition of further interests in subsidiaries, including Chongqing, Shanghai and Changsha, from non-controlling shareholders of RMB14.4 million.

Indebtedness

Bank borrowings

        The principal banks on our borrowings are Hua Xia Bank and China Merchants Bank. In 2017, we obtained a loan of RMB26.0 million from Hua Xia Bank for a term of three years and the loan will mature in August 2020. As of June 30, 2019, the principal amount of the loan of RMB22.0 million was outstanding. In 2017, we obtained a revolving credit facility of RMB100 million from China Merchants Bank. The credit facility is valid from August 2017 to August 2019. As of June 30, 2019, the outstanding balance of the amount drawn under the facility was RMB82.6 million (US$12.0 million).

        The loan and credit facility are guaranteed by our subsidiary, Dr. Zhou Pengwu, Ms. Ding Wenting and a related party controlled by Dr. Zhou Pengwu, and secured by some of their properties and/or our properties. The effective interest rate on these bank borrowings was 4.47% in 2016, 6.33% in 2017, 6.67% in 2018 and 6.05% for the six months ended June 30, 2019. Neither of these borrowings have any financial covenant requirements.

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Convertible note

        On December 8, 2016, we issued a convertible note to Peak Asia Investment Holdings V Limited with an aggregate principal amount of US$8.7 million. The convertible note is convertible into our series B redeemable preferred shares at the conversion price of US$2.3292, subject to certain anti-dilution adjustments, at the option of the holder upon occurrence of (a) the liquidation, dissolution or winding up of our company; (b) an acquisition of our company in which in excess of 50% of our company's voting power outstanding before such transaction is transferred; (c) a sale or other disposition of all or substantially all of the assets of our company and its subsidiaries or the exclusive licensing of substantially all of the intellectual properties of our company and its subsidiaries or (d) an initial public offering of our company's shares on an internationally recognized stock exchange. We refer to each of the foregoing as an Exit Event.

        Upon or after the first anniversary but prior to the fourth anniversary of the issuance of the convertible note, the convertible note is redeemable by us at a redemption price equal to 100% of the issue price plus an amount accruing at an internal rate of return at 15% per annum, compounding annually beginning on the date of the issuance of such convertible note and to the redemption price payment date.

        At any time after the earlier of (i) an Exit Event and (ii) the fourth anniversary of the issuance of the convertible note, the convertible note holder has a right to require us to redeem, and we also have the right to redeem, the convertible note in whole and not in part, in each case, at the redemption price equals 100% of the issue price plus an amount accruing at an internal rate of return at 15% per annum, compounding annually, beginning on the date of issuance of such convertible note and to the redemption price payment date.

        We intend to redeem the convertible note in whole with the proceeds from this offering.

Exchangeable notes

        On December 8, 2016, Seefar Global Holdings Limited, Jubilee Set Investments Limited and Pengai Hospital Management Corporation, or the exchangeable notes issuers, issued exchangeable notes to Peak Asia Investment Holdings V Limited with an aggregate principal amount of US$13.9 million. The exchangeable notes will expire on the fourth anniversary of the date of the notes. The exchangeable notes holder has the right to require the exchange note issuers to exchange the exchangeable notes in whole but not in part for our series B redeemable preferred shares at the exchange price of US$2.3292, subject to certain anti-dilution adjustments.

        On September 30, 2019, each of the three exchangeable notes issuers entered into a letter agreement with the exchangeable notes holder, pursuant to which the exchangeable notes holder agreed to exchange the exchangeable notes for our series B preferred shares, conditional upon and immediately prior to the closing of this offering.

        Upon such exchange, the exchangeable notes will be exchanged into such number of our series B preferred shares as is equal to the quotient of the outstanding principal amount of the exchangeable notes divided by the then applicable exchange price, and the corresponding number of ordinary shares held by the exchangeable notes issuers will be cancelled.

Capital expenditures

        Our capital expenditure in the six months ended June 30, 2019 was RMB52.2 million (US$7.6 million), which was attributable to purchase of property, plant and equipment, which mainly consists of leasehold improvements for our treatment centers, including RMB14.5 million for Shenzhen Pengai Yueji and Shenzhen Pengai Yuexin, RMB12.3 million for Pengcheng Hospital, RMB13.7 million for Haikou Pengai, and RMB1.6 million for Ninghai Pengai, addition of machinery and equipment

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including RMB1.9 million for Pengcheng Hospital, RMB1.2 million for Yantai Pengai Jiayan, and RMB1.5 million for Hong Kong Newa.

        In 2018, our capital expenditure was RMB77.7 million (US$11.3 million). Our capital expenditure in 2018 was attributable to purchase of property, plant and equipment, investment properties and intangible assets, which mainly consists of leasehold improvements for our newly opened or acquired centers, including RMB18.1 million in Xiuqi, RMB14.9 million in Yantai Jiayan, RMB5.6 million in Guangzhou, and leasehold improvements of RMB3.5 million for our existing center in Pengcheng, and the addition of our investment properties in Huizhou for RMB31.5 million. In 2017, our capital expenditure was RMB77.1 million. Our capital expenditure in 2017 was attributable to our acquisition of treatment centers in Guangzhou and Chengdu, for RMB12.0 million and RMB17.6 million, respectively. The majority of the remaining capital expenditure went to improve our treatment centers, primarily for refurbishment, with the remainder used to acquire medical treatment and office equipment.

        In 2016, our capital expenditure was RMB38.6 million, the majority of which was used to improve our treatment centers including Chongqing Pengai, Shenzhen Pengai and Pengcheng Hospital. The rest was used for acquiring treatment and office equipment.

        We intend to fund our future capital expenditures with our existing cash balances and proceeds from this offering. We will continue to make capital expenditures to meet the expected growth of our business.

Contractual obligations

        The following table sets forth our contractual obligations as of June 30, 2019. Amounts we pay in future periods may vary from those reflected in the table.

 
  Total   Less than 1 year   1 to 3 years   3 to 5 years   More than 5 years  
 
  (RMB in thousands)
 

Operating lease obligations(1)

    252,861     49,765     77,378     69,700     56,018  

Exchangeable note liabilities

    139,889         139,889          

Convertible note

    92,491     4,777     87,714          

Borrowings

    141,453     110,254     31,199          

Total

    626,694     164,796     336,180     69,700     56,018  

Note:

(1)
We lease premises for aesthetic healthcare services and offices under non-cancellable operating agreements. The lease terms are between 3 and 9 years, and majority of lease agreements are renewable at the end of the lease period at market rate.

Off-balance sheet arrangements

        We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any unconsolidated 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.

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Quantitative and qualitative disclosures about market risk

        In the normal course of business, we are exposed to various types of financial risks as described below.

Foreign exchange risk

        Substantially all of our transactions are denominated in renminbi. As a result, we do not believe we are exposed to significant foreign exchange rate risks. However, as the proceeds of the offering will be denominated in U.S. dollars, any appreciation of the renminbi against the U.S. dollar will reduce the amount of proceeds we receive in terms of renminbi. On the other hand, a depreciation of the renminbi would adversely affect the value, translated or converted into U.S. dollars, of our net assets, earnings and any dividends we declare. We do not engage in hedging activities to manage such exchange rate risk.

        With all other variables held constant, if the average exchange rate of RMB against US$ had strengthened or weakened by 5%, our post-tax results would increase or decrease by RMB2.5 million, RMB27.9 million, RMB32.8 million (US$4.8 million) and RMB22.5 million (US$3.3 million) in 2016, 2017, 2018 and the six months ended June 30, 2019, respectively.

Credit risk

        We have no significant concentrations of credit risk. The carrying amounts of pledged bank deposits, cash at banks, trade receivables, deposits and other receivables and amounts due from related companies included in the consolidated statements of financial position represent our maximum exposure to credit risk in relation to our financial assets. Our objective is to seek continual revenue growth while minimizing losses incurred due to increased credit risk exposure. The majority of the our pledged deposits and cash at banks are deposited in major reputable financial institutions located in the PRC. Most of our revenue is settled by cash or credit cards. Our trade receivables are mainly due from financial institutions with sound financial standing. There has been no history of default in relation to these external parties. We do not expect any losses arising from non-performance by these counterparties.

Interest rate risk

        Our interest rate risk relates primarily to our bank deposits and bank borrowings. Bank borrowings issued at variable rates expose us to cash flow interest rate risk. Bank borrowings issued at fixed rates expose us to fair value interest rate risk. We have not entered into interest rate swaps to hedge against our exposure to changes in fair values of our borrowings. We will, however, continue to monitor interest rate risk exposure and will consider hedging significant interest rate risk exposure should the need arise.

        In 2016, 2017, 2018 and the six months ended June 30, 2019, interest rates on borrowings had been 10 basis points higher/ lower with all other variables held constant, our post-tax results for the year would have been RMB125,000, RMB106,000, RMB73,000 (US$10,634) and RMB102,000 (US$14,858) lower/higher, respectively, mainly as a result of higher/lower interest expenses on floating rate borrowings.

Liquidity risk

        Our policy is to regularly monitor current and expected liquidity requirements to ensure that we maintain sufficient cash and cash equivalents and adequate amounts of committed credit facilities to meet our liquidity requirements in the short and long term. Our primary cash requirements have been

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the payment for operating expenses and we have historically met our working capital requirements primarily from cash generated from operations.

Price risk

        We are exposed to price risk in respect of our convertible redeemable preferred shares, exchangeable note and convertible note carried at fair value with changes in fair value recognized in profit or loss. The fair value of the convertible redeemable preferred shares and exchangeable note is affected by changes in our market value. As the convertible redeemable preferred shares and exchangeable note will be converted into ordinary shares immediately prior to the completion of this offering, we will not be exposed to this risk following this offering. We have the right to redeem the convertible note in whole (but not in part) and we intend to redeem it in whole with the proceeds from this offering. Therefore we do not expect to be exposed to this risk after the convertible note is redeemed.

Seasonality

        Our operating results are exposed to seasonal fluctuations of demand for our services. During 2016, 2017 and 2018, we have experienced relatively higher customer visits in the second half of each financial year, which was mainly because (i) customers tend to come to our treatment centers and receive our services in summer, which led to an increased number of procedures performed in the second half of the year; and (ii) we also experienced a higher number of customer visits for the period from October to December, primarily due to the Chinese National Day holiday, Christmas, and the subsequent New Year and Chinese New Year holidays. As such, our revenue was slightly higher in the second half of each financial year during 2016, 2017 and 2018.

Internal control over financial reporting

        During the preparation of our consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018, a material weakness was identified in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

        The material weakness identified related to a lack of an effective control procedure to evaluate accounting of complex non-routine transactions. To remedy the identified material weakness, we have implemented, and plan to continue to implement the following measures:

However, we cannot assure you that we will remediate our material weakness in a timely manner. See "Risk Factors—Risks Related to Our Business and Industry—During the preparation of our consolidated financial statements included in this prospectus, a material weakness was identified in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud."

        As a company with less than US$1.07 billion in revenues for fiscal year of 2017, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable

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generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company's internal control over financial reporting.

Critical accounting policies and significant judgments and estimates

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

        The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates in the preparation of our financial statements.

Revenue recognition

        Revenue is recognized when or as the control of the goods or services is transferred to the customer at an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

        Revenue from provision of services, which includes non-surgical aesthetic medical services, comprising minimally invasive aesthetic treatments and energy-based treatments, surgical aesthetic medical services, and general healthcare services and other aesthetic medical services, is recognized at a point in time when the services have been rendered to customers. Minimally invasive aesthetic medical services, surgical aesthetic medical services and other aesthetic medical services are usually provided within a day, except for certain large-scale surgical aesthetic medical services in which customers are required to go through medical tests and screening for suitability of the surgery. The period of inpatient stays usually does not exceed more than a week. Most of our services do not require inpatient stays, though we do have inpatient facilities available upon patient request. With respect to energy-based treatments, we have certain packages that customers pay in advance. Payments for such energy-based treatments not yet rendered are recorded as contract liabilities in our consolidated balance sheets and are fully refunded to our customers upon their request. Revenue from the provision of general healthcare services and other aesthetic medical services is recognized at a point in time upon provision of such services for which the service period is usually within a day. We review the utilization pattern of contract liabilities and the treatment progress of individual customers on a regular basis to consider full recognition of the corresponding contract liabilities in profit or loss. Interest income is recognized using the effective interest method.

Purchase price allocation

        We apply the acquisition method to account for business combinations. The application of business combination accounting requires the use of significant estimates and assumptions. The purchase method of accounting for business combinations requires us to estimate the fair value of assets acquired and liabilities assumed to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. This exercise requires the use of management's assumptions, which would not reflect unanticipated events and circumstances that may occur.

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Goodwill impairment assessment

        Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over our interest in fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the amount of the non-controlling interests in the acquiree.

        Our management tests annually whether goodwill has suffered any impairment. For the purpose of impairment testing, goodwill has been allocated to individual cash-generating units, or CGUs, and is reviewed for impairment based on forecast operating performance and cash flows. The recoverable amounts of CGUs have been determined based on value-in-use calculations. These calculations require the use of estimates. The value-in-use calculations primarily use cash flow projections based on financial budgets approved by management. There are a number of assumptions and estimates involved in the preparation of cash flow projections for the period covered by the approved budgets. Key assumptions include the expected growth rates, timing of future capital expenditures and selection of discount rates to reflect the risks involved. Our management prepares the financial budgets reflecting actual and prior year performance and market development expectations. Our assessment indicated that reasonably possible changes in key assumptions on which value-in-use calculations are based would not cause the carrying amounts to exceed recoverable amounts of individual CGUs.

Fair value of series A preferred shares, convertible note and exchangeable note liabilities

        We designated our series A preferred shares, convertible note and exchangeable note liabilities as financial liabilities at fair value through profit or loss. They were initially recognized at fair value. Subsequent to initial recognition, our series A preferred shares, convertible note and exchangeable note liabilities are carried at fair value with changes in fair value recognized in profit or loss.

        Our series A preferred shares, convertible note and exchangeable note liabilities are not traded in an active market and the fair value is determined by using valuation techniques. We use the market comparable approach or discounted cash flow method to determine the underlying equity value of our company and adopt the equity allocation method to determine the fair value of the series A preferred shares, convertible note and exchangeable note liabilities. The discounted cash flow method may include the use of cash flow projections based on financial forecasts prepared by management. The expected growth in revenue and gross margin, timing of future capital expenditures, weighted average cost of capital and terminal growth rate are based on actual and prior year performance as well as market expectations, which are key drivers of the underlying equity value of our company.

Estimated useful lives of property, plant and equipment

        We determine the estimated useful lives and related depreciation charges for our property, plant and equipment with reference to the estimated periods that we intend to derive future economic benefits from the use of these assets. We perform periodic reviews of the estimated useful lives of property, plant and equipment, and revise the depreciation charges where estimated useful lives are different than those previously estimated.

Recently issued accounting standards

        See "Notes to the consolidated financial statements—2 Summary of significant accounting policies—2.2.2 New standards, amendments to standards and interpretations not yet adopted.

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Industry

        Aesthetic medical services refer to elective procedures performed on the body with the primary purpose of improving one's appearance. Aesthetic medical services include both surgical and non-surgical medical procedures and are typically performed by registered medical professionals. Surgical aesthetic medical treatments are surgeries performed to fundamentally alter the appearance of parts of the body, such as breasts, nose and eyelids. Non-surgical aesthetic medical procedures include minimally invasive procedures such as injections and energy-based procedures.

        Injections of substances such as BOTOX®, collagen, hyaluronic acid and autologous fat are used to re-shape the face or body or reduce the appearance of wrinkles. Energy-based treatments use different types of energies and are primarily used for skin care and body contouring purposes, such as acne and pigmentary treatments, rejuvenation applications, and skin tightening. The following table sets forth key differences between surgical and non-surgical aesthetic medical treatments:

 
  Surgical   Non-surgical
Risk to patient   Higher   Lower
Frequency   Single treatment   Multiple treatments
Recovery time   Measured in months, depending on the procedure   Measured in days, depending on the procedure
Common procedures   Eye surgery (for example, double eyelid surgery), nose surgery (rhinoplasty), breast augmentation and liposuction   Injection treatments, energy-based treatments, thread lifts

Global aesthetic medical services market

        Based on a market study conducted by Frost & Sullivan, the global volume of aesthetic medical procedures grew at a CAGR of 8.0% from 66.8 million in 2014 to 91.1 million procedures in 2018. This growth is expected to continue, with the number of aesthetic medical procedures growing at a CAGR of 6.7% from 2018 to 2023 to reach 126.2 million procedures. In 2018, non-surgical aesthetic medical procedures contributed to 57.7% of the total volume of procedures performed, as compared to 52.3% in 2014.

        Growth in non-surgical aesthetic medical procedures has outpaced that of surgical aesthetic medical procedures. Between 2014 and 2018, the volume of non-surgical aesthetic medical procedures increased from 35.0 million to 52.5 million procedures, representing a CAGR of 10.7%, as compared to surgical aesthetic medical procedures, the volume of which increased from 31.9 million to 38.5 million, representing a CAGR of 4.9%. According to Frost & Sullivan, the total volume of non-surgical aesthetic medical procedures is expected to grow at a CAGR of 8.4% from 2018 to 2023, and will reach 78.8 million procedures in 2023, as compared to a CAGR of 4.2% to reach 47.4 million in 2023 for surgical aesthetic medical procedures.

        On a value basis, the global aesthetic medical services market grew at a CAGR of 8.2% from US$99.3 billion in 2014 to US$136.2 billion in 2018, and is estimated to reach US$192.5 billion in 2023. In 2018, surgical aesthetic procedures, which typically cost more than non-surgical aesthetic procedures, contributed to 82.5% of the market value.

        Key factors for success in the aesthetic medical services market include professionalism, reputation, brand awareness, advanced devices and multiple service offerings.

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China aesthetic medical services market

Overview of the China Aesthetic Medical Services Market

        The aesthetic medical services market in China experienced rapid growth between 2013 and 2017. As one of the fastest growing aesthetic medical services markets in the world, China's aesthetic medical services market ranked second globally in terms of both total volume and value of aesthetic medical procedures in 2017, respectively. Despite being a significant market for aesthetic services globally, China's aesthetic medical services market remains highly under-penetrated. According to Frost & Sullivan, every 1,000 people in China had undergone an average of 11.7 medical aesthetic treatments in 2017, whereas the penetration per thousand people rates in South Korea, the U.S., Brazil, and Japan were 80.4, 50.1, 43.6, and 27.0, respectively, in 2017. The significantly lower penetration rate in China compared to other countries with more developed medical aesthetic markets, shows tremendous growth potential in the near future as the industry continues to develop and as social acceptance of medical aesthetic procedures permeates. According to Frost & Sullivan, the total volume of aesthetic medical procedures in China, including surgical and non-surgical procedures, increased from 8.3 million in 2014 to 20.2 million in 2018, representing a CAGR of 25.1%. Furthermore, the market is expected to grow at a CAGR of 25.7% from 2018 to reach 63.5 million by 2023.

        Of the 20.2 million aesthetic medical procedures performed in China in 2018, 14.5 million were non-surgical, representing 71.5% of the total volume. Between 2014 and 2018, the volume of surgical aesthetic medical procedures increased from 2.6 million to 5.8 million, representing a CAGR of 22.6%, while the volume of non-surgical aesthetic medical procedures increased from 5.7 million to 14.5 million, representing a CAGR of 26.1%. Non-surgical aesthetic medical procedures, including energy-based procedures and aesthetic injection treatments, are expected to continue to account for a greater portion of aesthetic medical procedures in China between 2018 and 2023. According to Frost & Sullivan, the total volume of non-surgical aesthetic medical procedures in China will grow at a CAGR of 26.7% from 14.5 million in 2018 and reach 47.3 million procedures by 2023.

        On a value basis, the China aesthetic medical procedures market grew at a CAGR of 23.6% from RMB52.1 billion in 2014 to RMB121.7 billion in 2018. Further, the market is expected to increase at a CAGR of 24.2% from 2018 to 2023 to reach RMB360.1 billion by 2023. The market size of aesthetic medical industry in China referred to in this prospectus has been adjusted to exclude referral fees paid to marketing partners.

        The growth in the China aesthetic medical services market has been primarily driven by private institutions, which in 2018 contributed 81.5% of the overall market's revenue. The private aesthetic medical services market in China has grown from RMB40.0 billion in 2014 to RMB99.2 billion in 2018, representing a CAGR of 25.5%. This market is expected to grow at a CAGR of 26.1% from 2018 to RMB316.6 billion in 2023.

        Within the China aesthetic medical services market, the market for aesthetic dermatology department services, which include energy-based treatments and other dermatology procedures, represents one of the fastest growing segments, with an increase in total market value from RMB9.6 billion in 2014 to RMB24.2 billion in 2018, representing a CAGR of 26.0%. This trend is likely to continue in the near future, with total market value expected to grow at a CAGR of 26.5% from 2018 to reach RMB78.5 billion in 2023.

        The non-invasive nature of energy-based procedures is a key driver of the growth in the market, due to customer concerns surrounding risks associated with traditional surgical procedures, which must be performed with varying degrees of invasiveness. A key consideration associated with energy-based treatments is that multiple treatments may be necessary before any effect manifests and there is a possibility of adverse reactions.

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Key drivers of the China aesthetic medical services market

        The following factors have historically contributed to and are expected to continue to drive the growth of the China aesthetic medical services market:

Key trends in the China aesthetic medical services market

        In addition to the above, the China aesthetic medical services market can be characterized by the following key trends.

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Business

Overview

        We are a leading provider of aesthetic medical services in China. Leveraging over 20 years of clinical experience, we provide one-stop aesthetic service offerings that includes (i) surgical aesthetic treatments, such as eye surgery, rhinoplasty, breast augmentation and liposuction, (ii) non-surgical aesthetic treatments which comprise minimally invasive treatments and energy-based treatments such as laser, ultrasound and ultraviolet light treatments, and (iii) other aesthetic services such as cosmetic dentistry, as well as general medical services. According to Frost & Sullivan, we are the third largest private aesthetic medical services provider in China in terms of revenue in 2018. The total aesthetic medical services market in China, which includes both public and private services providers, grew at a CAGR of 23.6% from RMB52.1 billion in 2014 to RMB121.7 billion in 2018 and is expected to grow to RMB360.1 billion in 2023, representing a CAGR of 24.2% from 2018 to 2023, according to Frost & Sullivan. The market size for private aesthetic medical services providers in China grew at a CAGR of 25.5% from RMB40.0 billion in 2014 to RMB99.2 billion in 2018 and is expected to grow to RMB316.6 billion in 2023, representing a CAGR of 26.1% from 2018 to 2023. In 2017, China was the second largest market for aesthetic medical services based on revenue, with the global market for aesthetic medical services totaling US$124.6 billion. As one of the market leaders in China, we believe we are well-positioned to benefit from the favorable tailwinds, including growing social acceptance of aesthetic medical services.

        We generate our revenue primarily from providing aesthetic treatments. In the six months ended June 30, 2019, we generated 40.1%, 51.2% and 8.7% of our revenue from providing surgical aesthetic treatments, non-surgical aesthetic treatments, and general healthcare and other aesthetic services, respectively, as compared with 41.2%, 49.1% and 9.7% for the year ended December 31, 2018. The majority of our revenue came from out-of-pocket payments by our customers, who pay in advance for treatments.

        We have grown our network significantly since our operation commenced in 1997. As of the date of this prospectus, we have a strategically established network comprising 21 treatment centers (including 19 wholly or majority owned centers). Our treatment centers spread across 15 cities in mainland China, Hong Kong and Singapore. As we continue to expand our network, one of our core business strategies is to develop our "flagship" medical institutions, which are typically large-scale full-service treatment centers that contribute a significant proportion of our revenue and are staffed with our most experienced doctors. We believe that developing flagship medical institutions will not only improve our brand awareness in the surrounding area, but also enable us to provide high-end, specialized, and complex medical services to customers referred from smaller-scale treatment centers within our network. We currently have three flagship medical institutions—Pengcheng Hospital, Shenzhen Pengai and Chongqing Pengai. Our scalable business model is built on our highly standardized operating procedures across a centralized network, which we believe has allowed us to quickly and successfully expand. We intend to continue to expand our network into new cities throughout China and selected global markets through organic growth as well as strategic acquisitions.

        Since our inception, we have been committed to delivering high quality services to our customers. As of June 30, 2019, we had 567 medical staff, including 203 doctors. Our doctors have rich experience in providing both surgical and non-surgical aesthetic medical services, with an average industry experience of approximately ten years. We believe our team of highly qualified and experienced medical professionals, as well as our stringent safety controls, have underpinned our strong reputation as we continue to attract and retain customers and receive industry recognition for our high quality services. We have received a number of high-profile awards, including "The most prestigious aesthetic medical services beauty brand in 2016" by the Tencent Network and "The aesthetic medical services brand of technological innovation in 2016" by Hong Kong WenWeiPo newspapers.

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        Our active customer base, defined as customers who have received at least one procedure in the relevant year, has increased from 108,291 in 2016 to 178,657 in 2018, and from 85,635 in the six months ended June 30, 2018 to 100,048 in the six months ended June 30, 2019. Repeat customers, defined as active customers who have previously received at least one procedure, accounted for 54.1% and 52.8% of our active customer base in 2018 and the six months ended June 30, 2019, respectively, compared to 53.0% in 2016. Our revenue grew from RMB584.9 million in 2016 to RMB697.4 million in 2017, and further to RMB761.3 million (US$110.9 million) in 2018, and from RMB356.3 million in the six months ended June 30, 2018 to RMB393.1 million in the six months ended June 30, 2019. We reported a profit of RMB50.5 million for 2016, a loss of RMB72.4 million and RMB252.5 million (US$36.8 million) for 2017 and 2018, and a profit of RMB16.9 million and RMB80.2 million (US$11.7 million) for the six months ended June 30, 2018 and 2019, respectively. Our adjusted EBITDA for the year/period amounted to RMB96.1 million, RMB112.1 million and RMB113.1 million (US$16.5 million) for 2016, 2017 and 2018, respectively, and increased from RMB49.9 million for the six months ended June 30, 2018 to RMB101.6 million (US$14.8 million) for the six months ended June 30, 2019.

Strengths

        We believe the following competitive strengths have contributed to our success and differentiated us from our competitors:

A long track record and leading market position in the high growth aesthetic medical services market in China with a strategic nationwide network and international footprint

        Leveraging over 20 years of clinical experience, we provide a comprehensive service offering including surgical treatments such as eye surgery and rhinoplasty, non-surgical treatments such as energy-based treatments, and other aesthetic medical treatments such aesthetic dentistry and hair loss treatments. According to Frost & Sullivan, we were the third largest private aesthetic medical services provider in China, the second largest in southern China, and the largest in Shenzhen, in terms of revenue in 2018.

        According to Frost & Sullivan, we are one of the few private aesthetic medical service providers in China with a national presence. As of the date of this prospectus, our network comprises 21 treatment centers (including 19 wholly or majority owned centers), strategically located in and/or around service areas with demographic, economic and/or social characteristics that are favorable to the aesthetic medical services market. Our treatment center network spans across 15 cities in mainland China with a combined population of over 100 million covering major cities in developed regions in China, including Shenzhen, Shanghai and Guangzhou. According to Frost & Sullivan, Shenzhen had a higher GDP than Hong Kong in 2018, and its economy has been developing at a significantly faster pace than Hong Kong. With the policy support in favor of Shenzhen recently announced by the PRC government, Shenzhen's GDP, population and per capita income are expected to sustain its growth. We believe we are well-positioned to capture the business opportunities resulting from such growth. In addition, we have successfully expanded our geographic coverage outside of mainland China, with established operations in Hong Kong and Singapore, and pipeline projects in the United States.

        We believe our market leadership and strategic network position us well to capitalize on the continuing growth in the large, attractive aesthetic medical services market in China.

Offering aesthetic driven solutions combining high quality medical care with image consultant services

        According to Frost & Sullivan, we have one of the biggest medical professional teams among private aesthetic medical service providers in China. As of June 30, 2019, we had 567 medical staff, including doctors, anesthesiologists and nurses in our treatment centers. Our team of medical professionals are highly qualified, have extensive experience and include many who are considered

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leaders in their field. In particular, as of June 30, 2019, our team consisted of 203 doctors who practiced at our treatment centers, including nine chief physicians, 32 associate-chief physicians, 64 attending physicians, 96 resident physicians in China, one medical practitioner from South Korea and one medical practitioner in Hong Kong. The majority of our doctors worked exclusively at our treatment centers while 41 of our doctors split their practice with other hospitals as of June 30, 2019.

        Our doctors are highly experienced, with an average industry experience of approximately ten years. Several of our doctors sit on industry advisory boards or frequently participate in industry forums, such as discussion panels on industry standards organized by the Chinese Ministry of Health. To be at the forefront of innovation and technological advances in the market, we provide ongoing training and clinical education to our medical staff, we also maintain an active dialogue with global and domestic industry experts. For example, Shenzhen Pengai serves as the training base for Dalian Medical University College of Aesthetic Medicine and Surgery. Examples of our first-to-market offerings in the Chinese aesthetic medical services market include: introducing Facial Rejuvenation equipment in 2014, Demasa water and light equipment in 2015, Stryker endoscopes in 2015 and Picosecond energy-based freckle treatment in 2017. We provide rigorous on-the-job training to less experienced staff, who work directly with our highly qualified medical professionals. This attractive training and career development opportunity, as well as the competitive compensation packages that we provide, help us attract and retain top talent in the industry. A significant proportion of our doctors are sourced through peer referrals, indicative of our strong branding and reputation in the medical community.

        Our medical professionals are complemented by our team of 202 image consultants as of June 30, 2019, allowing us to provide comprehensive one-stop service offerings to our customers. Led by our co-founder, Ms. Ding Wenting, who has significant experience in beauty design as well as an international educational background, including at the Art and Design Institute of Paris, our image consultants provide personalized cosmetology guidance prior to treatments. These personalized treatment plans aim to educate the customers regarding the procedures to be undertaken, and are followed by further consultations post-treatment as necessary. We believe this solution-driven experience helps to deliver enhanced aesthetic outcomes individually tailored to our customers, and has been a key driver of customer acquisition, especially for our high-end customers. Our active customer base increased from 108,291 in 2016 to 178,657 in 2018, and from 85,635 in the six months ended June 30, 2018 to 100,048 in the six months ended June 30, 2019.

Rigorous clinical standards, high quality services and a well-established brand driving high customer satisfaction

        We assess all potential new treatments and/or services through a robust risk evaluation framework and a strict approval process, and provide substantial training to all employees expected to be involved in performing the treatments and/or services before the treatments are conducted on customers. We have implemented standardized clinical quality control procedures across our network, with regular training for our medical professionals and other relevant staff to ensure strict adherence to these procedures. The successful implementation of these clinical standards has translated into our low number of customer complaints and high number of repeat customers. In the six months ended June 30, 2019, the customer complaints we received represented no higher than 0.1% of the total number of aesthetic treatment procedures performed during the same period, generally in line with the level from 2016 to 2018. Repeat customers accounted for 54.1% and 52.8% of our active customer base in 2018 and the six months ended June 30, 2019, respectively, compared to 53.0% in 2016.

Scalable business model, with highly standardized operating procedures across a centralized network

        We have developed and implemented highly standardized operating procedures across each treatment center in our centralized network that provide a detailed roadmap for the execution team. Our business model also includes our network hub arrangement. This involves the development of

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flagship medical institutions, which are large-scale, full-service hospitals located at the epicenter of our regional network hubs, as well as the development of smaller-scale treatment centers in the surrounding vicinity. Our regional network hubs serve to lessen the risk of potential business disruption caused by a specific treatment center by allowing customers to flow between nearby treatment centers depending on the service need and treatment center capacity. In addition, through the centralization of information technology systems, we believe we are able to streamline and further enhance the efficiency of our business operations, including in areas of procurement, sales and marketing, human resources and inventory management, data collection and record keeping, as well as financial budgeting and billing, thereby continue to benefit from economies of scales as we expand.

Significant experience in successfully identifying, acquiring and integrating treatment centers

        Our network expansion strategy consists of (i) new establishments, (ii) upgrades to existing treatment centers and (iii) acquisitions. We have a demonstrated ability to identify potential targets and execute our acquisition strategy, both domestically and overseas. As of the date of this prospectus, out of our existing network of treatment centers, nine were acquired since January 2014. In addition, we entered into an agreement in February 2019 for an investment in LZP, which owns and operates five plastic surgery centers in California under the name WAVE Plastic Surgery & Aesthetic Laser Centers.

        Through operational enhancements and leveraging our extensive network and strong brand, we have been able to successfully integrate our acquired treatment centers and deliver optimal outcome. Most of our existing treatment centers that we acquired achieved profitability within two years of the acquisition, despite certain targets being unprofitable prior to the acquisition. For example, following our acquisition of Shanghai Pengai in January 2014 and Changsha Pengai in June 2013, both treatment centers generated profit within a year notwithstanding incurring net losses in the years immediately before our acquisition.

A dedicated management team deeply rooted in the healthcare industry in China with international experience and a proven track record

        We are led by a dedicated management team with an average industry experience of approximately 20 years. In particular, our chairman and founder Dr. Zhou has over 30 years of experience in the aesthetic medical industry and is a seasoned and reputable plastic surgeon. We believe we are positioned to benefit from our founder's first-hand experience in the industry, as well as his unremitting pursuit of maintaining high clinical standards. In addition to Dr. Zhou, our senior management team includes a number of experienced and well regarded executives with international industry experience and/or educational backgrounds. This team includes Ms. Ding Wenting, our vice-chairwoman and co-founder who is primarily responsible for sales, marketing and procurement; our chief operations officer Ms. Hu Qing, who has over 25 years of experience in the medical industry, including 13 years in Japan, where the aesthetic medical services market is well-developed and recognized for its high quality services and clinical standards; and executive director Dr. Zhou Yitao, who is our regional general manager for East China and has over 15 years of experience in the industry and region.

        Our senior management team is supported by a team of experienced professionals, including those with deep industry experience and relationships with key stakeholders, including customers, suppliers and relevant industry bodies.

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Our Strategies

        We intend to maintain and strengthen our leading market position and our strong brand name in the aesthetic medical treatment market in China to deliver our customers with quality aesthetic medical services by pursuing the following strategies:

Continue to drive organic growth through expanding the customer base, increasing repeat visits and enhancing brand awareness

        Our strategy to continue expanding our customer base and enhancing brand awareness comprises multiple elements:

        With respect to customer acquisition, we are focused on enhancing each of our major channels, including:

Grow the number of aesthetic medical treatment centers organically and through acquisitions

        We intend to replicate the operational success we have historically demonstrated through establishing or acquiring treatment centers as we continue to expand our network. Our network expansion strategy consists of (i) new establishments, (ii) upgrades to existing treatment centers, and (iii) acquisitions. Upgrades to existing treatment centers relate primarily to the upgrade of clinics to hospitals and, where strategic to do so, flagship hospitals. Upgrades can be executed within a relatively short period of time, generally around six months, depending on the scale and complexity of the existing treatment center and the nature of the upgrade. There are currently seven medical institutions in our network not qualified as hospitals per Chinese regulations, representing a significant opportunity for upgrades.

        We plan to focus on the continued development of flagship hospitals located at the epicenter of our regional network hubs with our smaller-scaled treatment centers in the surrounding vicinity. In addition, we plan to set up 30 to 50 satellite clinics in third- and fourth-tier cities in China in the next three years, with a particular focus in eastern and southern China. We believe third- and fourth-tier cities in China present us with a significant growth opportunities due to lack of large-scaled aesthetic service providers with capabilities to perform complicated surgeries. We aim to provide high quality aesthetic services such as laser treatments and minimally invasive aesthetic treatments to local customers in our satellite clinics and transfer customers with surgical needs to our treatment centers and flagship hospitals in the region to create synergies among our network. We have set up one satellite clinic in Ninghai, Zhejiang province, in July 2019, with a total investment amount of RMB1.5 million, which has achieved profitability. We believe we will be able to replicate our success in operating the Ninghai satellite clinic to further expand our network and increase our brand awareness.

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Strategically expand into selected global markets

        According to Frost & Sullivan, the market size of the global aesthetic medical services market was US$136.2 billion in 2018, and is expected to grow at a CAGR of 7.2% to US$192.5 billion from 2018 to 2023. We plan to expand our global footprint, which we believe will result in more diverse customer base, increased pool of medical professionals to broaden and deepen our collective expertise in the aesthetic medical services field, and a broadened services portfolio.

        In relation to developed aesthetic medical markets, such as the United States, Japan and South Korea, we intend to strategically expand into markets with advanced equipment and innovative treatments or techniques that may not be available in our current markets due to regulatory reasons or otherwise such as anti-aging treatments in the field of regenerative medicine. In relation to developing aesthetic medical markets, such as those in Southeast Asia, we intend to select our targeted markets based on GDP per capita, cultural similarities with China and our access to local management and medical professionals.

Continue to develop and introduce innovative aesthetic medical service techniques

        We intend to continue to attract new customers, retain existing customers and increase the average spending per customer by developing and introducing innovative aesthetic medical service techniques, with a focus on services that have lower risk and shorter recovery time, such as new botulinum toxin, hyaluronic acid products and laser equipment.

        In terms of service techniques, an example of a service we are currently focused on is Three Musketeers, a facial tightening treatment that utilizes an innovative threading technique that allows simultaneous targeting of multiple treatment areas. Depending on the treatment area and the natural contours and other characteristics of each customer's face, specific protein threads are used to achieve a natural tightening effect, with a short recovery period and minimal side effects. Another example of our innovative offering is Baby Face, a facial rejuvenation treatment involving cell injection that stimulates the natural production of collagen. We plan to develop and commercialize patented products and service techniques through our internal research and development efforts to provide customers with differentiated service offerings.

        One of the ways through which we intend to stay at the forefront of aesthetic medical treatment services and technology is to maintain and strengthen our dialogue and collaboration with experts in the field globally. This will assist us to stay abreast of international trends and adopt and provide our customers, as appropriate, with new treatments and technologies as they become available.

Our business model

        We generate revenue primarily from our core business providing surgical aesthetic treatment services and non-surgical aesthetic treatment services, comprising minimally invasive treatments and energy-based treatments (surgical and non-surgical treatments together contributed to 80.7%, 81.8%, 90.3% and 91.3% of our revenue in 2016, 2017, 2018 and the six months ended June 30, 2019, respectively), as well as non-core business providing general healthcare and other aesthetic services (contributed to 19.3%, 18.2%, 9.7% and 8.7% of our revenue in 2016, 2017, 2018 and the six months ended June 30, 2019, respectively). We offer a wide range of surgical and non-surgical aesthetic

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treatments to cater to the various needs of our customers. The following table sets forth our revenue by service offering for the years indicated:

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
   
  RMB
   
  RMB
  US$
   
  RMB
   
  RMB
  US$
   
 
 
  (in thousands, except percentages)
 

Non-surgical aesthetic medical services

                                                                         

Minimally invasive aesthetic treatments

    171,160     29.3 %   189,668     27.2 %   199,119     29,005     26.2 %   91,279     25.6 %   102,456     14,925     26.1 %

Energy-based treatments

    126,887     21.7 %   141,760     20.3 %   174,229     25,379     22.9 %   78,608     22.1 %   98,684     14,375     25.1 %

Sub-total

    298,047     51.0 %   331,428     47.5 %   373,348     54,384     49.1 %   169,887     47.7 %   201,140     29,300     51.2 %

Surgical aesthetic medical services

    174,072     29.7 %   239,094     34.3 %   313,897     45,724     41.2 %   138,343     38.8 %   157,524     22,946     40.1 %

General healthcare services and other aesthetic medical services

    112,738     19.3 %   126,874     18.2 %   74,061     10,788     9.7 %   48,079     13.5 %   34,410     5,012     8.7 %

Total

    584,857     100.0 %   697,396     100.0 %   761,306     110,897     100 %   356,309     100.0 %   393,074     57,258     100.0 %

        In addition, the following table sets forth our other key operating metrics, such as the number of procedures performed and the average spending per procedure, for the years indicated:

 
  For the year ended
December 31,
  For the six months
ended June 30,
 
Key operating metrics
  2016   2017   2018   2018   2019  

Number of doctors

    117     130     187     206     203  

Number of surgical treatments

    27,337     33,857     63,553     24,531     27,984  

Average spending per surgical procedure (in RMB)

    6,368     7,062     4,939     5,640     5,629  

Number of non-surgical treatments

    124,116     166,629     235,367     112,900     147,436  

Average spending per non-surgical procedure (in RMB)

    2,401     1,989     1,586     1,505     1,364  

Total number of aesthetic treatments

    151,453     200,486     298,920     137,431     175,420  

% surgical treatments

    18.0 %   16.9 %   21.3 %   17.8 %   15.9 %

% non-surgical treatments

    82.0 %   83.1 %   78.7 %   82.2 %   84.1 %

Overview of aesthetic services

Non-surgical aesthetic medical services

        Our non-surgical aesthetic medical services primarily comprise (i) minimally invasive aesthetic treatments and (ii) energy-based treatments. Depending on the complexity, materials used and scope of

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the procedure, our treatments vary significantly in price. The following table provides a summary of the key services we provide and information for the six months ended June 30, 2019.

Treatment
  Description   Price range per
standard procedure
(RMB)
 

Minimally invasive

           

Body/face sculpting—Wrinkle

  The process of injecting BOTOX®, hyaluronic acid, autologous fat and other materials into the face and body to reduce the appearance of wrinkles     880 - 12,800  

Body/face sculpting—Injection

  The process of injecting BOTOX®, hyaluronic acid, autologous fat and other materials into the face and body to change their shape     1,500 - 29,800  

Body/face thread lifts

  Procedure of inserting special threads under the skin surface in order to lift targeted areas of the face and body (e.g. 1IftZVIA)     9,800 - 39,800  

Energy-based

           

Hair removal

  Procedure to remove unwanted hair using energy-based technology such as lasers that destroys hair follicles     300 - 1,600  

Skin tightening/lifting/ resurfacing

  Procedure that uses a laser to tighten skin by heating the collagen under the skin's surface, which causes the skin to contract and treatment to reduce wrinkles and skin irregularities     1,500 - 29,800  

Spot removal

 

Treatment using energy-based to remove pigmented blemishes including age spots, birthmarks and moles

   
380 - 2,000
 

        To ensure the consistency of quality and safety in our procedures, we utilize a standardized process for the treatments. These aesthetic procedures are typically completed within one hour, with recovery time of up to one week, depending on the type of procedure and the customer's physical conditions.

Minimally invasive aesthetic treatments

        Minimally invasive aesthetic treatments are non-surgical procedures that can help individuals improve their appearance with minimal or no incisions. According to Frost & Sullivan, minimally invasive aesthetic medical services are gaining popularity both globally and in China due to their relatively low level of risk and higher affordability compared to surgical aesthetic medical treatments. These treatments are typically performed in one to two hours with minimal pain and mild bruising or swelling, whilst achieving immediate effects. Recovery time varies depending upon the service type, but generally the healing period is between one to two weeks.

        To ensure consistency of quality and safety, all our injection treatments follow a standardized procedure that involves the application of numbing cream, disinfection of the treatment area which has been identified and marked by our doctors and injection at the treatment area with a sterilized syringe. After the injection, the treated area is cleaned, shaped and iced.

Energy-based treatments

        We offer a range of energy-based treatments using high-grade equipment from China, Germany, Israel and the United States. Our standardized procedures for energy-based treatments, which typically

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take less than one hour, involve the following steps: disinfection and application of numbing cream or anesthetic to the treatment area, methodical application of the energy-based treatment, including testing on a small area before adjusting the level of energy-based intensity accordingly. To achieve and maintain optimal results, customers may choose to repeat the procedure, depending on the type of procedure and customer reaction to the treatment.

Surgical aesthetic medical services

        We provide customary surgical aesthetic medical services, including double eye lid surgery, rhinoplasty, breast augmentation, liposuction and facelifts, among others. Surgical aesthetic treatments typically involve local or full anesthesia, and an extended recovery time. All of our surgical aesthetic treatments are performed in fully equipped operating rooms in our treatment centers. Depending on the complexity of the procedure and the physicians involved, our treatments vary significantly in price. The following table sets forth our main surgical aesthetic treatments and information for the six months ended June 30, 2019.

Treatment
  Description   Price range per
standard procedure
(RMB)
 
Eye surgery   Change the shape or appearance of the eyes, eyelids     3,800 - 19,800  

Nose surgery / rhinoplasty

 

Change the shape or appearance of the nose by adding fillers or cartilage

 

 

6,800 - 48,000

 

Breast augmentation

 

Procedures designed to enlarge/reduce or change the shape of the breasts

 

 

19,800 - 69,800

 

Liposuction

 

Procedure in which excess fatty tissue is removed from a specific part of the body through suction

 

 

9,800 - 39,800

 

        Due to their complexity, we require all our surgical aesthetic treatments to be attended (or performed) by doctors with a high level of experience. To ensure the consistency of quality and safety in our procedures we utilize a standardized process for the treatment. These procedures are typically completed within one to three hours, with recovery time ranging from one to 12 months, depending on the type of procedure and the customer's physical conditions.

General healthcare services and other aesthetic medical services

        We provide a range of medical services through our Pengcheng Hospital, primarily in internal medicine and traditional Chinese medicine. We also provide other aesthetic medical services, primarily in aesthetic dentistry, aesthetic traditional Chinese medicine and hair loss treatments. Our aesthetic traditional Chinese medical treatments, unlike western medical treatments, which are clinically proven, include herbal oral medications, dietary advice, herbal poultices and foot baths, ultraviolet negative ion beauty treatments, ultrasounds, iontophoresis (use of local electric current) and acupuncture, cupping, massage and skin scraping (known as "gua sha"). Historically we have provided additional general healthcare services, including otolaryngology, bromhidrosis treatment and abortion, which we have discontinued.

Aesthetic services process

        We have developed, improved and implemented highly standardized operational procedures across our treatment centers through years of industry experience and accumulated know-how. Our process focuses on providing customized services and high quality customer experiences. The following diagram

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illustrates a typical aesthetic service process, which involves image consultants, doctors, nurses and customer service personnel.

GRAPHIC

Our treatment centers

        As of the date of this prospectus, we have an extensive presence in China, with locations in 15 cities. All of our treatment centers are wholly or majority owned with the exception of Singapore

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Mendis and Baotou Pengai. The following figure illustrates our network in China as well as our locations in Hong Kong and Singapore.

GRAPHIC

        In addition to the network in China, we have recently entered the Hong Kong and Singapore markets, with the acquisition of Hong Kong Newa and investment in Singapore Mendis in 2015 and 2017, respectively. Furthermore, in February 2019, we entered into an agreement for an investment in LZP, which owns and operates five plastic surgery centers in California under the name WAVE Plastic Surgery & Aesthetic Laser Centers.

        Our current network comprises of 21 treatment centers across China, Hong Kong and Singapore, including three flagship hospitals. Based on relevant Chinese regulations, the treatment centers in our network can be classified as the following:

For more information on the definitions of each type of medical institution, please refer to "Regulation—Regulations on the administration and classification of medical institutions." In addition to 19 of our wholly or majority owned treatment centers, we also own minority stakes in Singapore Medis.

        One of our core strategies is to develop our flagship hospitals, which are large-scale, full-service hospitals located at the epicenter of our regional network hubs and accompanied by our smaller-scale treatment centers in the surrounding vicinity. Our flagship hospitals contribute a meaningful proportion of our revenue and are staffed with our most experienced doctors.

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        The premises of the majority of our treatment centers are leased, while Pengai Huizhou and part of Pengcheng Hospital are our owned properties. The following table provides a summary of our treatment centers, including key operational data, as of the date of this prospectus.

Treatment center(10)
  Acquired /
invested
  Date of establishment /
acquisition /
investment
  Classification
in accordance
with Chinese
regulation
  GFA
(sq.m.)
  Beneficial
Interest
 

Pengcheng Hospital(1)

  Established   December 2003   Hospital     8,391     100.0 %

Shenzhen Pengai(1)

 

Established

 

November 2005

 

Hospital

   
5,650
   
100.0

%

Haikou Pengai

 

Established

 

March 2011

 

Hospital

   
3,041
   
87.0

%

Huizhou Pengai

 

Established

 

June 2011

 

Hospital

   
1,670
   
65.5

%

Nanchang Pengai

 

Established

 

September 2011

 

General outpatient clinic

   
990
   
51.0

%

Changsha Pengai

 

Acquired

 

June 2013

 

Hospital

   
2,459
   
79.0

%(2)

Shanghai Pengai

 

Acquired

 

January 2014

 

General outpatient clinic

   
1,048
   
80.0

%(3)

Hangzhou Pengai

 

Established

 

July 2014

 

General outpatient clinic

   
1,446
   
100.0

%(4)

Hong Kong Newa

 

Acquired

 

October 2015

 

N/A

   
127
   
100.0

%

Chongqing Pengai(1)

 

Established

 

November 2015

 

Hospital

   
7,070
   
100.0

%(5)

Guangzhou Pengai

 

Acquired

 

May 2017

 

Hospital

   
2,600
   
91.0

%(6)

Shenzhen Pengai Xiuqi

 

Established

 

May 2017

 

Hospital

   
1,902
   
89.0

%(7)

Shenzhen Pengai Yueji

 

Acquired

 

July 2017 (date of initial investment)

 

Hospital

   
1,806
   
60.0

%

Singapore Mendis

 

Invested

 

November 2017

 

N/A

   
125
   
44.4

%

Baotou Pengai

 

Acquired

 

December 2017

 

General outpatient clinic

   
732
   
46.0

%

Yinchuan Pengai

 

Established

 

December 2017

 

General outpatient clinic

   
419
   
51.0

%

Chengdu Pengai

 

Acquired

 

December 2017

 

General outpatient clinic

   
3,250
   
70.0

%

Shenzhen Pengai Yuexin

 

Acquired

 

April 2018 (date of initial investment)

 

Hospital

   
4,242
   
60.0

%

Yantai Pengai Jiayan

 

Established

 

June 2018

 

Hospital

   
1,983
   
89.0

%(8)

Jinan Pengai

 

Acquired

 

January 2019

 

Hospital

   
2,200
   
95.0

%(9)

Ninghai Pengai

 

Established

 

April 2019

 

General outpatient clinic

   
670
   
51.0

%

Notes:

(1)
Indicates flagship hospitals.

(2)
Includes 9.0% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

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(3)
Includes 10.0% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

(4)
Includes 30% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

(5)
Includes 30% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

(6)
Includes 21% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

(7)
Includes 22.0% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

(8)
Includes 24.0% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

(9)
Includes 25.0% equity interest held by Dr. Zhou Pengwu, for which we are entitled to relevant economic benefits pursuant to the Contractual Arrangements.

(10)
English names of treatment centers for the indicative purpose only.

        For the six months ended June 30, 2019, we generated 69.2% of our revenue from our top five treatment centers. The following table sets forth the revenue from these five treatment centers in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019.

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
  %
  RMB
  %
  RMB
  USD
  %
  RMB
  %
  RMB
  %
 
 
  (in thousands)
   
  (in thousands)
   
  (in thousands)
  (in thousands)
   
  (in thousands)
   
  (in thousands)
   
 

Pengcheng Hospital*

    184,326     31.5 %   221,162     31.7 %   197,471     28,765     25.9 %   100,593     28.2 %   96,300     24.5 %

Shenzhen Pengai*

    154,077     26.3 %   216,988     31.1 %   219,398     31,959     28.8 %   104,699     29.4 %   94,287     24.0 %

Changsha Pengai

    34,052     5.8 %   40,170     5.8 %   51,469     7,497     6.8 %   24,029     6.7 %   33,289     8.5 %

Shanghai Pengai

    37,926     6.5 %   43,565     6.2 %   38,685     5,635     5.1 %   15,153     4.3 %   18,680     4.8 %

Chongqing Pengai*

    18,515     3.2 %   34,750     5.0 %   37,166     5,414     4.9 %   17,652     5.0 %   29,261     7.4 %

Subtotal top five treatment centers

    428,896     73.3 %   556,635     79.8 %   544,189     79,270     71.5 %   262,096     73.6 %   271,818     69.2 %

Total

    584,857     100.0 %   697,396     100.0 %   761,306     110,897     100.0 %   356,309     100 %   393,074     100 %

*
Indicates flagship hospitals

Summary information on our flagship hospitals

Shenzhen Pengai

        Founded in November 2005, Shenzhen Pengai Hospital was established as our second flagship hospital and was our largest revenue contributor in 2018 and the six months ended June 30, 2019. Shenzhen Pengai Hospital has a gross floor area of approximately 5,650 sq.m. with seven surgical rooms, five energy-based rooms and 25 treatment rooms. As of June 30, 2019, Shenzhen Pengai Hospital had seven major departments including plastic surgery, aesthetic dermatology, aesthetic traditional Chinese medicine, aesthetic dentistry, anesthesiology, medical laboratory, and medical imaging.

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        Shenzhen Pengai Hospital serves as the training base for the Dalian Medical University College of Aesthetic and Plastic Surgery. As of June 30, 2019, Shenzhen Pengai Hospital had 242 employees, including 30 doctors, 50 nurses, three other medical staff and 159 non-medical staff.

GRAPHIC   GRAPHIC

Pengcheng Hospital

        Founded in 1997, Pengcheng Hospital became our first flagship hospital in 2003 to provide both aesthetic medical services and general healthcare and other aesthetic services. Pengcheng Hospital was also our second largest revenue contributor for 2018 and the six months ended June 30, 2019. As of the date of this prospectus, this treatment center has a gross floor area of approximately 8,391 sq.m. with seven surgical rooms, nine energy-based treatment rooms and 27 treatment rooms. It is equipped with advanced medical devices, such as Thermage radiofrequency systems, Body-Jet liposuction systems and Aesculap flexible neuroendoscopy systems. As of June 30, 2019, Pengcheng Hospital had 21 major clinical departments, including plastic surgery, aesthetic dermatology, aesthetic traditional Chinese medicine, aesthetic dentistry, surgical, gynecology, internal medicine, otorhinolaryngology, laboratory testing, radiology and anesthesiology. As of June 30, 2019, Pengcheng Hospital had 319 employees, including 43 doctors, 69 nurses, eight other medical staff and 199 non-medical staff.

GRAPHIC   GRAPHIC

Chongqing Pengai

        Opened in November 2015, Chongqing Pengai provides both aesthetic medical services and other aesthetic services. Chongqing Pengai is our second largest treatment center by size, with gross floor area of approximately 7,070 sq.m., five surgical rooms and 20 non-surgical rooms, including 12 energy-based treatment rooms and 8 VIP treatment rooms. It is equipped with advanced medical devices across its 6 departments, which include plastic surgery, aesthetic dermatology, aesthetic traditional

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Chinese medicine, aesthetic dentistry and others. As of June 30, 2019, Chongqing Pengai had 94 employees, including eight doctors, 16 nurses, two other medical staff and 68 non-medical staff.

GRAPHIC   GRAPHIC

Integration

        Efficient and effective integration of new treatment centers into our network is an important component of our business strategies and a driver of our success. Crucial to successful integration of acquired treatment centers is our post-acquisition integration plan, which involves a dedicated post-acquisition taskforce that conducts a detailed review of the acquired treatment center's equipment, systems and personnel. In particular, we focus on ensuring that the medical professionals at the acquired treatment centers comply with our group-wide protocols and meet our quality standards. In order to retain these personnel, we offer a compelling employment package that includes ongoing training and a performance-based compensation scheme that aligns their interest with those of the treatment centers.

        Aside from service protocols and quality of staff, we also maintain standardized indoor decor to lend consistency to the look and feel of our treatment centers. We regularly review and adjust the mix and focus of clinical departments to leverage each treatment center's unique strengths to enhance its reputation and profile.

Employees

Overview of employees

        We had 1,226, 1,432, 1,542 and 1,687 employees in our wholly or majority owned medical institutions as of December 31, 2016, 2017, 2018 and June 30, 2019, respectively. The following table sets forth certain information about our employees by function as of June 30, 2019:

Function
  Number of
employees
  % of total
employees
 

Management

    7     0.4 %

Doctors

    160     9.5 %

Other Medical Staff(1)

    346     20.5 %

Sales and Marketing

    320     19.0 %

Image Consultants

    202     12.0 %

Customer Service

    281     16.6 %

Finance and Accounting

    79     4.7 %

Human Resource and Administration

    230     13.6 %

Auxillary Medical Staff(2)

    62     3.7 %

Total

    1,687     100.0 %

(1)
includes nurses and medical technicians who are required to hold licenses.

(2)
includes unlicensed medical staff who perform auxiliary functions during treatments.

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        Since our inception, we have not experienced any significant turnover of staff or any disruption to our business operations due to labor disputes as our employees are not represented by a labor union. There had been no complaints or claims from employees that materially and adversely affected our business operations during the historical period.

        Our employees typically enter into standard employment contracts with us. Recruitment is centralized across our treatment centers based on identified employee needs. Each treatment center then enters into standard employment contracts with its own employees, while the decisions to employ the general manager and finance and accounting directors at each treatment center are made at the headquarters level.

        We provide both in-house and external training for our employees to improve their skills and knowledge. Remuneration packages for our employees mainly comprise base salary, overtime allowance (if applicable) and a performance-related bonus. We set performance targets for our employees primarily based on their position and department and annually review their performance. The results of such reviews are used in their salary determinations, bonus awards, and promotion appraisals.

Qualified medical professionals

        The qualification and expertise of doctors are vital to the quality of our healthcare services and our competitiveness. As of June 30, 2019, all of our 203 doctors had obtained Doctor Qualification Certificates, and all our nursing staff have obtained Nurse Practice Certificates.

        We place great emphasis on recruiting, training and retaining our employees. We maintain a high standard in selecting quality medical professionals and provide competitive compensation packages to them. Peer referral represents an important recruitment channel for us as a significant proportion of our doctors are sourced through this channel, indicative of our strong branding and reputation in the medical community. Our full-time doctors, who work for us exclusively during the term of their employment, are typically employed under three to five year employment contracts. We also have doctors who are contractors and not our employees. As part of ongoing development, we provide periodic training to our employees to enhance their skills and knowledge. Our administrative department regularly reviews the profiles of our doctors and prompts them to apply for their next professional rank when they become eligible. Our medical professionals are assigned to various departments in our treatment centers based on the scope of their licenses. Medical professionals are not allowed to practice in departments other than their designated department. The medical service department of each treatment center reviews the prescriptions issued by doctors and inspects each department to ensure no medical professionals practice beyond the scope of their licenses. As of the date of this prospectus, there have been no material complaints or penalties in relation to our medical professionals practicing beyond the scope of their respective licenses.

        As of June 30, 2019, our team of 203 doctors comprised of nine chief physicians, 32 associate-chief physicians, 64 attending physicians, 96 resident physicians in China, one medical practitioner from South Korea and one medical practitioner in Hong Kong. The majority of our doctors worked exclusively at our treatment centers while 41 of our doctors split their practice with other hospitals as of June 30, 2019. Our doctors typically receive compensation in the form of a salary plus bonus based on the number of procedures performed. Our doctors were supported by 364 other medical staff, including nurses and pharmacists, as of June 30, 2019.

Our customers

        Our customers are primarily female individuals residing in China. The majority of our customers are aged between 23 and 30, and this age cohort represented 42% and 41.3% of our customer base as of December 31, 2018 and June 30, 2019, while customers in the 31 to 40 and 16 to 22 age cohorts represented 26.4% and 17.7% of our customer base in 2018, respectively and represented 26.0% and 16.4% of our customer base in the six months ended June 30, 2019, respectively.

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        The following table provides a snapshot of our active customer base.

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  Number of
customers
  %   Number of
customers
  %   Number of
customers
  %   Number of
customers
  %   Number of
customers
  %  

New customers

    50,924     47.0 %   56,755     44.0 %   82,004     45.9 %   38,894     45.4 %   47,237     47.2 %

Repeat customers

    57,367     53.0 %   72,137     56.0 %   96,653     54.1 %   46,741     54.6 %   52,811     52.8 %

Total customers

    108,291     100.0 %   128,892     100.0 %   178,657     100 %   85,635     100.0 %   100,048     100.0 %

        Our active customer base, defined as customers who have received at least one procedure in the relevant year, has increased 19.0% from 108,291 for the year ended December 31, 2016 to 128,892 for the year ended December 31, 2017 and then 38.6% to 178,657 for the year ended December 31, 2018. Our active customer base increased from 85,635 in the six months ended June 30, 2018 to 100,048 in the six months ended June 30, 2019. Our treatments are transactional in nature and we have not entered into any long-term agreements with our customers.

Customer service

        Our customer service team plays a critical role in the service process and is responsible for following up with our customers (including courtesy check-in calls), collecting customer feedback and handling general customer complaints.

        A key component of the services we provide to our customers is the consultation with our image consultants, who provide personalized treatment plan to each customer prior to him/her undertaking the aesthetic treatment. Our image consultants provide advice on the type of treatment, how it should be executed and other factors relevant to achieving an optimal aesthetic outcome that addresses the customer's needs. These consultations help to enhance the aesthetic outcome of treatments and are highly valued by our customers.

Customer feedback system

        In order to enhance customer loyalty and establish long-term customer relationships, we have implemented a customer feedback system which enables us to improve our treatments and services to meet customers' needs. We collect feedback through various channels, including our customer service hotline, the comment collection box at each treatment center and face-to-face communication with the staff at our treatment centers. Our staff is required to keep records of all feedback, whether through centralized handling of feedback made through our service hotline at our company headquarters in Shenzhen, daily inspection of the comment collection box at each treatment center or records prepared after customer interviews. These records are reviewed by the customer service managers at each treatment center before thorough analysis and appropriate follow-up actions are undertaken.

        Due to the nature of our business and the subjective nature of the level of satisfaction with aesthetic medical services, we receive complaints from time to time. Customer complaints are usually in relation to staff attitude, dispute over pricing (competitor offering an equivalent service for less), over-promise, longer than expected recovery time or general dissatisfaction with treatment results, which includes potential side effects. The majority of customer complaints relate to general dissatisfaction with treatment results—this type of complaint represented 93.6%, 95.2%, 98.0% and 98.1% of the total number of complaints for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2019, respectively.

        The overall number of complaints we typically receive is low—we received 204, 227, 227 and 104 complaints for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30,

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2019, respectively. For all periods, the total number of complaints received represented 0.1% of the total number of aesthetic treatments provided. The increase in the total number of customer complaints since 2016 was below the increase in the number of procedures we performed. In particular, the percentage of the number of customer complaints attributable to general dissatisfaction with treatment results out of the total number of aesthetic treatment procedures we performed in 2016, 2017, 2018 and the six months ended June 30, 2019, respectively, was level at approximately 0.1%.

Management of complaints

        Our customer service department is responsible for handling customer complaints. In order to ensure prompt and proper handling of customer complaints, we have implemented strict internal guidelines which are administered at the treatment center level. Where (i) a customer demands compensation for an amount of more than RMB10,000 or a refund for an amount of more than RMB50,000, (ii) a customer has raised the same issue more than three times, (iii) we may be exposed to reputational damage or operational disruption (in particular if media may become involved) or (iv) they relate to potential wrongdoing of a treatment center or its personnel which may constitute medical malpractice according to the Medical Malpractice Regulation, the complaint would be escalated to the designated customers' complaint settlement operations team under our medical safety control department for specific follow up.

        We generally offer free treatments and/or partial or full refunds to settle complaints. Occasionally, we may provide additional compensation to settle customer complaints on a case-by-case basis.

        In order to ensure the highest level of customer satisfaction and to maintain our strong brand name, we have taken a relatively generous approach in offering such refunds and compensation historically. In 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, the amount of refunds and compensation incurred was RMB2.4 million, RMB4.3 million, RMB5.3 million (US$0.8 million), RMB3.3 million and RMB2.8 million (US$0.4 million), respectively, representing 0.4%, 0.7%, 0.7%, 0.9% and 0.7% of our total revenue for the corresponding period. We believe that the number of complaints we received and the amount of refunds and compensation incurred were insignificant, considering the size of our operation, the nature of our industry, and the relatively generous approach we took in offering such refunds and compensation. We seek to further enhance the quality of our service offerings and upkeep our rigorous medical standards, to continue to maintain the customer complaints we received at a low level.

Our suppliers

        As of June 30, 2019, we had 499 suppliers, providing us with a diverse selection of medical equipment, supplies and medical consumables. Our suppliers fall into five key categories: medical devices, energy-based equipment, implants, injection materials and other medical consumables. In general, we have worked with our major suppliers for more than ten years and believe we maintain strong relationships with them. In 2016, 2017, 2018 and the six months ended June 30, 2019, our five largest suppliers in each respective year in aggregate accounted for 39.2%, 36.7%, 37.0% and 32.9%, respectively, of our total amount of purchases, and our single largest supplier accounted for 9.3%, 9.5%, 13.0% and 8.7% of our total amount of purchases, during the same periods, respectively.

        We have a system for selecting reliable and quality suppliers, with a selection and review process based on qualification of the business and/or products, pricing, reputation, service quality, delivery schedule and product offering. We maintain multiple suppliers for key categories of purchases to ensure continuity and quality of supply. Payment terms with the majority of our suppliers are on open account. Certain suppliers grant us credit periods ranging from 20 to 60 days, although we generally pay on delivery.

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        During the two years ended December 31, 2018, we did not encounter any major problems in sourcing despite not having long-term contracts with our suppliers, nor did we encounter any business disruption due to supply shortages or delays. In any event, we believe any shortage or delay in the supply of implants, injection materials and medical consumables will not have any material impact on us as we are able to switch to other suppliers with comparable quality and prices.

        To the knowledge of our directors, none of our directors or any shareholder who owns more than 5% of our issued share capital immediately following completion of offering, nor any of their respective associates has any ownership interest in any of our five largest suppliers.

Our equipment

        We are committed to utilizing high quality equipment for our services. As of June 30, 2019, we owned a wide variety of energy-based treatment and non-surgical aesthetic equipment. Our key equipment includes the Lumenis one, Soprano xli, the Harmony CL and BodyTite and play an important role in achieving high quality aesthetic outcomes for our customers. As of this date, none of our equipment was under a lease arrangement. We source our energy-based equipment and related components from our suppliers in the United States, Europe and Japan.

Sales and marketing

        As of June 30, 2019, we had an effective, disciplined sales and marketing team of 320 who, in addition to a base salary, generate commissions based on the number and types of procedures sold. We have strict policies governing our sales and marketing activities to ensure the consistency of our offering and our customers' experience. For example, we have standardized service catalogs, sales scripts and price lists throughout the network, with management and/or supervisor approval required for deviations such as discounts. In addition, prior to effecting each sale transaction, the treatments proposed by our sales staff are reviewed and approved by our doctors to ensure feasibility and compliance with internal policies. Customers then pay in full prior to receiving the treatments, using a range of payment methods.

        We also have a dedicated marketing team responsible for analyzing market intelligence, organizing advertising activities, evaluating marketing campaigns and assisting in the preparation of promotional materials. Given the size of Chinese market, marketing efforts for each of our treatment centers are primarily initiated and implemented by the marketing personnel situated at each treatment center with the support of our headquarters. Each treatment center's marketing efforts are tailored to customers in the region where the treatment center is based. These marketing efforts are focused on (i) informing customers of the comprehensive aesthetic medical services that we offer; and (ii) emphasizing the high level of customer satisfaction.

        Based on our extensive experience in China, we have obtained an in-depth understanding of the needs and preferences of our customers. Our extensive local knowledge allows us to carry out a wide range of creative marketing events and/or initiatives which cater to local preferences. For example, we collaborate with Ms. Liu Xiaoqing, a celebrity in China, to further enhance our brand awareness.

Competition

        The aesthetic medical services market in China is highly competitive and fragmented with numerous market participants. According to Frost & Sullivan, the top five players in terms of revenue in the private aesthetic medical service market in 2018, including our company, together accounted for 7.4% of the total market. Our competitors include other privately-owned multi-site operators in China such as Mylike, Yestar, Aist and Evercare. We believe the principal competitive factors in this market are price and quality of service, variety of services rendered, convenience and proximity of treatment

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center location to place of business or residence, brand recognition and reputation, targeted marketing and customized services.

        According to Frost & Sullivan, it is expected that the aesthetic medical services industry in China will undergo a significant amount of consolidation in the coming years. The rapid growth in the sector is expected to lead to more stringent government regulations, higher qualification requirements for surgeons, stronger emphasis on safety as well as greater capital needs for advanced equipment. These factors are expected to favor market participants with greater scale, driving consolidation led by larger multi-site operators, while creating a higher entry barrier for new entrants.

        The aesthetic medical services market in China has significant barriers to entry, including:

        We believe we are well positioned to capitalize on these industry trends. We intend to leverage our substantial market position, reputation and extensive market knowledge to capture this growth opportunity through acquisitions of other aesthetic medical service providers in China.

        We also face intense competition in our general healthcare service business. We compete primarily with other treatment centers in our areas of operation. Key competitive factors include healthcare service quality, reputation, convenience and price. We expect new competitors in the general healthcare service industry will continue to emerge given the state of China healthcare reform and the central and local governments' supportive policies towards public healthcare reform and private capital investment in the healthcare services industry.

Properties

        As of the date of this prospectus, we owned building ownership rights to certain buildings on three different parcels of land in Shenzhen and Huizhou with a total gross floor area of 2,545 sq.m. Shenzhen Pengai Investment, one of our subsidiaries, is the owner of these buildings. Shenzhen Pengai Investment has obtained the relevant property rights certificates.

        Two of our owned properties, which are located in Luohu District, Shenzhen, and Huicheng District, Huizhou, Guangdong, are leased to Pengcheng Hospital and Huizhou Pengai for the operation of their businesses, respectively. Another of our owned properties, located in Nanshan District, Shenzhen, is leased out to an independent tenant.

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        The majority of the properties on which we operate in China are leased. As of the date of this prospectus, we owned three different properties with a total gross floor area of 2,545 sq.m and we leased or occupied properties in 20 different locations with an aggregate gross floor area of 56,722 sq.m., including the property of our principal headquarters, which is located at 1122 Nanshan Boulevard, Nanshan District, Shenzhen, Guangdong Province.

        The following table sets forth the number of lease agreements by expiry year.

Expiry year
  Number of
leases
 

2019

    1  

2020

    9  

2021+

    28  

Intellectual property

        As of June 30, 2019, we had (i) 36 trademarks registered in mainland China and four pending trademark applications, of which three are in mainland China and one is in Singapore, (ii) 38 registered domain names, of which all are registered in mainland China, and (iii) two registered patents, of which all are registered in mainland China. Our principal intellectual property rights are our registered trademarks such as " GRAPHIC " (Pengai), as well as our patented technologies, which include a device and method for measuring facial symmetry and a device and method for mandibular shaping.

        We recognize the importance of protecting and enforcing our intellectual property rights. We have registered all the principal trademarks, patents and internet domain names in China that are necessary for us to carry out our business operations. We will take the necessary legal action to protect our intellectual property rights if we discover any infringement of those rights.

        As of the date of this prospectus, we were not aware of any material infringement of our intellectual property rights and we believe that we have taken reasonable measures to prevent infringement of our own intellectual property rights. As of the date of this prospectus, we did not have any pending or, to our knowledge, threatened claims against us or any of our subsidiaries relating to the infringement of any intellectual property rights owned by third parties.

        In order to maintain our substantial market position in the aesthetic medical services market in China, we have active dialogue and exchange of information and experts with well-respected aesthetic medical institutions in the United States, Europe, South Korea and Japan to learn about and adopt new aesthetic medical treatments and advanced technologies. Any knowledge gleaned from these exchanges is shared with our medical staff via our training programs. We believe this allows us to strengthen our technological advantage in this market and anticipate and respond quickly to our customers' needs and improve the quality, safety and efficiency of our services.

        We did not incur research and development expenses from January 1, 2016 to June 30, 2019.

        We maintain professional malpractice liability insurance for key doctors and medical staff in most of our aesthetic medical treatment centers. We do not maintain product liability insurance for the medical devices and energy-based equipment and business interruption insurance or key employee insurance for our executive officers.

        The premiums that we paid for our insurance were RMB263,388, RMB325,862, RMB393,091 (US$57,260) and RMB119,270 (US$17,374) in 2016, 2017, 2018, and the six months ended June 30, 2019, respectively, representing 0.05%, 0.05%, 0.05% and 0.03% of our revenue for those periods, respectively.

        During the three years ended December 31, 2018 and the six months ended June 30, 2019, we did not submit any material insurance claims.

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Legal proceedings

        As an aesthetic medical service and general healthcare service provider in China, we are subject to legal or arbitration proceedings, disputes or claims in the ordinary course of business. Except for those disclosed in "Risk Factors—We are subject to customer complaints, claims and legal proceedings in the regular course of our operations from time to time, which could result in significant costs and materially and adversely affect our brand image, reputation and results of operations," each of these proceedings had been settled as of the date of this prospectus or is, in our view, immaterial in terms of their impact on our financial and operational conditions.

        Save as disclosed above and based on the information available to us, we were not, as of the date of this prospectus, engaged in any litigation, arbitration or claim of material importance, and no litigation, arbitration of claim of material importance is known to us to be pending or threatened by or against us that may have a material adverse effect on our business, financial condition and operating results.

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Regulation

        Substantially all of our operations are in PRC and our business is subject to supervision and regulation by the PRC government. This section sets forth a summary of the most significant laws, rules, regulations and policies related to the aesthetic medical industry and our business in the PRC.

Regulations on the institutional reforms of medical institutions

Opinions on Further Promoting the Reform of Medicine and Health System

        The Opinions on Further Promoting the Reform of Medicine and Health System, or the Opinions, which were promulgated by the State Council and became effective on March 17, 2009, advocate a range of measures to reform medical institutions in China and to establish a basic medicine and health system covering urban and rural residents. Measures aimed at reforming medical institutions include: (i) separating governmental agencies from public medical institutions; (ii) separating for-profit medical institutions from not-for-profit medical institutions; (iii) separating sponsorship from operations of public hospitals; (iv) separating pharmaceutical dispensing from pharmaceutical prescription. The Opinions include proposals for the establishment and improvement of corporate governance systems of public medical institutions, and checks and balances in decision-making, execution and supervision processes between organizers and operators of public medical institutions. The Opinions also promote private capital investment in medical institutions (including investments by foreign investors), the development of private medical institutions and the reform of public medical institutions (including those established by state-owned enterprises) through private capital investment.

Notice on Further Encouraging and Guiding Private Capital to Invest in Medical Institutions

        The Notice of the State Council on Forwarding the Opinions of the National Development and Reform Commission, or the NDRC, the Ministry of Health and the other three departments, on Further Encouraging and Guiding Private Capital to Invest in Medical Institutions, which was promulgated by the General Office of the State Council and became effective on November 26, 2010, states that the PRC government encourages and supports investments by private investors in medical institutions of various types. For example, private investors are permitted to apply for approval to establish for-profit or not-for-profit medical institutions. They are also encouraged to participate in the reform of existing public hospitals, including those established by state-owned enterprises, by converting them into private not-for-profit medical institutions in order to systematically reduce the proportion of public hospitals in the system, and to set up hospital management companies to provide specialized services.

        In addition, private medical institutions with experience in the provision of healthcare services and a good reputation may be selected as participants in the restructuring of hospitals established by state-owned enterprises through pilot reform programs. They are also encouraged to modernize their hospital management, establish standardized corporate governance structures, improve their cost control and quality management systems, and employ professional managers to manage their hospital, such as by engaging or authorizing domestic or overseas medical institutions with professional experience to participate in the management of their hospitals to improve efficiencies, as well as improve their clinical research and build up their research and development teams. Medical institutions are also encouraged to develop into large, sophisticated, technology-intensive medical groups and adopt brand-focused development strategies to build good reputations.

Several Opinions on Promoting the Development of Healthcare Service Industry

        Several Opinions on Promoting the Development of Healthcare Service Industry, or the 2013 Opinions, was promulgated by the State Council and became effective on September 28, 2013. The 2013 Opinions encourage the private sector to invest in the healthcare service industry by various

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means including new establishments and participation in restructuring, and also encourage private capital to invest in not-for-profit medical institutions for providing basic healthcare services. The 2013 Opinions also propose the idea of relieving the requirements for Sino-foreign equity/cooperative joint venture medical institutions and expanding the eligibility for wholly foreign-invested medical institutions in the pilot program.

Several Opinions on Accelerating the Development of Medical Institutions with Social Capital

        Several Opinions on Accelerating the Development of Medical Institutions with Social Capital, which was promulgated by the National Health and Family Planning Commission and the State Administration of Traditional Chinese Medicine and became effective on December 30, 2013, specifies the policies that support the development of privately-funded medical institutions, which include (i) gradual relief of foreign capital investment in medical institutions, (ii) reduction of the requirements in the service sector, allowing social capital investment in the areas which are not explicitly prohibited, (iii) reduction of the requirements for the deployment and use of large medical equipment in private hospitals, (iv) improvement of supporting policies for the development of private hospitals in areas such as medical insurance and price control, and (v) acceleration of the approval process regarding the establishment and operation of private hospitals.

Outline of the National Medical and Healthcare Service System Plan (2015-2020)

        The Notice on Printing and Distributing the Outline of the National Medical and Healthcare Service System Plan (2015-2020), which was promulgated by the General Office of the State Council and became effective on March 6, 2015, states that private medical institutions are significant and integral parts of the medical and healthcare service system as well as an effective approach to fulfilling people's needs of multilevel and diversified medical and healthcare services. It reiterates that currently, private medical institutions may provide basic medical services, compete with public medical institutions in an orderly manner, provide advanced services to fulfill needs that are beyond basic needs and provide services in great demand such as rehabilitation and geriatric services to complement services provided by public medical institutions.

        The goal of the National Medical and Healthcare Service System Plan, or the Plan, is to revamp the development of private medical institutions. For example, private medical institutions are expected to grow such that by 2020, there will exist no less than 1.5 hospital beds per one thousand residents. They are also expected to set up diagnosis and treatment tools for large medical equipment. The Plan also provides for the reduction of the requirements for qualification of medical institution sponsors and the conditions for setting up medical institutions through Sino-foreign equity/cooperative joint ventures. In addition, pursuant to the Plan, the pilot scheme for the establishment of medical institutions solely through investment of qualified overseas capital is expected to be gradually expanded. The threshold requirements for medical services will be reduced and social capital investment will be allowed in areas not explicitly prohibited by applicable laws and regulations. The Plan also prioritizes governmental support for private not-for-profit medical institutions and provides for high level guidance for the development of such institutions. In addition, the Plan creates a requirement for the establishment of professional hospital management groups, provision of support to private medical institutions' allocation of large medical equipment, and more efficient review and approval formalities that assume approval of any qualified private medical institution and provide a simplified process.

Several Policies and Measures Regarding Promoting Private Investment in Medical Institutions and Accelerating Development

        Several Policies and Measures Regarding Promoting Private Investment in Medical Institutions and Accelerating Development, which was promulgated by the General Office of the State Council and effective on June 11, 2015, provides for (i) elimination and cancellation of administrative authorities'

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unreasonable requirements for pre-examination and pre-approval regarding the establishment of medical institutions, and the reduction in the time required for making such examination and approval, (ii) reasonable control of the number and scale of public medical institutions and the exploration of the space for development of the medical institutions through private capital investments, (iii) support for the listing and financing of eligible and qualified for-profit medical institutions funded by private capital investments, and (iv) encouragement for private investors with managerial experience in medical institutions to participate in the management of public medical institutions in various forms such as through hospital management groups and subject to a clear distribution of power and responsibilities.

Guiding Principles for the Allocation Planning of Medical Institutions (2016-2020)

        The Notice on Printing Guiding Principles for the Allocation Planning of Medical Institutions (2016-2020), which was promulgated by the National Health and Family Planning Commission on July 21, 2016, promotes medical institutions with social capital and requires (i) the increase in scale and acceleration of high-level development of medical institutions with social capital, and the involvement of medical institutions with social capital in relevant planning to reserve space for the allocation of resources such as beds and large medical equipment according to a certain proportion, (ii) the cancellation of limitations on the amount and location of medical institutions with social capital in terms of the accordance with total amount and structure of planning; (iii) a preference for the allocation approval of resource-scarce and not-for-profit specialized medical institutions established by social capital, and (iv) promotion of the establishment of private clinics by medical physicians in intermediate/senior technical positions.

Decisions of the Central Committee of the Communist Party of the PRC on Several Major Issues Concerning Comprehensively Deepening Reforms

        The Decisions of the Central Committee of the Communist Party of the PRC on Several Major Issues Concerning Comprehensively Deepening Reforms, which was promulgated by the Central Committee of the Communist Party of the PRC and became effective on November 12, 2013, promotes private sector investment in the healthcare service industry and in other services industries that are poorly funded or in need of diversification. It also permits doctors to have a multi-site practice and allows privately funded medical institutions to benefit from the medical insurance system.

Regulations on the administration and classification of medical institutions

Administrative Measures on Medical Institutions and the Medical Institution Practicing License

        The Administrative Measures on Medical Institutions, which was promulgated on February 26, 1994 by the State Council, came into effect on September 1, 1994 and was amended on February 6, 2016, and the Implementation Measures of the Administrative Measures on Medical Institutions, which was promulgated by the Ministry of Health on August 29, 1994, came into effect on September 1, 1994, and was amended in 2006, 2008, and 2017, require that the establishment of medical institutions to be reviewed and approved by healthcare administrative departments at or above the county level and an Approval Letter of Establishment of Medical Institution to be obtained from competent healthcare administrative departments. In addition, any entity or individual that intends to establish a medical institution must follow the application approval procedures and register with the relevant healthcare administrative authorities to obtain a Medical Institution Practicing License.

Measures for Hierarchical Administration of Hospitals (For Trial Implementation)

        The Measures for Hierarchical Administration of Hospitals (For Trial Implementation), which was promulgated by the Ministry of Health and came into effect on November 29, 1989, sets out a "pilot point" principle for the hierarchical administration of hospitals. It provides that the hierarchical

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administration should be implemented firstly on pilot points, and progressively extended to other hospitals. In addition, it also provides that the hierarchical administration pilot program should be commenced with general hospitals; after the standards of the hierarchical administration of specialized hospitals is established, the corresponding pilot program for specialist hospitals should be initiated.

Law on Maternal and Infant Healthcare and Its Implementation Measures

        The Law on Maternal and Infant Healthcare, which was promulgated by the Standing Committee of the National People's Congress on October 27, 1994, came into effect on June 1, 1995, and was amended on August 27, 2009 and November 4, 2017, and the Implementation Measures of the Law of the People's Republic of China on Maternal and Infant Healthcare, which was promulgated by the State Council and came into effect on June 20, 2001 and was amended on November 17, 2017, require medical institutions engaged in (i) genetic disease diagnosis and prenatal diagnosis, (ii) pre-marital medical examinations, or (iii) midwifery services, ligature operations or operations for termination of gestation, to be licensed by the public health administrative authority of different levels as required to obtain the corresponding qualification certificates.

Administrative Measures for the Examination of Medical Institutions (For Trial Implementation)

        The Administrative Measures for the Examination of Medical Institutions (For Trial Implementation), which was promulgated by the Ministry of Health and came into effect on June 15, 2009, stipulates that a medical institution's Medical Institution Practicing License is subject to periodic examinations and verifications by the registration authorities. Such examinations and verifications are based on records and points generated by point management system for malpractice of medical institutions, established by local health administrative departments. The verification period is three years for general hospitals, traditional Chinese medicine hospitals, western medicine and traditional Chinese medicine hospitals, ethnic minority medicine and specialized hospitals, as well as sanitariums, rehabilitation hospitals, maternity and children's healthcare centers, emergency centers, clinical laboratories and specialized disease prevention institutions equipped with more than 100 beds, and one year for other medical institutions. In the event that a medical institution fails to apply for verification as required and post re-verification procedures are unsuccessful, the registration authorities may cancel such medical institution's Medical Institution Practicing License.

Administrative Measures for Aesthetic Medical Services

        The Administrative Measures for Aesthetic Medical Services, which was promulgated by the Ministry of Health on January 22, 2002, came into effect on May 1, 2002, and was amended in 2009 and 2016, requires applicants for establishing aesthetic medical institutions or aesthetic medical departments within medical institutions to meet certain requirements. Aesthetic medical institutions may not commence operation before obtaining a Medical Institution Practicing License. Service items provided by aesthetic medical institutions or aesthetic medical departments within medical institutions must be approved by designated specialized academic associations and filed with relevant authorities.

Classification Catalog of Aesthetic Medical Items

        The Classification Catalog of Aesthetic Medical Items, which was promulgated by the Ministry of Health and came into effect on December 11, 2009, classifies aesthetic medical services into four categories: (i) aesthetic surgical items (further divided into four grades) (ii) aesthetic dentistry items (iii) aesthetic dermatological items, and (iv) aesthetic Chinese medicine items. Provincial-level counterparts of the Ministry of Health may adjust the catalog based on local circumstances. Every medical institution will be registered with one or more categories from the day of establishment and is only allowed to conduct medical activities specifically provided under such categories.

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Opinions on Implementing Classification Administration of Urban Medical Institutions

        The Opinions on Implementing Classification Administration of Urban Medical Institutions, which was promulgated jointly by the Ministry of Health, State Administration of Chinese Traditional Medicine, the Ministry of Finance and National Development and Reform Commission on July 18, 2000 and came into effect on September 1, 2000, states that whether a medical institution is classified as not-for-profit or for-profit will be based on such medical institution's business objectives, service purposes and implementation of various financial, taxation, pricing and accounting policies, provided that governments may not operate for-profit medical institutions. Medical institutions have to file written statements regarding their not-for-profit or for-profit status with relevant healthcare authorities when completing the application, registration and re-examination procedures in accordance with relevant laws, and the handling authority of health will, jointly with other relevant authorities, decide the not-for-profit/for-profit status for such medical institution based on the source of its investment and the nature of its business.

Categories of Medical Institutions in the PRC

        According to the Basic Standards for Medical Institutions (For Trial Implementation), which was promulgated on September 2, 1994 and partly abrogated on August 2, 2010, March 15, 2011 and December 5, 2011, and the Interim Measures for the Assessment of Medical Institutions promulgated by the Ministry of Health on September 21, 2011, medical institutions in the PRC are divided into three classes (Class I, II and III) with regard to their medical practice conditions, including but not limited to, the amount of registered beds, treatment departments, personnel, properties, equipment, completeness of their internal rules and regulations as well as payment of registered capital.

Basic Standard for Aesthetic Medical Institution and Aesthetic Medical Department (For Trial Implementation)

        The Basic Standard for Aesthetic Medical Institution and Aesthetic Medical Department (For Trial Implementation), which was promulgated by the Ministry of Health and came into effect on April 16, 2002 specifies basic standards that aesthetic medical specialty hospitals, aesthetic medical specialty outpatient clinics, aesthetic medical specialty clinics and aesthetic medical specialty departments should meet, such as the required number of beds, clinical departments and medical personnel. Certain basic standards for each type of aesthetic medical institutions and aesthetic medical specialty department are set forth below.

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Regulations on the supervision over pharmaceuticals and medical services in medical institutions

Pharmaceutical Administration Law of the People's Republic of China and Its Implementation Regulations

        The Pharmaceutical Administration Law of the People's Republic of China, which was promulgated by the Standing Committee of the National People's Congress on September 20, 1984, came into effect on July 1, 1985, and was amended in 2001, 2013, 2015 and 2019, and the Regulations for the Implementation of the Pharmaceutical Administration Law of the People's Republic of China, which was promulgated by the State Council on August 4, 2002, came into effect on September 15, 2002, and was amended on February 6, 2016 and March 2, 2019, provide that medical institutions may only purchase pharmaceuticals from licensed enterprises engaged in pharmaceutical manufacturing and distribution (except for the purchase of those Chinese herbal medicines that are not administrated by the approval number system). Also, medical institutions must establish an examination and inspection system to verify the qualification certificates and other specifications of the pharmaceuticals they purchase, and may not purchase or use pharmaceuticals that do not satisfy the relevant requirements. In addition, medical institutions must adopt and implement a pharmaceutical storage system and take necessary measures to ensure the quality of the pharmaceuticals such as providing refrigeration or be freeze-proof, damp-proof, pest-proof, and mouse-proof. Medical institutions are also required to retain certain qualified pharmaceutical technician personnel. Non-pharmaceutical technician personnel are

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prohibited from directly engaging in drug-related technical work. Obtaining an Import Permit Certificate or an Export Permit Certificate issued by the drug administration department of the State Council is also required for the import and export of narcotics and permitted psychotropic substances.

Measures for the Supervision and Administration of Pharmaceuticals in Medical Institutions (for Trial Implementation)

        The Measures for the Supervision and Administration of Pharmaceuticals in Medical Institutions (for Trial Implementation), which was promulgated by the China Food and Drug Administration, or the CFDA, on October 11, 2011 and came into effect the same date, requires medical institutions to purchase pharmaceuticals from enterprises qualified for the production or distribution of pharmaceuticals and comply with certain standards regarding the storage, safekeeping, preparation and use of such pharmaceuticals. Any pharmaceutical prepared by a medical institution must be used by and for that same medical institution only. Medical institutions are prohibited from selling prescription pharmaceuticals directly to the public via mail, online or over the counter.

Measures for the Classification and Administration of Prescription Pharmaceuticals and Non-prescription Pharmaceuticals (For Trial Implementation)

        The Measures for the Classification and Administration of Prescription Pharmaceuticals and Non-prescription Pharmaceuticals (For Trial Implementation), which was promulgated by State Drug Administration on June 18, 1999 and came into effect on January 1, 2000, sets forth the principals for the classification and administration of prescription pharmaceuticals and non-prescription pharmaceuticals based on their types, specifications, indications, dosage and supply channels. According to this measure, prescription pharmaceuticals may only be produced, purchased and used by licensed doctors' prescription and licensed associate doctors, while non-prescription pharmaceuticals may be produced, purchased and used by anyone at their discretion without licensed doctors or licensed associate doctors' prescription.

Regulations on Centralized Pharmaceutical Procurement by Medical Institutions

        The Opinions on Further Regulating Centralized Pharmaceutical Procurement by Medical Institutions, which was jointly promulgated by the Ministry of Health and five other departments on January 17, 2009, and the Interpretations of Issues Related to the Opinions on Further Regulating Centralized Pharmaceutical Procurement by Medical Institutions, which was jointly promulgated by the Ministry of Health and five other departments on June 19, 2009, as well as the Administrative Measures for Supervision on Centralized Pharmaceutical Purchase and the Standards of Centralized Pharmaceutical Procurement Work for Medical Institutions jointly promulgated by the Ministry of Health and six other departments on June 2, 2010 and July 7, 2010, respectively, provide the general framework and detailed operational procedures regarding the centralized pharmaceutical procurement mechanism that requires non-profit medical institutions established by governments or state-owned enterprises to procure pharmaceuticals through the non-profit centralized pharmaceutical procurement platform organized by the competent governmental authorities. Medical institutions of other forms, are also encouraged to participate in the centralized pharmaceutical procurement system.

Regulations on Prices of Pharmaceuticals and Medical Services

        According to the Opinions on Further Rectification of the Market Price for Pharmaceuticals and Medical Services, which was jointly promulgated by the National Development and Reform Commission and other seven departments on May 19, 2006, the profit margin of the pharmaceuticals subject to government pricing sold by medical institutions at or above county level may not exceed 15% of the actual procurement cost of such pharmaceuticals, and the profit margin of Chinese medicine drinks and tablets may not exceed 25% of their actual procurement cost.

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        The Notice on Issuing Opinions on Reforming the Price Formation Mechanism of Drugs and Medical Services, which was jointly promulgated by the NDRC, the Department of Health, and the Ministry of Human Resources and Social Security, came into effect on November 9, 2009. It provides that the price for basic healthcare services provided by non-profit medical institutions have to be set by government-directed pricing guidelines, while the price for healthcare services provided by for-profit medical institutions and certain special categories of healthcare services provided by non-profit medical institutions may be determined by the market.

        According to the Notice of Issues Related to the Implementation of Market Price Adjustment by Non-public Medical Institutions, which was promulgated and implemented on March 25, 2014 by the National Development and Reform Commission, National Health and Family Planning Commission and the Ministry of Human Resources and Social Security, private for-profit medical institutions may set their own pricing for medical services, but such pricing must be determined according to principles of fairness, legitimacy and good faith and maintained at a relatively stable price level within a specific period. In addition, prices of medical services and pharmaceuticals must be displayed publicly to patients through various means, and medical institutions must take the initiative to receive social supervision.

        The Opinions on Promoting Pharmaceutical Pricing Reform, which was promulgated by the National Development and Reform Commission, National Health and Family Planning Commission, Ministry of Human Resources and Social Security and four other departments on May 4, 2015 and came into effect on the same date, sets forth that from June 1, 2015, except for narcotic drugs and Class I psychotropic drugs, the pricing of drugs formulated by the government will be abolished. The pricing of narcotic drugs and Class I psychotropic drugs is still temporarily regulated by the NDRC which sets the maximum ex-factory and maximum retail prices until new regulation on pricing is implemented. The pricing for other drugs may be determined by manufacturers and sellers on their own based on the cost of production and operation as well as market supply and demand.

Administrative Measures for Pharmaceutical Importation

        The Administrative Measures for Pharmaceutical Importation, which was jointly promulgated by the Ministry of Health and the General Administration of Customs on August 18, 2003 and amended on August 24, 2012, provides that imported pharmaceuticals may be registered and cleared for customs only after obtaining an Imported Pharmaceutical Registration Certificate, a Pharmaceutical Product Registration Certificate or an Imported Pharmaceutical Permit, as applicable.

Administrative Measures for the Control of Radioactive Pharmaceuticals

        The Administrative Measures for the Control of Radioactive Pharmaceuticals, which was promulgated by the State Council, came into effect on January 13, 1989, and was amended on January 8, 2011 and March 1, 2017, requires medical institutions to comply with relevant national regulations and rules concerning radioisotope health protection when using radioactive pharmaceuticals. Any medical institution wishing to use radioactive pharmaceuticals must obtain a License for the Use of Radioactive Pharmaceuticals of the corresponding grade from the supervision and administration department of pharmaceuticals at the provincial, regional or municipal levels, as applicable. The License for the Use of Radioactive Pharmaceuticals is valid for five years and is of varying grades based on the technical skill and professional level of the radiological personnel and the equipment conditions of such medical institution. In addition, the preparation or use of radioactive preparations must meet the relevant provisions of the Pharmaceutical Administration Law of the People's Republic of China and the implementing rules thereof.

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Regulations on the Administration of Narcotic Pharmaceuticals and Psychotropic Substances

        The Regulations on the Administration of Narcotic Pharmaceuticals and Psychotropic Substances, which was promulgated by the State Council on August 3, 2005 and was amended on December 7, 2013 and February 6, 2016, provides that if a medical institution needs to use any narcotic pharmaceutical or Class I psychotropic substance, such medical institution must, upon approval by the competent public health department, obtain the Seal Card for the Purchase and Use of Narcotic Pharmaceuticals and Class I Psychotropic Substances, or the Seal Card. If a medical institution with a Pharmaceutical Preparation Certificate for Medical Institutions and a Seal Card needs to dispense for clinical use any narcotic pharmaceutical or psychotropic substance that is not available on the market, the preparation of such pharmaceutical or psychotropic substance will be subject to approval by the competent provincial, regional or municipal pharmaceutical regulatory department where the medical institution is located. Such prepared narcotic pharmaceutical or psychotropic substance may only be dispensed by the medical institution that prepared it and may only be used in the institution itself and may not be marketed.

Measures for the Administration of Prescriptions

        The Measures for the Administration of Prescriptions, which was promulgated on February 14, 2007 and came into effect on May 1, 2007 by the Ministry of Health, provides the standards and format of prescriptions, the principles of prescription writing that doctors must abide by, and other regulations related to the provision and preparation of prescriptions. In accordance with the Measures for the Administration of Prescriptions, a registered doctor must acquire the prescription rights in the medical institution where he or she is registered. The prescription prescribed by the assistant doctor is then valid upon the signature or personal seal of the doctor in the same medical institution.

Regulations on the supervision over medical equipment in medical institutions

Regulations on the Supervision and Administration of Medical Devices

        The Regulations on the Supervision and Administration of Medical Devices, or the Regulations on Medical Devices, which was promulgated by the State Council on January 4, 2000 and amended on March 7, 2014 and May 4, 2017, regulates the management of medical device manufacturing and the supervision, distribution and use of medical devices as well as relevant legal obligations. Pursuant to the Regulations on Medical Devices, medical device enterprises and medical institutions may only purchase medical devices from properly licensed enterprises. Medical institutions may not use unregistered, uncertified, expired, ineffective or outdated medical devices. Disposable medical devices may not be used repeatedly and medical institutions must destroy used disposable medical devices in accordance with relevant rules and keep records such disposal.

Administrative Measures on Radiotherapy

        According to the Administrative Measures on the Radiotherapy, which was promulgated by the Ministry of Health on January 24, 2006, came into effect on March 1, 2006 and was amended on January 19, 2016, medical institutions engaged in radio diagnosis and radiotherapy must be equipped with the conditions required for conducting radio diagnosis and radiotherapy, and apply for a License for Radiotherapy issued by the competent public health administrative authorities. Medical institutions may not conduct radio diagnosis and radiotherapy if they fail to obtain the License for Radio-diagnosis and Radiotherapy or to register with radio diagnosis and radiotherapy on the Medical Institution Practicing License. During the course of radiotherapy, medical institutions must take protective measures in accordance with the relevant laws and regulations.

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Regulations on the Safety and Protection of Radioisotopes and Radiation-emitting Devices and Measures for Administration of the Safety Licensing of Radioactive Isotopes and Radioactive Equipment

        The Regulations on the Safety and Protection of Radioisotopes and Radiation-emitting Devices, which was promulgated by the State Council on September 14, 2005, came into effect on December 1, 2005 and was revised on July 29, 2014 and March 2, 2019, and the Measures for Administration of the Safety Licensing of Radioactive Isotopes and Radioactive Equipment, which was promulgated by the Ministry of Environmental Protection (currently known as the Ministry of Ecology and Environment) on January 18, 2006 and amended on December 6, 2008 and December 12, 2017, require any entity engaging in the production, sale or use of radioisotopes or radiation-emitting devices of different categories to obtain a Safety License for Radiation. In addition, medical institutions using radioisotopes or radiation-emitting devices for diagnosis and treatment are required to obtain a permit for radiological diagnostic and therapeutic techniques and medical radiation.

Administrative Measures on the Deployment and Use of Large Medical Equipment (for Trial Implementation)

        The Administrative Measures on the Deployment and Use of Large Medical Equipment (for Trial Implementation), which was jointly promulgated by the National Health Commission and the State Drug Administration and became effective on May 22, 2018, provides that the State implements classified and categorized allocation plans and license management to large medical equipment according to the Catalog of Large Medical Equipment. Large medical equipment refers to medical equipment with complicated technology, large capital input, high operating cost, great impact on medical expenses and included in the catalog management. Medical institutions that intend to purchase large medical equipment must apply to the competent health administrative authorities and purchase the approved large medical equipment upon the receipt of a License for the Deployment of Large Medical Equipment.

Administrative Measures for Medical Consumables for Medical Institutions (for Trial Implementation)

        Administrative Measures for Medical Consumables for Medical Institutions (for Trial Implementation) or the Measures for Medical Consumables for Medical Institutions was jointly promulgated by the National Health Commission and the National Administration of Traditional Chinese Medicine on June 6, 2019 and will be effective on September 1, 2019. Measures for Medical Consumables for Medical Institutions provide for the definition and classification of medical consumables, and state that whole-process administration will be imposed on work related to medical consumables, including selection, procurement, receiving inspections, storage, distribution, clinical use, monitoring, and evaluation. Measures for Medical Consumables for Medical Institutions state that medical consumables will be subject to unified procurement, adding that clinical use of medical consumables is administered at three different levels, and for this purpose, medical consumables are divided into three classes, i.e. Class I, Class II and Class III. Class I medical consumables are utilized by medical technicians, while Class II medical consumables are used by qualified medical technicians after they have received the necessary training, and Class III medical consumables, as stipulated by relevant administrative provisions on medical technologies, are used by those medical technicians who obtain the qualification to make relevant technical operations. Furthermore, Measures for Medical Consumables for Medical Institutions require that medical consumables usable by medical institutions shall fall in a limited range of varieties, to limited specifications and in a limited quantity, and the number of enterprises supplying the medical consumables with the same or similar functions should be controlled as well.

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Regulations on medical personnel of medical institutions

Law on Medical Practitioners of the People's Republic of China

        The Law on Medical Practitioners of the People's Republic of China, which was promulgated by the Standing Committee of the National People's Congress on June 26, 1998, came into effect on May 1, 1999, and was amended on August 27, 2009, provides that medical practitioners in the PRC must obtain qualification licenses for their medical profession. Qualified medical practitioners and qualified assistant medical practitioners must register with the relevant public health administrative authorities at or above the county level. After registration, medical practitioners may work at medical institutions in their registered location in the types of jobs and within the scope of such medical treatment, disease-prevention or healthcare business as provided in their registration.

Administrative Measures for the Registration of Medical Practitioners

        Administrative Measures for the Registration of Medical Practitioners, which was promulgated by the National Health and Family Planning Commission on February 28, 2017 and came into effect on April 1, 2017, provides that the State has established an information system for medical practitioner administration to carry out e-registration and online administration. Upon gaining a qualification license to practice as a doctor, medical practitioners may conduct activities related to medical care, disease prevention or healthcare according to their registered area, category and scope of practice. Medical practitioners serving in several institutions within the same place of practice shall determine a specific institution as the main practicing institution, and apply for registration with the competent health and family planning administrative authority that approves the practice of the institution. For other institutions where the physician intends to practice, the physicians must apply with the administrative departments of health and family planning that approves the practice of such institutions, indicating the locations and names of such institutions.

Trial Regulations on the Position of Health Technical Personnel

        The Trial Regulations on the Position of Health Technical Personnel, which was promulgated by the Ministry of Health on February 22, 1981 and came into effect on the same date, classifies health technical positions into four types: medical, medicine, nursing and technician. The chief medical/medicine/nursing/technical physicians and associate-chief medical/medicine/nursing/technical physicians are classified as senior technical positions. The attending medical/medicine/nursing/technical physicians are classified as intermediate technical positions. The medical/medicine/nursing/technical physicians and the medical/medicine/nursing/technical staff are classified as primary technical positions. Health technical position qualifications at various levels are reviewed respectively, by the corresponding senior/intermediate/primary position review committee. Senior position review committee is generally created by departments in the State Council, provinces, autonomous regions or municipalities directly under the central government. The aforementioned authorities may authorize competent subordinate entities to constitute senior position review committees, and such subordinate entities should apply for approval regarding the establishment of senior position review committees from the nominating department. The competence to constitute intermediate/primary position review committees is determined by departments in the State Council, provinces, autonomous regions or municipalities directly under the central government.

Regulations on Nurses

        The Regulations on Nurses, which was promulgated by the State Council on January 31, 2008 and came into effect on May 12, 2008, provides that a nurse shall apply to the health administrative department of the proposed place of practice at the provincial, regional or municipal level for practicing nurse registration, and obtain a Nurse's Practicing Certificate. The practicing nurse

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registration is valid for five years. The number of nurses at a medical institution may not be less than the standard number set by the public health administrative authority of the State Council.

Administrative Measures for Aesthetic Medical Services

        The Administrative Measures for Aesthetic Medical Services, which was promulgated by the Ministry of Health on January 22, 2002, came into effect on May 1, 2002, and was amended on February 13, 2009 and January 19, 2016, requires medical practitioners of aesthetic medical services to obtain the qualification license of aesthetic medical chief doctor or provide aesthetic medical clinical services under supervision of licensed chief doctors. An aesthetic medical chief doctor is required to have, among others, (a) a doctor's qualification and registration with relevant authority, (b) working experience with relevant clinical specialties, and (c) aesthetic medical training or an advanced education certificate or no less than one year of clinical working experience in the aesthetic medical services. Personnel providing aesthetic medical nursing services must also meet relevant requirements including but not limited to (a) nurse qualifications and registrations with relevant authorities, (b) no less than two years of nursing working experience, and (c) aesthetic medical nursing training or advanced education certificates or not less than six months of clinical nursing working experience in the aesthetic medical services. The chief doctor responsible for aesthetic surgeries must also have at least six years of clinical working experience in the aesthetic surgery departments or plastic surgery departments. The chief doctor responsible for aesthetic dentistry treatment must also have at least five years of clinical working experience in aesthetic dentistry departments or stomatology departments. The chief doctor responsible for aesthetic traditional Chinese medicine treatment or aesthetic dermatological treatment must also have at least three years of clinical working experience in traditional Chinese medicine or dermatology.

Regulations on Physicians' Multi-sited Practice

        Several Opinions on Accelerating the Development of Medical Institutions with Social Capital, which was promulgated on December 30, 2013 by the National Health and Family Planning Commission and the State Administration of Traditional Chinese Medicine, specifically states that multi-sited practice of physicians is permitted. Medical personnel can orderly move among medical institutions owned by different entities.

        The Notice on Issuing Opinions on Promoting and Regulating Physicians' Multi-sited Practice, which was jointly promulgated by the National Health and Family Planning Commission, National Development and Reform Commission, and the Ministry of Human Resources and Social Security on November 5, 2014 and came into effect on the same date, requires that physicians with multi-sited practice to meet the following criteria: (1) be qualified for intermediate or higher professional and technical positions, and have been engaged in the same profession for no less than five years, (2) be healthy and be competent for multi-sited practice, and (3) have no unqualified record in the periodic assessments of physicians in the last two consecutive cycles. It also states that registration management applies to multi-sited practices.

Interim Administrative Measures for Temporary Medical Practicing in China by Foreign Doctors

        The Interim Administrative Measures for Temporary Medical Practicing in China by Foreign Doctors, which was promulgated by the Department of Health on October 7, 1992, came into effect on January 1, 1993, and was amended on November 28, 2003 and January 19, 2016, provides that temporary medical practice in China by foreign doctors refers to clinical diagnosis and treatment business activities that are carried out for a period of less than one year by foreign doctors licensed in other countries who are invited to come to or employed in China. Foreign doctors wishing to engage in temporary medical practice in China must be registered and issued a License of Short-term Medical Practicing by Foreign Doctors. The effective period for a short-term practicing foreign doctor permit in

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China does may exceed one year, but foreign doctors may re-apply for such registration upon the expiration of their previous registration.

Management Measures of Qualification and Practice of Aesthetic Medical Attending Doctors (for Trial Implementation)

        The Management Measures of Qualification and Practice of Aesthetic Medical Attending Doctors (for Trial Implementation), which was promulgated by the Health and Family Planning Commission of Guangdong Province on March 17, 2014 and became effective on May 1, 2014, provides that practicing doctors conducting aesthetic medical activities in Guangdong Province should obtain the Qualification Certificate of Aesthetic Medical Attending Physicians in Guangdong Province before conducting aesthetic medical diagnosis and treatment activities. After obtaining the Qualification Certificate of Aesthetic Medical Attending Physicians in Guangdong Province, they may only conduct aesthetic medical diagnosis and treatment activities in accordance with the approved category of aesthetic medical doctors, the registered practice place and the practice scope. Doctors without the Qualification Certificate of Aesthetic Medical Attending Physicians in Guangdong Province shall engage in aesthetic medical activities under the guidance of attending doctors holding such qualification certificate, and shall not independently conduct aesthetic medical activities. Attending doctors conducting aesthetic medical activities that are beyond the registered doctor's category or are out of the registered practice place will be prohibited from conducting aesthetic medical activities for 6 months and will be required to attend trainings on laws and regulations.

Regulations on anti-corruption and anti-commercial bribery

        The PRC governmental departments have formulated relevant laws and regulations for standardizing the anti-corruption and anti-commercial bribery in the medical treatment and healthcare industry.

Code of Conduct for the Practitioners of Medical Institutions

        The Code of Conduct for the Practitioners of Medical Institutions, or the Code, was jointly promulgated by the Ministry of Health, the State Food and Drug Administration, the State Administration of Traditional Chinese Medicine and came into effect on June 26, 2012, providing the basic rules of conduct for practitioners at medical institutions, managerial persons, doctors, nurses, pharmaceutical technicians, medical technicians and other relevant persons. The Code applies to practitioners of all levels and classes at medical institutions. Pursuant to the Code, practitioners in medical institutions must perform their duties honestly, be self-disciplined, and abide by medical ethics. Accordingly, such practitioners may not ask for or illegally receive any property from patients, receive improper benefits by leveraging their positions, receive such rebates or commissions, in various form or titles, offered by personnel in creating or operating an enterprise related to medical equipment and machinery, pharmaceuticals, and chemical agents, participate in operational entertainment arranged, organized or paid by such personnel, gain access to or acquire the basic medical protection fund by cheating or facilitate such improper acquisition by others, violate the laws by participating in advertisement for medical treatments and marketing and promotion of pharmaceuticals or machinery for medical treatment, or re-sell a registration number for treatment at a profit.

Nine Prohibitions for Strengthening Ethical Conduct in the Healthcare Industry

        In accordance with the Notice on Printing and Distributing of the "Nine Prohibitions" for Strengthening Ethical Conduct in the Healthcare Industry, which was promulgated and implemented by the National Health and Family Planning Commission and the State Administration of Traditional Chinese Medicine and effective on December 26, 2013, medical institutions are required to implement the policy of the "Nine Prohibitions", including that it is prohibited to (1) link the personal income of

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medical health personnel with the cost of medical examination, (2) issue a bill by deducting a commission, (3) receive fees by violating laws, (4) receive donations and subsidies from the society by violating laws, (5) participate in marketing activities and illegal release of advertisements for medical treatments, (6) conduct medicines and medical consumables statistics for commercial purposes, (7) privately purchase and use pharmaceutical products in violation of laws, (8) receive rebates, or (9) receive "red packets" from patients. If a medical and health institution is in violation of the "Nine Prohibitions", the health and family planning administrative departments will handle the case by issuing criticisms, requesting rectification within a time period, lowering the level of or degrading such institutions, taking into account the seriousness of the case. Should administrative punishment be imposed, warnings and orders to suspend the business may be granted to such institutions and the business licenses of such institutions may be revoked. If medical personnel are in violation of the "Nine Prohibitions", the medical institutions where such personnel work will provide such personnel with criticism and education, have such personnel's good results of medical performance evaluation for the current year cancelled, have such personnel's salary reduced, have such personnel's employment deferred, have such personnel's dismissed with a waiting period before they can be hired again, or have such personnel dismissed; in serious cases, relevant health and family planning administrative authorities may suspend such personnel's practicing or revoke such personnel's practicing certificates in accordance with the law; in the event of a suspected criminal case, such case will be referred to judicial bodies for judicial procedures.

Regulations on Governance of Commercial Bribery in the Purchase and Sales of Medicine

        In accordance with the Implementation Opinions on Launching Special Governance on Commercial Bribery in Medicine Purchase and Sale, promulgated and implemented by the Ministry of Health and the State Administration of Traditional Chinese Medicine and effective April 21, 2006 and the Provisions on the Establishment of Adverse Records of Commercial Briberies in the Purchase and Sale of Medicine, which was promulgated by the National Health and Family Planning Commission on December 25, 2013 and implemented on March 1, 2014, the focus of the specialized governance framework regarding commercial bribery to procure medicine are on: (i) the act of the leaders and the relevant personnel of medical institutions of receiving property or rebate granted by the manufacturing and business enterprises and their marketing and sales personnel during the procurement of medicines, medical equipment and medical consumables, (ii) the act of the medical professionals of medical institutions of receiving property or commission granted by the manufacturing and business enterprises and their marketing and sales personnel during the clinical, diagnosis and treatment, and (iii) the act of medical institutions of receiving property granted by the manufacturing and business enterprises and their marketing and sales personnel. Personnel in violation of the relevant provisions will be punished by confiscation of the illegal goods and revocation of their business licenses. If the act constitutes a crime, criminal liability on the relevant parties will also be pursued according to laws.

Regulations on medical malpractice

General Principles and General Provisions of the Civil Law of the People's Republic of China

        The General Principles of the Civil Law of the People's Republic of China, which was promulgated by the National People's Congress on April 12, 1986, came into effect on January 1, 1987 and was amended on August 27, 2009, and the General Provisions of the Civil Law of the People's Republic of China, which was promulgated by the National People's Congress on March 15, 2017 and came into effect on October 1, 2017, provide that contracting parties must perform their obligations in full as agreed. The Opinions on Implementing the General Principles of the Civil Law of PRC (for Trial Implementation), which was promulgated by the Supreme People's Court on April 2, 1988, came into effect on the same day and amended on December 18, 2008, provides a one-year statute of limitations for a claim for compensation for bodily injury. Where the bodily injury is obvious, the statute of

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limitations begins on the date the injury occurred. Where the bodily injury is not discovered at the time of the injury but diagnosed later, the statute of limitations begins on the date of the diagnosis.

Contract Law of the People's Republic of China

        The Contract Law of the People's Republic of China, which was promulgated by the National People's Congress on March 15, 1999 and came into effect on October 1, 1999, provides that the contracting parties must abide by the principles of honesty and good faith in exercising their rights and performing their obligations. A lawfully established contract is legally binding on the contracting parties, each of whom must perform its own obligations in accordance with terms of the contract, and no party may unilaterally modify or terminate the contract.

Tort Liability Law of the People's Republic of China

        The Tort Liability Law of the People's Republic of China, which was promulgated by the Standing Committee of the National People's Congress on December 26, 2009 and came into effect on July 1, 2010, provides that, if a medical institution or the medical personnel of a medical institution are at fault for damage inflicted on a patient during the course of diagnosis and treatment, the medical institution will be liable for compensation. The medical institution is responsible for the damage caused to the patient due to the failure of the medical personnel to fulfill their statutory obligations in the course of diagnosis and treatment. Medical institutions and their medical personnel must protect the privacy of their patients and will be liable for damage caused by divulging the patients' private or medical records without consent.

Interpretations of the Supreme People's Court on Several Issues concerning the Application of Law in Hearing Cases Involving Disputes over the Liability for Medical Damage

        According to the Interpretations of the Supreme People's Court on Several Issues concerning the Application of Law in Hearing Cases Involving Disputes over the Liability for Medical Damage, which was promulgated by the Supreme People's Court on December 13, 2017 and became effective on December 14, 2017, after a patient has filed a lawsuit against some of the medical institutions where he or she was treated, such medical institutions are allowed to file an application to bring in other medical institutions where the patient has received treatment as joint defendants or third parties. The people's court may also bring related parties into the lawsuit according to the law when the court deems it necessary.

Regulations on Handling Medical Malpractice

        The Regulations on Handling Medical Malpractice, which was promulgated by the State Council on April 4, 2002 and came into effect on September 1, 2002, provides a legal framework and detailed provisions regarding the prevention, identification, disposition, compensation and penalties of or relating to cases involving personal injury to patients caused by medical institutions or medical personnel due to malpractice. Medical accidents shall, according to the seriousness of personal injuries to patients, be classified into four grades. The criteria for specific grades shall be formulated by the health administration department of the State Council.

Trial Administrative Measures of the Health Department of Guangdong Province on Point Deductions for Medical Institution Malpractice

        The Trial Administrative Measures of the Health Department of Guangdong Province on Point Deductions for Medical Institution Malpractice, or the Guangdong Measures, which was promulgated and came into effect on January 4, 2011 by the Health Department of Guangdong Province, specifies certain circumstances under which a medical institution's malpractice points will be deducted and the

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number of malpractice points to be deducted under each circumstance. A medical institution's malpractice points may be subject to deductions each year, and when the annual renewal of the Medical Institution Practicing License is completed, the deducted malpractice points are reset to zero. From the date of renewal, if there are more than 24 points deducted within a year, the health administrative department will report the point deductions to its supervising department. Medical institutions at all levels must comply with the Guangdong Measures, provided that such medical institutions have legitimately obtained a Medical Institutions Practicing License within the administrative area of Guangdong Province.

Regulations on Point Accumulation and Deduction for Medical Institution Malpractice in Shanghai

        On January 30, 2007, the Health Department of Shanghai promulgated the Notice on Improving the Management of Point Accumulation for Medical Institution Malpractice in Shanghai, which came into effect on the same date, establishing the archive management system and laying out detailed procedures for archive management. The Administrative Measures of Shanghai on Point Deduction for Medical Institutions Malpractice, or the Shanghai Measures which was promulgated on October 15, 2018 and came into effect on January 1, 2019 by the Health Department of Shanghai, specifies certain circumstances under which a medical institution's malpractice points will be deducted and the number of points to be deducted under each circumstance. A medical institution's malpractice points may be subject to deduction each examination and verification period following the issuance date of the Medical Institution Practicing License or the qualification date of the previous examination and verification period. Upon expiration of each deduction period, the deducted malpractice points are reset to zero. Where a medical institution has a one-year examination and verification period and its malpractice points are deducted by more than 12 during such period, or where a medical institution has a three-year examination and verification period and its malpractice points are deducted by more than 36 during such period (1) if it is within 3 months before the expiration of the current examination and verification period, the registration authority should order such medical institution to apply for examination and verification immediately and should extend the examination and verification period of such medical institution by one to six months. The medical institution must then apply for re-examination and verification upon the expiration of the extended examination and verification period, whereas, in the event that the malpractice points are deducted by more than 6 during the extended examination and verification period, the medical institution will fail the re-examination and verification and its Medical Institution Practicing License will be revoked by the registration authority; (2) the legal representative and principal responsible person of such medical institution shall take the examination regarding relevant laws and regulations of health care organized by the health administrative department. If such persons do not take the examination or fail the examination, such medical institution will be deemed unqualified for re-examination and re-verification, and its Medical Institution Practicing License will be revoked by the registration authority. Medical institutions at all levels in Shanghai must comply with the Shanghai Measures, provided that such medical institutions have legitimately obtained a Medical Institutions Practicing License within the administrative area of Shanghai.

Regulations on Point Accumulation for Medical Institution Malpractice in Beijing

        The Health Department of Beijing promulgated the Trial Administrative Measures of Beijing on Point Accumulation for Medical Institution Malpractice on February 22, 2008, or the Beijing Measures, which came into effect on March 20, 2008, specifying certain circumstances under which a medical institution's malpractice points will be deducted and the number of points to be deducted under each circumstance. Medical institutions at all levels in Beijing must comply with the Beijing Measures, provided that such medical institutions have filed for practice registration with the health administrative department and legitimately obtained a Medical Institutions Practicing License within the administrative area of Beijing. On January 16, 2017, the Beijing Health and Family Planning Commission and Beijing

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Administration of Traditional Chinese Medicine jointly promulgated the Notice on Further Improving the Management of Point Accumulation for Medical Institution Malpractice, which came into effect on the same date, stating that the verification and examination of medical institutions may be postponed if a certain number of malpractice points of such medical institutions are deducted.

Administrative Measures of Hainan Province on Point Deduction for Medical Institution Malpractice

        The Administrative Measures of Hainan Province on Point Deduction for Medical Institution Malpractice, which was promulgated on March 14, 2019 and came into effect on April 1, 2019 by the Health Commission of Hainan Province, specifies certain circumstances under which a medical institution's malpractice points will be deducted and the number of points to be deducted under each circumstance. The malpractice points of a medical institution may be deducted in each year following the issuance date of such medical institution's Medical Institution Practicing License. The registration authority may extend the examination and verification period of medical institutions by six months under the following circumstances: (1) for a medical institution that has a one-year examination and verification period, its malpractice points are deducted by more than 12 points during such period, or (2) for a medical institution that has a three-year examination and verification period, its malpractice points are deducted by more than 36 points during such period. If the malpractice points of the aforementioned medical institutions are deducted by more than 6 points during the extended examination and verification period, the registration authority may deem it as a failed examination and verification situation and revoke the Medical Institution Practicing License. All medical institutions holding a Medical Institution Practicing License issued in Hainan Province must comply with these measures.

Administrative Measures of Ningxia Hui Autonomous Region on Point Accumulation for Medical Personnel Malpractice (for Trial Implementation)

        Administrative Measures of Ningxia Hui Autonomous Region on Point Accumulation for Medical Institution Malpractice (for Trial Implementation), which was promulgated on November 11, 2016 and came into effect on December 1, 2016 by the Health and Family Planning Commission of Ningxia Hui Autonomous Region, specifies certain circumstances under which a medical institution's malpractice points will be deducted and the number of points to be deducted under each circumstance. The aforesaid measures are applicable to all kinds of public and private medical institutions of or above secondary-level, which have been approved and registered by the administrative department of health and family planning and have legitimately obtained a Medical Institutions Practicing License within the administrative area of Ningxia Hui Autonomous Region. The counterpart measures applicable to lower-level medical institutions will be constituted by the health and family planning department in each municipal city, county (district) with reference to these measures.

Administrative Measures of Shandong Province on Point Deduction for Medical Institution Malpractice

        Administrative Measures of Shandong Province on Point Deduction for Medical Institution Malpractice, which was promulgated on March 14, 2018 and came into effect on May 1, 2018 by the Health and Family Planning Commission of Shandong Province, specifies certain circumstances under which a medical institution's malpractice points will be deducted and the number of points that will be deducted under each circumstance. The malpractice points of a medical institution may be deducted in each year following the issuance date of its Medical Institution Practicing License. Upon expiration of the one-year deduction period, the malpractice points are reset to zero. For a medical institution with a one-year examination and verification period, if its malpractice points are deducted by more than 18 points during such period, the registration authority may extend the examination and verification period of such medical institution by six months. The extended six-month examination and verification period will also be made to a medical institution with a three-year examination and verification period if its

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malpractice points are deducted by more than 80 during the three-year period. The aforesaid measures are applicable to all kinds of public and private medical institutions at all levels that have obtained the Medical Institution Practicing License according to laws within the administrative areas of Shandong Province.

Interim Administrative Measures of Zhejiang Province on Point Deduction for Medical Institution Malpractice

        According to the Interim Administrative Measures of Zhejiang Province on Point Deduction for Medical Institution Malpractice, which was promulgated by the Department of Health of Zhejiang Province on June 9, 2010, malpractice points may be deducted from a medical institution in each year following the issuance date of its Medical Institution Practicing License. Upon expiration of the deduction period, the malpractice points are reset to zero. Where a medical institution has a one-year examination and verification period and its malpractice points are deducted by 12 or more during such period, or where a medical institution has a three-year examination and verification period and its malpractice a points are deducted by either 12 or more points within a year or by 36 or more in aggregate during such period, the registration authority should extend its examination and verification period by one to six months. If the malpractice points are deducted by 10 or more within a year, the local department of health will report the point deductions to its supervising department. If the malpractice points are deducted by 12 or more within a year, the local department of health will issue a notice of criticism and order the medical institution to rectify its malpractice.

Administrative Measures of Jiangxi Province on Point Deduction for Medical Institution Malpractice (for Trial Implementation)

        According to Administrative Measures of Jiangxi Province on Point Deduction for Medical Institution Malpractice (for Trial Implementation), which was promulgated by the Department of Health of Jiangxi Province on September 27, 2011, the malpractice points of a medical institution may be deducted in each year following the issuance date of its Medical Institution Practicing License. Upon expiration of the twelve-month deduction period, the malpractice points are reset to zero. Where a medical institution has a one-year examination and verification period and its malpractice points are deducted by more than 18 points, the registration authority should extend its examination and verification period by one to six months, whereas if the malpractice points are deducted by more than 24 points, the medical institution will fail the examination and its Medical Institution Practicing License will be revoked. Where a medical institution has a three-year examination and verification period and its malpractice points are deducted by either more than 18 points within a year or by more than 50 in aggregate during such period, the registration authority will extend its examination and verification period by one to six months, whereas if its malpractice points are deducted by either more than 24 in a year or by more than 60 in aggregate during such period, it will fail the examination and its Medical Institution Practicing License will be revoked.

Interim Administrative Measures of Hunan Province on Point Deduction for Medical Institution Malpractice

        According to the Interim Administrative Measures of Hunan Province on Point Deduction for Medical Institution Malpractice, which was promulgated by the Department of Health of Hunan Province on November 11, 2011, the malpractice points of a medical institution may be deducted in each year following the issuance date of the Medical Institution Practicing License. Upon expiration of the twelve-month deduction period, the malpractice points are reset to zero. If the malpractice points are deducted by more than 12 within one year, the registration authority will extend its examination and verification period by one to six months. If the malpractice points are deducted by six or more during the extended examination and verification period, the medical institution will fail the examination.

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Regulations on Preventing and Handling Medical Disputes

        The Regulations on Preventing and Handling Medical Disputes, which was promulgated by the State Council on July 31, 2018 and come into effect on October 1, 2018, and the Measures for Complaint Management of Medical Institutions, which was promulgated by the National Health Committee on March 6, 2019 and came into effect on April 14, 2019, require medical institutions to establish a sound system for receipt of complaints, set up a unified complaint management department or be equipped with full-time (or part-time) staff, and post medical dispute resolution measures, procedures and contacts in a conspicuous place in the medical institution to make it convenient for patients to submit complaints or feedback. For medical institutions that have not established a system to receive complaints, or such system fails to comply with the relevant requirements, it may receive rectification order, warning from and be imposed fine by the competent health administrative department, while related staff and medical personnel directly responsible may be punished under serious circumstances. If any crime is constituted, the violator shall be subject to criminal liability in accordance with the law.

Regulations on medical advertising in the PRC

Advertisement Law of the People's Republic of China

        The Advertisement Law of the People's Republic of China, or the Advertisement Law, which was promulgated by the Standing Committee of National People's Congress on October 27, 1994, came into effect on February 1, 1995, and was amended on April 24, 2015 and October 26, 2018, provides that advertisements may not contain false or misleading content or deceive or mislead consumers. Advertisements related to pharmaceuticals and medical devices must be reviewed by relevant authorities in accordance with relevant rules before being distributed or broadcasted through movies, television, newspapers, journals or other means. The Advertisement Law further requires that any advertisement for medical treatment, pharmaceuticals or medical devices to not contain: (i) any assertion or guarantee regarding efficacy or safety, (ii) any statement on cure rate or effective rate, (iii) any comparison with the efficacy and safety of other pharmaceuticals or medical devices or with other medical institutions, (iv) any use of endorsements or testimonials, or (v) other items as prohibited by laws and administrative regulations.

Interim Measures for the Administration of Internet Advertisement

        The Interim Measures for the Administration of Internet Advertisement, which was promulgated by the State Administration of Industry and Commerce (currently known as the State Administration of Market Regulation) on July 4, 2016 and came into effect on September 1, 2016, provides that internet advertisement must be identifiable and clearly identified as an "advertisement" so that consumers will recognize that it is an advertisement. Paid search advertisements must be clearly distinguished from natural search results. No entity and individual may publish any advertisement of prescription pharmaceuticals or tobacco by means of the internet. No advertisement of any medical treatment, pharmaceuticals, foods for special medical purpose, medical devices, pesticides, veterinary medicines, dietary supplements or other special commodities or services which are subject to review by advertisement review authorities as required by laws and regulations must be released unless it has passed such review.

Administrative Measures on Medical Advertisement

        The Administrative Measures on Medical Advertisement, which was jointly promulgated by the State Administration of Industry and Commerce and the Ministry of Health on September 27, 1993, and was amended on November 10, 2006 and came into effect on January 1, 2007, requires medical advertisements to be reviewed by relevant health authorities and a Medical Advertisement Approval

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Certificate to be obtained before such advertisement may be released by a medical institution. Medical Advertisement Review Certificate has an effective term of one year and may be renewed upon application.

Notice on Further Strengthening the Administrative Measures on Medical Advertisement

        The Notice on Further Strengthening the Administrative Measures on Medical Advertisement, which was promulgated by the Ministry of Health and came into effect on July 17, 2008, emphasizes severe censorship, regulation and punishment on medical institutions' non-compliance of medical advertisement. In case that a medical institution fails to correct its non-compliance of medical advertisement after two or more warnings, or that such non-compliance results in any patient suffering personal injuries or property losses, the medical institution shall be ordered to suspend its business for rectification, or the license for operating particular medical department or even the Medical Institution Practice License of such institution will be revoked in accordance with the provisions of the Administrative Measures on Medical Advertisement.

Regulations on environmental protection related to medical institutions

Regulations on the Management of Medical Waste and the Management Measures for Medical Waste of Medical Institutions

        The Regulations on the Management of Medical Waste, which was promulgated by the State Council on June 16, 2003, came into effect on the same date and was revised on January 8, 2011, and the Management Measures for Medical Waste of Medical Institutions, which was promulgated by the Ministry of Health on October 15, 2003 and came into effect on the same date, require medical institutions to timely deliver medical waste to a specially designated location for centralized disposal of medical waste and categorize the medical waste in accordance with the Classified Catalog of Medical Waste. High-risk waste such as the culture medium or specimens of pathogens and the preserving liquid of bacteria strains or virus strains must be sterilized on the spot before disposal. Sewage generated by any medical institution and excretion of its patients or patients suspected of infectious diseases must be sterilized in accordance with the relevant laws, rules and regulations, and must not be discharged into sewage treatment system until the relevant standards are met.

Regulations on Urban Drainage and Sewage Treatment

        The Regulations on Urban Drainage and Sewage Treatment, which was promulgated by the State Council on October 2, 2013 and came into effect on January 1, 2014, requires urban entities and individuals to dispose sewage through urban drainage facilities covering their geographical area in accordance with relevant rules. Companies or other entities engaging in medical activities must apply for a Sewage Disposal Drainage License before disposing sewage into urban drainage facilities. Sewage-disposing entities and individuals are required to pay a sewage treatment fee in accordance with relevant rules.

Measures for the Administration of Permits for the Discharge of Urban Sewage into Drainage Network

        The Measures for the Administration of Permits for the Discharge of Urban Sewage into Drainage Network, which was promulgated by the Ministry of Housing and Urban-Rural Development on January 22, 2015 and came into effect on March 1, 2015, provides that enterprises engaging in industry, construction, catering and discharging sewage into the urban drainage network must apply for and obtain a License for Drainage.

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Catalog of Classified Management of Pollutant Discharge Permits for Stationary Pollution Sources (2017 Edition)

        The Catalog of Classified Management of Pollutant Discharge Permits for Stationary Pollution Sources (2017 Edition), which was promulgated by the Ministry of Environmental Protection on July 28, 2017 and came into effect on the same date, provides that existing enterprises, public institutions and other production operators must apply for a pollutant discharge permit in accordance with the catalog within a certain time limit. In accordance with the catalog, medical institutions which meet the standards set therein must apply for a pollutant discharge permit before 2020.

Regulations on consumer protection and right of personality

        The principal legal provisions for the protection of consumer interests are set out in the Consumer Protection Law, which was promulgated by the Standing Committee of the National People's Congress on October 31, 1993, became effective as of January 1, 1994 and was amended on October 25, 2013. According to the Consumer Protection Law, the rights and interests of the consumers who buy or use commodities or receive services for the purposes of daily consumption are protected and all manufacturers and sellers involved must ensure that the products and services will not cause damage to the consumers' personal safety and properties. Violations of the Consumer Protection Law may result in the imposition of fines. In addition, the violating business operator may be ordered to suspend operations and its business license may be revoked. Criminal liability may be imposed in serious cases.

        In accordance with the Tort Liability Law, the legitimate rights and interests of civil parties include reputational rights and the right to one's image, and parties that infringe on the civil rights and interests of others will be held liable for tortious acts.

Regulations on fire prevention

Fire Prevention Law

        According to The Fire Prevention Law of the PRC, or the Fire Prevention Law, which was promulgated by the Standing Committee of the National People's Congress on April 29, 1998, came into effect on May 1, 2009 and was amended on October 28, 2008 and April 23, 2019, the Ministry of Public Security and its local counterparts at or above county level must monitor and administer fire prevention affairs. The Fire Prevention Law also provides that the fire prevention design or construction of a construction project must conform to the national fire prevention technical standards, and the construction entity must submit its fire prevention design documents to the fire prevention department of the public security authority for approval or filing purposes.

        Upon the completion of a construction project to which a fire prevention design has been applied, according to the requirements of the Fire Prevention Law, such project must go through an acceptance check on fire prevention by, or filed with, the relevant fire prevention departments of public security authorities. For each public assembly venue, the construction entity or entity using such venue must, prior to use and operation of any business thereof, apply for a safety inspection on fire prevention with the relevant fire prevention department under the public security authority at or above the county level where the venue is located, and such place cannot be put into use and operation if it fails to pass the safety inspection on fire prevention or fails to conform to the safety requirement for fire prevention after such inspection.

Regulations related to foreign investment in the PRC

Company Law of the People's Republic of China

        The Company Law of the People's Republic of China, which was promulgated by the Standing Committee of National People's Congress on December 29, 1993, came into effect on July 1, 1994, and

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was amended in 1999, 2004, 2005, 2013 and 2018, provides that companies established in the PRC may either be limited liability companies or companies limited by shares. Each company has the status of a legal person and owns its own assets. Assets of a company may be used in full for the company's liability. The Company Law applies to foreign-invested companies unless relevant laws provide otherwise.

Wholly Foreign-Owned Enterprise Law of the PRC and its implementation measures

        The Wholly Foreign-Owned Enterprise Law of the PRC, which was promulgated by the National People's Congress on April 12, 1986 and was amended by the Standing Committee of the NPC and amended on October 31, 2000, came into effect on the same day and was amended on September 3, 2016, and the Implementation Measures for the Wholly Foreign-Owned Enterprise Law, which was promulgated on April 21, 2001 and was amended on February 19, 2014, provide that foreign enterprises and other economic organizations or individuals may establish wholly foreign-owned enterprises, or WFOE(s), in the PRC. The application for the establishment of a WFOE is subject to examination and approval by the competent commercial departments before an Approval Certificate is issued. The Decision on Revising Four Laws including the Wholly Foreign-Owned Enterprise Law of the PRC, which was promulgated by the Standing Committee of the State Council on September 3, 2016 and came into effect on October 1, 2016, changes the above requirement of examination and approval to filing for the wholly foreign-owned enterprises which do not involve any special administrative measure for admittance prescribed by the state.

Interim Provisions on Investment Made by Foreign-Invested Enterprises in the PRC

        The Interim Provisions on Investment Made by Foreign-Invested Enterprises in the PRC, which was jointly promulgated by the Ministry of Commerce and the State Administration of Industry and Commerce on July 25, 2000, and was amended and came into effect on October 28, 2015, provides that the provisions of the Interim Provisions Guiding Foreign Investment Direction and the Industry Catalog for Guiding Foreign Investment will govern foreign-invested enterprises' investment in the PRC. Foreign-invested enterprises are not permitted to invest in any sector prohibited to receive foreign investment. Where a foreign-invested enterprise makes an investment in a restricted sector, the foreign-invested enterprise must file an application with the provincial commercial department of the place where the investee company is located. The relevant company registration authority will decide, in accordance with the relevant provisions of the Company Law and the Regulations on the Administration of Company Registration of the PRC, whether to approve the registration or not. If the registration is approved, a Business License of an Enterprise Legal Person will be issued with the designation "Invested by a Foreign-Invested Enterprise" added. The foreign-invested enterprise is required to report the establishment of the invested company within 30 days of the date of its establishment to the original examination and approval authority for record-filing.

Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors

        The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which was jointly promulgated by the Ministry of Finance, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration of Industry and Commerce, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange on August 8, 2006, came into effect on September 8, 2006 and was amended on June 22, 2009, requires foreign investors acquiring domestic companies by means of asset acquisition or equity acquisition to comply with relevant foreign investment industry policies and be subject to approval by relevant commerce authorities.

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Catalog of Industries for Encouraged Foreign Investment and 2019 Negative List

        The current regulation regime of foreign investment in the PRC, setting aside special arrangements adopted in pilot free trade zones, preliminarily consists of three principal legal documents, i.e. the Catalog of Industries for Encouraged Foreign Investment (2019 Edition), or the 2019 Encouraged Catalog, which was promulgated jointly by the Ministry of Commerce and the National Development and Reform Commission, on June 30, 2019 and became effective on July 30, 2019, the Special Administrative Measures for Access of Foreign Investment (Negative List) (2019 Edition), which was promulgated jointly by the Ministry of Commerce and the National Development and Reform Commission, on June 30, 2019 and became effective on July 30, 2019, or the 2019 Negative List, and the Provisions Guiding Foreign Investment Direction, which was promulgated by the State Council on February 11, 2002 and came into effect on April 1, 2002. These three legal documents collectively classify all foreign investment projects into four categories: (1) encouraged projects, (2) permitted projects, (3) restricted projects, and (4) prohibited projects. If the industry in which the investment is to occur falls into the encouraged category, foreign investment, in certain cases, may receive preferential policies or benefits. If it falls into the restricted category, foreign investment may be conducted in accordance with applicable legal and regulatory restrictions. If falls into the prohibited category, foreign investment of any kind will not be allowed.(1)

        The 2019 Encouraged Catalog and 2019 Negative List govern investment activities in the PRC by foreign investors and classify industries into three categories with regard to foreign investment: "encouraged", "restricted" and "prohibited". Industries not listed in the Catalog are generally deemed as falling into a fourth category, "permitted", unless specifically restricted by other PRC laws. For some restricted industries, foreign investors can only conduct investment activities through equity or contractual joint ventures, while in other cases PRC partners are required to hold the majority interests in such joint ventures. In addition, some projects in the restricted category are subject to higher-level governmental approvals. Foreign investors are not allowed to invest in industries in the prohibited category. According to the current 2019 Encouraged Catalog and 2019 Negative List, investment into medical institutions falls within the restricted category. Foreign investment in healthcare institutions is restricted to the form of Sino-foreign cooperation or joint venture.

Foreign Investment Law

        On March 15, 2019, the National People's Congress approved the Foreign Investment Law, which will come into effect on January 1, 2020 and replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The organization form, organization and activities of foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises established before the implementation of the Foreign Investment Law may retain the original business organization and so on within five years after the implementation of this Law.

        The Foreign Investment Law is formulated to further expand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests of foreign investors. According to the Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and are subject to negative list management system. The pre-entry national treatment means that the treatment given to foreign investors and their investments at the stage of investment access shall not be less favorable than that of domestic investors and their investments. The negative list management system means that the state implements special administrative measures for access of foreign investment in specific fields. The Foreign Investment Law does not mention the relevant concept and regulatory regime of contractual arrangement structures. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation.

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        Foreign investors' investment, earnings and other legitimate rights and interests within the territory of China shall be protected in accordance with the law, and all national policies on supporting the development of enterprises shall equally apply to foreign-invested enterprises. Among others, the state guarantees that foreign-invested enterprises participate in the formulation of standards in an equal manner and that foreign-invested enterprises participate in government procurement activities through fair competition in accordance with the law. Further, the state shall not expropriate any foreign investment except under special circumstances. In special circumstances, the state may levy or expropriate the investment of foreign investors in accordance with the law for the needs of the public interest. The expropriation and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be given.

Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions

        The Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions, which was promulgated by the Ministry of Health and the Ministry of Foreign Trade and Economic Cooperation on May 15, 2000 and came into effect on July 1, 2000, allows foreign investors to partner with Chinese medical entities to establish a medical institution in the PRC by means of an equity joint venture or a cooperative joint venture. Establishment of equity joint venture or cooperative joint venture must meet certain requirements, including that total investment may not be less than RMB20 million, and that the equity percentage of the Chinese partner in the joint venture may not be less than 30%. Establishment of an equity joint venture or cooperative joint venture will be subject to approval by relevant authorities.

Notice on Further Encouraging and Guiding Private Capital to Invest in Medical Institutions

        Pursuant to the Notice on Further Encouraging and Guiding Private Capital to Invest in Medical Institutions, which was promulgated on November 26, 2010, foreign investors are permitted to establish for-profit or not-for-profit medical institutions in the PRC as foreign-invested projects. Overseas medical institutions, enterprises and other economic organizations are permitted to establish medical facilities together with domestic medical institutions, enterprises or other economic organizations in the form of equity or cooperative joint ventures, and the restrictions on equity proportion for foreign capital will be gradually removed. A pilot program will be introduced and gradually expanded to permit eligible foreign investors to establish wholly foreign- owned medical institutions.

Additional Provisions to the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions

        The Additional Provisions to the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions, which was jointly promulgated by the Ministry of Commerce and the Ministry of Health on December 30, 2007 and came into effect on January, 2008, provides that the total investment by Hong Kong or Macau service providers in establishing equity or cooperative medical institutions in the PRC may not be less than RMB10 million. Hong Kong and Macau service providers must also comply with the Closer Economic Partnership Arrangement between Mainland China and Hong Kong and Arrangement regarding Establishing Closer Economic Partnership between Mainland China and Macau, respectively. The Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions may be applied to equity or cooperative medical institutions in which by Hong Kong or Macau service providers have invested to the extent not provided under the Additional Provisions to the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions.

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Additional Provisions (Second) to the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions

        The Additional Provisions (Second) to the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions, which was jointly promulgated by the Ministry of Commerce and the Ministry of Health on December 7, 2008 and came into effect on January 1, 2009, allows Hong Kong and Macau service providers to establish wholly-owned clinics within the Guangdong Province without any limitation on total investment. Hong Kong and Macau service providers may also partner with Chinese medical entities to establish a clinic in the Guangdong Province by means of equity joint ventures or cooperative joint ventures without any limitation on the total investment or equity percentage.

Regulations related to labor protection in the PRC

Labor Law of the PRC

        The Labor Law of the PRC, which was promulgated by the Standing Committee of the National People's Congress on July 5, 1994, which came into effect on January 1, 1995 and was amended on August 27, 2009 and December 29, 2018, provides that an employer must develop and improve its rules and regulations to protect the rights of its workers, such as by developing and improving its labor safety and health system, stringently implementing national protocols and standards on labor safety and health, conducting labor safety and health education for workers, guarding against labor accidents and reducing occupational hazards. Labor safety and health facilities must comply with relevant national standards. An employer must provide workers with the necessary labor protection equipment that comply with labor safety and health conditions required under national regulations, as well as provide regular health checks for workers that are engaged in operations with occupational hazards. Workers engaged in special operations must first receive specialized training and obtain the pertinent qualifications. Employers must also develop a vocational training system. Vocational training funds must be set aside and used in accordance with national regulations, and vocational training for workers must be carried out systematically based on the actual conditions of the company.

Labor Contract Law of the PRC and its implementation regulations

        The Labor Contract Law, which was promulgated by the Standing Committee of the National People's Congress on June 29, 2007, came into effect on January 1, 2008, and was amended on December 28, 2012, and the Implementation Regulations on Labor Contract Law, which was promulgated by the State Council and effective on September 18, 2008, regulate the relation between employers and employees and contain specific provisions involving the terms of the labor contract. Labor contracts must be made in writing and may, after reaching an agreement upon due negotiations, be for a fixed-term, an un-fixed term, or conclude upon the completion of certain work assignments. An employer may legally terminate a labor contract and dismiss its employees after reaching an agreement upon due negotiations with the employee or by fulfilling the statutory conditions.

Laws and Regulations on the Supervision over the Social Security and Housing Funds

        According to the Temporary Regulations on the Collection and Payment of Social Insurance Premium, the Regulations on Work Injury Insurance, the Regulations on Unemployment Insurance and the Trial Measures on Employee Maternity Insurance of Enterprises, enterprises in the PRC must provide beneficial plans for their employees, that include basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and medical insurance. An enterprise must also provide social insurance by processing social insurance registration with local social insurance agencies, and must pay or withhold relevant social insurance premiums for or on behalf of the employees. The Law on Social Insurance, which was promulgated on October 28, 2010 and came into effect on July 1,

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2011 and was amended on December 29, 2018, regulates basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and medical insurance, and has elaborated in detail the legal obligations and liabilities of employers who do not comply with relevant laws and regulations on social insurance. The Regulations on the Administration of Housing Provident Fund, which was promulgated and came into effect on April 3, 1999, and was amended on March 24, 2002 and March 24, 2019, provides that housing provident fund contributions paid by an individual employee and housing provident fund contributions paid by his or her employer all belong to the individual employee.

Program of Deepening the Reform of the Communist Party and Organs of State

        The Program of Deepening the Reform of the Communist Party and Organs of State, which was promulgated by the Central Committee of the Communist Party of the PRC on March 21, 2018, provides that in order to improve the efficiency of collection and management of social insurance funds, the basic pension insurance premium, the basic medical insurance premium, the unemployment insurance premium and other social insurance premiums should be levied by tax authorities.

Reform Program of the Collection and Management of State Taxes and Local Taxes

        The Reform Program of the Collection and Management of State Taxes and Local Taxes, which was promulgated by the General Office of the Central Committee of the Communist Party of the PRC and the General Office of the State Council on July 20, 2018, explicitly provides that from January 1, 2019, the basic pension insurance premium, the basic medical insurance premium, the unemployment insurance premium, the employment injury insurance premium, the maternity insurance premium and other social insurance premiums should be levied by tax authorities.

Notice on Opinions of Imposing Overdue Fine of Social Insurance Premiums for Enterprise Employees in Guangdong Province

        The Notice on Opinions of Imposing Overdue Fine of Social Insurance Premiums for Enterprise Employees in Guangdong Province, which was promulgated by the Local Taxation Bureau and the Department of Human Resources and Social Security of Guangdong Province on April 16, 2018, provides that if employers declare and pay the overdue social insurance premium that were due before July 1, 2011, the taxation bureau may collect the overdue amount first, and the collection of overdue fine generated after July 1, 2011 will be postponed. In addition, if employers declare and pay the overdue social insurance premium that were due after July 1, 2011, without postponing the collection of the overdue fine from the local taxation bureau at or above the county level, the overdue fine will be collected along with the outstanding amount that is in arrears.

Interim Measures for the Administration of Arrear Collection of Social Insurance Premiums

        The Interim Measures for the Administration of Arrear Collection of Social Insurance Premiums, which was promulgated by the Local Taxation Bureau of Guangdong Province on March 5, 2014 and became effective on May 1, 2014 and amended on June 15, 2018, provides that for overdue amounts due before July 1, 2011, if employers take the initiative to, or comply with the taxation bureau's orders to pay such overdue amounts, the overdue fine should not be collected. For overdue amounts that were due after July 1, 2011, employers should pay such overdue amounts along with the overdue fine with the rate of five over ten thousand (5/10000) per day.

Notice on Proper Handling the Payment of Basic Pension Premiums for Employees of Enterprises

        The Notice on Proper Handling of the Payment of Basic Pension Premiums for Employees of Enterprises, which was promulgated by the Department of Human Resources and Social Security and

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the Finance Department of Hunan Province and became effective December 26, 2017, provides that for arrears due before December 31, 2016, employers and employees should pay the overdue amount in accordance with the original payment threshold and payment proportion, along with the overdue fine. For overdue amounts that were due after January 1, 2017, employers and employees should pay the overdue amount in accordance with the payment threshold calculated according to the employees' historical salaries and the payment proportion of the time, along with the overdue fine.

Regulations related to taxation in the PRC

Enterprise Income Tax

        According to the Enterprise Income Tax Law, or the EIT Law, which was promulgated by the National People's Congress on March 16, 2007, came into effect on January 1, 2008, and was amended on February 24, 2017 and December 29, 2018 and the Implementation Regulations on the EIT Law, which was promulgated by the State Council on December 6, 2007 and came into effect on January 1, 2008 and amended on April 23, 2019, a uniform income tax rate of 25% will be applied to domestic enterprises, foreign-invested enterprises and foreign enterprises that have established production and operation facilities in the PRC. These enterprises are classified as either resident enterprises or non-resident enterprises. Resident enterprises refer to enterprises that are established in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but whose actual or de facto control is administered from within the PRC. Non-resident enterprises refer to enterprises that are set up in accordance with the laws of foreign countries and whose actual administration is conducted outside the PRC, but who (whether or not through the establishment of institutions in the PRC) derive income from the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is imposed on these institutions. However, if non-resident enterprises have not established institutions in the PRC, or if they have established institutions in the PRC but there is no actual relationship between the relevant income derived in the PRC and the institutions set up by them, the enterprise income tax is set at the rate of 10%.

International Tax Treaties and Withholding Tax

        According to the Treaty on the Avoidance of Double Taxation and Tax Evasion between Mainland and Hong Kong, or the Tax Treaty, if the non-PRC parent company of a PRC enterprise is a Hong Kong resident which beneficially owns a 25% or more interest in the PRC enterprise, the 10% withholding tax rate applicable under the EIT Law may be lowered to 5% for dividends and 7% for interest payments once approvals have been obtained from the relevant tax authorities. Factors impacting the determination of beneficial ownership is indicated in the Announcement of the State Administration of Taxation on Issues concerning "Beneficial Owners" in Tax Treaties, which was issued by the State Administration of Taxation on February 3, 2018 and came into effect on April 1, 2018, according to which negative impacts will be generally imposed to the recognition of a beneficial owner if the applicant is obliged to pay more than 50% of its income to third country (region) residents within 12 months of receiving the income, or the business activities undertaken by the applicant do not constitute substantive business activities. Pursuant to the Notice on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, which was promulgated by the State Administration of Taxation and came into effect on February 20, 2009, the non-resident taxpayer or the withholding agent is required to obtain and keep sufficient documentary evidence proving that the recipient of the dividends meets the relevant requirements for enjoying a lower withholding tax rate under a tax treaty.

Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers

        Pursuant to the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers, which was promulgated by the State Administration of Tax on August 27, 2015, came into

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effect on November 11, 2015 and was amended on June 15, 2018, a non-resident taxpayer can enjoy preferential tax treatment without prior approval from tax authorities, being subject to subsequent administration by the tax authorities. Eligible non-resident taxpayer shall initiatively request such preferential tax treatment and provide relevant report forms and materials to the withholding agent.

Value-Added Tax

        The Temporary Regulations on Value-added Tax, which was promulgated by the State Council on December 13, 1993, came into effect on January 1, 1994, and was amended in 2008, 2016, and 2017, and the Detailed Implementing Rules of the Temporary Regulations on Value-added Tax, which was promulgated by the Ministry of Finance and became effective on December 25, 1993, and was amended on December 15, 2008 and October 28, 2011, require all taxpayers selling goods, providing processing, repairing or replacement services or importing goods in the PRC to pay value-added tax. Unless otherwise specified, the value-added tax, or VAT, rate is 17% for taxpayers selling or importing goods, selling labor service, or providing tangible movable property leasing service. The applicable rate for the export of goods by taxpayers is zero unless otherwise provided by the State Council. According to the Notice on Adjusting value-added tax Rates promulgated by the Ministry of Finance and the State Administration of Tax on 4 April 2018, the tax rate of 17% applicable to any taxpayer's VAT taxable sale activities shall be adjusted to 16%. According to the Announcement of the Ministry of Finance, the State Taxation Administration and the General Administration of Customs on Relevant Policies for Deepening the Value-Added Tax Reform jointly promulgated by the MOF, the SAT and the General Administration of Customs of the PRC on March 20, 2019 and became effective on April 1, 2019, the VAT tax rates of 16% applicable to the VAT taxable sale or import of goods by taxpayer shall be adjusted to 13%.

        According to the Trial Scheme for the Conversion of Business Tax to Value-added Tax, which was promulgated by the Ministry of Finance and the State Administration of Taxation on November 16, 2011, the government launched gradual taxation reforms starting from January 1, 2012, whereby it collected value-added tax in lieu of business tax on a trial basis in regions and industries showing strong economic performance, such as transportation and certain modern service industries. Furthermore, according to the Notice of the Ministry of Finance and the State Administration of Taxation on Overall Implementation of the Pilot Program of Replacing Business Tax with Value-added Tax promulgated on March 23, 2016, last revised on March 20, 2019 and became effective on April 1, 2019, all business tax payers in the living service industry must pay VAT in lieu of business tax beginning on May 1, 2016. A Pilot taxpayer may enjoy VAT tax preference in accordance with the relevant provisions in the remaining period of preferential tax policies, if a taxpayer has enjoyed business tax preferences according to the relevant policies before the implementation date of pilot collection of VAT in lieu of business tax.

Notice on Relevant Tax Policies on Medical and Health Institutions

        The Notice on Relevant Tax Policies on Medical and Health Institutions, which was promulgated by the Ministry of Finance and the State Administration of Tax on July 10, 2000, came into effect on the same date and amended on May 18, 2009, provides that incomes of for-profit medical institutions are taxable in accordance with relevant rules. Nevertheless, for-profit medical institution is granted a three-year tax exemption period commencing on the date of the issuance of the practice license if its revenue is directly used to improve medical and health conditions. During the no-tax period: (1) self-produced preparations for self-use by for-profit medical institutions are exempted from value-added tax, and (2) properties, land and vehicles for self-use by for-profit medical institutions are exempted from property tax, urban land use tax and vehicle and vessel usage tax. Pharmaceutical retail enterprise spun-off from pharmacy of for-profit medical institutions is subject to applicable taxations.

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Regulations related to foreign exchange in the PRC

Administrative Regulations of the PRC on Foreign Exchange

        Administrative Regulations of the PRC on Foreign Exchange, which was promulgated by the State Council on January 29, 1996, came into effect on April 1, 1996, and was amended on January 14, 1997 and August 5, 2008, provides that foreign exchange receipts of domestic institutions or individuals may be transferred back into the PRC or deposited abroad. The State Administration of Foreign Exchange, or the SAFE, may specify relative conditions and other requirements in accordance with the international receipts, payments status and requirements of foreign exchange control. Foreign exchange receipts under the current items may be retained or sold to financial institutions engaged in the settlement or sale of foreign exchange. Domestic institutions or individuals that make direct investments abroad or are engaged in the distribution or sale of valuable securities or derivative products overseas should register according to SAFE regulations. Such institutions or individuals subject to prior approval or record-filing with other competent authorities must obtain the required approval or finish record-filing prior to foreign exchange registration. The exchange rate for RMB follows a managed floating exchange rate system based on market demand and supply.

Foreign Exchange Settlement, Sales and Payment

        The Administrative Regulation of the People's Bank of China Regarding Foreign Exchange Settlement, Sales and Payment, which was promulgated by the People's Bank of China on June 20, 1996 and came into effect on July 1, 1996, provides that foreign exchange receipts under the current account of foreign-invested enterprises may be retained to the fullest extent specified by the foreign exchange bureau. Any portion in excess of such amount must be sold to a designated foreign exchange bank or sold in a foreign exchange swap center.

Notice of Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles

        On July 4, 2014, the SAFE issued the Notice of Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or Circular 37, which provides that (i) a domestic resident (domestic institution or domestic resident individual), must register with the local branch of the SAFE before it contributes the assets of or its equity interest into a special purpose vehicle for the purpose of investment and financing as defined in the implementing guidelines of Circular 37 (the definition of domestic resident also includes certain foreigner without legal identity certificate of the PRC while habitually resides in China for economic interests), and (ii) when the special purpose vehicle undergoes a change of basic information, such as change of a PRC resident natural person shareholder, name or operating period, or a material event, such as change in share capital of a PRC resident natural person, merger or split, the domestic resident must promptly register such change with the local branch of the SAFE.

Notice on Further Improving and Adjusting the Policies Related to Foreign Exchange Administration in Direct Investment

        The Notice on Further Improving and Adjusting the Policies Related to Foreign Exchange Administration in Direct Investment, which was promulgated by the SAFE on November 19, 2012, came into effect on December 17, 2012 and was amended on May 4, 2015 and October 10, 2018, improves foreign exchange administration in direct investment by repealing or adjusting certain approval items for foreign exchange administration in direct investment.

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Notice on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises

        On March 30, 2015, the SAFE promulgated the Notice on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or Circular 19, which came into effect on June 1, 2015. According to Circular 19, the foreign exchange capital of foreign invested enterprises will be subject to the willingness settlement of foreign exchange capital, or the Willingness Foreign Exchange Settlement. The Willingness Foreign Exchange Settlement means that foreign exchange capital in the capital account of a foreign invested enterprise of which the rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau (or the entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operational needs of the foreign invested enterprise. The proportion of the Willingness Foreign Exchange Settlement of the foreign exchange capital of a foreign invested enterprise is temporarily determined as 100%. The RMB fund converted from the foreign exchange capital shall be kept in a designated account. If a foreign invested enterprise needs to make further payments from such account, the enterprise needs to provide supporting documents and go through the review process with the banks. Furthermore, Circular 19 provides that the use of capital by foreign-invested enterprises must comply with the principles of authenticity and self-use within the business scope of enterprises. The capital of a foreign invested enterprise and capital in RMB obtained by the foreign invested enterprise from foreign exchange settlement may not be used for the following purposes: (1) direct or indirect payment beyond the business scope of the enterprises or a payment prohibited by relevant laws and regulations, (2) direct or indirect investment in securities unless otherwise provided by relevant laws and regulations, (3) direct or indirect grant of entrust loans in RMB (unless permitted by the scope of business), repaying the inter-enterprise borrowings (including advances by the third party) or repaying the bank loans in RMB that have been sub-lent to a third party, and (4) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).

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Management

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

Name
  Age   Positions(s)

Zhou Pengwu

    64   Chairman of the Board of Directors and Chief Executive Officer

Ding Wenting

    54   Vice-chairwoman of the Board of Directors and Chief Marketing Officer

Hu Qing

    56   Director and Chief Operating Officer

Zhou Yitao

    41   Director and Chief Medical Technique Officer

Wei Zhinan Nelson

    39   Director

Yan Hongfei

    35   Director

Zhang Jianbin

    46   Director

Xue Hongwei*

    40   Independent Director Nominee

Lu Feng*

    44   Independent Director Nominee

Tsang Eric Chi Wai*

    66   Independent Director Nominee

Fan Peng

    37   Chief Strategy Officer

Wu Guanhua

    37   Chief Financial Officer

*
Each of Mr. Xue Hongwei, Mr. Lu Feng and Mr. Tsang Eric Chi Wai has accepted appointment to be a director of our company, effective immediately upon the completion of this offering.

        The following is a biographical summary of the experience of our directors and executive officers.

        Dr. Zhou Pengwu is one of our founders and is our chairman of the board of directors and chief executive officer. Dr. Zhou has been a registered plastic surgeon since 1991. He has over 30 years of experience in aesthetic medicine and over 20 years of experience in managing aesthetic medical hospitals, beginning with the establishment of the Shenzhen Pengcheng Clinic in Shenzhen in 1997, which later became the Pengcheng Outpatient Clinic, then the Shenzhen Pengcheng General Hospital, and finally the Pengcheng Hospital. He acted in a variety of leadership positions in our company, including as the general manager and hospital administrator of the Pengcheng Hospital and Shenzhen Pengai Hospital, as well as chairman and general manager of Shenzhen Pengai Hospital Investment Management Co., Ltd., or Shenzhen Pengai Investment. Dr. Zhou also currently serves as an adjunct professor at the Aesthetic Medical School at Yichun University. In 2012, he was elected as vice-president of the Shenzhen Entrepreneur Association. In 2015, Dr. Zhou was elected as vice-chairman of the First Council of the Internet Aesthetic Medical Subcommittee of Chinese Cosmetic Surgery Association. He is also currently a vice-chairman member of the Fifth Council of the Aesthetic Medical Treatment Subcommittee of the Guangdong Medical Association and vice chairman of the Second Council of the Private Aesthetic Medical Treatment Institution of Chinese Cosmetic Surgery Association. In 2011, Dr. Zhou also participated in the drafting seminar of National Health and Family Planning Commission of the PRC for setting up standards for aesthetic medical treatment institutions. Dr. Zhou obtained an EMBA for hospital administrators from Peking University in October 2005. Dr. Zhou was awarded the "2017 Industry Leader Award" by China Council for the Promotion of International Trade Academy, China Economic Herald and China Business Association (Beijing) Entrepreneur Business Club. Dr. Zhou is the current spouse of Ms. Ding, our vice-chairwoman and the father of Dr. Zhou Yitao, a director of our company.

        Ms. Ding Wenting is one of our founders and is currently our vice-chairwoman of the board of directors and chief marketing officer. Ms. Ding is primarily responsible for overall group sales, marketing and procurement. Ms. Ding has been acting in a variety of leadership positions in our company for over 20 years. From January 2002 to December 2005, Ms. Ding served as deputy

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administrator of Pengcheng Hospital. From March 2006 to December 2010, Ms. Ding served as deputy administrator of Shenzhen Pengai Hospital. Since December 2005, Ms. Ding has consecutively served as deputy general manager, vice-chairman and vice-president of Shenzhen Pengai Investment. Ms. Ding obtained an EMBA for hospital administrators from Peking University in August 2006. In February 2007, Ms. Ding received one-to-one training by Miki Takasaka, a master in the use of colors in Japan. In February 2007, Ms. Ding completed the foundation course in image consultancy offered by First Impressions. In April 2007, Ms. Ding completed the trainings and passed the examinations of the personal total image consulting course, personal color analysis course, personal style analysis course, and the fundamental personal image consultant course at Ximan Color Fashion Training Institute of Beijing Ximan Color Co., Ltd. In June 2007, Ms. Ding completed the course for color matching designers offered by the China Fashion & Color Association. In June 2008, Ms. Ding obtained a certificate in make-up artistry from Christian Chauveau's Technical School of Artistic Make-up in Paris. In October 2012, Ms. Ding was appointed as the vice-president of the Shenzhen General Chamber of Commerce. Ms. Ding is the current spouse of Dr. Zhou Pengwu, our chairman and chief executive officer.

        Ms. Hu Qing has served as a director of our company since March 2012. She is our chief operating officer, primarily responsible for the overall operations of our business. Ms. Hu has over 25 years of experience in the medical industry. From January 2004 to December 2005, Ms. Hu served as the deputy president of Shenzhen Pengcheng General Hospital. From December 2005 to December 2013, Ms. Hu consecutively served as the deputy hospital administrator, and general manager of Shenzhen Pengai Hospital. Since 2002, Ms. Hu has served as the vice-president, deputy general manager and director of Shenzhen Pengai Investment. Prior to joining us, Ms. Hu spent more than 13 years working in Japan and served as the director and the Secretary for the Beijing University of Traditional Chinese Medicine, Japanese Branch where she was in charge of daily operations, from April 1991 to March 2004. Ms. Hu received her bachelor's degree in radio engineering from the South China Engineering School (currently known as the South China University of Technology) in July 1983 and obtained an EMBA for hospital administrators from Peking University in August 2006.

        Dr. Zhou Yitao has served as a director of our company since March 2012. Dr. Zhou Yitao currently serves as our chief medical technique officer, primarily responsible for medical quality and safety. He has been the general manager of East China region of Shenzhen Pengai Investment since 2013, primarily responsible for our expansion in the East China region. From July 2012 to December 2013, Dr. Zhou Yitao served as the hospital administrator of Shanghai Nishizhen Aesthetic Medical Clinic Co., Ltd. From June 2010 to June 2012, he served as the hospital administrator of Nanchang Pengai. Since October 2012, he has been serving as the director of Shenzhen Pengai Investment. Dr. Zhou Yitao was designated as our executive director in July 2014. Dr. Zhou Yitao has over 15 years of experience in the medical industry. Prior to joining us, Dr. Zhou Yitao spent two years practicing medicine at the general surgery and plastic surgery departments of Pingxiang People's Hospital and spent one year attending plastic surgery courses at each of the Orthopedic Hospital of Peking Union Medical College of Chinese Medical Science Institution from June 2004 to June 2005, the plastic surgery department of Shanghai No. 9 Hospital from October 2006 to November 2007, and the Navi Plastic Surgery Clinic in South Korea from March 2010 to September 2010. Dr. Zhou Yitao received his bachelor's degree in clinical medicine from Hubei Medical University in July 2000 and a master's degree in health administration from La Trobe University, Melbourne, Australia in October 2009. Dr. Zhou Yitao is the son of Dr. Zhou Pengwu, our chairman and chief executive officer, and Dr. Zhou Pengwu's former spouse.

        Mr. Wei Zhinan Nelson has served as a director of our company since June 2019. He has approximately 14 years of experience in the financial services industry across investment banking and principal investment, and currently covers the Greater China Region for ADV Partners Limited, or ADV. Prior to ADV, Mr. Wei was an executive director and the head of Greater China Region for

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3M New Ventures, a separate investment entity of 3M Company (NYSE: MMM), where he led investments and mergers and acquisitions in technology, consumer, industrial, and healthcare sectors from January 2014 to June 2016. Prior to 3M New Ventures, Mr. Wei served as the vice president at Clarity China Partners, a private equity firm, from February 2011 to January 2014. Mr. Wei received his bachelor's degree in economics from the University of California, Berkeley in May 2004.

        Mr. Yan Hongfei has served as a director of our company since December 2016. He has approximately 8 years of experience in the financial services industry across principal investments and portfolio management, and covers the China market for ADV. Prior to ADV, Hongfei was vice president at Deutsche Bank Strategic Investment Group, the principal investment team of Deutsche Bank in China from September 2012 to May 2015. During his tenure with Deutsche Bank, Mr. Yan was responsible for deal sourcing, structuring, execution and post-investment management of both private equity and financing transactions. From October 2010 to July 2012, Mr. Yan was an analyst at KKR Capstone where he conducted post investment management for portfolio companies in consumer, retail, and environmental industries across Asia. Mr. Yan began his career with McKinsey & Company and served as an analyst focusing on providing strategic consulting in China from September 2008 to October 2010. Mr. Yan Hongfei received his master's degree in biochemical engineering from Tsinghua University and received a double master's degree in engineering from Ecole Centrale de Lille in June 2008.

        Mr. Zhang Jianbin has served as a director of our company since March 2012. Mr. Zhang concurrently serves as a director of Shenzhen Pengai Investment and a number of PRC companies, including Shanghai South Model Bio-technology Co., Ltd., which is listed on the National Equities Exchange and Quotation System of China (stock code: 839728). Mr. Zhang has served as vice president of Aiqi Chuangye Investment Management (Shenzhen) Co., Ltd. since July 2017. From November 2009 to June 2015, Mr. Zhang consecutively served as investment manager and vice president of IDG Capital Investment Consultancy (Beijing) Co., Ltd., an investment fund advisory firm primarily focusing on China-related venture capital and private equity projects. Mr. Zhang received his bachelor's degree in biochemistry engineering from Nanjing Tech University in June 1996 and his master's degree in business administration from Cheung Kong Graduate School of Business in September 2011.

        Mr. Xue Hongwei will serve as our independent director immediately commencing from the completion of this offering. Mr. Xue founded Bybridge Consultancy Pte. Ltd. in 2015 and currently serves as its director. Mr. Xue previously served as a director of Mendis Aesthetics Pte Ltd. From August 2014 to September 2015, Mr. Xue served as an accountant for Asia-Europe Foundation, a non-profit organization. From July 2013 to December 2013, Mr. Xue worked as a financial analyst at Schneider Electric (EPA:SU). From October 2012 to March 2013, Mr. Xue worked as a financial investment manager at China Sunergy Co Ltd (OTCMKTS: CSUNY). From October 2011 to September 2012, Mr. Xue Hongwei worked as an investment manager at China Electric Equipment Group. Mr. Xue is a member of the Association of Chartered Certified Accountants and a Chartered Accountant of Singapore. Mr. Xue received his combined bachelor's and master's degree in economics and business administration from Georg-August University of Goettingen, Germany, in August 2005.

        Mr. Lu Feng will serve as independent director immediately commencing from the completion of this offering. Mr. Lu joined Nanfang Hospital, which is affiliated with Southern Medical University, in September 2000. He is currently a professor at Southern Medical University and a chief doctor at Nanfang Hospital. Mr. Lu received his bachelor's degree in clinical medicine and master's degree in plastic surgery from the First Military Medical University (now known as Nanfang Hospital) in 1997 and 2000, respectively. Mr. Lu further obtained his doctoral degree in plastic surgery from the First Military Medical University (now known as Nanfang Hospital) in 2004. Mr. Lu was a postdoctoral fellow at Harvard Medical School from 2008 to 2009. Mr. Lu is specialized in fat transfer and has published over 40 articles in a number of aesthetics journals, such as Plastic and Reconstructive Surgery. Mr. Lu is a vice-chairman member of the Youth Committee of Chinese Medical Association

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Plastic Surgery Branch Committee and Fats Professional Committee of Chinese Medical Association Medical Cosmetic Surgery Branch Committee. He is also the deputy group leader of Fats Professional Group of Chinese Medical Association Plastic Surgery Branch Committee. In addition, Mr. Lu participated in a number of research programs supported by governmental funds.

        Mr. Tsang Eric Chi Wai will serve as independent director immediately commencing from the completion of this offering. He also currently serves as the vice-chairman of Hong Kong All Stars Sports Association, a member of the Hong Kong Film Directors' Guild-Committee; the chairman of Hong Kong Movie Stars Charities Limited, a non-profit organization in Hong Kong that provides assistance to the elderly, and the chairman of Caring For Children Foundation. Mr. Tsang is a Hong Kong actor, film director, producer and television host and has over 40 years of experience in the television and entertainment industry. He starred in Hong Kong films, gaining various acting awards and nominations. Mr. Tsang was awarded the Medal of Honor by the Hong Kong SAR Government in July 2008 and became a member of the 12th Chinese People's Political Consultative Conference Standing Committee of Jiangmen, Guangdong in December 2011.

        Mr. Fan Peng has served as our chief strategy officer since August 2018 and is primarily responsible for securities affairs, investor relations, board office, mergers and acquisitions. Prior to joining us, Mr. Fan Peng served as the chief financial officer of Cashbus (Cayman) Limited from October 2017 to July 2018. From May 2016 to October 2017, Mr. Fan was the Head of Investor Relations and Capital Markets of Dali Foods Group Company Limited, a company listed on the main board of The Stock Exchange of Hong Kong Limited (stock code: 3799), and was primarily responsible for investor relations, corporate development, and mergers and acquisitions. From December 2007 to May 2016, Mr. Fan Peng served at Hong Kong Branch of Deutsche Bank AG where his position was vice president in the corporate finance division. From May 2007 to December 2007, Mr. Fan Peng served as an analyst in the investment banking department of HSBC Markets (Asia) Limited. From July 2006 to May 2007, Mr. Fan served as a business analyst in the investment banking group of Macquarie Investment Advisory (Beijing) Co, Ltd. Mr. Fan Peng currently also serves as an independent non-executive director of Jiangsu Innovative Ecological New Materials Limited, a company listed on the main board of The Stock Exchange of Hong Kong Limited (stock code: 2116). Mr. Fan Peng received his bachelor's degree in accounting and master's degree in business administration from Tsinghua University in July 2004 and July 2006, respectively.

        Mr. Wu Guanhua joined our company in 2012 and has served as our chief financial officer since August 2018. Mr. Wu Guanhua has over 10 years of experience in international corporate accounting, operations, financial and strategic management. From 2006 to 2008, Mr. Wu Guanhua served as project manager of MAZARS, a global audit, accounting and consulting group. Since March 2008, Mr. Wu Guanhua has served as a partner of Beijing Junyue Investment Consultancy Co., Ltd, a company specializing in consulting services for financing, listing procedures and business development strategies to small and medium enterprise in China. Mr. Wu obtained his bachelor's degree in science from the University of Oxford Brooks in 2007. Mr. Wu is a certified accountant of The Association of Chartered Certified Accountants since 2007 and became a fellow member in 2012.

Employment agreements and indemnification agreements

        We plan to enter into employment agreements with each of our senior executive officers. Under these agreements, each of our executive officers will be employed for a specified time period, which will be automatically extended unless either we or the executive officer gives prior notice to terminate such employment. We may terminate a senior executive officer's employment for cause, at any time, without notice or remuneration, for certain acts of the officer, including, but not limited to, a conviction or plea of guilty to a felony, willful misconduct or a failure to perform agreed duties. We may also terminate an executive officer's employment without cause by a 60-day prior written notice.

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        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 or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The senior 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 senior 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 for one year following the termination of the employment. Specifically, each senior executive officer has agreed not to (i) approach our suppliers, customers, direct or end customers or contacts or other persons or entities introduced to the senior 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, or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with our business or accounts.

        We plan to enter into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify them against certain liabilities and to reimburse them for expenses in connection with claims made by reason of their being a director or officer of our company.

Board of directors

        Our board of directors will consist of 10 directors immediately upon the completion of this offering. 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 or any proposed contract or arrangement in which he is interested, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered, provided (a) such director has declared the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first considered if he knows his interest then exists, or in any other case at the first meeting of the board after he knows he is or has become so interested, 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. Our directors may exercise all the powers of our company to borrow money, mortgage or charge its undertaking, property and uncalled capital and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third party. None of our directors has a service contract with us that provides for benefits upon termination of service.

Committees of the board of directors

        We have established and will maintain three committees under the board of directors: 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 currently consists of Zhang Jianbin, Yan Hongfei and Wei Zhinan Nelson. Our audit committee will consist of Xue Hongwei, Lu Feng and Tsang Eric Chi Wai,

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and will be chaired by Xue Hongwei upon the completion of this offering. Each of them satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq and meets the independence standards under Rule 10A-3 under the Exchange Act. Our audit committee will consist solely of independent directors that satisfy the Nasdaq and SEC requirements upon completion of this offering. We have determined that Xue Hongwei qualifies as an "audit committee financial expert" within the meaning of the SEC rules and possesses financial sophistication within the meaning of the Nasdaq Rules. 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:

        Compensation committee.    Our compensation committee currently consists of Zhang Jianbin, Yan Hongfei and Wei Zhinan Nelson. Our compensation committee will consist of Lu Feng, Xue Hongwei and Tsang Eric Chi Wai, and will be chaired by Lu Feng upon the completion of this offering. Each of them satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq. 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 upon. The compensation committee will be responsible for, among other things:

        Nominating and corporate governance committee.    Our nominating and governance committee currently consists of Zhang Jianbin, Yan Hongfei and Wei Zhinan Nelson. Our nominating and corporate governance committee will consist of Xue Hongwei, Lu Feng and Tsang Eric Chi Wai, and will be chaired by Xue Hongwei upon the completion of this offering. Each of them satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq. The nominating and

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corporate governance committee will assist the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:

Appointment of directors

        Pursuant to our post-offering amended and restated memorandum and articles, and notwithstanding otherwise provided therein to the contrary,

Duties of directors

        Under Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a shareholder has the right to seek damages if a duty owed by our directors is breached. You should refer to "Description of share Capital—Differences in corporate law" for additional information on our standard of corporate governance under Cayman Islands law.

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        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:

Terms of directors and executive officers

        All of our executive officers are appointed by and serve at the discretion of our board of directors. Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders. 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. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; (ii) dies or becomes of unsound mind, (iii) resigns his office by notice in writing to us, or (iv) without special leave of absence from our board, is absent from board meetings for six consecutive months and our directors resolve that his office be vacated.

Compensation of directors and executive officers

        For the year ended December 31, 2018 and the six months ended June 30, 2019, we paid an aggregate of RMB4.2 million (US$0.6 million) and RMB2.1 million (US$0.3 million) in cash and other benefits to our directors and executive officers. 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 subsidiaries are required by law to make contributions equal to certain percentages of each employee's salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

Share Incentive Plan

        In June 2019, our shareholders and board of directors approved the Aesthetic Medical International Holdings Group Limited Share Incentive Plan, or the Share Incentive Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. The maximum aggregate number of ordinary shares that could be issued pursuant to all awards under the Share Incentive Plan was 5,940,452 shares. As of the date of this prospectus, all options under the Share Incentive Plan to purchase ordinary shares have been granted and are outstanding.

        The following paragraphs describe the principal terms of the Share Incentive Plan.

        Types of Awards.    The Share Incentive Plan permits the awards of options, share appreciation rights, restricted shares or any other type of awards approved by the plan administrator.

        Plan Administration.    The Share Incentive Plan will be administered by our board of directors, or one or more committees appointed by the board of directors, as the case may be, which will act as the

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plan administrator. The committee(s) or the full board of directors will determine the matters related to the Share Incentive Plan, including but not limited to: the participants to receive awards, the form, type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

        Award Agreement.    Awards granted under the Share Incentive Plan are evidenced by an award agreement in writing, approved by the plan administrator, setting forth the terms of an award that has been duly authorized and approved.

        Eligibility.    We may grant awards to our board members, directors of one of our affiliates, officers, employees, consultants and other eligible persons.

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

        Exercise of Options.    The plan administrator in its sole discretion determines the exercise price for each award, which is stated in the relevant award agreement.

        Transfer Restrictions.    Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the Share Incentive Plan or the relevant award agreement or as otherwise determined by the plan administrator, such as transfers back to us, transfers by gift to one or more 'family members', transfers by will or the laws of descent and distribution.

        Termination and Amendment of the Share Incentive Plan.    Unless terminated earlier, the Share Incentive Plan has a term of ten years. Our board of directors or relevant committee appointed by the board of directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously granted unless agreed by the recipient.

        As of the date of this prospectus, our directors and executive officers as a group and our other employees as a group held outstanding options to purchase 5,940,452 ordinary shares of our company, at an exercise price of US$0.001 per share.

        The following table summarizes, as of the date of this prospectus, outstanding share options and ordinary shares beneficially held by our directors and executive officers that were granted under the Share Incentive Plan:

Directors and Executive Officers
  Ordinary shares
underlying outstanding
options and subject
to vesting
  Exercise
price
  Date of grant   Expiration
date

Hu Qing

    1,142,984   US$ 0.001   June 1, 2019   May 31, 2029

Zhou Yitao

    849,000   US$ 0.001   June 1, 2019   May 31, 2029

Fan Peng

    849,000   US$ 0.001   June 1, 2019   May 31, 2029

Wu Guanhua

    849,000   US$ 0.001   June 1, 2019   May 31, 2029

All directors and officers as a group

    3,689,984   US$ 0.001   June 1, 2019   May 31, 2029

        On June 1, 2019, we issued 5,940,452 ordinary shares to Shengli Family Limited at par value. We established Pengai Employees Trust pursuant to a declaration of trust dated June 17, 2019 among our company, as the settlor, Zedra Trust Company (Cayman) Limited, as the trustee, and Dr. Zhou Pengwu, as the enforcer, for the benefit of the grantees under our Share Incentive Plan. All of the issued shares of Shengli Family Limited have been transferred to Zedra Trust Company (Cayman) Limited as trust fund. Upon satisfaction of vesting conditions and request by relevant grantees, Shengli Family Limited will transfer the ordinary shares underlying the exercised share options to relevant grantees with the consent of the enforcer. Pursuant to the terms of the declaration of trust, the trustee shall not exercise the voting rights attached to those ordinary shares of our Company under its control without first obtaining written consent of the enforcer.

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Principal Shareholders

        The following table sets forth information concerning the beneficial ownership of our ordinary shares as of the date of this prospectus, assuming the exchange of exchangeable notes and the automatic re-designation of all outstanding preferred shares into ordinary shares by:

        The percentage of shares beneficially owned prior to this offering is computed on the basis of 63,338,671 ordinary shares issued and outstanding on an as-converted basis, which has taken into consideration the automatic re-designation of all of our outstanding preferred shares to ordinary shares on a one to one basis. The percentage of shares beneficially owned immediately after the completion of this offering, is computed on the basis of                ordinary share, on an as-converted basis, including the ordinary shares issued and outstanding prior to this offering as mentioned above and            ordinary shares represented by ADSs to be issued and sold in connection with this offering, assuming the underwriters do not exercise their option to purchase additional ADSs.

        The number of ordinary shares as of the date of this prospectus does not include 3,735,595 ordinary shares issuable upon conversion of the convertible note at principal amount of US$8.7 million, which we issued in December 2016, upon completion of this offering, as we have a right to, and intend to, redeem the convertible note using the proceeds from this offering.

        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 immediately prior
to this offering
  Ordinary shares
beneficially
owned
immediately
after the
completion of
this offering
 
 
  Number   Percent   Number   Percent  

Executive officers and directors**:

                         

Zhou Pengwu(1)(7)(8)

    40,774,826     64.4 %            

Ding Wenting(1)(7)

    40,774,826     64.4 %            

Hu Qing

                     

Zhou Yitao

                     

Wei Zhinan Nelson(4)

                     

Yan Hongfei(4)

                     

Zhang Jianbin(5)

                     

Xue Hongwei†

                     

Lu Feng†

                     

Tsang Eric Chi Wai†

                     

Fan Peng(9)

    *     *              

Wu Guanhua

                     

All executive officers and directors as a group

    40,774,826     64.4 %            

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  Ordinary shares
beneficially
owned immediately prior
to this offering
  Ordinary shares
beneficially
owned
immediately
after the
completion of
this offering
 
 
  Number   Percent   Number   Percent  

Principal shareholders:

                         

Seefar Global Holdings Limited(2)(7)

    16,122,965     25.5 %            

Jubilee Set Investments Limited(3)(7)

    15,490,692     24.5 %            

Peak Asia Investment Holdings V Limited(4)(7)

    15,576,960     24.6 %            

IDG holding entities(5)

    6,000,000     9.5 %            

Pengai Hospital Management Corporation(6)(7)

    3,220,717     5.1 %            

Shengli Family Limited(8)

    5,940,452     9.4 %            

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

**
The business address of all directors and officers is 1122 Nanshan Boulevard, Nanshan District, Shenzhen, Guangdong Province, China.

Each of Mr. Xue Hongwei, Mr. Lu Feng and Mr. Tsang Eric Chi Wai has accepted appointments to be a director of our company, effective upon the completion of this offering.

(1)
Represents (i) 3,773,334 ordinary shares held by Pengai Hospital Management Corporation, a company incorporated in the British Virgin Islands, or BVI, which is owned by Dr. Zhou Pengwu and Ms. Ding Wenting as to 51.0% and 49.0%, respectively; (ii) 18,889,380 ordinary shares held by Seefar Global Holdings Limited as further disclosed in note (2) below; (iii) 18,148,620 ordinary shares held by Jubilee Set Investments Limited as further disclosed in note (3) below and (iv) 5,940,452 ordinary shares held by Shengli Family Limited as further disclosed in note (8). Dr. Zhou Pengwu and Ms. Ding Wenting are spouse and each of Dr. Zhou Pengwu and Ms. Ding Wenting may be deemed to have the beneficial ownership of the shares held by each other.

(2)
Represents 16,122,956 ordinary shares held by Seefar Global Holdings Limited after giving effect to the cancellation of the exchangeable note held by it to give effect to the exchange of the exchangeable note as discussed below. Seefar Global Holdings Limited is a company incorporated in the BVI, which is indirectly wholly-owned by TMF (Cayman) Ltd. acting as the trustee of the Wan Shengda Trust. The Wan Shengda Trust is a discretionary trust established by Dr. Zhou Pengwu as a settlor and its beneficiaries are Dr. Zhou and his family members. Dr. Zhou Pengwu, as well as Ms. Ding Wenting, spouse of Dr. Zhou and our vice-chairwoman and chief marketing officer, are deemed to have the beneficial ownership of the shares held by Seefar Global Holdings Limited. Dr. Zhou Pengwu is entitled to exercise the voting power attached to our ordinary shares held by Seefar Global Holdings Limited. The registered address of Seefar Global Holdings Limited is Vistra Corporate Services Centre, Wickham's Cay II, Road Town, Tortola, VG1110, BVI. 6,287,306 and 2,776,415 ordinary shares registered in the name of Seefar Global Holdings Limited are charged in favor of Peak Asia Investment Holdings V Limited pursuant to share charges dated December 8, 2016 to secure our performance under the convertible note and the performance of Seefar Global Holdings Limited under the exchangeable note, respectively. The exchangeable note will be cancelled and exchanged into our series B preferred shares, the corresponding number of ordinary shares held by Seefar Global Holdings Limited will be cancelled, and the share charge with respect to the exchangeable note will be released, conditional upon and immediately prior to the completion of this offering. We also intend to redeem the convertible note in whole with the proceeds from the offering and expect that the share charge with respect to the convertible note will be released.

(3)
Represents 15,490,692 ordinary shares held by Jubilee Set Investments Limited after giving effect to the cancellation of the exchangeable note held by it to give effect to the exchange of the exchangeable note as discussed below. Jubilee Set Investments Limited is a company incorporated in the BVI, which is indirectly wholly-owned by TMF (Cayman) Ltd. acting as the trustee of the Wendy Trust. The Wendy Trust is a discretionary trust established by Ms. Ding Wenting as a settlor and its beneficiaries are Ms. Ding Wenting and her family members. Ms. Ding Wenting, as well as Dr. Zhou Pengwu, spouse of Ms. Ding and our chairman and chief executive officer, are deemed to have the beneficial ownership of the shares held by Jubilee Set Investments Limited. The registered address of Jubilee Set Investments Limited is Vistra Corporate Services Centre, Wickham's Cay II, Road Town, Tortola, VG1110, BVI. 6,040,745 and 2,657,928 ordinary shares registered in the name of Jubilee Set Investments Limited are charged in favor of Peak Asia Investment Holdings V Limited pursuant to share charges dated December 8, 2016 to secure our performance under the convertible note and the performance of Jubilee Set Investments Limited under the exchangeable note, respectively. The exchangeable note will be cancelled and exchanged into our series B preferred shares, the corresponding number of ordinary shares held by Jubilee Set Investments Limited will be cancelled, and the share charge with respect to the exchangeable note will be released, conditional upon and immediately prior to the completion of this offering. We also intend to redeem the convertible note

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(4)
Represents 15,576,960 ordinary shares issuable upon the re-designation of series A preferred shares held by Peak Asia Investment Holdings V Limited after giving effect to the cancellation of the ordinary shares held by it to give effect to the exchange of the exchangeable notes as discussed below. Peak Asia Investment Holdings V Limited is a company limited by shares and registered in the BVI. Peak Asia Investment Holdings V Limited is wholly owned by Beacon Technology Investment Holdings Limited, a company registered in Hong Kong, which in turn is wholly owned by ADV Opportunities Fund I, L.P., a Cayman exempted limited partnership. The general partner of ADV Opportunities Fund I, L.P. is ADV Opportunities Fund I, GP, L.P., a Cayman exempted limited partnership whose general partner is ADV Opportunities Fund I GP Ltd, a Cayman exempted company, which is wholly owned by ADV Partners Holdings Ltd, a Cayman exempted company. ADV Partners Holdings Ltd is in turn wholly owned by Mr. Bradley Dean Landes, Mr. Suresh Eshwara Prabhala and Mr. Zhu Jianyi (Kenichi Shu). The registered address of Peak Asia Investment Holdings V Limited is Flemming House, Wickhams Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands. Each of Mr. Wei Zhinan Nelson and Mr. Yan Hongfei was appointed as our director by ADV pursuant to the currently effective memorandum and articles of association. For the purpose of this section, none of Mr. Wei Zhinan Nelson and Mr. Yan Hongfei is not regarded as a beneficial owner of the shares held by ADV. In addition, Peak Asia Investment Holdings V Limited is the holder of exchangeable notes issued by Seefar Global Holdings Limited, Jubilee Set Investments Limited and Pengai Hospital Management Corporation. Conditional upon and immediately prior to the completion of this offering, such exchangeable notes will be exchanged into our series B preferred shares, which will in turn be automatically re-designated as our ordinary shares

(5)
Represents (i) 3,000,000 ordinary shares issuable upon conversion of series A preferred shares held by IDG Technology Venture Investment IV, L.P., or IDG Technology, a Delaware limited partnership; (ii) 2,801,400 ordinary shares issuable upon conversion of series A preferred shares held by IDG-ACCEL China Growth Fund III L.P., an exempted limited partnership registered in the Cayman Islands; and (iii) 198,600 ordinary shares issuable upon conversion of series A preferred shares held by IDG-ACCEL China III Investors L.P., an exempted limited partnership registered in the Cayman Islands. IDG Technology is controlled by its sole general partner, IDG Technology Venture Investment IV, LLC, which is, in turn, controlled by its two managing members, namely Mr. Quan Zhou and Mr. Chi Sing Ho. IDG-ACCEL China Growth Fund III L.P. is controlled by its sole general partner IDG-Accel China Growth Fund III Associates L.P., which in turn is controlled by its sole general partner, IDG-Accel China Growth Fund III GP Associates Ltd., or IDG Fund III GP. IDG-ACCEL China III Investors L.P. is controlled by its sole general partner IDG Fund III GP. IDG Fund III GP is managed and controlled by Mr. Quan Zhou and Mr. Chi Sing Ho, its two board members. IDG Technology, IDG-ACCEL China Growth Fund III L.P. and IDG-ACCEL China III Investors L.P. are collectively referred to as IDG Funds. Mr. Quan Zhou and Mr. Chi Sing Ho may be deemed to have controlling power over the IDG Funds. The registered address of IDG Technology is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The registered address of each of IDG-ACCEL China Growth Fund III L.P. and IDG-ACCEL China III Investors L.P. is Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands. Mr. Zhang Jianbin was appointed as our director by IDG pursuant to the currently effective memorandum and articles of association. For the purpose of this section, Mr. Zhang Jianbin is not regarded as a beneficial owner of the shares held by IDG.

(6)
Represents 3,220,717 ordinary shares held by Pengai Hospital Management Corporation after giving effect to the cancellation of the exchangeable note held by it to give effect to the exchange of the exchangeable note as discussed below a company incorporated in the BVI. Pengai Hospital Management Corporation is owned by Dr. Zhou Pengwu and Ms. Ding Wenting, spouse of Dr. Zhou Pengwu, as to 51.0% and 49.0%, respectively. The registered address of Pengai Hospital Management Corporation is Intershore Chambers, P.O. Box 4342, Road Town, Tortola, BVI. 1,255,949 and 552,617 ordinary shares registered in the name of Pengai Hospital Management Corporation are charged in favor of Peak Asia Investment Holdings V Limited pursuant to share charges dated December 8, 2016 to secure our performance under the convertible note and the performance of Pengai Hospital Management Corporation under the exchangeable note, respectively. The exchangeable note will be cancelled and exchanged into our series B preferred shares, the corresponding number of ordinary shares held by Pengai Hospital Management Corporation will be cancelled, and the share charge with respect to the exchangeable note will be released, conditional upon and immediately prior to the completion of this offering. We also intend to redeem the convertible note in whole with the proceeds from this offering and expect that the share charge with respect to the convertible note will be released.

(7)
On December 8, 2016, Pengai Hospital Management Corporation, Seefar Global holdings Limited and Jubilee Set Investments Limited, issued exchangeable notes at principal amounts of approximately US$1.3 million, US$6.4 million and US$6.2 million, respectively, or an aggregate of approximately US$13.9 million, to Peak Asia Investment Holdings V Limited. See "Description of Share Capital—History of securities issuances" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness—Exchangeable notes." As a result of the automatic conversion of the exchangeable notes to our series B preferred shares and the re-designation as ordinary shares immediately prior to the completion of this offering, (i) the number of ordinary shares beneficially owned by each of Dr. Zhou Pengwu and Ms. Ding Wenting will decrease to 34,834,347, representing        % of our total shares immediately after this offering; (ii) the number of ordinary shares beneficially owned by Seefar Global Holdings will decrease to 16,122,965, representing        % of our total shares immediately after this offering; (iii) the number of ordinary shares

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(8)
Represents 5,940,452 ordinary shares held by Shengli Family Limited, a company incorporated in the BVI, which is wholly-owned by Zedra Trust Company (Cayman) Limited, the trustee of Pengai Employees Trust. We set up Pengai Employees Trust for the benefit of the grantees under our Share Incentive Plan. For details, see "Management—Share Incentive Plan." The registered address of Shengli Family Limited is Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands. The voting rights attached to those ordinary shares held by Shengli Family Limited cannot be exercised without written consent of Dr. Zhou Pengwu. For more details, see "Management—Share Incentive Plan." For the purpose of this section, such ordinary shares are regarded beneficially owned by Dr. Zhou Pengwu.

(9)
Represents shares that the person has the right to acquire within 60 days through exercise of share options.

        As of the date of this prospectus, we had one holder of record with addresses in the United States, and such holder held approximately 4.7% of our outstanding ordinary shares in aggregate, assuming the conversion of all of our outstanding preferred shares into ordinary shares. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

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Related Party Transactions

        The following is a description of related party transactions we have entered into since January 1, 2015 with any members of our board of directors or executive officers and beneficial holders of more than 5% of our ordinary shares:

Agreements and transactions with investors

Convertible note

        See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness—Convertible note."

Exchangeable notes

        See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness—Exchangeable notes."

Shareholder and note holder agreement

        On November 15, 2018, we entered into an amended and restated shareholder and note holder agreement, with certain of our investors, including IDG Technology Venture Investment IV, L.P., IDG-Accel China Growth Fund III L.P., IDG-Accel China III Investors L.P., Peak Asia Investment Holdings V Limited and SCI Aesthetic Holding Co., Ltd.

        Pursuant to the shareholder and note holder agreement, our board of directors consists of eight directors. Subject to certain requirements, Peak Asia Investment Holdings V Limited is entitled to appoint two directors, IDG entities is entitled to appoint one director and holders of a majority of the voting power of the outstanding ordinary shares is entitled to appoint five directors, four of whom shall be our executive officers. In addition, under the shareholder and note holder agreement, our investors are entitled to registration rights and certain preferential rights, including, among others, information rights, liquidation preference and right of participation to purchase and subscribe for their respective pro rata portions of new securities to be issued. Except for the registration rights, all the rights under the shareholder and note holder agreement, including the provisions governing the board of directors, will automatically terminate upon the completion of this offering.

        Pursuant to the shareholder and note holder agreement, we have granted certain registration rights to our investors. Such registration rights would terminate upon the earlier of (i) five years following the consummation of this offering or (ii) such time at which all registrable securities held by a shareholder proposed to be sold may be sold under Rule 144 of the Securities Act in any 90-day period without registration in compliance with Rule 144 of the Securities Act. Set forth below is a description of the registration rights granted under the agreement. See "Description of Share Capital—Registration Rights" for more disclosure regarding the registration rights.

Contractual arrangements with respect to target equity interests

        See "Our History and Corporate Structure—Contractual arrangements with respect to Target Equity Interests."

Corporate guarantee

        In 2018, our bank borrowings in total amount of RMB24.0 million (US$3.5 million) were guaranteed by our subsidiary, Dr. Zhou Pengwu, Ms. Ding Wenting and a related party controlled by Dr. Zhou Pengwu and secured by some of their properties and/or our properties.

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Lease agreement

        In November 2017, Pengcheng Hospital entered into a lease agreement with Shenzhen Pengwu Industrial Development Co., Ltd., or Shenzhen Pengwu, which is wholly owned by our directors, Dr. Zhou Pengwu and Ms. Ding Wenting. Pursuant to the lease agreement, Pengcheng Hospital will pay Shenzhen Pengwu a monthly rent of RMB161,626.4. The lease agreement expires in October 2022.

Loans to directors and executive officers

        In 2016, 2017 and 2018, we provided loans to certain of our directors and executive officers. The loans are interest-free and payable on demand. As of December 31, 2016, 2017 and 2018, the balance due from our directors and executive officers were RMB5.2 million, RMB19.4 million, and RMB24.8 million (US$3.6 million) respectively.

Agreements with our directors and executive officers

Employment agreements and indemnification agreements

        See "Management—Employment agreements and indemnification agreements."

Share Incentive Plan

        See "Management—Share Incentive Plan" for a description of share options and restricted share units we have granted to our directors, officers and other individuals as a group.

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Description of Share Capital

        We are a Cayman Islands company and our affairs are governed by our memorandum and articles of association and the Companies Law.

        As of the date of this prospectus, our authorized share capital was US$150,000 divided into (i) 121,983,052 ordinary shares of par value US$0.001 each, (ii) 15,600,000 series A preferred shares of par value US$0.001 each, and (iii) 12,416,948 series B preferred shares of par value US$0.001 each, of which 47,738,671 ordinary shares and 15,600,000 series A preferred shares were issued and outstanding. All of our issued and outstanding ordinary shares are fully paid.

        Immediately prior to the completion of this offering, the exchangeable notes will exchange into our series B preferred shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors affecting our results of operations—Indebtedness—Exchangeable Notes" and "Description of Share Capital—History of securities issuances."

        Immediately prior to the completion of this offering, our authorized share capital will be increased to US$1,500,000 divided into 1,500,000,000 ordinary shares of par value US$0.001 each. All of our issued and outstanding preferred shares will automatically be re-designated to ordinary shares and there will be                ordinary shares issued and outstanding, including (i) 15,600,000 ordinary shares automatically re-designated from 15,600,000 series A preferred shares, (ii) 5,976,960 ordinary shares re-designated from 5,976,960 series B preferred shares issuable upon the exchange of our exchangeable note and (iii)             ordinary shares to be offered and issued in this offering represented by our ADSs.

        Our shareholders have adopted an amended and restated memorandum and articles of association, which will become effective and replace the current amended and restated memorandum and articles of association in its entirety immediately upon the completion of this offering. We will issue ordinary shares represented by our ADSs in this offering. The following are summaries of material provisions of our post-offering amended and restated memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our ordinary shares that we expect will become effective immediately prior to the completion of this offering.

Ordinary shares

General

        All of our outstanding ordinary shares are fully paid and non-assessable. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares. Our post-offering amended and restated memorandum and articles prohibit us from issuing bearer or negotiable shares. Our company will issue only non-negotiable shares in registered form, which will be issued when registered in our register of members.

Dividends

        Our board of directors may, from time to time, declare dividends on the shares subject to our post-offering amended and restated memorandum and articles of association and the Companies Law. The holders of our ordinary shares are entitled to receive such dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. No dividend may be declared and paid unless our directors determine that, immediately after the payment, we will be able to pay our debts as they fall due in the ordinary course of business and we have funds lawfully available for such purpose. Under Cayman Islands law, payment of the dividends may be made out of the following:

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        However, no dividend shall bear interest against our company.

Voting rights

        Holders of our ordinary shares may vote on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless voting by poll is required by Nasdaq rules or demanded by the chairman of the meeting or by one or more shareholder(s) at such general meeting.

        Any ordinary resolution to be made by the shareholders requires the affirmative vote of a simple majority of the votes of the ordinary shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes of the ordinary shares cast.

        Under Cayman Islands law, some matters, such as amending the memorandum and articles of association, changing the name or resolving to be registered by way of continuation in a jurisdiction outside the Cayman Islands, require approval of shareholders by a special resolution.

        No person will be entitled to vote at any general meeting or at any separate meeting of the holders of the ordinary shares unless the person is registered as of the record date for such meeting and unless all calls or other sums presently payable by the person in respect of ordinary shares in our company have been paid.

Transfer of ordinary shares

        Subject to the restrictions contained in our post-offering amended and restated articles of association, 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 which is issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

        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.

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        The registration of transfers may, after compliance with any notice required of the Nasdaq, be suspended and the register of members 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 of members closed for more than 30 days in any year as our board may determine.

Winding up; liquidation

        Upon the winding up of our company, after the full amount that holders of any issued shares ranking senior to the ordinary shares as to distribution on liquidation or winding up are entitled to receive has been paid or set aside for payment, the holders of our ordinary shares are entitled to receive any remaining assets of our company available for distribution as determined by the liquidator. The assets received by the holders of our ordinary shares in a liquidation may consist in whole or in part of property, which is not required to be of the same kind for all shareholders. In addition, on the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the amount paid up on the shares held by them respectively. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. We are a "limited liability" company registered under the Companies Law, and under the Companies Law, the liability of our members is limited to the amount, if any, unpaid on the shares respectively, held by them. Our post-offering amended and restated memorandum of association contains a declaration that the liability of our members is so limited.

Calls on ordinary shares and forfeiture of ordinary shares

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

Repurchase, redemption and surrender of ordinary shares

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

        All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied with the sanction of a special resolution passed at a general meeting of the

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holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.

General meetings of shareholders

        Shareholders' meetings may be convened by a majority of our board of directors or our chairman or any director where required to do so pursuant to a requisition by one or more shareholders holding at the date of deposit of the requisition shares which carry in aggregate not less than 40% of all votes attaching to the issued and outstanding shares that carry the right to vote at general meetings. Advance notice of not less than seven clear days is required for the convening of our annual general shareholders' meeting and any other general meeting of our shareholders. A quorum required for and throughout a meeting of shareholders consists of at least one shareholder entitled to vote and present in person or by proxy or (in the case of a shareholder being a corporation) by its duly authorised representative representing not less than one-third of all voting power of our share capital in issue.

Inspection of books and records

        Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See "Where You Can Find More Information."

No preemptive rights

        Holders of ordinary shares will have no preemptive or preferential right to purchase any securities of our company under our post-offering amended and restated articles of association and the Companies Law.

Anti-takeover provisions

        Some provisions of our post-offering amended and restated articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders. However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our post-offering amended and restated 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.

Changes in capital

        We may from time to time by ordinary resolution:

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        We may by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or any capital redemption reserve in any manner permitted by law.

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:

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

Reserved matters

        To the fullest extent permitted by law, for so long as Dr. Zhou Pengwu, together with his affiliates, continues to beneficially own our ordinary shares that represent at least fifteen percent (15%) of the then outstanding and issued ordinary shares, in no event shall the following actions be taken, or otherwise permitted, by or on behalf of the Company or any of its subsidiaries, without the written consent of Dr. Zhou Pengwu provided, however, no such written consent shall be required (unless waived in writing by ADV) for so long as ADV continues to hold at least five percent (5%) of our total outstanding and issued ordinary shares immediately after the completion of this offering:

        Notwithstanding the foregoing, except upon the written waiver or consent of ADV, upon a Change of Control Event, the written consent of Dr. Zhou Pengwu shall not be required to take the actions listed above.

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Differences in corporate law

        The Companies Law is derived, to a large extent, from the older Companies Acts of England, but does not follow many recent English law 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 certain significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.

Mergers and similar arrangements

        A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by (i) a special resolution of the shareholders and (ii) such other authorization, if any, as may be specified in such constituent company's articles of association.

        A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose, a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the parent company.

        The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

        Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

        In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

        The Companies Law also contains a statutory power of compulsory acquisition which may facilitate the "squeeze out" of dissentient minority shareholder upon a takeover offer. When a takeover offer is made and accepted by holders of 90% of the shares 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

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remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

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

Shareholders' suits

        In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to apply and follow the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against, or a derivative action in the name of, a company to challenge the following acts in the following circumstances:

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 against all actions, costs, charges, expenses, losses and damages incurred or sustained in their capacities as such unless such actions, costs, charges, expenses, losses and damages arise from dishonesty or fraud of such director or officer. This standard of conduct is generally the same as permitted under the Delaware corporation law for a Delaware corporation.

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

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

Directors' fiduciary duties

        Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably

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believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

        As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he or she owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

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 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. Our post-offering amended and restated articles prohibit such approval by shareholders by way of unanimous written resolution.

Shareholder proposals

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

        Cayman Islands law does not provide shareholders any right to put proposal before a meeting or requisition a general meeting. However, these rights may be provided in articles of association. Our 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 shareholders' 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

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permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholders' voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our post-offering amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Removal of directors

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

Transactions with interested shareholders

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

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

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 dissolved, liquidated or 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.

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Variation of rights of shares

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

Amendment of governing documents

        Under the Delaware General Corporation Law, a corporation's governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our post-offering amended and restated memorandum and articles of association may only be amended with a special resolution of our shareholders.

Rights of non-resident or foreign shareholders

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

History of securities issuances

        In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act. We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions, Regulation D under the Securities Act, Rule 701 under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering. No underwriters were used in the below issuances.

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Registration rights

        On November 15, 2018, we entered into an amended and restated shareholder and note holder agreement with certain of our investors, including IDG Technology Venture Investment IV, L.P., IDG-Accel China Growth Fund III L.P., IDG-Accel China IV Investors L.P., Peak Asia Investment Holdings V Limited and SCI Aesthetic Holding Co., Ltd.

        Pursuant to the shareholder and note holder agreement, our board of directors consists of eight directors. Subject to certain requirements, Peak Asia Investment Holdings V Limited is entitled to appoint two directors, IDG entities is entitled to appoint one director and holders of a majority of the voting power of the outstanding ordinary shares is entitled to appoint five directors, four of whom shall be our executive officers. In addition, under the shareholder and note holder agreement, our investors are entitled to registration rights and certain preferential rights, including, among others, information rights and right of participation to purchase and subscribe for their respective pro rata portions of new securities to be issued. Except for the registration rights, all the rights under the shareholder and note holder agreement, including the provisions governing the board of directors, will automatically terminate upon the completion of this offering.

        Pursuant to the shareholder and note holder agreement, we have granted certain registration rights to our investors. Such registration rights would terminate upon the earlier of (i) five years following the consummation of this offering or (ii) such time at which all registrable securities held by a shareholder proposed to be sold may be sold under Rule 144 of the Securities Act in any 90-day period without registration in compliance with Rule 144 of the Securities Act. Set forth below is a description of the registration rights granted under the agreement.

Demand registration rights

        At any time after the earlier of (i) December 8, 2020 or (ii) the date 12 months following the an initial public offering, upon a written request from the holders of at least 50% of the voting power of the registrable securities, we must file a registration statement covering the offer and sale of the registrable securities held by the requesting holders (a) representing at least twenty percent (20%) of the then outstanding registrable securities held by such holders, or (b) having an anticipated aggregate

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offering price, net of underwriting discounts and commissions, in excess of US$5,000,000, on any internationally recognized exchange that is reasonably acceptable to such requesting holders. Registrable securities include, among others, our ordinary shares issued or to be issued upon re-designation of the preferred shares.

        We are not obligated to effect a registration, among other things, if we have, within the 12-month period preceding the date of the request, already effected two registrations under the Securities. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the filing of a registration statement would be materially detrimental to us and our shareholders, but we cannot exercise the deferral right for more than 90 days on any one occasion or more than once in any 12-month period.

F-3 or S-3 registration rights

        When we are eligible for registration on Form F-3 or S-3, upon a written request from any holder all registrable securities, we must effect a registration on Form F-3 or S-3 and any related qualification or compliance covering the offer and sale of the registrable securities.

        We are not obligated to effect a Form F-3 or S-3 registration, among other things, if we have, within the 12-month period preceding the date of the request, already effected two registrations under the Securities Act or if the holders of registrable securities proposed to sell at an aggregate price to the public less than US$500,000. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the filing of a registration statement would be materially detrimental to us and our shareholders, but we cannot exercise the deferral right for more than 90 days on any one occasion or more than once in any 12-month period.

Piggyback registration rights

        If we propose to file a registration statement under the Securities Act for purposes of effecting a public offering of our securities (including, but not limited to, registration statements relating to secondary offerings of our securities, but excluding registration statements relating to any employee benefit plan or a corporate reorganization), we must afford holders of registrable securities an opportunity to include in that registration all or any part of their registrable securities then held. We have the right to terminate or withdraw any registration initiated by us under the piggyback registration rights prior to the effectiveness of such registration whether or not any holder has elected to include securities in such registration. The underwriters of any underwritten offering have the right to limit the number of shares with registration rights to be included in the registration statement, subject to certain limitations.

Expenses of registration

        We will pay all expenses relating to any demand, Form F-3 or S-3, or piggyback registration except for the underwriting discounts and selling commissions applicable to the sale of registrable securities and certain other limited exceptions.

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Description of American Depositary Shares

American Depositary Shares

        Deutsche Bank Trust Company Americas, as depositary, will register and deliver the ADSs. Each ADS will represent ownership of             ordinary shares, deposited with Deutsche Bank AG, Hong Kong Branch, as custodian for the depositary. Each ADS will also represent ownership of any other securities, cash or other property which may be held by the depositary. The depositary's corporate trust office at which the ADSs will be administered is located at 60 Wall Street, New York, New York 10005, U.S.A. The principal executive office of the depositary is located at 60 Wall Street, New York, New York 10005, U.S.A.

        The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, or DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto.

        We will not treat ADS holders as our shareholders and accordingly, you, as an ADS holder, will not have shareholder rights. Cayman Islands law governs shareholder rights. The depositary will be the holder of the ordinary shares underlying your ADSs. As a holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary and you, as an ADS holder, and the beneficial owners of ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. The laws of the State of New York govern the deposit agreement and the ADSs. See "—Jurisdiction and Arbitration."

        The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of American Depositary Receipt. For directions on how to obtain copies of those documents, see "Where You Can Find More Information."

Holding the ADSs

How will you hold your ADSs?

        You may hold ADSs either (1) directly (a) by having an American Depositary Receipt, or ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (b) by holding ADSs in DRS, or (2) indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADS holder. This description assumes you hold your ADSs directly. ADSs will be issued through DRS, unless you specifically request certificated ADRs. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

Dividends and Other Distributions

How will you receive dividends and other distributions on the shares?

        The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent as of the record date (which will be as close as practicable to the record date for our ordinary shares) set by the depositary with respect to the ADSs.

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        The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any value for them if we and/or the depositary determines that it is illegal or not practicable for us or the depositary to make them available to you.

Deposit, Withdrawal and Cancellation

How are ADSs issued?

        The depositary will deliver ADSs if you or your broker deposit ordinary shares or evidence of rights to receive ordinary shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons entitled thereto.

        Except for ordinary shares deposited by us in connection with this offering, no shares will be accepted for deposit during a period of 180 days after the date of this prospectus. The 180 day lock up period is subject to adjustment under certain circumstances as described in the section entitled "Shares Eligible for Future Sale—Lock-up agreements."

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How do ADS holders cancel an American Depositary Share?

        You may turn in your ADSs at the depositary's corporate trust office or by providing appropriate instructions to your broker. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the ordinary shares and any other deposited securities underlying the ADSs to you or a person you designate at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, to the extent permitted by law.

How do ADS holders interchange between Certificated ADSs and Uncertificated ADSs?

        You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send you a statement confirming that you are the owner of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to you an ADR evidencing those ADSs.

Voting Rights

How do you vote?

        You may instruct the depositary to vote the ordinary shares or other deposited securities underlying your ADSs at any meeting at which you are entitled to vote pursuant to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities. Otherwise, you could exercise your right to vote directly if you withdraw the ordinary shares. However, you may not know about the meeting sufficiently enough in advance to withdraw the ordinary shares.

        If we ask for your instructions and upon timely notice from us by regular, ordinary mail delivery, or by electronic transmission, as described in the deposit agreement, the depositary will notify you of the upcoming meeting at which you are entitled to vote pursuant to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities, and arrange to deliver our voting materials to you. The materials will include or reproduce (a) such notice of meeting or solicitation of consents or proxies; (b) a statement that the ADS holders at the close of business on the ADS record date will be entitled, subject to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities, to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the ordinary shares or other deposited securities represented by such holder's ADSs; and (c) a brief statement as to the manner in which such instructions may be given to the depositary or deemed given in accordance with the second to last sentence of this paragraph if no instruction is received to the depositary to give a discretionary proxy to a person designated by us. Voting instructions may be given only in respect of a number of ADSs representing an integral number of ordinary shares or other deposited securities. For instructions to be valid, the depositary must receive them in writing on or before the date specified. The depositary will try, as far as practical, subject to applicable law and the provisions of our memorandum and articles of association, to vote or to have its agents vote the ordinary shares or other deposited securities (in person or by proxy) as you instruct. The depositary will only vote or attempt to vote as you instruct. If we timely requested the depositary to solicit your instructions but no instructions are received by the depositary from an owner with respect to any of the deposited securities represented by the ADSs of that owner on or before the date established by the depositary for such purpose, the depositary shall deem that owner to have instructed the depositary to give a discretionary proxy to a person designated by us with respect to such deposited securities, and the depositary shall give a discretionary proxy to a person designated by us to vote such deposited

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securities. However, no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter if we inform the depositary we do not wish such proxy given, substantial opposition exists or the matter materially and adversely affects the rights of holders of the ordinary shares.

        We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. In addition, there can be no assurance that ADS holders and beneficial owners generally, or any holder or beneficial owner in particular, will be given the opportunity to vote or cause the custodian to vote on the same terms and conditions as the holders of our ordinary shares.

        The depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and you may have no recourse if the ordinary shares underlying your ADSs are not voted as you requested.

        In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we will give the depositary notice of any such meeting and details concerning the matters to be voted at least 30 business days in advance of the meeting date.

Compliance with Regulations

Information Requests

        Each ADS holder and beneficial owner shall (a) provide such information as we or the depositary may request pursuant to law, including, without limitation, relevant Cayman Islands law, any applicable law of the United States of America, our memorandum and articles of association, any resolutions of our board of directors adopted pursuant to such memorandum and articles of association, the requirements of any markets or exchanges upon which the ordinary shares, ADSs or ADRs are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or ADRs may be transferred, regarding the capacity in which they own or owned ADRs, the identity of any other persons then or previously interested in such ADRs and the nature of such interest, and any other applicable matters, and (b) be bound by and subject to applicable provisions of the laws of the Cayman Islands, our memorandum and articles of association, and the requirements of any markets or exchanges upon which the ADSs, ADRs or ordinary shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs, ADRs or ordinary shares may be transferred, to the same extent as if such ADS holder or beneficial owner held ordinary shares directly, in each case irrespective of whether or not they are ADS holders or beneficial owners at the time such request is made.

Disclosure of Interests

        Each ADS holder and beneficial owner shall comply with our requests pursuant to Cayman Islands law, the rules and requirements of the Nasdaq Global Market and any other stock exchange on which the ordinary shares are, or will be, registered, traded or listed or our memorandum and articles of association, which requests are made to provide information, inter alia, as to the capacity in which such ADS holder or beneficial owner owns ADS and regarding the identity of any other person interested in such ADS and the nature of such interest and various other matters, whether or not they are ADS holders or beneficial owners at the time of such requests.

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Fees and Expenses

        As an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs):

Service   Fees

To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)

  Up to US$0.05 per ADS issued

Cancellation of ADSs, including the case of termination of the deposit agreement

 

Up to US$0.05 per ADS cancelled

Distribution of cash dividends

 

Up to US$0.05 per ADS held

Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements

 

Up to US$0.05 per ADS held

Distribution of ADSs pursuant to exercise of rights.

 

Up to US$0.05 per ADS held

Distribution of securities other than ADSs or rights to purchase additional ADSs

 

Up to US$0.05 per ADS held

Depositary services

 

Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank

        As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as:

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        The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.

        The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients' ADSs in DTC accounts in turn charge their clients' accounts the amount of the fees paid to the depositary banks.

        In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.

        The depositary may make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS fees collected in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time.

Payment of Taxes

        You will be responsible for any taxes or other governmental charges payable, or which become payable, on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register or transfer your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any net proceeds, or send to you any property, remaining after it has paid the taxes. You agree to indemnify us, the depositary, the custodian and each of our and their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for you. Your obligations under this paragraph shall survive any transfer of ADRs, any surrender of ADRs and withdrawal of deposited securities or the termination of the deposit agreement.

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Reclassifications, Recapitalizations and Mergers

If we:   Then:
Change the nominal or par value of our ordinary shares   The cash, shares or other securities received by the depositary will become deposited securities.

Reclassify, split up or consolidate any of the deposited securities

 

Each ADS will automatically represent its equal share of the new deposited securities.

Distribute securities on the ordinary shares that are not distributed to you, or Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action

 

The depositary may distribute some or all of the cash, shares or other securities it received. It may also deliver new ADSs or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

Amendment and Termination

How may the deposit agreement be amended?

        We may agree with the depositary to amend the deposit agreement and the form of ADR without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, including expenses incurred in connection with foreign exchange control regulations and other charges specifically payable by ADS holders under the deposit agreement, or materially prejudices a substantial existing right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended. If any new laws are adopted which would require the deposit agreement to be amended in order to comply therewith, we and the depositary may amend the deposit agreement in accordance with such laws and such amendment may become effective before notice thereof is given to ADS holders.

How may the deposit agreement be terminated?

        The depositary will terminate the deposit agreement if we ask it to do so, in which case the depositary will give notice to you at least 90 days prior to termination. The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign, or if we have removed the depositary, and in either case we have not appointed a new depositary within 90 days. In either such case, the depositary must notify you at least 30 days before termination.

        After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property and deliver ordinary shares and other deposited securities upon cancellation of ADSs after payment of any fees, charges, taxes or other governmental charges. Six months or more after the date of termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. After such sale, the depositary's only obligations will be to account for the money and other cash. After termination, we shall be discharged from all obligations under the deposit agreement except for our obligations to the depositary thereunder.

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Books of Depositary

        The depositary will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the Company, the ADRs and the deposit agreement.

        The depositary will maintain facilities in the Borough of Manhattan, The City of New York to record and process the issuance, cancellation, combination, split-up and transfer of ADRs.

        These facilities may be closed at any time or from time to time when such action is deemed necessary or advisable by the depositary in connection with the performance of its duties under the deposit agreement or at our reasonable written request.

Limitations on Obligations and Liability

Limits on our Obligations and the Obligations of the Depositary and the Custodian; Limits on Liability to Holders of ADSs

        The deposit agreement expressly limits our obligations and the obligations of the depositary and the custodian. It also limits our liability and the liability of the depositary. The depositary and the custodian:

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        The depositary and any of its agents also disclaim any liability (i) for any failure to carry out any instructions to vote, the manner in which any vote is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or for allowing any rights to lapse in accordance with the provisions of the deposit agreement, (ii) the failure or timeliness of any notice from us, the content of any information submitted to it by us for distribution to you or for any inaccuracy of any translation thereof, (iii) any investment risk associated with the acquisition of an interest in the deposited securities, the validity or worth of the deposited securities, the credit-worthiness of any third party, (iv) for any tax consequences that may result from ownership of ADSs, ordinary shares or deposited securities, or (v) for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary, provided that in connection with the issue out of which such potential liability arises the depositary performed its obligations without gross negligence or willful misconduct while it acted as depositary.

        In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

Jurisdiction and Arbitration

        The laws of the State of New York govern the deposit agreement and the ADSs and we have agreed with the depositary that the federal or state courts in the City of New York shall have exclusive jurisdiction to hear and determine any dispute arising from or in connection with the deposit agreement and that the depositary will have the right to refer any claim or dispute arising from the relationship created by the deposit agreement to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration provisions of the deposit agreement do not preclude you from pursuing claims under the Securities Act or the Exchange Act in federal courts.

Jury Trial Waiver

        The deposit agreement provides that each party to the deposit agreement (including each holder, beneficial owner and holder of interests in the ADRs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any lawsuit or proceeding against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable law.

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Requirements for Depositary Actions

        Before the depositary will issue, deliver or register a transfer of an ADS, split-up, subdivide or combine ADSs, make a distribution on an ADS, or permit withdrawal of ordinary shares, the depositary may require:

        The depositary may refuse to issue and deliver ADSs or register transfers of ADSs generally when the register of the depositary or our transfer books are closed or at any time if the depositary or we determine that it is necessary or advisable to do so.

Your Right to Receive the Shares Underlying Your ADSs

        You have the right to cancel your ADSs and withdraw the underlying ordinary shares at any time except:

        The depositary shall not knowingly accept for deposit under the deposit agreement any ordinary shares or other deposited securities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such ordinary shares.

        This right of withdrawal may not be limited by any other provision of the deposit agreement.

Direct Registration System

        In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an ADS holder, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register such transfer.

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Shares Eligible for Future Sale

        Before this offering, no public market existed in the United States for our ordinary shares or the ADSs. Upon completion of this offering, we will have            ADSs outstanding, representing            ordinary shares, or approximately        % of our total issued and outstanding ordinary shares, assuming the underwriters do not exercise its option to purchase additional ADSs (or approximately        % of our total issued and outstanding ordinary shares, if the underwriters exercise in full their option to purchase additional ADSs). All of the ADSs sold in this offering will be freely transferable by persons other than by our "affiliates" without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. We intend to apply to list the ADSs on the Nasdaq Global Market, but we cannot assure you that a regular trading market will develop for the ADSs. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. We do not expect that a trading market will develop for our ordinary shares not represented by the ADSs.

Lock-up agreements

        We, our directors and executive officers, all of our existing shareholders, certain holders of our share-based awards and certain other securityholders have agreed to lock-up restrictions in respect of our ordinary shares, ADSs, and/or any securities convertible into or exchangeable or exercisable for any of our ordinary shares or ADSs, during the period ending 180 days after the date of this prospectus, subject to certain exceptions.

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 under 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, under Rule 144 as currently in effect, 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:

        Affiliates who sell restricted securities under Rule 144 may not solicit orders or arrange for the solicitation of orders, and they are also subject to certain requirements relating to manner of sale, notice and the availability of current public information about us. In addition, in each case, shares held

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by our affiliates would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

Rule 701

        Beginning 90 days after the date of this prospectus, persons other than affiliates who purchased ordinary shares under a written compensatory plan or other written agreement executed prior to the completion of this offering may be entitled to sell such shares in the United States in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 subject only to its manner-of-sale requirements. 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.

Convertible note

        See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Convertible note."

Registration rights

        See "Description of Share Capital—Registration rights."

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Taxation

        The following summary of Cayman Islands, PRC and U.S. federal income tax consequences of an investment in the ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in the ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws, or tax laws of jurisdictions other than the Cayman Islands, the PRC and the United States. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Conyers Dill & Pearman, our counsel as to Cayman Islands law, to the extent that the discussion relates to matters of PRC tax law, it represents the opinion of Han Kun Law Offices, our counsel as to PRC law, and to the extent that the discussion relates to matters of U.S. federal income tax law, and subject to the qualifications herein, it represents the opinion of O'Melveny & Myers LLP, our counsel as to U.S. federal income tax law.

Cayman Islands taxation

        The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the government of the Cayman Islands that are likely to be material to holders of ordinary shares except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

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

        Pursuant to Section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor in Cabinet:

        The undertaking for us is for a period of twenty years from July 29, 2014.

People's Republic of China taxation

        We are a holding company incorporated in the Cayman Islands.

        Under the EIT Law and its implementation rules, an enterprise established outside of China with a "de facto management body" within China is considered a "resident enterprise," and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term "de facto management body" as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation issued SAT Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by

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PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation's general position on how the "de facto management body" text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, all offshore enterprises controlled by a PRC enterprise or a PRC enterprise will be regarded as a PRC tax resident by virtue of having its "de facto management body" in China only if all of the following conditions are met:

        We believe that none of Aesthetic Medical International Holdings Group Limited and its subsidiaries outside of China is a PRC resident enterprise for PRC tax purposes. Aesthetic Medical International Holdings Group Limited is not controlled by a PRC enterprise or PRC enterprise group, and we do not believe that Aesthetic Medical International Holdings Group Limited meets all of the conditions above. Aesthetic Medical International Holdings Group Limited is a company incorporated outside China. As a holding company, some of its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside China. For the same reasons, we believe our other subsidiaries outside of China are also not PRC resident enterprises. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body."

        If the PRC tax authorities determine that Aesthetic Medical International Holdings Group Limited is a PRC resident enterprise for EIT purposes, we may be required to withhold tax at a rate of 10% on dividends we pay to our shareholders, including holders of the ADSs, that are non-resident enterprises. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of ADS or ordinary shares, if such income is treated as sourced from within China. Furthermore, gains derived by our non-PRC individual shareholders from the sale of our shares and ADSs may be subject to a 20% PRC withholding tax. It is unclear whether our non-PRC individual shareholders (including the ADS holders) would be subject to any PRC tax (including withholding tax) on dividends received by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends realized by non-PRC individuals, it will generally apply at a rate of 20%. The PRC tax liability may be reduced under applicable tax treaties. However, it is unclear whether non-PRC shareholders of Aesthetic Medical International Holdings Group Limited would be able to claim the benefits of any tax treaty between their country of tax residence and China in the event that Aesthetic Medical International Holdings Group Limited is treated as a PRC resident enterprise.

        See "Risk factors—Risks related to doing business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders."

        Pursuant to the EIT Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in China, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double

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Taxation and Tax Evasion on Income, the tax rate in respect to dividends paid 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 SAT Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced tax rate: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. There are also other conditions for enjoying the reduced tax rate according to other relevant tax rules and regulations. Accordingly, our subsidiary Peng Oi Investment (Hong Kong) Holdings Limited may be able to enjoy the 5% tax rate for the dividends it receives from its PRC incorporated subsidiaries if they satisfy the conditions prescribed under SAT Circular 81 and other relevant tax rules and regulations and obtain the approvals as required. However, according to SAT Circular 81, if the relevant tax authorities determine our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable tax rate on dividends in the future.

        If our Cayman Islands holding company, Aesthetic Medical International Holdings Group Limited, is not deemed to be a PRC resident enterprise, holders of the ADSs and ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares or ADSs.

United States federal income taxation

        The following is a general discussion of certain U.S. federal income tax considerations relating to the ownership and disposition of the ADSs or ordinary shares by U.S. Holders (as defined below) that acquire the ADSs or ordinary shares in this offering and hold the ADSs or ordinary shares as "capital assets" (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended or the "Code". This discussion does not address any aspect of U.S. federal gift or estate tax, alternative minimum tax, the Medicare tax on net investment income, or the state, local or non-U.S. tax consequences of an investment in the ADSs and ordinary shares and is not intended to be relied upon, and cannot be relied upon, for the purpose of avoiding penalties that may be imposed under the tax laws of the United States. This discussion is based on the Code, its legislative history, existing and proposed regulations promulgated thereunder, published rulings, court decisions and, if applicable in the event that we are deemed to be a PRC resident enterprise under the PRC tax law, the income tax treaty between the United States and PRC (the "Treaty"), all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. No ruling has been obtained and no ruling will be requested from the U.S. Internal Revenue Service (the "IRS") with respect to any of the U.S. federal income tax consequences described below, and as a result, there can be no assurance that the IRS will not disagree with or challenge any of statements provided below.

        This discussion is not a complete description of all tax considerations that may be relevant to particular investors in light of their individual circumstances or investors subject to special tax rules, such as:

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        Prospective investors are urged to consult their own tax advisor concerning the particular U.S. federal income tax consequences to them of the ownership and disposition of the ADSs and ordinary shares, as well as the consequences to them arising under the laws of any other taxing jurisdictions.

        For purposes of the U.S. federal income tax discussion below, a "U.S. Holder" is a beneficial owner of ADSs or ordinary shares who or that is:

        For U.S. federal income tax purposes, income earned through an entity or arrangement classified as a partnership for U.S. federal income tax purposes is attributed to its owners. Accordingly, if an entity or arrangement classified as a partnership for U.S. federal income tax purposes holds the ADSs or ordinary shares, the tax treatment of a partner in such a partnership will generally depend on 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 the U.S. federal income tax consequences to them of an investment in ADSs or ordinary shares.

        If a U.S. Holder holds ADSs, for U.S. federal income tax purposes, the U.S. Holder generally will be treated as the owner of the underlying ordinary shares that are represented by such ADSs.

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Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to U.S. federal income tax.

Dividends on ADSs and ordinary shares

        Subject to the "Passive Foreign Investment Company" discussion below, if we make cash distributions and you are a U.S. Holder, the gross amount of any distributions with respect to your ADSs and ordinary shares (including the amount of any taxes withheld therefrom) will be includible in your gross income on the day you actually or constructively receive such income as dividend income if the distributions are made from our current or accumulated earnings and profits, calculated according to U.S. federal income tax principles. We do not intend to calculate our earnings and profits according to U.S. federal income tax principles. Accordingly, distributions on the ADSs and ordinary shares, if any, will generally be reported to you as dividend distributions for U.S. tax purposes. Dividends received on the ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations.

        With respect to non-corporate U.S. Holders, certain dividends received from a qualified foreign corporation may be subject to a reduced capital gains tax rate rather than the marginal tax rates generally applicable to ordinary income. A non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or in the preceding taxable year) generally will be treated as a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States that includes an exchange of information program or (ii) with respect to any dividend it pays on stock which is readily tradable on an established securities market in the United States. We expect that the ADSs, which we have applied to list on the Nasdaq Global Market, will be readily tradable on an established securities market in the United States. Since we do not expect our ordinary shares to be listed on an established securities market, we do not believe that dividends we pay on our ordinary shares that are not represented by ADSs will meet the conditions required for the reduced capital gains tax rate. There can be no assurance that the ADSs will be considered readily tradable on an established securities market in later years. Non-corporate U.S. Holders of the ADSs that do not meet a minimum holding period requirement and certain other requirements will not be eligible for the reduced capital gain tax rate with respect to our dividends regardless of our status as a qualified foreign corporation. In the event that we are deemed to be a PRC resident enterprise under PRC tax law (see "Taxation—People's Republic of China taxation), we may be eligible for the benefits of the Treaty. Dividends we pay on the ADSs or ordinary shares to non-corporate U.S. Holders during the course of a taxable year during which we are eligible for such benefits would be eligible for the reduced capital gains tax rate, in the case of ordinary shares regardless of whether they are represented by the ADSs. You should consult your own tax advisor regarding the availability of the reduced capital gain tax rate for dividends paid with respect to the ADSs and ordinary shares.

        For U.S. foreign tax credit purposes, dividends we pay on the ADSs or ordinary shares generally will be treated as income from foreign sources and generally will constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid on our ADSs or ordinary shares (see "Taxation—People's Republic of China taxation"). Depending on your individual facts and circumstances, you may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of foreign withholding taxes (to the extent that such withholding taxes are not refundable under the Treaty) that may be imposed on dividends received on the ADSs or ordinary shares. You should consult your own tax advisors as to your ability, and the various limitations on your ability, to claim foreign tax credits in connection with the receipt of dividends.

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Sales and other dispositions of ADSs or ordinary shares

        Subject to the "Passive Foreign Investment Company" discussion below, when you sell or otherwise dispose of ADSs or ordinary shares, you will recognize capital gain or loss in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in the ADSs or ordinary shares. Your adjusted tax basis will equal the amount you paid for the ADSs or ordinary shares. Any gain or loss you recognize will generally be long-term capital gain or loss if your holding period in the ADSs or ordinary shares is more than one year at the time of disposition. If you are a non-corporate U.S. Holder, including an individual, any such long-term capital gain will generally be eligible for a reduced rate of taxation. The deductibility of a capital loss is subject to limitations.

        Gains from dispositions of the ADSs or ordinary shares may be subject to PRC tax if such gains are deemed as income derived from sources within China for PRC tax purposes (see "Taxation—People's Republic of China taxation). In that case, a U.S. Holder's amount realized would include the gross amount of the proceeds of the sale or disposition before deduction of the PRC tax. Any gain generally would constitute U.S. source income for foreign tax credit limitation purposes, which would generally limit the availability of foreign tax credits. However, in the event we are deemed to be a PRC resident enterprise, a U.S. Holder that is eligible for the benefits of the Treaty may be able to elect to treat its gain as foreign source gain for foreign tax credit purposes. If a U.S. Holder is not eligible for the benefits of the Treaty or fails to make the election to treat any gain as foreign source, then such U.S. Holder may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or ordinary shares unless such credit can be applied (subject to applicable limitations) against United States federal income tax due on other income derived from foreign sources in the same income category (generally, the passive category). You should consult your own tax advisors regarding your eligibility for benefits under the Treaty and the creditability of any PRC tax on disposition gains in your particular circumstances.

Passive foreign investment company

        If we were classified as a passive foreign investment company or "PFIC" in any taxable year in which you hold the ADSs or ordinary shares, as a U.S. Holder, you would generally be subject to adverse U.S. tax consequences, in the form of increased tax liabilities and special U.S. tax reporting requirements.

        In general, we will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on a quarterly value of the assets during the taxable year) is attributable to assets that produce or are held for the production of passive income (the "asset test"). For purposes of making the PFIC determination, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the gross income of any other corporation of which we are, directly or indirectly, a 25% or greater shareholder (by value). For purposes of the asset test, any cash and cash invested in short-term, interest bearing, debt instruments, or bank deposits that are readily convertible into cash will generally count as producing passive income or held for the production of passive income.

        Based on assumptions as to our projections of the value of our outstanding ADSs and ordinary shares, our expected use of the proceeds from this offering and of the other cash that we will hold and generate in the ordinary course of our business throughout taxable year ending 2019, and the composition of our assets and income, we do not expect to be a PFIC for the current taxable year ending December 31, 2019 or in the foreseeable future. Despite our expectation, there can be no assurance that we will not be a PFIC in the current taxable year or any future taxable year as PFIC status is a factual determination that tested each taxable year and will depend on the composition of our assets and income in each such taxable year. In particular, in determining the average percentage value of our gross assets, the aggregate value of our assets will generally be deemed to be equal to our

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market capitalization (the sum of the aggregate value of our outstanding equity) plus our liabilities. Accordingly, we could become a PFIC if our market capitalization were to decrease significantly while we hold substantial cash, cash equivalents or other assets that produce or are held for the production of passive income. In addition, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets, which could result in a determination that we were a PFIC for the current or subsequent taxable years. Because PFIC status is a factual determination for each taxable year which cannot be made until after the close of the taxable year, our special U.S. counsel expresses no opinion with respect to our expectations contained in this paragraph.

        If we were a PFIC for any taxable year during which you held ADSs or ordinary shares, certain adverse U.S. federal income tax rules would apply. You would generally be subject to additional taxes and interest charges on certain "excess distributions" we make and on any gain realized on the disposition or deemed disposition of your ADSs or ordinary shares, regardless of whether we continue to be a PFIC in the year in which you receive an "excess distribution" or dispose of or are deemed to have disposed of, your ADSs or ordinary shares. Distributions in respect of your ADSs or ordinary shares during a taxable year would generally constitute "excess distributions" if, in the aggregate, they exceed 125% of the average amount of distributions with respect to your ADSs or ordinary shares over the three preceding taxable years or, if shorter, the portion of your holding period before such taxable year.

        To compute the tax on "excess distributions" or any gain, (i) the "excess distribution" or the gain would be allocated ratably to each day in your holding period, (ii) the amount allocated to the current year and any tax year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income in the current year, (iii) the amount allocated to other taxable years would be taxable at the highest applicable marginal rate in effect for that year, and (iv) an interest charge at the rate for underpayment of taxes for any period described under (iii) above would be imposed on the resulting tax liability on the portion of the "excess distribution" or gain that is allocated to such period. In addition, if we were a PFIC, no distribution that you receive from us would qualify for taxation at the reduced capital gain tax rate discussed in the "—Dividends on ADSs and Ordinary Shares" section above in the taxable year in which such distribution is made or in the preceding taxable year.

        Under certain attribution rules, if we were a PFIC, you would be deemed to own your proportionate share of lower-tier PFICs, and would be subject to U.S. federal income tax on (i) a distribution on the shares of a lower-tier PFIC and (ii) a disposition of shares of a lower-tier PFIC, both as if you directly held the shares of such lower-tier PFIC. Under the PFIC rules, if we were considered a PFIC at any time that you hold ADSs or ordinary shares, we would continue to be treated as a PFIC with respect to your ADSs or ordinary shares unless we have ceased to be a PFIC and you have made a "deemed sale" election under the PFIC rules.

        If we were a PFIC in any year, you would generally be able to avoid the "excess distribution" rules described above by making a timely so-called "mark-to-market" election with respect to your ADSs provided they are "marketable." The ADSs will be "marketable" as long as they remain regularly traded on a national securities exchange, such as the Nasdaq Global Market. If you made this election in a timely fashion, you would generally recognize as ordinary income or ordinary loss the difference between the fair market value of your ADSs as of the close of any taxable year and your adjusted tax basis in such ADSs. Any ordinary income resulting from this election would generally be taxed at ordinary income rates. Any ordinary losses would be deductible, but only to the extent of the net amount of previously included income as a result of the mark-to-market election, if any. Your basis in the ADSs or ordinary shares would be adjusted to reflect any such income or loss. If you make a mark-to-market election with respect to the ADSs, but for a later taxable year either the ADSs no longer constitute "marketable stock" or we cease being a PFIC, you will not be subject to the mark-to market rules described above for such taxable year. The mark-to-market election will not be available

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for any lower tier PFIC that you may be deemed to own pursuant to the attribution rules discussed above. You should consult your own tax advisor regarding potential advantages and disadvantages to you of making a "mark-to-market" election with respect to your ADSs.

        The PFIC rules provide for a separate election, referred to as a qualified electing fund election, which, if available, results in a tax treatment different (and generally less adverse than) the general PFIC tax treatment described above. That election, however, will not be available to you as we do not intend to provide the information you would need to make or maintain that election.

        If you own the ADSs or ordinary shares during any taxable year that we are a PFIC, you will generally be required to file an annual report containing such information as the United States Treasury Department may require. You are advised to consult with your own tax advisor concerning the U.S. federal income tax consequences of holding and disposing of the ADSs or ordinary shares if we are or become classified as a PFIC.

U.S. information reporting and backup withholding rules

        Dividend payments with respect to the ADSs and ordinary shares and the proceeds received on the sale or other disposition of ADSs and ordinary shares may be subject to information reporting to the IRS and to backup withholding. Backup withholding will not apply, however, if (i) a U.S. Holder is an exempt recipient, or if (ii) the U.S. Holder provides a taxpayer identification number, certifying that the U.S. Holder is not subject to backup withholding. U.S. Holders who are required to establish their exempt status may be required to provide such certification on IRS Form W-9. Backup withholding is not an additional tax. Rather, any amounts withheld under the backup withholding rules from a payment to a U.S. Holder will be refunded or credited against such U.S. Holder's U.S. federal income tax liability, provided that the required information is timely provided to the IRS.

        Certain U.S. Holders who hold "specific foreign financial assets", including stock of a non-U.S. corporation that is not held in an account maintained by a U.S. "financial institution" may be required to attach to their tax returns for the year certain specified information. A U.S. Holder who fails to timely furnish the required information may be subject to a penalty. You are advised to consult with its own tax advisor regarding the application of the U.S. information reporting and backup withholding rules to your particular circumstances.

        PROSPECTIVE INVESTORS OF OUR ADSS AND ORDINARY SHARES SHOULD CONSULT WITH THEIR OWN TAX ADVISOR REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES RESULTING FROM OWNING OR DISPOSING OUR ADSS AND ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR NON-US JURISDICTION AND INCLUDING ESTATE, GIFT AND INHERITANCE LAWS.

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Underwriting

        We and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered. Under the terms and subject to the conditions contained in the underwriting agreement, each underwriter has severally agreed to purchase, and we have agreed to sell to them, severally, the number of ADSs indicated in the following table. Cantor Fitzgerald & Co., Haitong International Securities Company Limited and Prime Number Capital, LLC are acting as the representatives of the underwriters.

Underwriters
  Number of ADSs  

Cantor Fitzgerald & Co. 

       

Haitong International Securities Company Limited

       

Prime Number Capital, LLC

       

Maxim Group LLC

       

CMB International Capital Limited

       

Zinvest Global Limited

       

Total

       

        The underwriters are offering the ADSs subject to their acceptance of the ADSs from us and subject to prior sale. The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the ADSs offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated, severally but not jointly, to take and pay for all of the ADSs offered by this prospectus if any such ADSs are taken, other than the ADSs covered by the underwriters' option to purchase additional ADSs described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

        The underwriters initially propose to offer part of the ADSs directly to the public at the public offering price listed on the cover page of this prospectus and part of the ADSs to certain dealers at a price that represents a concession not in excess of US$            per ADS from 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 representative.

        The underwriters are expected to make offers and sales both inside and outside the U.S. through their respective selling agents. Any offers or sales in the U.S. will be conducted by broker-dealers registered with the SEC. Haitong International Securities Company Limited will offer the ADSs in the United States through its SEC-registered broker-dealer affiliate in the United States, Haitong International Securities (USA) Inc. CMB International Capital Limited is not a broker-dealer registered with the SEC and it may not make sales in the United States or to U.S. persons. CMB International Capital Limited has agreed that it does not intend to, and will not, offer or sell any of our ADSs in the United States or to U.S. persons in connection with this offering. Zinvest Global Limited is not a broker-dealer registered with the SEC and it may not make sales in the United States or to U.S. persons. Zinvest Global Limited has agreed that it does not intend to, and will not, offer or sell any of our ADSs in the United States or to U.S. persons in connection with this offering.

        The address of Cantor Fitzgerald & Co. is 499 Park Avenue, New York, New York 10022. The address of Haitong International Securities Company Limited is 22/F Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong. The address of Prime Number Capital, LLC is 14 Myrtle Drive, Great Neck, NY 11021. The address of Maxim Group LLC is 405 Lexington Avenue, 2nd FL, New York, New York 10174. The address of CMB International Capital Limited is 45/F, Champion Tower,

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3 Garden Road, Central, Hong Kong. The address of Zinvest Global Limited is Room 1702B, Tower 2, Lippo Centre, 89 Queensway, Hong Kong.

Option to purchase additional ADSs

        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 from us at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. To the extent the option is exercised, the underwriters will become obligated, subject to certain conditions, to purchase the additional ADSs.

Commissions and expenses

        Total underwriting discounts and commissions to be paid to the underwriters represent        % of the total amount of the offering. The following table shows the per ADS and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional ADSs.

 
   
  Total Fees  
 
  Per ADS   Without Exercise of
Option to Purchase
Additional ADSs
  With Full Exercise of
Option to Purchase
Additional ADSs
 

Public offering price

  US$     US$     US$    

Discounts and commissions paid by us

  US$     US$     US$    

        The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately US$             million, which includes legal, accounting, and printing costs and various other fees associated with the registration of our ordinary shares and ADSs.

Lock-up agreements

        We, our directors and executive officers, all of our existing shareholders, certain holders of our share-based awards and certain other securityholders have agreed to lock-up restrictions in respect of our ordinary shares, ADSs, and/or any securities convertible into or exchangeable or exercisable for any of our ordinary shares or ADSs, during the period ending         days after the date of this prospectus, subject to certain exceptions. Immediately after the completion of this offering, a total of                                     ordinary shares (representing approximately        % of our ordinary shares then issued and outstanding) will be subject to the lock-up agreements or other restrictions on transfer, assuming the underwriters do not exercise their option to purchase additional ADSs. See "Shares Eligible for Future Sale."

        Subject to compliance with the notification requirements under FINRA Rule 5131 applicable to lock-up agreements with our directors or officers, if the representative of the underwriters, with our prior consent, agrees to release or waive the restrictions set forth in a lock-up agreement with one of our directors or officers and provides us with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, we agree to announce the impending release or waiver by a press release through a major news service at least two business days before the effective date of the release or waiver.

Listing

        We intend to list the ADSs on the Nasdaq Global Market under the symbol "AIH."

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Stabilization, short positions and penalty bids

        In connection with the offering, the underwriters may purchase and sell ADSs in the open market. These transactions may include short sales in accordance with Regulation M under the Exchange Act, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of ADSs than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional ADSs in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional ADSs or purchasing ADSs in the open market. In determining the source of ADSs to close out the covered short position, the underwriters will consider, among other things, the price of ADSs available for purchase in the open market as compared to the price at which they may purchase additional ADSs pursuant to the option granted to them. "Naked" short sales are any sales in excess of such option. 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 the offering. Stabilizing transactions consist of various bids for, or purchases of, ADSs made by the underwriters in the open market prior to the completion of the offering.

        The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discounts received by it because the representative has repurchased ADSs sold by, or for the account of, such underwriter in stabilizing or short covering transactions.

        Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the ADSs, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the ADSs. As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities, and if these activities are commenced, they are required to be conducted in accordance with applicable laws and regulations, and any of these activities may be discontinued at any time. These transactions may be effected on the Nasdaq Global Market, the over-the-counter market or otherwise.

Electronic distribution

        A prospectus in electronic format will be made available on the websites maintained by the underwriters or one or more securities dealers. The underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of ADSs for sale to their online brokerage account holders. ADSs to be sold pursuant to an Internet distribution will be allocated 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.

Discretionary sales

        The underwriters do not intend sales to discretionary accounts to exceed 5% of the total number of ADSs offered by them.

Indemnification

        We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

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Relationships

        The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include the sales and trading of securities, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, financing, brokerage and other financial and non-financial activities and services. The underwriters and their respective affiliates may have, from time to time, performed, and may in the future perform, a variety of such activities and services for us and for persons or entities with relationships with us for which they received or will receive customary fees, commissions and expenses.

        In the ordinary course of their various business activities, the underwriters and their respective affiliates, directors, officers and employees may at any time purchase, sell or hold a broad array of investments, and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers. Such investment and trading activities may involve or relate to the assets, securities and/or instruments of us (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments. In addition, the underwriters and their respective affiliates may at any time hold, or recommend to clients that they should acquire, long and short positions in such assets, securities and instruments.

Pricing of the offering

        Prior to this offering, there has been no public market for our ordinary shares or ADSs. The initial public offering price was determined by negotiations between us and the underwriters. Among the factors considered in determining the initial public offering price of the ADSs, in addition to prevailing market conditions, were our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

        An active trading market for the ADSs may not develop. It is also possible that after the offering the ADSs will not 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 U.S.) 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 material or advertisements in connection with the ADSs may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.

Australia

        This prospectus:

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        The ADSs may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for or buy the ADSs may be issued, and no draft or definitive offering memorandum, advertisement or other offering material relating to any ADSs may be distributed in Australia, except where disclosure to investors is not required under Chapter 6D of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the ADSs, you represent and warrant to us that you are an Exempt Investor.

        As any offer of ADSs under this prospectus will be made without disclosure in Australia under Chapter 6D.2 of the Corporations Act, the offer of those securities for resale in Australia within 12 months may, under section 707 of the Corporations Act, require disclosure to investors under Chapter 6D.2 if none of the exemptions in section 708 applies to that resale. By applying for the ADSs you undertake to us that you will not, for a period of 12 months from the date of issue of the ADSs, offer, transfer, assign or otherwise alienate those securities to investors in Australia except in circumstances where disclosure to investors is not required under Chapter 6D.2 of the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.

Canada

Resale restrictions

        The distribution of the ADSs in Canada is being made only in the provinces of Ontario, Quebec, Alberta and British Columbia on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of the ADSs are made. Any resale of the ADSs in Canada must be made under applicable securities laws which may vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the securities.

Representations of Canadian purchasers

        By purchasing ADSs in Canada and accepting delivery of a purchase confirmation, a purchaser is representing to us and the dealer from whom the purchase confirmation is received that:

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Conflicts of interest

        Canadian purchasers are hereby notified that the underwriters are relying on the exemption set out in section 3A.3 or 3A.4, if applicable, of National Instrument 33-105—Underwriting Conflicts from having to provide certain conflict of interest disclosure in this prospectus.

Statutory rights of action

        Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if the offering memorandum (including any amendment thereto) such as this prospectus contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser of these securities in Canada should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars of these rights or consult with a legal advisor.

Enforcement of legal rights

        All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.

Taxation and eligibility for investment

        Canadian purchasers of ADSs should consult their own legal and tax advisors with respect to the tax consequences of an investment in the ADSs in their particular circumstances and about the eligibility of the ADSs for investment by the purchaser under relevant Canadian legislation.

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. ADSs or ordinary shares have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Cayman Islands.

Dubai International Financial Centre

        This prospectus relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority, or the DFSA. This prospectus is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for this prospectus. The securities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

        In relation to its use in the Dubai International Financial Centre, or the DIFC, this prospectus is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for

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any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.

European Economic Area

        In relation to each Member State of the European Economic Area Regulation, an offer of the ADSs to the public may not be made in that Member State prior to the publication of a prospectus in relation to the ADSs which has been approved by the competent authority in that Member State or, where appropriate, approved in another Member State and notified to the competent authority in that Member State, all in accordance with the Prospectus Regulation, except that, an offer of ADSs may be made to the public in that Member State at any time:

provided that no such offer of securities described in this prospectus shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the Prospectus Regulation or any measure implementing the Prospectus Regulation in a Member State or of a supplement to a prospectus pursuant to Article 23 of the Prospectus Regulation and each person who initially acquires ADSs or to whom any offer is made will be deemed to have represented, warranted and agreed to and with the Company that it is a qualified investor within the meaning the Prospectus Regulation.

        For the purposes of this provision, the expression "an offer of the public" in relation to any ADS in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the ADSs to be offered so as to enable an investor to decide to purchase or subscribe for the ADSs.

Hong Kong

        The ADSs may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong), (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules promulgated thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the ADSs may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules promulgated thereunder.

Japan

        ADSs will not be offered or sold 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 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, rules 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.

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Kuwait

        Unless all necessary approvals from the Kuwait Ministry of Commerce and Industry required by Law No. 31/1990 "Regulating the Negotiation of Securities and Establishment of Investment Funds," its Executive Regulations and the various Ministerial Orders issued pursuant thereto or in connection therewith, have been given in relation to the marketing and sale of the ADSs, these may not be marketed, offered for sale, nor sold in the State of Kuwait. Neither this prospectus (including any related document), nor any of the information contained therein is intended to lead to the conclusion of any contract of whatsoever nature within Kuwait.

Malaysia

        No prospectus or other offering material or document in connection with the offer and sale of the ADSs has been or will be registered with the Securities Commission of Malaysia, or the Commission, for the Commission's approval pursuant to the Capital Markets and Services Act 2007. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs may not be circulated or distributed, nor may the ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Malaysia other than (i) a closed end fund approved by the Commission; (ii) a holder of a Capital Markets Services Licence; (iii) a person who acquires the ADSs, as principal, if the offer is on terms that the ADSs may only be acquired at a consideration of not less than RM250,000 (or its equivalent in foreign currencies) for each transaction; (iv) an individual whose total net personal assets or total net joint assets with his or her spouse exceeds RM3 million (or its equivalent in foreign currencies), excluding the value of the primary residence of the individual; (v) an individual who has a gross annual income exceeding RM300,000 (or its equivalent in foreign currencies) per annum in the preceding twelve months; (vi) an individual who, jointly with his or her spouse, has a gross annual income of RM400,000 (or its equivalent in foreign currencies), per annum in the preceding twelve months; (vii) a corporation with total net assets exceeding RM10 million (or its equivalent in a foreign currencies) based on the last audited accounts; (viii) a partnership with total net assets exceeding RM10 million (or its equivalent in foreign currencies); (ix) a bank licensee or insurance licensee as defined in the Labuan Financial Services and Securities Act 2010; (x) an Islamic bank licensee or takaful licensee as defined in the Labuan Financial Services and Securities Act 2010; and (xi) any other person as may be specified by the Commission; provided that, in the each of the preceding categories (i) to (xi), the distribution of the ADSs is made by a holder of a Capital Markets Services Licence who carries on the business of dealing in securities. The distribution in Malaysia of this prospectus is subject to Malaysian laws. This prospectus does not constitute and may not be used for the purpose of public offering or an issue, offer for subscription or purchase, invitation to subscribe for or purchase any securities requiring the registration of a prospectus with the Commission under the Capital Markets and Services Act 2007.

People's Republic of China

        This prospectus 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, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.

Qatar

        In the State of Qatar, the offer contained herein is made on an exclusive basis to the specifically intended recipient thereof, upon that person's request and initiative, for personal use only and shall in no way be construed as a general offer for the sale of securities to the public or an attempt to do

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business as a bank, an investment company or otherwise in the State of Qatar. This prospectus and the underlying securities have not been approved or licensed by the Qatar Central Bank or the Qatar Financial Centre Regulatory Authority or any other regulator in the State of Qatar. The information contained in this prospectus shall only be shared with any third parties in Qatar on a need to know basis for the purpose of evaluating the contained offer. Any distribution of this prospectus by the recipient to third parties in Qatar beyond the terms hereof is not permitted and shall be at the liability of such recipient.

Saudi Arabia

        This prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations issued by the Capital Market Authority. The Capital Market Authority does not make any representation as to the accuracy or completeness of this prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this prospectus. Prospective purchasers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this prospectus you should consult an authorized financial adviser.

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, (i) the ADSs have not been, and will not be, offered or sold or made the subject of an invitation for subscription or purchase of such ADSs in Singapore, and (ii) this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs have not been and will not be circulated or distributed, whether directly or indirectly, to the public or any member of the public in Singapore other than (a) to an institutional investor as specified in Section 274 of the SFA, (b) 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.

        Notification under Section 309B(1)(c) of the SFA

        The company has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA), that the ADSs are (A) prescribed capital markets products (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and (B) Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

Switzerland

        The ADSs will not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to our company or the ADSs have been or will be filed with or approved by any Swiss regulatory authority. In particular, this prospectus will not be filed with, and the offer of the ADSs will not be supervised by, the Swiss Financial Market Supervisory Authority, and the offer of the ADSs has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes

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(the "CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the ADSs.

Taiwan

        The ADSs have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be sold, issued or offered within Taiwan through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan that requires a registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer, sell, give advice regarding or otherwise intermediate the offering and sale of the ADSs in Taiwan.

Thailand

        This prospectus does not, and is not intended to, constitute a public offering in Thailand. The ADSs may not be offered or sold to persons in Thailand, unless such offering is made under the exemptions from approval and filing requirements under applicable laws, or under circumstances which do not constitute an offer for sale of the shares to the public for the purposes of the Securities and Exchange Act of 1992 of Thailand, or does not require approval from the Office of the Securities and Exchange Commission of Thailand.

United Arab Emirates

        The ADSs have not been offered or sold, and will not be offered or sold, directly or indirectly, in the United Arab Emirates, except: (i) in compliance with all applicable laws and regulations of the United Arab Emirates; and (ii) through persons or corporate entities authorized and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the United Arab Emirates. The information contained in this prospectus does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 (as amended)) or otherwise and is not intended to be a public offer and is addressed only to persons who are sophisticated investors.

United Kingdom

        This prospectus is only being distributed to and is only directed at: (i) persons who are outside the United Kingdom; (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons falling within (i)-(iii) together being referred to as "relevant persons"). The ADSs are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire the ADSs will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.

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Legal Matters

        We are being represented by O'Melveny & Myers LLP with respect to certain legal matters as to United States federal securities and New York State law. The underwriters are being represented by Latham & Watkins 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 Conyers Dill & Pearman. 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. O'Melveny & Myers LLP may rely upon Conyers Dill & Pearman with respect to matters governed by Cayman Islands law and Han Kun Law Offices with respect to matters governed by PRC law. Latham & Watkins may rely upon King & Wood Mallesons with respect to matters governed by PRC law.


Experts

        The consolidated financial statements as of December 31, 2017 and 2018, and for each of the three years in the period ended December 31, 2018 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

        The registered business address of PricewaterhouseCoopers Zhong Tian LLP is 6/F DBS Bank Tower, 1318 Lu Jia Zui Ring Road, Pudong New Area, Shanghai, People's Republic of China.

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Expenses Relating to This Offering

        The following table sets forth the total expenses, other than the underwriting discounts and commissions, that are expected to be incurred and payable by us in connection with the offer and sale of ADSs by us. All amounts are estimates except for the SEC registration fee, the Financial Industry Regulatory Authority filing fee and the Nasdaq Global Market listing fee.

Item
  Amount to
be paid
 

SEC registration fee

  US$    

FINRA filing fee

       

Nasdaq Global Market listing fee

       

Printing and engraving expenses

       

Legal fees and expenses

       

Accounting fees and expenses

       

Miscellaneous expenses

       

Total

  US$    


Where You Can Find More Information

        We have filed with the SEC a registration statement on Form F-1, including relevant exhibits, under the Securities Act with respect to the ordinary shares represented by the ADSs offered and sold hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to us and the ADSs offered hereby, please refer to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address is www.sec.gov.

        We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing, among other things, the furnishing and content of proxy statements to shareholders and Section 16 short-swing profit reporting for our officer, directors and holders of more than 10% of our ordinary shares.

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Aesthetic Medical International Holdings Group Limited

Index to consolidated financial statements

Report of Independent Registered Public Accounting Firm

    F-2  

Consolidated statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018

    F-3  

Consolidated balance sheets as of December 31, 2017 and 2018

    F-4  

Consolidated statements of changes in equity for the years ended December 31, 2016, 2017 and 2018

    F-6  

Consolidated statements of cash flows for the years ended December 31, 2016, 2017 and 2018

    F-7  

Notes to the consolidated financial statements

    F-8  

Unaudited interim condensed consolidated statements of comprehensive income for the six months ended June 30, 2018 and 2019

   
F-90
 

Unaudited interim condensed consolidated balance sheets as of December 31, 2018 and June 30, 2019

    F-91  

Unaudited interim condensed consolidated statements of changes in equity for the six months ended June 30, 2018 and 2019

    F-93  

Unaudited interim condensed consolidated statements of cash flows for the six months ended June 30, 2018 and 2019

    F-94  

Notes to the unaudited interim condensed consolidated financial statements

    F-95  

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Aesthetic Medical International Holdings Group Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Aesthetic Medical International Holdings Group Limited and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, of changes in equity, and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers Zhong Tian LLP
Shenzhen, the People's Republic of China
1 July 2019

We have served as the Company's auditor since 2013.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
  Note   2016   2017   2018  
 
   
  RMB'000
  RMB'000
  RMB'000
 

Revenue

  5     584,857     697,396     761,306  

Cost of sales and services rendered

  6     (217,339 )   (234,522 )   (258,567 )

Gross profit

        367,518     462,874     502,739  

Selling expenses

  6     (231,229 )   (300,362 )   (333,526 )

General and administrative expenses

  6     (121,763 )   (92,836 )   (115,485 )

Finance income

  8     309     868     322  

Finance costs

  8     (2,920 )   (6,581 )   (9,244 )

Other gains, net

        1,704     9,334     12,118  

Fair value gain/(loss) of convertible redeemable preferred shares

  25     49,027     (85,461 )   (226,248 )

Fair value loss of convertible note

  26         (1,283 )   (9,152 )

Fair value loss of exchangeable note liabilities

  27         (38,307 )   (56,925 )

Fair value loss of derivative financial instrument

                (301 )

Share of profits/(losses) of investments accounted for using the equity method

  14     1,594     (1,415 )   1,730  

Profit/(loss) before income tax

        64,240     (53,169 )   (233,972 )

Income tax expense

  9     (13,713 )   (19,260 )   (18,508 )

Profit/(loss) for the year

        50,527     (72,429 )   (252,480 )

Other comprehensive income:

                       

Items that may be subsequently reclassified to profit or loss

                       

Currency translation differences

        148     (215 )   1,088  

Total other comprehensive income/(loss) for the year, net of tax

        148     (215 )   1,088  

Total comprehensive income/(loss) for the year

        50,675     (72,644 )   (251,392 )

Profit/(loss) attributable to:

                       

Owners of the Company

        50,350     (76,675 )   (255,237 )

Non-controlling interests

        177     4,246     2,757  

Profit/(loss) for the year

        50,527     (72,429 )   (252,480 )

Earnings/(loss) per share for profit/(loss) attributable to owners of the company (in RMB per share)

                       

—Basic

  10     1.23     (1.87 )   (6.22 )

—Diluted

  10     0.02     (1.87 )   (6.22 )

Total comprehensive income/(loss) attributable to:

                       

Owners of the Company

        50,498     (76,890 )   (254,149 )

Non-controlling interests

        177     4,246     2,757  

Total comprehensive income/(loss) for the year

        50,675     (72,644 )   (251,392 )

   

The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

CONSOLIDATED BALANCE SHEETS

 
  Note   2017   2018   2018
Pro forma
(Unaudited)
(Note 2.28)
 
 
   
  RMB'000
  RMB'000
  RMB'000
 

ASSETS

                         

Non-current assets

                         

Property, plant and equipment

    11     210,286     235,028     235,028  

Investment properties

    12     18,155     47,168     47,168  

Intangible assets

    13     61,803     67,712     67,712  

Investments accounted for using the equity method

    14     32,988     26,244     26,244  

Prepayments and deposits

    15     6,904     5,166     5,166  

Amounts due from related parties

    34     628          

Loans to directors

    34     7,600          

Deferred income tax assets

    21     11,922     12,254     12,254  

          350,286     393,572     393,572  

Current assets

                         

Inventories

    16     25,041     21,143     21,143  

Trade receivables

    15     10,015     10,760     10,760  

Other receivables, deposits and prepayments

    15     48,286     89,480     89,480  

Amounts due from related parties

    34     34,667     55,354     55,354  

Cash and cash equivalents

    17     105,345     101,886     101,886  

          223,354     278,623     278,623  

Assets held-for-sale

    18     4,344     4,344     4,344  

          227,698     282,967     282,967  

Total assets

          577,984     676,539     676,539  

EQUITY AND LIABILITIES

                         

Equity attributable to owners of the Company

                         

Share capital

    19     259     265     367  

Accumulated losses

          (113,808 )   (373,920 )   (373,920 )

Other reserves

    20     66,684     95,245     571,255  

          (46,865 )   (278,410 )   197,702  

Non-controlling interests

          24,625     29,054     29,054  

Total (deficit)/equity

          (22,240 )   (249,356 )   226,756  

   

The above consolidated balance sheets should be read in conjunction with the accompanying notes.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

CONSOLIDATED BALANCE SHEETS (Continued)

 
  Note   2017   2018   2018
Pro forma
(Unaudited)
(Note 2.28)
 
 
   
  RMB'000
  RMB'000
  RMB'000
 

LIABILITIES

                         

Non-current liabilities

                         

Borrowings

    22     23,980     19,876     19,876  

Convertible redeemable preferred shares

    25     249,864     476,112      

Convertible note

    26     61,446     70,598     70,598  

Exchangeable note liabilities

    27     128,820     185,745     185,745  

Derivative financial instrument

    19         301     301  

Deferred income tax liabilities

    21     2,648     1,971     1,971  

          466,758     754,603     278,491  

Current liabilities

                         

Trade payables

    23     16,808     14,356     14,356  

Accruals, other payables and provisions

    23     58,007     57,992     57,992  

Amounts due to related parties

    34     12,061     218     218  

Contract liabilities

    24     5,091     5,996     5,996  

Borrowings

    22     22,020     77,130     77,130  

Current income tax liabilities

          17,490     13,611     13,611  

          131,477     169,303     169,303  

Liabilities held-for-sale

    18     1,989     1,989     1,989  

          133,466     171,292     171,292  

Total liabilities

          600,224     925,895     449,783  

Total equity and liabilities

          577,984     676,539     676,539  

        The above consolidated balance sheets should be read in conjunction with the accompanying notes.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 
  Attributable to owners of the Company    
   
 
 
  Share
capital
  Reserves
(Note 20)
  Accumulated
losses
  Sub-total   Non-
controlling
interests
  Total
equity/
(deficit)
 
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Balance at 1 January 2016

    259     115,490     (77,947 )   37,802     22,405     60,207  

Comprehensive income

                                     

Profit for the year

            50,350     50,350     177     50,527  

Currency translation differences

        148         148         148  

Total comprehensive income for the year

        148     50,350     50,498     177     50,675  

Transactions with owners

                                     

Transfer to statutory reserve

        5,118     (5,118 )            

Exchangeable note liabilities (Note 27)

        (51,311 )       (51,311 )       (51,311 )

Transactions with non-controlling shareholders (Note 31)

        (7,082 )       (7,082 )   (2,293 )   (9,375 )

Dividend to non-controlling shareholders

                    (1,195 )   (1,195 )

Total transactions with owners

        (53,275 )   (5,118 )   (58,393 )   (3,488 )   (61,881 )

Balance at 31 December 2016 and 1 January 2017

    259     62,363     (32,715 )   29,907     19,094     49,001  

Comprehensive income

                                     

Loss for the year

            (76,675 )   (76,675 )   4,246     (72,429 )

Currency translation differences

        (215 )       (215 )       (215 )

Total comprehensive loss for the year

        (215 )   (76,675 )   (76,890 )   4,246     (72,644 )

Transactions with owners

                                     

Transfer to statutory reserve

        5,475     (5,475 )            

Transactions with non-controlling shareholders (Note 31)

        118         118     (988 )   (870 )

Capital contribution from non-controlling interests

                    1,720     1,720  

Business combinations (Note 29)

                    5,049     5,049  

Disposal of a subsidiary due to loss of control

        (1,057 )   1,057         (1,279 )   (1,279 )

Dividend to non-controlling shareholders

                    (3,217 )   (3,217 )

Total transactions with owners

        4,536     (4,418 )   118     1,285     1,403  

Balance at 31 December 2017 and 1 January 2018

    259     66,684     (113,808 )   (46,865 )   24,625     (22,240 )

Comprehensive income

                                     

Loss for the year

            (255,237 )   (255,237 )   2,757     (252,480 )

Currency translation differences

        1,088         1,088         1,088  

Total comprehensive loss for the year

        1,088     (255,237 )   (254,149 )   2,757     (251,392 )

Transactions with owners

                                     

Transfer to statutory reserve

        4,875     (4,875 )            

Transactions with non-controlling shareholders (Note 31)

        (3,079 )       (3,079 )   2,308     (771 )

Capital contribution from non-controlling interests

                    1,620     1,620  

Disposal of a subsidiary due to loss of control

        (17 )       (17 )   85     68  

Dividend to non-controlling shareholders

                    (2,341 )   (2,341 )

Issuance of shares (Note 19)

    6     25,694         25,700         25,700  

Total transactions with owners

    6     27,473     (4,875 )   22,604     1,672     24,276  

Balance at 31 December 2018

    265     95,245     (373,920 )   (278,410 )   29,054     (249,356 )

   

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  Note   2016   2017   2018  
 
   
  RMB'000
  RMB'000
  RMB'000
 

Cash flows from operating activities

                       

Cash generated from operations

  28     57,610     97,791     29,864  

Income tax paid

        (5,526 )   (20,812 )   (24,970)  

Net cash generated from operating activities

        52,084     76,979     4,894  

Cash flows from investing activities

                       

Net cash used in business combinations

  29         (29,600 )   (2,978 )

Proceeds from disposal of property, plant and equipment

                23  

Purchase of property, plant and equipment

        (38,642 )   (47,496 )   (45,516 )

Purchase of investment properties

                (31,452 )

Purchase of intangible assets

  13     (532 )   (162 )   (733 )

Decrease in pledged bank deposits

            20,000      

Investment in associates

            (18,306 )    

Interest income received

        309     868     322  

Dividend received from an associate

                3,225  

Proceeds from disposal of subsidiaries

  30         5,501     927  

Net cash used in investing activities

        (38,865 )   (69,195 )   (76,182 )

Cash flows from financing activities

                       

Proceeds from borrowings

        11,953     46,000     108,620  

Proceeds from convertible note

        60,163          

Repayment of borrowings

            (65,239 )   (57,881 )

Acquisition of further interests in subsidiaries from non-controlling shareholders

  31     (14,385 )   (1,290 )    

Disposal of interest in subsidiaries without loss of control

  31     5,010     420      

Interest paid

        (2,920 )   (6,581 )   (8,977 )

Capital contribution from non-controlling interests

            1,720     1,620  

Dividends paid to non-controlling interests

        (1,195 )   (3,217 )   (2,341 )

Issuance of shares

                25,700  

Net cash generated from/(used in) financing activities

        58,626     (28,187 )   66,741  

Net increase/(decrease) in cash and cash equivalents

        71,845     (20,403 )   (4,547 )

Cash and cash equivalents at beginning of the year

        60,465     129,626     106,006  

Effect of changes in foreign exchange rates

        (2,684 )   (3,217 )   1,088  

Cash and cash equivalents at end of the year

  17     129,626     106,006     102,547  

Analysis of the balances of cash and cash equivalents at 31 December

                       

Bank and cash balances

        129,626     106,006     102,547  

Less: Assets held-for-sale

        (661 )   (661 )   (661 )

  17     128,965     105,345     101,886  

   

The above consolidated statements of cash flow should be read in conjunction with the accompanying notes.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 General information

        Aesthetic Medical International Holdings Group Limited (the "Company") was incorporated in the Cayman Islands on 27 May 2011 as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The address of its registered office is Vistra (Cayman) Limited, P.O. Box 31119, Seven Mile Beach, Grand Pavilion, Hibiscus Way, Grand Cayman, Cayman Islands.

        Pursuant to a shareholders' resolution passed on 16 March 2015, English name of the Company changed from "Pengai Hospital Management Corporation" to "Pengai Aesthetic Medical Group". Pursuant to a special resolution passed on 12 April 2017, English name of the Company changed from "Pengai Aesthetic Medical Group" to "China Aesthetic Healthcare Group". Pursuant to a special resolution passed on 11 July 2018. English name of the Company changed from "China Aesthetic Healthcare Group" to "Aesthetic Medical International Holdings Group Limited".

        The principal activities of the Company and its subsidiaries (together, the "Group") are engaged in the provision of non-surgical aesthetic medical services, surgical aesthetic medical services, other aesthetic medical services and general healthcare services in the People's Republic of China (the "PRC"). The principal activities of the subsidiaries are set out in Note 35.

        These consolidated financial statement are presented in Renminbi ("RMB") and rounded to the nearest thousand yuan, unless otherwise stated.

2 Summary of significant accounting policies

        The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1   Basis of preparation

        The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of convertible redeemable preferred shares ("Series A Preferred Shares"), convertible note, exchangeable note liabilities and derivative financial instrument, which are carried at fair value.

        The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

2.2   Changes in accounting policy and disclosures

2.2.1  New standards and amendments to standards adopted by the Group

        The following new standards and amendments to standards are mandatory for accounting periods beginning on or after 1 January 2018. The adoption of these new standards and amendments to standards does not have significant impact to the results and financial position of the Group:

IFRS 9   Financial Instruments
IFRS 15   Revenue from Contracts with Customers

IFRS 9

        IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets, and hedge accounting. The adoption of IFRS 9 resulted in changes in accounting policies. New accounting policies are set out in note 2.11 below.

        The Group has two types of financial assets that are subject to new expected credit loss model under IFRS 9.

        The Group is required to revise its impairment methodology under IFRS 9 for each of these classes of assets.

        While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

Impairment of financial assets

Trade receivables

        The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected losses for all trade receivables.

        To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. Future cash flows for each group receivable are estimated on the basis of historical loss experience, adjusted to reflect the effects of current conditions as well as forward looking information. Trade receivables in dispute are assessed individually for impairment allowance and determined whether specific provisions are required. Trade receivables are written off when there is no reasonable expectation of recovery.

        The Group has assessed the adoption of expected credit loss model on trade receivables and the change in impairment methodologies has no significant impact to the Group's consolidated financial statements and the opening loss allowance as at 1 January 2018 is not restated.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

Other financial assets carried at amortised cost

        The Group's other financial assets carried at amortised cost include other receivables, deposits and prepayments in the consolidated balance sheet. The impairment loss of other financial assets carried at amortised cost is measured based on the 12-month expected credit loss. The 12-month expected credit loss is the portion of lifetime expected credit loss that results from default events on a financial instrument that are possible within 12 months after the reporting date. However when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime expected credit loss.

        The Group has assessed the adoption of expected credit loss model on other receivables, deposits and prepayments and the change in impairment methodologies has no significant impact to the Group's consolidated financial statements and the opening loss allowance as at 1 January 2018 is not restated.

IFRS 15

        IFRS 15 replaces the previous revenue standards: IFRS 18 Revenue and IFRS 11 Construction Contracts, and the related Interpretations on revenue recognition. IFRS 15 establishes a comprehensive framework for determining when to recognise revenue and how much revenue to recognise through a five-step approach: (1) Identify the contract(s) with customer; (2) Identify separate performance obligations in a contract; (3) Determine the transaction price; (4) Allocate transaction price to performance obligations; and (5) Recognise revenue when performance obligation is satisfied. The core principle is that a company should recognise revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. It moves away from a revenue recognition model based on an 'earnings processes' to an 'asset-liability' approach based on transfer of control.

        The Group has adopted IFRS 15 from 1 January 2018 which resulted in changes in accounting policies. The new accounting policies are set out in notes 2.23 below. In accordance with the transitional provisions in IFRS 15, the Group has adopted the modified retrospective approach and comparative figures have not been restated.

        The impact on the Group's financial position by the application of IFRS 15 is as follows:

 
  31 December 2017
As previously
stated
  Reclassification   1 January 2018
Restated
 
 
  RMB'000
  RMB'000
  RMB'000
 

Consolidated balance sheet (extract):

                   

—Contract liabilities

        5,091     5,091  

—Deferred revenue

    5,091     (5,091 )    

        Reclassification of advance payments received from customers was made from "Deferred revenue" to "Contract liabilities" to reflect the terminology used under IFRS 15.

        The adoption of IFRS 15 has no other material impact to the Group's consolidated financial statements other than changes in disclosures.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

2.2.2  New standards, amendments to standards and interpretations not yet adopted

        The following are new standards, amendments to standards and interpretations which have been issued but are not effective and have not been early adopted. The Group plans to adopt these new standards, amendments to standards and interpretations when they become effective:

 
   
  Effective for accounting
periods beginning on or after

IFRS 16

  Leases   1 January 2019

IFRIC—Int 23

  Uncertainty over Income Tax Treatments   1 January 2019

Amendment to IAS 19

  Employee Benefits   1 January 2019

Amendment to IFRS 9

  Prepayment features with negative compensation   1 January 2019

IFRS 17

  Insurance Contract   1 January 2022

IFRS 3

  Definition of business   1 January 2020

Amendments to IAS 1 and IAS 8

  Definition of material   1 January 2020

Amendments to IAS 28

  Investment in Associates and Joint Ventures   1 January 2019

Annual Improvement Project

  Annual improvements 2015 - 2017 cycle   1 January 2019

Amendments to IFRS 10 and IAS 28

  Sale or Contribution of Assets between an Investor and its Associate or Joint Venture   To be determined

        The Group will adopt the above new or revised standards, amendments and interpretations to existing standards as and when they become effective. Management is in the process of assessing the impact of these standards, amendments and interpretations to existing IFRS. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below:

IFRS 16 Leases

        IFRS 16 will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group's operating leases.

        As at 31 December 2018, the Group has non-cancellable operating lease commitments of RMB201,286,000 million (Note 33(b)). However, the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group's profit and classification of cash flows. Some of the commitments may be covered by the exception for short-term and low value leases and some commitments may relate to arrangements that will not qualify as leases under IFRS 16.

        The new standard is mandatory for financial years commencing on or after 1 January 2019. The Group does not adopt the standard before its effective date.

        The Group adopts IFRS 16 from 1 January 2019 and does not restate comparatives, as permitted under the transitional provisions in the standard. The reclassifications and the adjustments arising from

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

the new leasing rules are therefore recognised in the opening consolidated balance sheet on 1 January 2019. On adoption of IFRS 16, the Group recognises lease liabilities in relation to leases which had previously been classified as 'operating lease rental expenses' under the principles of IAS 17 "Leases". These liabilities are measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The Group has already commenced the assessment of the impact to the Group and consider the application of IFRS 16 in the future may have a material impact on the Group's consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect until the Group performs a detailed review.

2.3   Subsidiaries

Consolidation

        A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

(a)
Business combinations

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

(b)
Changes in ownership interests in subsidiaries without change of control
(c)
Disposal of subsidiaries
(d)
Contractual arrangements with respect to equity interests in certain PRC subsidiaries

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

        The principal terms of the Contractual Arrangements are described below:

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

Risks in relation to the Contractual Arrangements

        In the opinion of the Company's management, the Contractual Arrangements are in compliance with the current PRC laws and are legally binding and enforceable. However, uncertainties in the interpretation and enforcement of the PRC laws, regulations and policies could limit the Company's ability to enforce these contractual arrangements.

        In January 2015, the Ministry of Commerce ("MOFCOM"), released for public comment a proposed PRC law, the Draft Foreign Investment Enterprises ("FIE") Law, that appears to include contractual arrangements within the scope of entities that could be considered to be FIEs, that would be subject to restrictions under existing PRC law on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the concept of "actual control" for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of "actual control". If the Draft FIE Law is passed by the People's Congress of the PRC and goes into effect in its current form, these provisions regarding control through contractual arrangements could be construed to include the Company's contractual arrangements, and as a result, the Relevant Subsidiaries could become explicitly subject to the current restrictions on foreign investment in certain categories of industry. The Draft FIE Law includes provisions that would exempt from the definition of FIEs where the ultimate controlling shareholders are either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement action might be taken. If the restrictions and prohibitions on FIEs included in the Draft FIE Law are enacted and enforced in their current form, the Company's ability to use the contractual arrangements and the Company's ability to conduct business through the contractual arrangements could be severely limited.

        The Company's ability to control the Target Equity Interests in the Relevant Subsidiaries also depends on the power of attorney exercised by Shenzhen Pengai Investment to vote on all matters requiring shareholders' approvals in the Relevant Subsidiaries. As noted above, the Company believes these power of attorney are legally binding and enforceable but may not be as effective as direct equity ownership. In addition, if the Company's corporate structure or the contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC regulatory authorities could, within their respective jurisdictions:

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

        The imposition of any of these restrictions or actions may result in a material adverse effect on the Company's ability to conduct its business. In addition, if the imposition of any of these restrictions causes the Company to lose the right to direct the activities of the Relevant Subsidiaries or the right to receive their economic benefits, the Company may no longer be able to consolidate the financial statements of the Relevant Subsidiaries. In the opinion of management, the likelihood of losing the benefits in respect of the Company's current ownership structure or the contractual arrangements is remote.

2.4   Associates

        An associate is an entity over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the comprehensive income of the investee after the date of acquisition. The Group's investments in associates include goodwill identified on acquisition. Upon the acquisition of the ownership interest in an associate, any difference between the cost of the associate and the Group's share of the net fair value of the associate's identifiable assets and liabilities is accounted for as goodwill.

        If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

        The Group's share of post-acquisition profit or loss is recognised in the statement of comprehensive income, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

        The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit of investments accounted for using equity method' in the consolidated statement of comprehensive income.

        Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

        Gain or losses on dilution of equity interest in associates are recognised in the consolidated statement of comprehensive income.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

2.5   Segment reporting

        Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, which is the Board of Directors. In the respective periods presented, the Company had one single operating and reportable segment, namely the provision of non- surgical aesthetic medical services, surgical aesthetic medical services, other aesthetic medical services and general healthcare services. As the Company's long-lived assets are substantially all located in the PRC and substantially all of the Company's revenue is derived from within the PRC, no geographical information is presented.

2.6   Foreign currency translation

(a)
Functional and presentation currency
(b)
Transactions and balances
(c)
Group companies

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

2.7   Property, plant and equipment

        Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

        Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of comprehensive income during the financial period in which they are incurred.

        Depreciation of property, plant and equipment is calculated using the straight-line method to allocate cost of each asset to their residual values over their estimated useful lives, as follows:

Leasehold improvements

  Shorter of remaining lease term and the estimated useful lives of the assets

Machinery and equipment

  10 years

Office equipment, furniture, fixture and motor vehicles

  5 - 10 years

Buildings

  20 years

        The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

        An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

        Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within "general and administrative expenses" in the consolidated statement of comprehensive income.

2.8   Investment properties

        Properties that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by the companies in the Group, are classified as investment properties in the consolidated financial statements. Investment properties are carried at historical costs, including related transaction costs, less depreciation and impairment. Depreciation of the investment properties are calculated using the straight-line method to allocate cost over their estimated lives of 20 to 25 years.

        Subsequent expenditure is included to the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in consolidated statement of comprehensive income during the financial periods in which they are incurred.

2.9   Intangible assets

(a)
Goodwill

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

(b)
Computer software
(c)
Medical licenses and tradenames

2.10 Impairment of non-financial asset

        Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For purposes of periodic impairment assessment performed at each reporting date, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.11 Financial assets

2.11.1  Classification

        The Group classifies its financial assets in the following measurement categories:

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

        The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

        At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

        For assets measured at fair value, gain and loss will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.

        The Group reclassifies debt investments when and only when its business model for managing those assets changes.

2.11.2  Recognition and measurement

Debt instruments

        Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. There are two measurement categories into which the Group classifies its debt instruments:

Equity instruments

        The Group subsequently measures all equity investments at fair value. Where the Group's management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group's right to receive payments is established.

        Changes in the fair value of financial asset at fair value through profit or loss are recognised in other (losses)/gains, net in the consolidated statement of comprehensive income as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at fair value through other comprehensive income are not reported separately from other changes in fair value.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

2.11.3  Derecognition

        Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

2.11.4  Accounting policies applied until 31 December 2017

        The Group has applied IFRS 9 retrospectively, but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Group's previous accounting policy.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

2.12 Offsetting financial instruments

        Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

2.13 Impairment of financial assets

        The Group has the following types of financial assets subject to IFRS 9's expected credit loss model:

        The Group assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost.

        For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

        Impairment on other receivables is measured as either 12-month expected credit losses or lifetime expected credit loss, depending on whether there has been a significant increase in credit risk since initial recognition, then impairment is measured as lifetime expected credit losses.

        To manage risk arising from pledged deposits and cash and cash equivalents, the Group only transacts with state-owned or reputable financial institutions. There has been no recent history of default in relation to these financial institutions.

2.14 Inventories

        Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

2.15 Cash and cash equivalents

        In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand and deposits held at call with banks.

2.16 Assets (or disposal groups) held-for-sale

        Assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. The assets (except for certain assets as explained below), (or disposal groups), are stated at the lower of carrying amount and fair value less costs to sell. Deferred tax assets, assets arising from employee benefits, financial assets (other than investments in subsidiaries and associates) and investment properties, which are classified as held for sale, would continue to be measured in accordance with the policies set out elsewhere in Note 2.

2.17 Share capital

        Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

        Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.18 Trade and other payables

        Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

        Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.19 Borrowings

        Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in consolidated statement of comprehensive income over the periods of the borrowings using the effective interest method.

        Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the periods of the facility to which it relates.

        Preference shares, if mandatorily redeemable at a specific date or redeemable at the option of the holder, are classified as liabilities. The dividends on these preference shares are recognised in the consolidated statement of comprehensive income as interest expense.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

        Borrowings are removed from the consolidated balance sheets when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in consolidated statement of comprehensive income as other income or finance costs.

        Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in consolidated statement of comprehensive income, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued.

        Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

2.20 Current and deferred income tax

        The income tax expense for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity.

(a)
Current income tax
(b)
Deferred income tax

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

(c)
Offsetting

2.21 Employee benefits

(a)
Pension obligations
(b)
Profit-sharing and bonus plans

2.22 Provisions

        Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

        Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

        Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.23 Revenue recognition

        Revenue is recognised when or as the control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. Depending on the terms of the contract and the applicable laws, services may be provided over time or at a point in time.

        When control of goods or services is transferred over time, revenue is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognised at a point in time when the customer obtains control of the goods or services.

        The progress towards complete satisfaction of the performance obligation is measured based on one of the following methods that best depict the Group's performance in satisfying the performance obligation:

        A contract asset is the Group's right to consideration in exchange for goods and services that the Group has transferred to a customer. A receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due.

        A contract liability is recognised when the Group has the obligation to transfer services to the customers for which the consideration received (or an amount of considerations is due) exceed the measure of the remaining unsatisfied performance obligations.

        The Group recognises the costs of obtaining and fulfilling a contract with a customers within the contract assets if the Group expects to recover those costs.

        The Group used modified restrospective approach while adopting IFRS 15 without restating comparative information.

        The following is a description of the accounting policy for the principal revenue streams of the Group:

(i)
Non-surgical aesthetic medical services, surgical aesthetic medical services and other aesthetic medical services

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

(ii)
General healthcare services

        Revenue is recognised at a point in time when the respective services are rendered.

2.24 Interest income

        Interest income is recognised using the effective interest method.

2.25 Leases

        Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to consolidated statement of comprehensive income on a straight-line basis over the period of the lease.

2.26 Compound financial instruments

        Compound financial instruments of the Group comprise Series A Preferred Shares, convertible note and exchangeable note liabilities.

(a)
Series A Preferred Shares

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 Summary of significant accounting policies (Continued)

(b)
Convertible note
(c)
Exchangeable note liabilities

2.27 Dividend distribution

        Dividend distribution to the Company's shareholders is recognised as a liability in the Group's consolidated financial statements in the period in which the dividends are approved by the Company's Board of Directors.

2.28 Pro forma information

        The unaudited pro forma balance sheet information as of 31 December 2018 assumes the automatic conversion of all of the outstanding Series A Preferred Shares (Note 2.26(a)) into 15,600,000 ordinary shares.

        Unaudited pro forma basic and diluted earnings per share is computed by dividing profit by the weighted average number of ordinary shares outstanding for the year plus the number of ordinary shares resulting from the assumed conversion of all of the outstanding Series A Preferred Shares upon the closing of the initial public offering of the Company's ordinary shares as if such conversion had occurred at 1 January 2018 (Note 10(c)).

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Financial risk management

3.1   Financial risk factors

        The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

(a)
Market risk

(i)
Foreign exchange risk

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Financial risk management (Continued)

(b)
Liquidity risk

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Financial risk management (Continued)

 
  Less than
1 year
  Between 1 and
2 years
  Between 2 and
5 years
  After
5 years
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

At 31 December 2017

                             

Series A Preferred Shares (Note 25)

          218,101         218,101  

Convertible note (Note 26)

  4,539     4,539     85,625         94,703  

Exchangeable note liabilities (Note 27)

          132,938         132,938  

Borrowings

  24,772     5,520     20,803         51,095  

Trade payables

  16,808                 16,808  

Accruals and other payables (excluding accrued employee benefits and other taxes)

  34,674                 34,674  

Amounts due to related parties

  12,061                 12,061  

  92,854     10,059     457,467         560,380  

At 31 December 2018

                             

Series A Preferred Shares (Note 25)

      229,505             229,505  

Convertible note (Note 26)

  4,777     90,103             94,880  

Exchangeable note liabilities (Note 27)

      139,889             139,889  

Borrowings

  81,923     20,803             102,726  

Trade payables

  14,356                 14,356  

Accruals and other payables (excluding accrued employee benefits and other taxes)

  34,466                 34,466  

Amounts due to related parties

  218                 218  

  135,740     480,300             616,040  

3.2   Capital risk management

        The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

        In order to maintain or adjust the capital structure, the Group may adjust the dividend payments to shareholders, return capital to shareholders, issue new shares or to obtain bank borrowings.

        Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (include current and non-current bank borrowings, convertible note, exchangeable note liabilities and Series A Preferred Shares as shown in the consolidated balance sheets) less cash and cash equivalents. Total capital is calculated as "equity", as shown in the consolidated balance sheets, plus net debt.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Financial risk management (Continued)

        The gearing ratios at 31 December 2017 and 2018 were as follows:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Total bank borrowings

    46,000     97,006  

Add: Series A Preferred Shares (Note 25)

    249,864     476,112  

Add: Convertible note (Note 26)

    61,446     70,598  

Add: Exchangeable note liabilities (Note 27)

    128,820     185,745  

Less: Cash and cash equivalents (Note 17)

    (105,345 )   (101,886 )

Net debt

    380,785     727,575  

Total deficit

    (22,240 )   (249,356 )

Total capital

    358,545     478,219  

Gearing ratio

    106.2 %   152.14 %

3.3   Fair value estimation

        The table below analyses financial instruments carried at fair value as at 31 December 2017 and 2018 by level of the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels with a fair value hierarchy as follows:

        The following table presents the Group's financial liabilities that are measured at fair value as at 31 December 2017 and 2018. See Note 12 for the fair value disclosure of the investment properties that are recorded under cost model.

 
  Level 1   Level 2   Level 3   Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

As at 31 December 2017

                         

Liabilities

                         

Financial liabilities at fair value through profit or loss

                         

—Series A Preferred Shares (Note 25)

            249,864     249,864  

—Convertible note (Note 26)

            61,446     61,446  

—Exchangeable note liabilities (Note 27)

            128,820     128,820  

            440,130     440,130  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Financial risk management (Continued)


 
  Level 1   Level 2   Level 3   Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

As at 31 December 2018

                         

Liabilities

                         

Financial liabilities at fair value through profit or loss

                         

—Series A Preferred Shares (Note 25)

            476,112     476,112  

—Convertible note (Note 26)

            70,598     70,598  

—Exchangeable note liabilities (Note 27)

            185,745     185,745  

—Derivative financial instrument (Note 19)

            301     301  

            732,756     732,756  

        The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

        If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

        Specific valuation techniques used to value financial instruments include:

        There were no significant transfers of financial assets between level 1, level 2 and level 3 fair value hierarchy classifications.

        The following table presents the changes in level 3 liability instrument for the year ended 31 December 2017:

 
  Exchangeable
note liabilities
(Note 27)
  Convertible
note
(Note 26)
  Series A
Preferred
Shares
(Note 25)
  Derivative
financial
instrument
(Note 19)
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Opening balance

    90,513     60,163     164,403         315,079  

Change in fair value

    38,307     1,283     85,461         125,051  

Closing balance

    128,820     61,446     249,864         440,130  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Financial risk management (Continued)

        The following table presents the changes in level 3 liability instrument for the year ended 31 December 2018:

 
  Exchangeable
note liabilities
(Note 27)
  Convertible
note
(Note 26)
  Series A
Preferred Shares
(Note 25)
  Derivative
financial
instrument
(Note 19)
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Opening balance

    128,820     61,446     249,864         440,130  

Fair value as at issuance date

                1,199     1,199  

Change in fair value

    56,925     9,152     226,248     (898 )   291,427  

Closing balance

    185,745     70,598     476,112     301     732,756  

4 Critical accounting estimates and judgments

        Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

        The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a)
Goodwill impairment assessment
(b)
Purchase price allocation

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4 Critical accounting estimates and judgments (Continued)

(c)
Fair values of Series A Preferred Shares, convertible note and exchangeable note liabilities
(d)
Estimated useful lives of property, plant and equipment

5 Revenue

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Non-surgical aesthetic medical services

    298,047     331,428     373,348  

Surgical aesthetic medical services

    174,072     239,094     313,897  

General healthcare services and other aesthetic medical services

    112,738     126,874     74,061  

    584,857     697,396     761,306  

        Revenue is recognised at a point in time when the respective services are rendered. All of the contract liabilities as of 31 December 2016 (RMB2,581,000) and 2017 (RMB5,091,000) were recognised as revenue in the subsequent 12-month period.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6 Expenses by nature

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Employee benefit expenses (Note 7)

    164,952     160,853     191,306  

Advertising and marketing expenses

    157,824     227,544     245,859  

Cost of inventories and consumables

    79,549     91,685     106,950  

One-time compensatory expense arising from the issuance of exchangeable note liabilities (Note 27)

    39,202          

Operating lease rental expenses

    36,773     39,216     43,432  

Amortisation and depreciation

    38,729     29,111     32,140  

Utilities and office expenses

    28,722     45,633     48,888  

Travelling and entertainment expenses

    9,402     13,523     15,037  

Bank charges

    6,903     4,347     4,059  

Loss on disposal of property, plant and equipment

        559     80  

Other expenses

    8,275     15,249     19,827  

    570,331     627,720     707,578  

7 Employee benefit expenses

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Wages and salaries

    145,153     141,844     169,546  

Pension costs—defined contribution plans

    12,555     9,377     12,026  

Other staff welfare expenses

    7,244     9,632     9,734  

    164,952     160,853     191,306  

8 Finance income and costs

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Finance costs

                   

Interest expense on bank borrowings

    (2,920 )   (1,766 )   (4,584 )

Interest expense on convertible note

        (4,815 )   (4,660 )

    (2,920 )   (6,581 )   (9,244 )

Finance income

                   

Interest income on short-term bank deposits

    309     868     322  

Finance costs—net

    (2,611 )   (5,713 )   (8,922 )

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9 Income tax expense

        PRC corporate income tax have been provided for subsidiaries established and operating in Mainland China at the rate of 25% (2017: 25%) on the estimated assessable profit for the year.

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Current tax

                   

PRC enterprise income tax

    20,251     18,713     21,073  

Deferred tax

                   

Origination and reversal of temporary differences (Note 21)

    (6,538 )   547     (2,565 )

Income tax expense

    13,713     19,260     18,508  

        The taxation on the Group's profit/(loss) before income tax differs from the theoretical amount that would arise using the taxation rate of PRC, the principal place of the Group's operations, as follows:

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )

Calculated at a taxation rate of 25%

    16,059     (13,292 )   (58,493 )

Expenses not tax deductible

    14,634     35,875     79,114  

Income not subject to tax

    (14,055 )       (1,716 )

Utilisation of previously unrecognised tax losses

            (65 )

Recognition of previously unrecognised tax losses

    (2,793 )        

Tax losses not recognised

    323     366      

Difference in overseas tax rates

    (16 )   (146 )   (364 )

Under-provision in respect of prior years

            32  

Over-provision in respect of prior years

    (439 )   (3,543 )    

Income tax expense

    13,713     19,260     18,508  
(a)
Cayman Islands Income Tax
(b)
Hong Kong Profits Tax
(c)
PRC Enterprise Income Tax ("EIT")

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9 Income tax expense (Continued)

(d)
Singapore Corporation income tax

10 Earnings/(loss) per share

(a)
Basic earnings/(loss) per share
(b)
Diluted earnings/(loss) per share

        The following table sets forth the computation of basic and diluted profit/(loss) per share:

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 
 
   
  (Note i)
  (Note i)
 

Numerator:

                   

Profit/(loss) attributable to owners of the Company—basic

    50,350     (76,675 )   (255,237 )

Reversal of fair value gain of:

                   

—Series A Preferred Shares

    (49,027 )        

—Convertible note

             

Reversal of interest expense on convertible note

             

Profit/(loss) attributable to owners of the Company—diluted

    1,323     (76,675 )   (255,237 )

Shares (denominator):

                   

Weighted average number of shares—basic

    41,000,000     41,000,000     41,060,255  

Conversion of Series A Preferred Shares

    15,600,000          

Conversion of convertible note

    244,957          

Weighted average number of shares—diluted

    56,844,957     41,000,000     41,060,255  

Earnings/(loss) per share—basic (RMB)

    1.23     (1.87 )   (6.22 )

Earnings/(loss) per share—diluted (RMB)

    0.02     (1.87 )   (6.22 )

Note
i   As the Group incurred loss for the years ended 31 December 2017 and 2018, the conversion of Series A Preferred Shares and convertible note would be anti-dilutive and therefore, related changes in fair value and interest expense are not included in the computation of diluted loss per share. Diluted loss per share and basic loss per share are the same for the years ended 31 December 2017 and 2018.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10 Earnings/(loss) per share (Continued)

(c)
Pro forma earnings per share

        The following table sets forth the computation of unaudited pro forma basic and diluted earnings per share for the year ended 31 December 2018 as if the Series A Preferred Shares had been converted into ordinary shares at the beginning of the year:

 
  2018  
 
  RMB'000
 

Numerator:

       

Loss attributable to owners of the Company

    (255,237 )

Reversal of fair value loss of:

       

—Series A Preferred Shares

    226,248  

Loss attributable to owner of the Company—basic and diluted

    (28,989 )

Shares (denominator):

       

Weighted average number of shares

    41,060,255  

Pro forma effect of:

       

—Series A Preferred Shares

    15,600,000  

Weighted average number of shares—basic and diluted

    56,660,255  

Pro forma loss per share—basic (RMB)

    (0.51 )

Pro forma loss per share—diluted (RMB)

    (0.51 )

Note
i   The conversion of convertible note would be anti-dilutive and therefore, related changes in fair value and interest expense are not included in the computation of pro forma diluted earnings per share. Pro forma diluted earnings per share and pro forma basic earnings per share are the same for the year ended 31 December 2018.

F-40


Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11 Property, plant and equipment

 
  Buildings   Leasehold
improvements
  Machinery
and
equipment
  Office equipment,
furniture fixtures
and motor
vehicles
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

At 31 December 2016

                               

Opening net book amount

    1,518     62,453     81,588     10,981     156,540  

Additions

        46,126     12,143     1,754     60,023  

Written-off

            (77 )   (72 )   (149 )

Depreciation charges

    (126 )   (19,206 )   (12,699 )   (2,181 )   (34,212 )

Transfer to assets held-for-sales

        (1,387 )   (1,585 )   (268 )   (3,240 )

Closing net book amount

    1,392     87,986     79,370     10,214     178,962  

Year ended 31 December 2016

                               

At 31 December 2016

                               

Cost

    2,528     151,957     152,825     26,067     333,377  

Accumulated depreciation

    (1,136 )   (63,971 )   (73,455 )   (15,853 )   (154,415 )

Net book amount

    1,392     87,986     79,370     10,214     178,962  

At 31 December 2017

                               

Opening net book amount

    1,392     87,986     79,370     10,214     178,962  

Additions

        39,834     4,924     5,008     49,766  

Written-off

            (454 )   (105 )   (559 )

Business combination (Note 29)

        7,573     3,205     2,416     13,194  

Disposal of subsidiaries (Note 30)

        (4,023 )   (1,102 )   (430 )   (5,555 )

Depreciation charges

    (184 )   (10,773 )   (12,143 )   (2,422 )   (25,522 )

Closing net book amount

    1,208     120,597     73,800     14,681     210,286  

Year ended 31 December 2017

                               

At 31 December 2017

                               

Cost

    2,528     190,641     154,804     31,553     379,526  

Accumulated depreciation

    (1,320 )   (70,044 )   (81,004 )   (16,872 )   (169,240 )

Net book amount

    1,208     120,597     73,800     14,681     210,286  

At 31 December 2018

                               

Opening net book amount

    1,208     120,597     73,800     14,681     210,286  

Additions

        36,522     9,207     2,329     48,058  

Written-off

            (40 )   (63 )   (103 )

Business combination (Note 29)

        5,261     738     367     6,366  

Disposal of subsidiaries (Note 30)

        (891 )   (1,040 )   (342 )   (2,273 )

Depreciation charges

    (120 )   (12,455 )   (11,929 )   (2,802 )   (27,306 )

Closing net book amount

    1,088     149,034     70,736     14,170     235,028  

Year ended 31 December 2018

                               

At 31 December 2018

                               

Cost

    2,528     234,420     162,636     33,575     433,159  

Accumulated depreciation

    (1,440 )   (85,386 )   (91,900 )   (19,405 )   (198,131 )

Net book amount

    1,088     149,034     70,736     14,170     235,028  

F-41


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11 Property, plant and equipment (Continued)

        As at 31 December 2017 and 2018, property, plant and equipment with net book value amounting to approximately RMB1,208,000 and RMB757,000, respectively, were pledged as security for the bank loans.

        During the year ended 31 December 2017, certain subsidiaries of the Group reviewed and revised the useful lives of the certain items of property, plant and equipment to reflect the physical conditions of those assets and the recent experience of the Group. These changes have been applied prospectively from the dates of revision of estimated useful lives adopted by respective subsidiaries. Had there been no changes in estimated useful lives during the year, depreciation charge of the year ended 31 December 2017 would have increased by RMB12,018,000.

12 Investment properties

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Cost

                   

At 1 January

    27,824     27,824     27,824  

Additions

            31,452  

At 31 December

    27,824     27,824     59,276  

Accumulated depreciation

   
 
   
 
   
 
 

At 1 January

    (6,956 )   (8,347 )   (9,669 )

Charge for the year

    (1,391 )   (1,322 )   (2,439 )

At 31 December

    (8,347 )   (9,669 )   (12,108 )

Net book amount

    19,477     18,155     47,168  

        Investment properties represents buildings held in the PRC, with useful lives of ranging from 20 years to 25 years.

        Investment properties acquired during the year ended 31 December 2018 represent properties leased to certain independent third parties as of 31 December 2018.

        Investment properties with net book value amounting to approximately RMB47,168,000 (2017: RMB18,155,000) were pledged as security for the bank loans at the reporting date.

        Amounts recognised in the consolidated income statement for investment properties:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Rental income

    1,188     1,380  

        The fair value of the investment properties as at 31 December 2018 is RMB103,986,000 (2017: RMB33,400,000).

F-42


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12 Investment properties (Continued)

        In relation to the Group's investment properties, the future aggregate minimum lease receipts under non-cancellable operating leases are receivable as follows:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Land and buildings:

             

Not later than 1 year

    1,144     2,823  

Later than 1 year and not later than 5 years

        5,131  

    1,144     7,954  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13 Intangible assets

 
  Goodwill   Computer
software
  Medical
licenses
  Tradenames   Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Year ended 31 December 2016

                               

Opening net book amount

    29,414     1,017     14,478         44,909  

Additions

        532             532  

Amortisation

        (552 )   (2,574 )       (3,126 )

Transferred to assets held-for-sale

        (18 )           (18 )

Closing net book amount

    29,414     979     11,904         42,297  

At 31 December 2016

                               

Cost

    29,414     2,949     23,606         55,969  

Accumulated amortisation

        (1,970 )   (11,702 )       (13,672 )

Net book amount

    29,414     979     11,904         42,297  

Year ended 31 December 2017

                               

Opening net book amount

    29,414     979     11,904         42,297  

Additions

        162             162  

Business combination (Note 29)

    24,471             8,770     33,241  

Disposal of subsidiaries (Note 30)

    (3,321 )   (6 )   (8,303 )       (11,630 )

Amortisation

        (486 )   (1,781 )       (2,267 )

Closing net book amount

    50,564     649     1,820     8,770     61,803  

At 31 December 2017

                               

Cost

    50,564     3,111     23,606     8,770     86,051  

Accumulated amortisation

        (2,462 )   (21,786 )       (24,248 )

Net book amount

    50,564     649     1,820     8,770     61,803  

Year ended 31 December 2018

                               

Opening net book amount

    50,564     649     1,820     8,770     61,803  

Additions

        3,233             3,233  

Business combination (Note 29)

    4,487     45         1,130     5,662  

Disposal of subsidiaries (Note 30)

    (572 )   (19 )           (591 )

Amortisation

        (283 )   (1,641 )   (471 )   (2,395 )

Closing net book amount

    54,479     3,625     179     9,429     67,712  

At 31 December 2018

                               

Cost

    58,372     6,389     23,606     9,900     98,267  

Accumulated amortisation

    (3,893 )   (2,764 )   (23,427 )   (471 )   (30,555 )

Net book amount

    54,479     3,625     179     9,429     67,712  

        Goodwill of RMB24,471,000 and RMB4,487,000 arose from acquisitions of subsidiaries in 2017 and 2018 respectively. The subsidiaries are principally engaged in the provision of non-surgical aesthetic treatments and surgical aesthetic treatments in the PRC.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13 Intangible assets (Continued)

        Management reviews the business performance of each operating entity (also regarded as a CGU). Goodwill is allocated to relevant operating entities.

        The recoverable amount of a CGU is determined based on a value-in-use calculation. It is calculated using pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flow beyond the five-year period is extrapolated using the estimated growth rates as stated below.

 
  2017   2018  

Annual compound revenue growth rate

  8.9% ~ 25.8%     5.0 % ~ 26.6%

Annual gross profit ratio

  65.8% ~ 72.5%     67.4 % ~ 69.2%

Discount rate

  16.5% ~ 18.4%     16.5 % ~ 19.0%

        Management considers their experience and expertise knowledge in the aesthetic medical treatment business in the PRC, a cash flow period of five years is reasonable.

        Management determined budgeted gross margin based on past performance and its expectations of the market development. The average annual revenue growth rate used is consistent with the forecasts of the market. The discount rate used is pre-tax and reflects specific risks relating to the entity. The cash flows beyond the five year periods are extrapolated using a 3% (2017: 3%) growth rate.

        Management believes that any reasonably possible change in the key assumptions on which the recoverable amounts are based would not cause the carrying amounts of the CGUs to exceed their recoverable amounts and therefore, there is no impairment indicators in relation to the goodwill of the Group.

14 Investments accounted for using the equity method

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

At 1 January

    14,503     16,097     32,988  

Acquisition of associates

        18,306      

Disposal of associates

            (2,249 )

Dividend received

            (6,225 )

Share of (loss)/profit

    1,594     (1,415 )   1,730  

At 31 December

    16,097     32,988     26,244  

        Set out below are the associates of the Group as at 31 December 2017 and 2018 which, in the opinion of the directors, are material to the Group. The associates as listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The places of establishment are also their principal places of business.

F-45


Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14 Investments accounted for using the equity method (Continued)

        Nature of investments in associates as at 31 December 2017 and 2018:

 
   
  % of
ownership
   
   
 
  Place of
establishment
  Nature of
the
relationship
  Measurement
method
Name of entity
  2017   2018

Moyan (Shenzhen) Network Technology Co., Ltd

  The PRC     46 %   46 % Note 1   Equity

GRAPHIC

                       

Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd.

 
The PRC
   
51

%
 
 

Note 2, 3

 
Equity

GRAPHIC

                       

Shenzhen Pengai Yueji Medical Aesthetic Clinic Co. Ltd.

 
The PRC
   
30

%
 
30

%

Note 2

 
Equity

GRAPHIC

                       

Mendis Aesthetic PTE. Ltd.

 
Singapore
   
40

%
 
40

%

Note 2

 
Equity

Note
1:       Moyan (Shenzhen) Network Technology Co., Ltd. ("Moyan") is engaged in internet marketing services.

Note
2:       Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd. ("Hangzhou Pengai"), Shenzhen Pengai Yueji Aesthetic Medical Clinic Co., Ltd. ("Shenzhen Yueji") and Mendis Aesthetic PTE. Ltd. ("Mendis") are engaged in the provision of aesthetic medical services.

Note
3:       During the year ended 31 December 2018, the Group acquired the remaining 49% equity interest of Hangzhou Pengai at a consideration of RMB6,000,000, which become a subsidiary of the Company.

        Moyan, Hangzhou Pengai, Shenzhen Yueji and Mendis are private companies and there are no quoted market prices available for their shares.

Summarised financial information for associates

        Set out below are the summarised financial information for investments accounted for using the equity method:

Summarised balance sheet

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Current

             

Cash and cash equivalents

    22,148     3,306  

Other current assets (excluding cash and cash equivalents)

    31,582     31,501  

Total current assets

    53,730     34,807  

Financial liabilities (excluding trade payables)

    (23,998 )   (4,379 )

Other current liabilities (including trade payables)

    (6,944 )   (6,454 )

Total current liabilities

    (30,942 )   (10,833 )

Total non-current assets

    16,990     7,867  

Net assets

    39,778     31,841  

F-46


Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14 Investments accounted for using the equity method (Continued)

Summarised statement of comprehensive income

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Revenue

    109,864     111,630  

Depreciation and amortisation

    (131 )   (319 )

Interest expense

    (1,481 )   (417 )

Profit before income tax

    2,102     9,851  

Income tax expense

    (1,279 )   (2,290 )

Profit for the year

    823     7,561  

        The information above reflects the amounts presented in the financial statements of the associates (and not the Group's share of those amounts) adjusted for differences in accounting policies between the Group and the associates.

15 Trade and other receivables, deposits and prepayments

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Trade receivables

    10,015     10,760  

Other receivables

    23,575     31,492  

Deposits

    5,083     6,685  

Prepayments

    23,096     41,174  

Deferred offering costs

        11,415  

Advances to employees

    3,436     3,880  

    55,190     94,646  

Less: Non-current portion

             

Prepayments and deposits

    (6,904 )   (5,166 )

Current portion

    48,286     89,480  

        The carrying amounts of trade and other receivables, deposits and prepayments are denominated in RMB and approximate their fair values.

        Trade receivables are all aged within 30 days and are neither past due or impaired.

        The maximum exposure to credit risk as at 31 December 2017 and 2018 is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

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Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16 Inventories

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Pharmaceuticals

    1,157     1,968  

Medical consumables

    23,884     19,175  

    25,041     21,143  

        The cost of inventories recognised as expense and included in cost of inventories and consumables amounted to RMB106,950,000 (2017: RMB91,685,000).

17 Cash and bank balances

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Cash and cash equivalents

             

Cash at banks

    102,088     100,644  

Cash on hand

    3,257     1,242  

Total

    105,345     101,886  

        The analysis of bank and cash balances for the purpose of the consolidated statement of cash flows is as follows:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Cash and cash equivalents

    106,006     102,547  

Less: Assets held-for-sale (Note 18)

    (661 )   (661 )

Total

    105,345     101,886  

        The carrying amounts of the Group's cash and cash equivalents are denominated in the following currencies:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

RMB

    81,393     91,030  

US dollars

    17,748     7,611  

Hong Kong dollars

    6,204     1,476  

Singapore dollars

        1,769  

    105,345     101,886  

        Cash at banks earns interest at floating rates based on daily bank deposit rates. The Group's balances of cash at bank which are denominated in RMB are deposited with banks in the PRC. The conversion of these RMB-denominated balances into foreign currencies and the remittance of funds out of the Mainland China are subject to the rules and regulations of foreign exchange control promulgated by the Government of the PRC.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18 Assets and liabilities held-for-sale

        The assets and liabilities related to Wuhan Pengai Jinggang Aesthetic Medical Clinic Co., Ltd. ("Wuhan Pengai"), a 51% owned subsidiary of the Group, have been presented as held for sale following the approval of the Group's management and shareholders on 19 July 2016 to dispose of Wuhan Pengai in the PRC as management decided to focus on development of businesses in other group companies.

(a)
Assets of disposal subsidiary classified as held-for-sale
 
  2017   2018  
 
  RMB'000
  RMB'000
 

Property, plant and equipment

    3,240     3,240  

Inventories

    116     116  

Cash and cash equivalents

    661     661  

Other current assets

    327     327  

Total

    4,344     4,344  
(b)
Liabilities of disposal subsidiary classified as held-for-sale
 
  2017   2018  
 
  RMB'000
  RMB'000
 

Trade and other payables

    1,583     1,583  

Other current liabilities

    406     406  

Total

    1,989     1,989  

19 Share capital

 
  Ordinary shares of USD0.001 each  
 
  Number of
shares
  Nominal
value
  Nominal
value
 
 
   
  USD'000
  RMB'000
 

Authorised:

                   

As at 1 January 2016

    70,000,000     70     442  

Increased in authorised shares

    51,983,052     52     360  

Redesignation of preferred shares

             

As at 31 December 2016, 2017 and 2018

    121,983,052     122     802  

Issued and paid:

                   

As at 31 December 2016 and 2017

    41,000,000     41     259  

Issuance of shares (Note i)

    798,219     1     6  

As at 31 December 2018

    41,798,219     42     265  

Note
i:   During the year ended 31 December 2018, the Company entered into an investment agreement to allot and issue 798,219 ordinary shares of the Company at RMB31.80 per share to an independent third party. Pursuant to such investment agreement, a put option enabling the investor of these ordinary shares to dispose of the shares of the Company at a guaranteed return was issued. Such put option was recognised as "Derivative financial instrument" and subsequently measured at fair value through profit and loss.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20 Other reserves

 
  Capital
reserve
  Merger
reserve
  Statutory
reserve
  Share-based
compensation
reserve
  Other
reserve
  Total  
 
  RMB'000
Note (a)

  RMB'000
Note (b)

  RMB'000
Note (c)

  RMB'000
Note (d)

  RMB'000
Note (e)

  RMB'000
 

At 1 January 2016

    35,609     (10,000 )   23,568     67,960     (1,647 )   115,490  

Gain on translation accounts of foreign operations

                    148     148  

Transfer to statutory reserve

            5,118             5,118  

Exchangeable note liabilities (Note 27)

                    (51,311 )   (51,311 )

Further acquisition of interests in subsidiaries (Note 31)

                    (10,843 )   (10,843 )

Partial disposal of interests in subsidiaries without loss of control (Note 31)

                    3,761     3,761  

At 31 December 2016 and 1 January 2017

    35,609     (10,000 )   28,686     67,960     (59,892 )   62,363  

Translation of foreign operations

                    (215 )   (215 )

Transfer to statutory reserve

            5,475             5,475  

Disposal of a subsidiary due to loss of control

            (1,057 )           (1,057 )

Further acquisition of interests in a subsidiary (Note 31)

                    (308 )   (308 )

Partial disposal of interests in a subsidiary without loss of control (Note 31)

                    426     426  

At 31 December 2017 and 1 January 2018

    35,609     (10,000 )   33,104     67,960     (59,989 )   66,684  

Translation of foreign operations

                    1,088     1,088  

Transfer to statutory reserve

            4,875             4,875  

Disposal of a subsidiary due to loss of control

            (17 )           (17 )

Further acquisition of interests in a subsidiary (Note 31)

                    (3,410 )   (3,410 )

Partial disposal of interests in a subsidiary without loss of control (Note 31)

                    331     331  

Issuance of shares

    25,694                     25,694  

At 31 December 2018

    61,303     (10,000 )   37,962     67,960     (61,980 )   95,245  

(a)
Capital reserve

The capital reserve mainly represents capital contribution made by an owner and shareholders of the Company.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20 Other reserves (Continued)

(b)
Merger reserve

Merger reserve is mainly attributable to business combinations under common control.

(c)
Statutory reserve

In accordance with the PRC regulations and the articles of association of the companies now comprising the Group, before distributing the net profit of each year, companies registered in the PRC are required to set aside 10% of its statutory net profit for the year after offsetting any prior year's losses as determined under relevant PRC accounting standards to the statutory surplus reserve fund. When the balance of such reserve reaches 50% of each company's share capital, any further appropriation is optional.

(d)
Share-based compensation reserve

Share-based compensation reserve was attributable to share options which were granted to certain consultants and employees of the Group in previous years and fully lapsed in 2015.

(e)
Other reserve

Other reserve mainly represents the differences of carrying amount of non-controlling interests acquired, consideration paid to non-controlling interests and reduction of reserve as a result of the issuance of exchangeable note liabilities (Note 27).

21 Deferred income tax

 
  2017   2018  
 
  RMB'000
  RMB'000
 

The deferred tax assets comprise temporary differences attributable to:

             

—Tax losses

    11,922     12,254  

The deferred tax liabilities comprise temporary differences attributable to:

             

—Medical licenses and tradenames

    (2,648 )   (1,971 )

        Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority. The balances shown in the consolidated balance sheets are, after appropriate offsetting, as follows:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Deferred income tax assets:

             

—Deferred income tax assets to be recovered after more than 12 months

    10,636     12,254  

—Deferred income tax assets to be recovered within 12 months

    1,286      

    11,922     12,254  

Deferred income tax liabilities:

             

—Deferred income tax liabilities to be settled after more than 12 months

    (2,083 )   (1,847 )

—Deferred income tax liabilities to be settled within 12 months

    (565 )   (124 )

    (2,648 )   (1,971 )

Deferred income tax assets—net

    9,274     10,283  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21 Deferred income tax (Continued)

        The movement in deferred income tax assets and liabilities during the year, without taking into consolidation the offsetting of balances within the same taxation jurisdiction is as follows:

        The gross movement on deferred income tax accounts is as follows:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

At 1 January

    10,015     9,274  

Acquisition of a subsidiary (Note 29)

    (2,193 )   (283 )

Disposal of subsidiaries (Note 30)

    1,999     (1,273 )

(Debited) / credited to consolidated statement of comprehensive income

    (547 )   2,565  

At 31 December

    9,274     10,283  

Deferred income tax assets

 
  Tax losses  
 
  RMB'000
 

At 1 January 2017

    12,991  

Disposal of a subsidiary (Note 30)

    (77 )

Debited to consolidated statement of comprehensive income

    (992 )

At 31 December 2017 and 1 January 2018

    11,922  

Disposal of a subsidiary (Note 30)

    (1,273 )

Credited to consolidated statement of comprehensive income

    1,605  

At 31 December 2018

    12,254  

Deferred income tax liabilities

 
  Medical licenses
and tradenames
 
 
  RMB'000
 

At 1 January 2017

    2,976  

Acquisition of a subsidiary (Note 29)

    2,193  

Disposal of subsidiaries (Note 30)

    (2,076 )

Credited to consolidated statement of comprehensive income

    (445 )

At 31 December 2017 and 1 January 2018

    2,648  

Acquisition of a subsidiary (Note 29)

    283  

Credited to consolidated statement of comprehensive income

    (960 )

At 31 December 2018

    1,971  

        Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through the future taxable profits is probable. The Group has

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21 Deferred income tax (Continued)

unrecognised tax losses as at 31 December 2018 of RMB1,204,000 (2017: RMB1,464,000) which can be carried forward against future taxable income and their expiry dates are as follows:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Within 4 years

    1,464     1,204  

        Deferred income tax liabilities of RMB23,607,000 (2017: RMB18,546,000) have not been recognised for the withholding tax that would be payable on the unremitted earnings of certain subsidiaries. Such earnings are not expected to be distributed to the subsidiaries incorporated outside the PRC in near future.

22 Borrowings

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Non-current

             

Bank borrowings

             

—secured

    23,980     19,876  

Current

             

Bank borrowings

             

—secured

    22,020     77,130  

    46,000     97,006  

        The carrying amounts of borrowings approximate their fair values and are denominated in RMB. The effective interest rates on the borrowings from banks was 6.67% as at 31 December 2018 (2017: 6.33%).

        Bank borrowings are secured by the following:

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

23 Trade and accruals, other payables and provisions

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Trade payables

    16,808     14,356  

Accrued employee benefits

    15,169     14,873  

Accrued operating expenses

    5,431     6,053  

Accrued professional service fees

    9,288     12,276  

Deposits received

    3,615     2,277  

Duty and tax payable other than corporate income tax

    8,164     5,615  

Other payables to suppliers of plant and equipment

    6,416     9,164  

Others

    9,924     7,734  

    74,815     72,348  

        The carrying amounts of trade and other payables are denominated in RMB. The carrying amounts approximate their fair values due to their short-term maturities.

24 Contract liabilities

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Advance receipt for treatment packages

    5,091     5,996  

        At the reporting date, the contract liabilities are aged within one year from the date when the sales contracts in respect of treatment packages were entered into.

25 Convertible redeemable preferred shares

        On 9 March 2012, the Company entered into a share purchase agreement, and pursuant to which, the Company issued 15,600,000 Series A Preferred Shares at a price of US$1 per share with total amount of US$15,600,000 (equivalent to approximately RMB98,132,000). The par value of Series A Preferred Shares is US$1 each. The issuance of the Series A Preferred Shares closed on 27 July 2012. The key terms of the Series A Preferred Shares are summarised as follows:

(a)
Dividends rights

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25 Convertible redeemable preferred shares (Continued)

(b)
Voting rights
(c)
Conversion feature
(d)
Redemption feature
(e)
Liquidation preferences

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25 Convertible redeemable preferred shares (Continued)

(f)
Fair value measurement
 
  2017  

Discount rate

    14.87 %

Risk-free interest rate

    1.43 %

Volatility

    30.18 %

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25 Convertible redeemable preferred shares (Continued)

 
  RMB'000  

For the year ended 31 December 2016

       

At 1 January 2016

    213,430  

Change in fair value

    (49,027 )

At 31 December 2016

    164,403  

Fair value change for the year included in statement of comprehensive income for liabilities held at the year end

    (49,027 )

For the year ended 31 December 2017

       

At 1 January 2017

    164,403  

Change in fair value

    85,461  

At 31 December 2017

    249,864  

Fair value change for the year included in statement of comprehensive income for liabilities held at the year end

    85,461  

For the year ended 31 December 2018

       

At 1 January 2018

    249,864  

Change in fair value

    226,248  

At 31 December 2018

    476,112  

Fair value change for the year included in statement of comprehensive income for liabilities held at the year end

    226,248  

26 Convertible note

        On 8 December 2016, the Company entered into a convertible note purchase agreement, and pursuant to which, the Company issued a convertible note at principal amount of US$8,700,948 (equivalent to approximately RMB60,163,000). The key terms of the convertible note are summarised as follows:

(a)
Conversion feature

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

26 Convertible note (Continued)

(b)
Redemption feature
(c)
Fair value measurement
 
  2017  

Discount rate

    14.87 %

Risk-free interest rate

    1.43 %

Volatility

    30.18 %

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

26 Convertible note (Continued)

 
  RMB'000  

For the year ended 31 December 2016

       

At 1 January 2016

     

Fair value of convertible note issued

    60,163  

At 31 December 2016

    60,163  

Fair value changes for the year included in consolidated statement of comprehensive income for liabilities held at the year end

     

For the year ended 31 December 2017

       

At 1 January 2017

    60,163  

Change in fair value

    1,283  

At 31 December 2017

    61,446  

Fair value changes for the year included in consolidated statement of comprehensive income for liabilities held at the year end

    1,283  

For the year ended 31 December 2018

       

At 1 January 2018

    61,446  

Change in fair value

    9,152  

At 31 December 2018

    70,598  

Fair value changes for the year included in consolidated statement of comprehensive income for liabilities held at the year end

    9,152  

27 Exchangeable note liabilities

        On 8 December 2016 (the "Issuance Date"), immediate holding companies of the Company (the "Holding Companies") owned by Dr. Zhou Pengwu and Ms. Ding Wenting entered into exchangeable note purchase agreements with an independent investor, and pursuant to which, the Holding Companies issued exchangeable notes at principal amounts of US$13,921,517 (RMB97,227,875) in total (the "Exchangeable Note").

        The Exchangeable Note holder has the right to require the Holding Companies to exchange for a predetermined amount of Series B Convertible Redeemable Preferred Shares of the Company at any time (the "Exchange"). Upon occurrence of the Exchange, the Company will issue 5,976,960 Series B Preferred Shares to the Exchangeable Note holder and simultaneously the Company will cancel 5,976,960 ordinary shares held by Dr. Zhou Pengwu and Ms. Ding Wenting.

        On the Issuance Date, the Group recognised the fair value of the Exchangeable Note of RMB90,513,000 as a financial liability at fair value through profit or loss, as the Exchange can be initiated at any time by the Exchangeable Note holder and the corresponding Series B Preferred Shares would be liability classified.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

27 Exchangeable note liabilities (Continued)

        Also on the Issuance Date, the Group measured the fair value of the 5,976,960 ordinary shares in the Company that will be cancelled upon the future occurrence of the Exchange, recognizing a corresponding reduction in other reserves of RMB51,311,000.

        The fair value of the Exchangeable Note liability recognized on the Issuance Date was equal to the corresponding fair value of the Series B Preferred Shares that would be issued by the Company upon the Exchange. The amount by which the fair value of the Series B Preferred Shares exceeded the fair value of the 5,976,960 ordinary shares held by Dr. Zhou Pengwu and Ms. Ding Wenting that would be cancelled upon the Exchange, was equal to RMB39,202,000. This amount was recognised as an one-time compensatory expense charged to the consolidated statements of comprehensive income for the year ended 31 December 2016.

        The key terms of the Exchangeable Note are summarised as follows:

(a)
Redemption feature
(b)
Exchange feature

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

27 Exchangeable note liabilities (Continued)

(c)
Fair value measurement

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

27 Exchangeable note liabilities (Continued)

 
  2017  

Discount rate

    14.87 %

Risk-free interest rate

    1.43 %

Volatility

    30.18 %
 
  RMB'000  

For the year ended 31 December 2016

       

At 1 January 2016

     

Fair value of exchangeable notes issued

    90,513  

At 31 December 2016

    90,513  

For the year ended 31 December 2017

       

At 1 January 2017

    90,513  

Change in fair value

    38,307  

At 31 December 2017

    128,820  

Fair value changes for the year included in consolidated statement of comprehensive income for liabilities held at the year end

    38,307  

For the year ended 31 December 2018

       

At 1 January 2018

    128,820  

Change in fair value

    56,925  

At 31 December 2018

    185,745  

Fair value changes for the year included in consolidated statement of comprehensive income for liabilities held at the year end

    56,925  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

28 Cash generated from operations

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )

Adjustments for:

                   

Finance income

    (309 )   (868 )   (322 )

Finance costs

    2,920     6,581     9,244  

Amortisation of intangible assets (Note 13)

    3,126     2,267     2,395  

Depreciation of property, plant and equipment (Note 11)

    34,212     25,522     27,306  

Depreciation of investment properties (Note 12)

    1,391     1,322     2,439  

Loss on write off of property, plant and equipment (Note 11)

    149     559     80  

Share of (profits)/losses of investments accounted for using the equity method

    (1,594 )   1,415     (1,730 )

Fair value (gain)/loss of convertible redeemable preferred shares

    (49,027 )   85,461     226,248  

Fair value loss of convertible note

        1,283     9,152  

Fair value loss of exchangeable note liabilities

        38,307     56,925  

Fair value loss of derivative financial instrument

            301  

One-time compensatory expense arising from the issuance of exchangeable note liabilities (Note 27)

    39,202          

Gain on disposal of associate

            (3,996 )

Gain on disposal of subsidiaries (Note 30)

        (1,737 )   191  

    94,310     106,943     94,261  

Changes in working capital:

                   

—Inventories

    (110 )   (10,969 )   3,395  

—Trade receivables

    (2,776 )   (4,174 )   (824 )

—Other receivables, deposits and prepayments

    (31,310 )   (1,851 )   (35,842 )

—Balances with related parties

    (4,650 )   (10,408 )   (25,092 )

—Trade payables

    3,866     2,708     (2,196 )

—Accruals, other payables and provisions

    4,210     13,018     (3,807 )

—Contract liabilities

    (5,930 )   2,524     (31 )

Cash flow from operating activities

    57,610     97,791     29,864  

        This section sets out an analysis of net debt and the movements in net debt for the years:

 
   
  Liabilities from
financing activities
   
 
Net debt
  Cash and
bank
  Borrowing
due within
1 year
  Borrowing
due after
1 year
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

As at 1 January 2017

    128,965     (65,239 )       63,726  

Cash flows

    (26,837 )   43,219     (23,980 )   (7,598 )

Foreign exchange adjustments

    3,217             3,217  

As at 31 December 2017

    105,345     (22,020 )   (23,980 )   59,345  

As at 1 January 2018

    105,345     (22,020 )   (23,980 )   59,345  

Cash flows

    (4,547 )   (55,110 )   4,104     (55,553 )

Foreign exchange adjustments

    1,088             1,088  

As at 31 December 2018

    101,886     (77,130 )   (19,876 )   4,880  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

29 Business combination

        On 5 April 2017, the Group acquired 95% of the share capital of Guangzhou Pengai Medical Aesthetic Clinic Co., Ltd. ("Guangzhou Pengai"), an aesthetic medical treatment provider operating in the PRC for RMB13,110,000 and obtained control.

        As a result of the acquisition, the Group is expected to increase its presence in Guangzhou. The goodwill of RMB4,722,000 arising from the acquisition is attributable to synergies expected to be generated from the acquisition. None of the goodwill recognised is expected to be deductible for income tax purpose.

        The following table summarises the consideration paid for Guangzhou Pengai.

 
  RMB'000  

Purchase consideration

       

Cash paid

    12,144  

Consideration payable

    966  

Total purchase consideration

    13,110  

        The assets and liabilities recognised as a result of the acquisition are as follows:

 
  RMB'000  

Cash and cash equivalents

    153  

Trade receivables and other receivables

    59  

Inventories

    235  

Properties, plant and equipment

    9,288  

Trade payables and other payables

    (906 )

Non-controlling interest

    (441 )

Net identifiable assets acquired

    8,388  

Add: goodwill (Note 13)

    4,722  

Net assets acquired

    13,110  

        An analysis of net outflow of cash and cash equivalents in respect of the acquisition is as follows:

 
  RMB'000  

Cash consideration

    (12,144 )

Cash and cash equivalents

    153  

Net outflow of cash and cash equivalents included in cash flows from investing activities

    (11,991 )

        Acquisition-related costs have been charged to general and administrative expenses in consolidated statement of comprehensive income for the year ended 31 December 2017.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

29 Business combination (Continued)

        For the year ended 31 December 2017, the revenue included in consolidated statement of comprehensive income since 5 April 2017 contributed by Guangzhou Pengai was RMB11,087,000. Guangzhou Pengai also contributed loss of RMB2,268,000 over the same period.

        The following table set out the pro-forma revenue and profit after tax of the Group had the acquisition taken place from 1 January 2016:

 
  2016   2017  
 
  RMB'000
  RMB'000
 

Pro forma consolidated statement of comprehensive income:

             

Revenue

    595,329     709,963  

Profit/(loss) after tax

    86,303     (73,009 )

        Had Guangzhou Pengai been consolidated from 1 January 2016, consolidated statement of comprehensive income would show pro forma revenue of RMB595,329,000 and a net gain of RMB86,303,000.

        On 28 December 2017, the Group acquired 70% of the share capital of Chengdu Jinjiang Yueji Medical Aesthetic Clinic Company Limited ("Chengdu Yueji"), an aesthetic medical treatment provider operating in the PRC for RMB30,500,000 and obtained control.

        As a result of the acquisition, the Group is expected to increase its presence in Chengdu. The goodwill of RMB19,749,000 arising from the acquisition is attributable to synergies expected to be generated from the acquisition. None of the goodwill recognised is expected to be deductible for income tax purpose.

        The following table summarises the consideration paid for Chengdu Yueji.

 
  RMB'000  

Purchase consideration

       

Cash paid

    20,000  

Consideration payable

    10,500  

Total purchase consideration

    30,500  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

29 Business combination (Continued)

        The assets and liabilities recognised as a result of the acquisition are as follows:

 
  RMB'000  

Cash and cash equivalents

    2,391  

Intangible assets

    8,770  

Trade receivables and other receivables

    5,175  

Inventories

    878  

Properties, plant and equipment

    3,906  

Trade payables and other payables

    (2,107 )

Current income tax liabilities

    (1,461 )

Deferred income tax liabilities

    (2,193 )

Non-controlling interest

    (4,608 )

Net identifiable assets acquired

    10,751  

Add: goodwill (Note 13)

    19,749  

Net assets acquired

    30,500  

        An analysis of net outflow of cash and cash equivalents in respect of the acquisition is as follows:

 
  RMB'000  

Cash consideration

    (20,000 )

Cash and cash equivalents

    2,391  

Net outflow of cash and cash equivalents included in cash flows from investing activities

    (17,609 )

        Acquisition-related costs have been charged to general and administrative expenses in consolidated statement of comprehensive income for the year ended 31 December 2017.

        For the year ended 31 December 2017, no revenue is included in consolidated statement of comprehensive income since 28 December 2017 contributed by Chengdu Yueji. There is no gain or loss contributed by Chengdu Yueji over the same period.

        The following table set out the pro-forma revenue and profit after tax of the Group had the acquisition taken place from 1 January 2016:

 
  2016   2017  
 
  RMB'000
  RMB'000
 

Pro forma consolidated statement of comprehensive income:

             

Revenue

    606,876     723,819  

Profit/(loss) after tax

    93,964     (67,348 )

        On 28 May 2018, the Group acquired additional 49% of the equity interest of Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd. ("Hangzhou Pengai") at a consideration of RMB6,000,000. Hangzhou Pengai became a 100% subsidiary of the Company since then.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

29 Business combination (Continued)

        The following table summarises the consideration paid for Hangzhou Pengai.

 
  RMB'000  

Total consideration

       

Fair value of the previously held equity interest in an associate at the acquisition date

    6,245  

Cash consideration

    6,000  

    12,245  

        The assets and liabilities recognised as a result of the acquisition are as follows:

 
  RMB'000  

Cash and cash equivalents

    2,022  

Intangible assets

    1,175  

Other receivables

    5,006  

Inventories

    188  

Property, plant and equipment

    6,365  

Trade payables and other payables

    (5,779 )

Contract liabilities

    (936 )

Deferred income tax liabilities

    (283 )

Net identifiable assets acquired

    7,758  

Add: goodwill (Note 13)

    4,487  

Net assets acquired

    12,245  

        An analysis of net outflow of cash and cash equivalents in respect of the acquisition is as follows:

 
  RMB'000  

Cash consideration

    (5,000 )

Cash and cash equivalents

    2,022  

Net outflow of cash and cash equivalents included in cash flows from investing activities

    (2,978 )

        As at 31 December 2018, the consideration payable balance in relation to the acquisition of Hangzhou Pengai is RMB1,000,000.

        Acquisition-related costs have been charged to general and administrative expenses in consolidated statement of comprehensive income for the year ended 31 December 2018.

        For the year ended 31 December 2018, the revenue included in consolidated statement of comprehensive income since 28 May 2018 contributed by Hangzhou Pengai was RMB9,613,000. Hangzhou Pengai also contributed profit of RMB298,000 over the same period.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

29 Business combination (Continued)

        The following table set out the pro-forma revenue and profit after tax of the Group had the acquisition taken place from 1 January 2016:

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Pro forma consolidated statement of comprehensive income:

                   

Revenue

    605,598     706,549     765,406  

Profit/(loss) after tax

    53,737     (76,591 )   (312,224 )

30 Disposals of subsidiaries

        On 1 January 2017, the Group disposed its entire interest in Jinan to an individual third party. Details of the net assets of Jinan disposed of and their financial impacts are summarised as follows:

 
  2017  
 
  RMB'000
 

Net assets disposed of:

       

Property, plant and equipment

    1,897  

Intangible assets

    8,163  

Goodwill

    2,094  

Deferred income tax assets

    77  

Inventories

    630  

Other receivables, deposits and prepayments

    6,009  

Current income tax recoverable

    33  

Cash and cash equivalents

    105  

Deferred income tax liabilities

    (2,041 )

Trade payables

    (149 )

Accruals, other payables and provisions

    (3,922 )

Deferred revenue

    (14 )

Non-controlling interests

    (654 )

Net assets of subsidiary

    12,228  

Gain on disposal of subsidiary

    1,222  

Cash consideration

    13,450  

        As at 31 December 2017 and 2018, the consideration receivable balance in relation to the disposal of Jinan is RMB13,450,000.

        In January 2019, after due negotiation about the settlement of the consideration receivable between the Group and the third party buyer of Jinan, the Group entered into an agreement with the third party buyer of Jinan to acquire back the entire equity interest of Jinan at the same amount of consideration.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

30 Disposals of subsidiaries (Continued)

        On 1 January 2017, the Group disposed its entire interest in Nishizhen to an individual third party. Details of the net assets of Nishizhen disposed of and their financial impacts are summarised as follows:

 
  2017  
 
  RMB'000
 

Net assets disposed of:

       

Property, plant and equipment

    3,658  

Intangible assets

    146  

Goodwill

    1,227  

Other receivables, deposits and prepayments

    563  

Current income tax recoverable

    281  

Cash and cash equivalents

    244  

Deferred income tax liabilities

    (35 )

Trade payables

    (28 )

Accruals, other payables and provisions

    (96 )

Non-controlling interests

    (625 )

Net assets of subsidiary

    5,335  

Gain on disposal of subsidiary

    515  

Cash consideration

    5,850  

        An analysis of the net outflow of cash and cash equivalents in respect of the disposal of the Nishizhen is as follows:

 
  2017  
 
  RMB'000
 

Cash consideration

    5,850  

Cash and cash equivalents disposed of

    (244 )

Net cash inflow in respect of disposal of Nishizhen

    5,606  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

30 Disposals of subsidiaries (Continued)

        On 11 January 2018, the Group disposed its entire interest in Beijing Aomei to an individual third party. Details of the net assets of Beijing Aomei disposed of and their financial impacts are summarised as follows:

 
  2018  
 
  RMB'000
 

Net assets disposed of:

       

Property, plant and equipment

    2,273  

Intangible assets

    19  

Goodwill

    572  

Deferred income tax assets

    1,273  

Inventory

    691  

Trade receivables

    79  

Other receivables, deposits and prepayments

    778  

Current income tax recoverable

    18  

Cash and cash equivalents

    2,273  

Trade payables

    (257 )

Accruals, other payables and provisions

    (2,733 )

Non-controlling interests

    85  

Net assets of subsidiary

    5,071  

Loss on disposal of subsidiary

    (191 )

Cash consideration

    4,880  

        An analysis of the net outflow of cash and cash equivalents in respect of the disposal of the Beijing Aomei is as follows:

 
  2018  
 
  RMB'000
 

Cash received during 2018

    3,200  

Cash and cash equivalents disposed of

    (2,273 )

Net cash inflow in respect of disposal of Beijing Aomei

    927  

        As at 31 December 2018, the consideration receivable balance in relation to the disposal of Jinan is RMB1,680,000.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31 Transactions with non-controlling interests

        During the year ended 31 December 2016, 2017 and 2018, the Group completed the following transactions with non-interesting interests and the impact are as below:

For the year ended 31 December 2016
  (Debit)/credit
to other reserve
  Credit/(debit)
to non-controlling
interests
  Total net
(debit)/credit to
Equity
 
 
  RMB'000
  RMB'000
  RMB'000
 

Acquisition of additional interests in subsidiaries:

                   

—Changsha Pengai Aesthetic Medical Clinic Co., Ltd. ("Changsha Pengai") (Note a)

    (2,236 )   661     (1,575 )

—Shanghai Pengai Aesthetic Medical Clinic Co., Ltd. ("Shanghai Pengai") (Note b)

    (6,704 )   (1,096 )   (7,800 )

—Chongqing Pengai Aesthetic Medical Clinic Co., Ltd. ("Chongqing Pengai") (Note c)

    (1,808 )   (3,192 )   (5,000 )

—Changsha Pengai Aesthetic Medical Clinic Co., Ltd. ("Changsha Pengai") (Note d)

    (95 )   85     (10 )

Disposal of interests in subsidiaries without loss of control:

                   

—Beijing Aomei Yixin Investment Consultation Company Pengai Aesthetic Medical Clinic) ("Beijing Pengai") (Note e)

    63     (53 )   10  

—Shanghai Pengai (Note f)

    3,698     1,302     5,000  

    (7,082 )   (2,293 )   (9,375 )

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31 Transactions with non-controlling interests (Continued)


For the year ended 31 December 2017
  (Debit)/credit
to other reserve
  Debit to
non-controlling
interests
  Total net
(debit)/credit to
Equity
 
 
  RMB'000
  RMB'000
  RMB'000
 

Acquisition of additional interests in a subsidiary:

                   

—Huizhou Pengai Aesthetic Medical Hospital Co. Ltd. ("Huizhou Pengai") (Note g)

    (308 )   (982 )   (1,290 )

Disposal of interests in a subsidiary without loss of control:

                   

—Changsha Pengai Aesthetic Medical Clinic Co. Ltd. ("Changsha Pengai") (Note h)

    426     (6 )   420  

    118     (988 )   (870 )

For the year ended 31 December 2018
         
 
   
 
 

Acquisition of additional interests in a subsidiary:

                   

—Huizhou Pengai Aesthetic Medical Hospital Co. Ltd. ("Huizhou Pengai") (Note i)

    410     (590 )   (180 )

—Chongqing Pengai Aesthetic Medical Clinic Co., Ltd. ("Chongqing Pengai") (Note j)

    (3,820 )   (2,430 )   (6,250 )

Disposal of interests in a subsidiary without loss of control:

                   

—Shenzhen Pengai Xiuqi Medical Aesthetic Clinic Co. Ltd. ("Pengai Xiuqi") (Note k)

        1,320     1,320  

—Guangzhou Pengai Medical Aesthetic Clinic Co., Ltd. ("Guangzhou Pengai") (Note l)

    681     1,199     1,880  

—Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd. ("Hangzhou Pengai") (Note m)

    (350 )   2,809     2,459  

    (3,079 )   2,308     (771 )
(a)
Acquisition of additional interest in Changsha Pengai
 
  2016  
 
  RMB'000
 

Carrying amount of non-controlling interests acquired

    (661 )

Consideration paid to non-controlling interests

    (1,575 )

Excess of consideration paid to non-controlling interest recognised within equity

    (2,236 )

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31 Transactions with non-controlling interests (Continued)

(b)
Acquisition of additional interest in Shanghai Pengai
 
  2016  
 
  RMB'000
 

Carrying amount of non-controlling interests acquired

    1,096  

Less: consideration paid to non-controlling interest

    (7,800 )

Excess of consideration paid to non-controlling interest recognised within equity

    (6,704 )
(c)
Acquisition of additional interest in Chongqing Pengai
 
  2016  
 
  RMB'000
 

Carrying amount of non-controlling interests acquired

    3,192  

Less: consideration paid to non-controlling interest

    (5,000 )

Excess of consideration paid to non-controlling interest recognised within equity

    (1,808 )
(d)
Acquisition of additional interest in Changsha Pengai
 
  2016  
 
  RMB'000
 

Carrying amount of non-controlling interests acquired

    (85 )

Less: consideration paid to non-controlling interest

    (10 )

Excess of consideration paid to non-controlling interest recognised within equity

    (95 )
(e)
Disposal of interest in Beijing Pengai without loss of control
 
  2016  
 
  RMB'000
 

Carrying amount of non-controlling interests disposed of

    (53 )

Less: consideration received from non-controlling interest

    (10 )

Gain on disposal within equity

    (63 )

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31 Transactions with non-controlling interests (Continued)

(f)
Disposal of interest in Shanghai Pengai without loss of control
 
  2016  
 
  RMB'000
 

Carrying amount of non-controlling interests disposed of

    1,302  

Less: consideration received from non-controlling interest

    (5,000 )

Gain on disposal within equity

    (3,698 )
(g)
Acquisition of additional interest in Huizhou Pengai
 
  2017  
 
  RMB'000
 

Carrying amount of non-controlling interests acquired

    982  

Consideration paid to non-controlling interests

    (1,290 )

Excess of consideration paid to non-controlling interest recognised within equity

    (308 )
(h)
Disposal of interest in Changsha Pengai without loss of control
 
  2017  
 
  RMB'000
 

Carrying amount of non-controlling interests disposed of

    6  

Less: consideration received from non-controlling interest

    420  

Gain on disposal within equity

    426  
(i)
Acquisition of additional interest in Huizhou Pengai
 
  2018  
 
  RMB'000
 

Carrying amount of non-controlling interests acquired

    590  

Consideration paid to non-controlling interests

    (180 )

Gain on acquisition within equity

    410  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31 Transactions with non-controlling interests (Continued)

(j)
Acquisition of additional interest in Chongqing Pengai
 
  2018  
 
  RMB'000
 

Carrying amount of non-controlling interests acquired

    2,430  

Consideration paid to non-controlling interests

    (6,250 )

Excess of consideration paid to non-controlling interest recognised within equity

    (3,820 )
(k)
Disposal of interest in Pengai Xiuqi without loss of control
 
  2018  
 
  RMB'000
 

Carrying amount of non-controlling interests disposed of

    (1,320 )

Less: consideration received from non-controlling interest

    1,320  

Gain on disposal within equity

     
(l)
Disposal of interest in Guangzhou Pengai without loss of control
 
  2018  
 
  RMB'000
 

Carrying amount of non-controlling interests disposed of

    (1,199 )

Less: consideration received from non-controlling interest

    1,880  

Gain on disposal within equity

    681  
(m)
Disposal of interest in Hangzhou Pengai without loss of control
 
  2018  
 
  RMB'000
 

Carrying amount of non-controlling interests disposed of

    (2,809 )

Less: consideration received from non-controlling interest

    2,459  

Gain on disposal within equity

    (350 )

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32 Summarised financial information of subsidiaries with material non-controlling interests

        Set out below are the summarised financial information for each subsidiary that has non-controlling interests that are material to the Group.

        As at 31 December 2016, 2017 and 2018, the non-controlling interests attributable to these entities accounted for 46%, 77% and 70% of the total non-controlling interests for the respective year end.

Summarised balance sheets

 
  Huizhou Pengai   Shanghai Pengai   Chongqing Pengai  
 
  2016   2017   2018   2016   2017   2018   2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Current

                                                       

—Assets

    15,987     19,210     17,166     8,684     11,368     12,092     7,922     9,117     10,699  

—Liabilities

    (3,761 )   (4,833 )   (2,988 )   (5,141 )   (3,176 )   (2,936 )   (27,604 )   (33,347 )   (33,867 )

Total current net assets/(liabilities)

    12,226     14,377     14,178     3,543     8,192     9,156     (19,682 )   (24,230 )   (23,168 )

Non-current

                                                       

—Assets

    2,435     2,176     2,124     2,822     2,456     3,108     34,808     33,188     30,928  

—Liabilities

                                     

Total non-current net assets

    2,435     2,176     2,124     2,822     2,456     3,108     34,808     33,188     30,928  

Net assets

    14,661     16,553     16,302     6,365     10,648     12,264     15,126     8,958     7,760  

 

 
  Baotou Yueji   Chengdu Yueji   Xiuqi Pengai   Haikou Pengai  
 
  2017   2018   2017   2018   2017   2018   2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Current

                                                       

—Assets

    13,309     2,053     8,441     5,656     13,192     7,081     15,923     9,908     9,180  

—Liabilities

    (32,568 )   (4,551 )   (3,566 )   (2,419 )   (856 )   (12,776 )   (9,611 )   (2,053 )   (3,893 )

Total current net assets/(liabilities)

    (19,259 )   (2,498 )   4,875     3,237     12,336     (5,695 )   6,312     7,855     5,287  

Non-current

                                                       

—Assets

    29,292     6,893     3,905     5,515     137     17,578     1,600     1,349     4,563  

—Liabilities

                                     

Total non-current net assets

    29,292     6,893     3,905     5,515     137     17,578     1,600     1,349     4,563  

Net assets

    10,033     4,395     8,780     8,752     12,473     11,883     7,912     9,204     9,850  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32 Summarised financial information of subsidiaries with material non-controlling interests (Continued)

Summarised statements of comprehensive income

 
  Huizhou Pengai   Shanghai Pengai   Chongqing Pengai  
 
  2016   2017   2018   2016   2017   2018   2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Revenue

    35,692     36,517     33,996     37,926     43,565     38,685     18,515     34,750     37,167  

Profit/(loss) before income tax

    10,257     9,195     7,299     7,998     4,748     4,073     (13,165 )   (8,224 )   (1,424 )

Income tax (expense)/credit

    (2,564 )   (1,749 )   (1,796 )   (1,650 )   (465 )   (994 )   3,291     2,056     226  

Profit/(loss) and total comprehensive income/(loss) for the year

    7,693     7,446     5,503     6,348     4,283     3,079     (9,874 )   (6,168 )   (1,198 )

Total comprehensive income/(loss) allocated to non-controlling interests

    3,269     3,059     2,174     1,009     926     527     (1,802 )   (1,850 )   (257 )

Dividend paid to non-controlling interests

    886     2,378                              

 

 
  Baotou Yueji   Chengdu Yueji   Xiuqi Pengai   Haikou Pengai  
 
  2017   2018   2017   2018   2017   2018   2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Revenue

    4,449     6,632     2,532     32,866     2,885     34,599     18,122     21,300     24,165  

Profit/(loss) before income tax

    1,567     274     1,542     27     630     (774 )   2,584     4,362     4,806  

Income tax (expense)/credit

    (392 )   (55 )   (1,435 )   (56 )   (158 )   206     (646 )   (1,036 )   (1,209 )

Profit/(loss) and total comprehensive income/(loss) for the year

    1,175     219     107     (29 )   472     (568 )   1,938     3,326     3,597  

Total comprehensive income/(loss) allocated to non-controlling interests

    576     107         (9 )       (32 )   252     436     468  

Dividend paid to non-controlling interests

                                     

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32 Summarised financial information of subsidiaries with material non-controlling interests (Continued)

Summarised statements of cash flows

 
  Huizhou Pengai   Shanghai Pengai   Chongqing Pengai  
 
  2016   2017   2018   2016   2017   2018   2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Cash flows from operating activities

                                                       

Cash generated from/(used in) operations

    6,945     4,117     8,557     2,966     3,217     1,083     (5,174 )   717     1,695  

Income tax paid

    (3,535 )   (891 )   (2,801 )       (869 )   (1,764 )   (31 )       (48 )

Net cash generated from/(used in) operating activities

    3,410     3,226     5,756     2,966     2,348     (681 )   (5,205 )   717     1,647  

Net cash used in investing activities

    (212 )   (144 )   (5,986 )   (2,055 )   (400 )   (2,124 )   (11,272 )   (2,524 )   (909 )

Net cash (used in)/generated from financing activities

    (3,160 )   (2,378 )                   17,715          

Net increase/ (decrease) in cash and cash equivalents

    38     704     (230 )   911     1,948     (2,805 )   1,238     (1,807 )   738  

Cash and cash equivalents at beginning of the year

    135     173     877     679     1,590     3,538     1,764     3,002     1,194  

Cash and cash equivalents at end of the year

    173     877     647     1,590     3,538     733     3,002     1,195     1,932  

 

 
  Baotou Yueji   Chengdu Yueji   Xiuqi Pengai   Haikou Pengai  
 
  2017   2018   2017   2018   2017   2018   2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Cash flows from operating activities

                                                       

Cash generated from/(used in) operations

    5,590     2,039     7,949     3,363     (11,863 )   19,570     1,632     3,694     5,662  

Income tax paid

        (461 )   (952 )   (1,380 )       (191 )   (387 )   (1,048 )   (976 )

Net cash generated from/(used in) operating activities

    5,590     1,578     6,997     1,983     (11,863 )   19,379     1,245     2,646     4,686  

Net cash used in investing activities

    (2,988 )   (1,353 )   (2,346 )   (2,007 )   11,863     (18,853 )   (1,608 )   (1,866 )   (5,962 )

Net cash (used in)/generated from financing activities

            (2,359 )                        

Net increase/ (decrease) in cash and cash equivalents

    2,602     225     2,292     (24 )       526     (363 )   780     (1,276 )

Cash and cash equivalents at beginning of the year

        2,602     99     2,391             1,477     1,114     1,894  

Cash and cash equivalents at end of the year

    2,602     2,827     2,391     2,367         526     1,114     1,894     618  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33 Commitments

(a)
Capital commitments
 
  2017   2018  
 
  RMB'000
  RMB'000
 

Contracted but not provided for

             

—Property, plant and equipment

        106  
(b)
Operating lease commitments

        The Group leases premises for aesthetic healthcare services and offices under non-cancellable operating agreements. The lease terms are between 3 and 9 years, and majority of lease agreements are renewable at the end of the lease period at market rate.

        The future aggregate minimum lease payments under non-cancellable operating leases as follows:

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Not later than 1 year

    38,093     34,426  

Later than 1 year and not later than 5 years

    92,354     98,416  

Later than 5 years

    36,621     68,444  

    167,068     201,286  

34 Related party transactions

        Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control, common significant influence or joint control. Members of key management and their close family member of the Group are also considered as related parties.

        The following significant transactions were carried out between the Group and its related parties in addition to the related party information shown elsewhere in these consolidated financial statements. In the opinion of the directors of the Company, the related party transactions were carried out in the normal course of business and at terms negotiated between the Group and the respective related parties.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34 Related party transactions (Continued)

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Rental expenses

             

A related company

    1,442     1,940  

Non-controlling interests

        1,992  

Disposal of interest in subsidiaries without loss of control

             

—Related companies

    420      

Acquisition of additional interest in subsidiaries

             

—Related companies

    1,290      

—A director

        6,250  

License income from an associate

             

—An associate

    6,442     5,983  

Service fee expenses

             

—A related company

    2,500     5,000  

Interest expense from convertible note

             

—A shareholder

    4,815     4,660  
 
  2017   2018  
 
  RMB'000
  RMB'000
 

Non-current (Note i)

             

Amounts due from related parties

             

Amount due from a non-controlling interests

    628      

Loans to directors

    7,600      

Current (Note ii)

             

Amounts due from related parties

             

Amounts due from related companies

    14,206     18,070  

Amounts due from related parties

    3,904      

Amounts due from directors

    7,868     24,777  

Amounts due from non-controlling interests

    8,689     12,507  

    34,667     55,354  

Amounts due to related parties

             

Amounts due to related companies

    5,022     14  

Amounts due to non-controlling interests

    7,039     204  

    12,061     218  

        Note i: Balances due from related parties are unsecured, interest free, repayable in 2 years and are denominated in RMB. Their carrying values approximate to their fair values.

        Note ii: Balances due from/to related parties are unsecured, interest free, repayable on demand and are denominated in RMB. Their carrying values approximate to their fair values.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34 Related party transactions (Continued)

 
  2017   2018  
 
  RMB'000
  RMB'000
 

Basic salaries and bonus

    10,141     18,653  

Pension costs—defined contribution plans

    306     226  

    10,447     18,879  
 
  2017   2018  
 
  RMB'000
  RMB'000
 

Bank borrowings of the Group secured by personal guarantees from Dr. Zhou Pengwu and Ms. Ding Wenting and corporate guarantee from a related company

    46,000     23,967  

35 Particulars of the subsidiaries

        The following is a list of the principal subsidiaries at 31 December 2017 and 2018:

 
   
   
   
  Interest
held
 
 
  Place of
incorporation/
establishment
  Registered capital/
issued share capital
   
 
Name
  Principal activities   2017   2018  

Directly hold:

                         

Dragon Jade Holdings Limited

GRAPHIC

 

British Virgin Islands (The "BVI")

 

10,000 ordinary shares par value US$0.0001

 

Investment holding and provision of management services

   
100

%
 
100

%

Stargaze Wealth Limited

GRAPHIC

 

BVI

 

1 ordinary share without par value

 

Investment holding and provision of management services

   
100

%
 
100

%

Indirectly hold:

 

 

 

 

 

 

   
 
   
 
 

Peng Oi Investment (Hong Kong) Holdings Limited

GRAPHIC

 

Hong Kong

 

10,000 ordinary shares

 

Investment holding and provision of management services

   
100

%
 
100

%

Peng Yida Business Consulting (Shenzhen) Co.,Ltd

GRAPHIC

 

The PRC

 

Registered capital of Hong Kong dollar 98,000,000

 

Investment holding and provision of management services

   
100

%
 
100

%

F-81


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35 Particulars of the subsidiaries (Continued)

 
   
   
   
  Interest
held
 
 
  Place of
incorporation/
establishment
  Registered capital/
issued share capital
   
 
Name
  Principal activities   2017   2018  

Shenzhen Pengai Hospital Investment Management Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB10,000,000

 

Investment holding and provision of management services

    100 %   100 %

China Aesthetic Healthcare Holdings (Singapore) Pte. Ltd.

GRAPHIC

 

Singapore

 

Singapore dollars 10

 

Investment holding and provision of management services

   
100

%
 
100

%

Shenzhen Pengcheng General Hospital Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB36,000,000

 

Provision of aesthetic medical services and general healthcare services

   
100

%
 
100

%

Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB30,000,000

 

Provision of aesthetic medical services

   
100

%
 
100

%

Shenzhen Pengai Beauty Promise Cosmetic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB100,000

 

Sales of cosmetic products

   
100

%
 
100

%

Nanchang Pengai Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB5,000,000

 

Provision of aesthetic medical services

   
70

%
 
70

%

Haikou Pengai Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB3,000,000

 

Provision of aesthetic medical services

   
87

%
 
87

%

Huizhou Pengai Aesthetic Medical Hospital Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB6,000,000

 

Provision of aesthetic medical services

   
62.5

%
 
65.5

%

F-82


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35 Particulars of the subsidiaries (Continued)

 
   
   
   
  Interest
held
 
 
  Place of
incorporation/
establishment
  Registered capital/
issued share capital
   
 
Name
  Principal activities   2017   2018  

Shenzhen Guangji General Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB6,000,000

 

Provision of aesthetic medical and general healthcare services

    100 %   100 %

Jinan Pengai Aesthetic Medical Hospital Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB5,210,000

 

Provision of aesthetic medical services

   
   
 

Yantai Pengai Aesthetic Medical Hospital Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB7,290,000

 

Provision of aesthetic medical services

   
94

%
 
94

%

Shanghai Nishizhen Medical Technology Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB500,000

 

Provision of medical aesthetic technical consulting and management services

   
100

%
 
100

%

Shanghai Nishizhen Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB5,000,000

 

Provision of aesthetic medical services

   
   
 

Shenzhen Pengai Culture Broadcast Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB1,000,000

 

Provision of cultural, artistic activities, corporate image, exhibition planning and advertising service

   
100

%
 
100

%

Changsha Pengai Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB500,000

 

Provision of aesthetic medical services

   
79

%
 
79

%

Beijing Aomei Yixin Investment Consultation Company

GRAPHIC

 

The PRC

 

Registered capital of RMB1,000,000

 

Provision of aesthetic medical services and trading of medical equipment and supplies

   
100

%
 
 

F-83


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35 Particulars of the subsidiaries (Continued)

 
   
   
   
  Interest
held
 
 
  Place of
incorporation/
establishment
  Registered capital/
issued share capital
   
 
Name
  Principal activities   2017   2018  

Beijing Aomei Yixin Investment Consultation Company Pengai Aesthetic Medical Clinic

GRAPHIC

 

The PRC

 

Registered capital of RMB1,000,000

 

Provision of aesthetic medical services

    98 %    

Shanghai Pengai Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB2,500,000

 

Provision of aesthetic medical services

   
80

%
 
80

%

Wuhan Pengai Jinggang Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB2,500,000

 

Provision of aesthetic medical services

   
51

%
 
51

%

Newa Medical Aesthetics Limited

 

Hong Kong

 

1,000,000 ordinary shares

 

Provision of aesthetic medical services

   
100

%
 
100

%

Chongqing Pengai Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB2,500,000

 

Provision of aesthetic medical services

   
70

%
 
95

%

Guangzhou Pengai Medical Aesthetic Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB9,660,000

 

Provision of aesthetic medical services

   
95

%
 
85

%

Shenzhen Pengai Xiuqi Medical Aesthetic Clinic Co. Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB12,000,000

 

Provision of aesthetic medical services

   
100

%
 
89

%

Baotou Pengai Yueji Medical Aesthetic Clinic Co. Ltd. ("Baotou Yueji")

GRAPHIC

 

The PRC

 

Registered capital of RMB3,000,000

 

Provision of aesthetic medical services

   
51

%
 
51

%

F-84


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35 Particulars of the subsidiaries (Continued)

 
   
   
   
  Interest
held
 
 
  Place of
incorporation/
establishment
  Registered capital/
issued share capital
   
 
Name
  Principal activities   2017   2018  

Yinchuanshi Pengai Yueji Aesthetic Medical Clinic Co. Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB3,000,000

 

Provision of aesthetic medical services

    51 %   51 %

Chengdu Pengai Yueji Medical Asethetic Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB3,000,000

 

Provision of aesthetic medical services

   
70

%
 
70

%

Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd.

GRAPHIC

 

The PRC

 

Registered capital of RMB2,500,000

 

Provision of aesthetic medical services

   
51

%
 
80

%

36 Additional information: condensed financial statements of the Company

        The condensed financial statements of Aesthetic Medical International Holdings Group Limited have been prepared in accordance with Securities and Exchange Commission Regulation S-X Rule 5-04 and Rule 12-04.

        The Company records its investments in subsidiaries under the equity method of accounting. Such investments and loans to subsidiaries are presented on the condensed financial statements as "Investment in subsidiaries and due from subsidiaries" and the profit of the subsidiaries is presented as "Profit from subsidiaries" in the condensed statements of comprehensive income.

        The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these financial statements should be read in conjunction with the notes to the consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with IFRS have been condensed or omitted.

        As of December 31, 2017 and 2018, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those, if any, which have been separately disclosed in the consolidated financial statements.

F-85


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

36 Additional information: condensed financial statements of the Company (Continued)

Condensed balance sheets of the parent company

 
  2017   2018  
 
  RMB'000   RMB'000  

ASSETS

             

Non-current assets

             

Investments in subsidiaries and due from subsidiaries

    400,454     458,056  

Current assets

             

Other receivables, deposits and prepayments

    8     4,200  

Cash and cash equivalents

    19,395     26,932  

    19,403     31,132  

Total assets

    419,857     489,188  

EQUITY AND LIABILITIES

             

Equity attributable to owners of the Company

             

Share capital

    259     265  

Other reserves

    (22,499 )   (249,621 )

Total equity/(deficit)

    (22,240 )   (249,356 )

LIABILITIES

             

Non-current liabilities

             

Convertible redeemable preferred shares

    249,864     476,112  

Convertible note

    61,446     70,598  

Exchangeable note liabilities

    128,820     185,745  

Derivative financial instrument

        301  

    440,130     732,756  

Current liabilities

             

Accruals, other payables and provisions

    1,967     5,788  

Total liabilities

    442,097     738,544  

Total equity and liabilities

    419,857     489,188  

F-86


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

36 Additional information: condensed financial statements of the Company (Continued)

Condensed statements of comprehensive income of the parent company

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Profit from subsidiaries

    1,469     71,644     55,581  

Selling expenses

            (1,537 )

General and administrative expenses

        (14,206 )   (9,252 )

Finance income

    31         14  

Finance costs

        (4,816 )   (4,660 )

Fair value loss of convertible redeemable preferred shares

    49,027     (85,461 )   (226,248 )

Fair value loss of convertible note

        (1,283 )   (9,152 )

Fair value loss of exchangeable note liabilities

        (38,307 )   (56,925 )

Fair value loss of derivative financial instrument

            (301 )

Profit/(loss) before income tax

    50,527     (72,429 )   (252,480 )

Income tax expense

             

Profit/(loss) for the year

    50,527     (72,429 )   (252,480 )

Other comprehensive income:

                   

Items that may be subsequently reclassified to profit or loss

                   

Currency translation differences

    148     (215 )   1,088  

Total other comprehensive income/(loss) for the year, net of tax

    148     (215 )   1,088  

Total comprehensive income/(loss) for the year

    50,675     (72,644 )   (251,392 )


Condensed statements of cash flows of the parent company

 
  2016   2017   2018  
 
  RMB'000
  RMB'000
  RMB'000
 

Net cash generated from/(used in) operating activities

    6     (36,026 )   (13,517 )

Net cash (used in)/from investing activities

        (11 )   14  

Net cash generated/(used in) from financing activities

    60,162     (4,816 )   21,040  

Net increase/ (decrease) in cash and cash equivalents

   
60,168
   
(40,853

)
 
7,537
 

Cash and cash equivalents at beginning of the year

    80     60,248     19,395  

Cash and cash equivalents at end of the year

    60,248     19,395     26,932  

37 Subsequent events

        In January 2019, the Group entered into agreement to acquire 95% equity interest of Jinan Pengai Aesthetic Medical Hospital Co., Ltd., with consideration of RMB13,450,000. After completion of the transaction, Jinan Pengai Aesthetic Medical Hospital Co., Ltd. will become a subsidiary of the Company.

F-87


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

37 Subsequent events (Continued)

        In February 2019, the Group entered into agreement to acquire 20% of equity interest of LZP Holding, Inc., which owns and operates five plastic surgery centers in California of the United States with consideration of US$5 million (equivalent to RMB34.5 million). In addition, the Group has an option to acquire a further 20% of equity interest of LZP Holding, Inc. under the same term that will expire in November 2019.

        In March 2019, the Group entered into agreement to acquire 30% of equity interest of Shenzhen Pengai Yueji Medical Aesthetic Clinic Co. Ltd., which the Group held 30% equity interest in and accounted for as an associate as at 31 December 2018, with consideration of RMB30,000,000. After completion of the transaction, Shenzhen Pengai Yueji Medical Aesthetic Clinic Co. Ltd. will become a subsidiary of the Company.

        In June 2019, the Company's shareholders and its board of directors approved the Aesthetic Medical International Holdings Group Limited Share Incentive Plan (the "Share Incentive Plan"). The maximum aggregate number of ordinary shares that could be issued pursuant to all awards under the Share Incentive Plan was 5,940,452 shares. As of the date of this report, options to purchase 5,814,952 ordinary shares were granted and are outstanding.

Unaudited subsequent event

        In September 2019, holder of the Exchangeable Note and the Holding Companies owned by Dr. Zhou Pengwu and Ms. Ding Wenting agreed that immediately prior to the completion of the Company's IPO, the outstanding principal amount of the Exchangeable Note shall be automatically converted into 5,976,960 Series B Preferred Shares of the Company.

F-88


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD ENDED

30 JUNE 2019

F-89


Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2018 AND 2019

 
   
  Six months ended 30 June  
 
  Note   2018
RMB'000
  2019
RMB'000
 
 
   
  (Unaudited)
  (Unaudited)
 

Revenue

    7     356,309     393,074  

Cost of sales and services rendered

    8     (125,883 )   (126,545 )

Gross profit

          230,426     266,529  

Selling expenses

    8     (158,424 )   (165,286 )

General and administrative expenses

    8     (52,419 )   (66,303 )

Finance income

    9     161     213  

Finance costs

    9     (4,186 )   (12,250 )

Other gains, net

          6,845     16,532  

Fair value gain of convertible redeemable preferred shares

    23         43,056  

Fair value loss of convertible note

    23         (5,358 )

Fair value gain of exchangeable note liabilities

    23         16,193  

Fair value loss of derivative financial instrument

              (14 )

Share of profits/(losses) of investments accounted for using the equity method

          766     (1,368 )

Profit before income tax

          23,169     91,944  

Income tax expense

    10     (6,273 )   (11,780 )

Profit for the period

          16,896     80,164  

Other comprehensive income:

                   

Items that may be subsequently reclassified to profit or loss

                   

Currency translation differences

          135     (89 )

Total other comprehensive income/(loss) for the period, net of tax

          135     (89 )

Total comprehensive income for the period

          17,031     80,075  

Profit attributable to:

                   

Owners of the Company

          16,135     79,053  

Non-controlling interests

          761     1,111  

Profit for the period

          16,896     80,164  

Earnings per share for profit attributable to owners of the Company (in RMB per share)

                   

—Basic

    11     0.39     1.89  

—Diluted

    11     0.29     0.35  

—Unaudited pro forma basic

    11           0.63  

—Unaudited pro forma diluted

    11           0.35  

Total comprehensive income attributable to:

   
 
   
 
   
 
 

Owners of the Company

          16,270     78,964  

Non-controlling interests

          761     1,111  

Total comprehensive income for the period

          17,031     80,075  

   

The above unaudited interim condensed consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.

F-90


Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF 31 DECEMBER 2018 AND 30 JUNE 2019

 
  Note   As at
31 December
2018
  As at
30 June
2019
  As at
30 June 2019
Pro forma
 
 
   
  RMB'000
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

ASSETS

                         

Non-current assets

                         

Property, plant and equipment

    13     235,028     497,250     497,250  

Investment properties

    14     47,168     45,843     45,843  

Intangible assets

    15     67,712     171,230     171,230  

Investments accounted for using the equity method

          26,244     10,627     10,627  

Prepayments and deposits

    16     5,166     19,708     19,708  

Deferred income tax assets

          12,254     17,883     17,883  

          393,572     762,541     762,541  

Current assets

                         

Inventories

    17     21,143     27,944     27,944  

Trade receivables

    16     10,760     27,764     27,764  

Other receivables, deposits and prepayments

    16     89,480     75,789     75,789  

Amounts due from related parties

    27     55,354     3,151     3,151  

Cash and cash equivalents

          101,886     78,656     78,656  

          278,623     213,304     213,304  

Assets held-for-sale

          4,344          

          282,967     213,304     213,304  

Total assets

          676,539     975,845     975,845  

EQUITY AND LIABILITIES

                         

Equity attributable to owners of the Company

                         

Share capital

    18     265     306     408  

Treasury shares

    20         (41 )   (41 )

Accumulated losses

          (373,920 )   (297,240 )   (297,240 )

Other reserves

    19     95,245     99,635     532,589  

          (278,410 )   (197,340 )   235,716  

Non-controlling interests

          29,054     43,833     43,833  

Total (deficit)/equity

          (249,356 )   (153,507 )   279,549  

LIABILITIES

                         

Non-current liabilities

                         

Borrowings

    22     19,876     30,496     30,496  

Lease liabilities

              167,440     167,440  

Convertible redeemable preferred shares

    23     476,112     433,056      

Convertible note

    23     70,598     75,956     75,956  

Exchangeable note liabilities

    23     185,745     169,552     169,552  

Derivative financial instrument

          301     315     315  

Deferred income tax liabilities

          1,971     11,867     11,867  

          754,603     888,682     455,626  

   

The above unaudited interim condensed consolidated balance sheets should be read in conjunction with the accompanying notes.

F-91


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

AS OF 31 DECEMBER 2018 AND 30 JUNE 2019

 
  Note   As at
31 December
2018
  As at
30 June
2019
  As at
30 June 2019
Pro forma
 
 
   
  RMB'000
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Current liabilities

                         

Trade payables

    21     14,356     17,962     17,962  

Accruals, other payables and provisions

    21     57,992     50,767     50,767  

Amounts due to related parties

    27     218     718     718  

Contract liabilities

          5,996     2,917     2,917  

Borrowings

    22     77,130     105,405     105,405  

Lease liabilities

              40,202     40,202  

Current income tax liabilities

          13,611     22,699     22,699  

          169,303     240,670     240,670  

Liabilities held-for-sale

          1,989          

          171,292     240,670     240,670  

Total liabilities

          925,895     1,129,352     696,296  

Total equity and liabilities

          676,539     975,845     975,845  

   

The above unaudited interim condensed consolidated balance sheets should be read in conjunction with the accompanying notes.

F-92


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2018 AND 2019

 
  Attributable to owners of the Company    
   
 
 
  Share
capital
  Treasury
shares
  Reserves
(Note 19)
  Accumulated
losses
  Sub-total   Non-
controlling
interests
  Total
equity/(deficit)
 
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Balance at 1 January 2018

    259         66,684     (113,808 )   (46,865 )   24,625     (22,240 )

Comprehensive income (unaudited)

                                           

Profit for the period

                16,135     16,135     761     16,896  

Currency translation differences

            135         135         135  

Total comprehensive income for the period (unaudited)

            135     16,135     16,270     761     17,031  

Transactions with owners (unaudited)

                                           

Transfer to statutory reserve

            1,317     (1,317 )            

Transactions with non-controlling shareholders

            (1,567 )       (1,567 )   (303 )   (1,870 )

Capital contribution from non-controlling interests

                        1,020     1,020  

Disposal of a subsidiary due to loss of control

            (17 )       (17 )   85     68  

Total transactions with owners

            (267 )   (1,317 )   (1,584 )   802     (782 )

Balance at 30 June 2018 (unaudited)

    259         66,552     (98,990 )   (32,179 )   26,188     (5,991 )

Balance at 1 January 2019

    265         95,245     (373,920 )   (278,410 )   29,054     (249,356 )

Comprehensive income (unaudited)

                                           

Profit for the period

                79,053     79,053     1,111     80,164  

Currency translation differences

            (89 )       (89 )       (89 )

Total comprehensive income for the period (unaudited)

            (89 )   79,053     78,964     1,111     80,075  

Transactions with owners (unaudited)

                                           

Transfer to statutory reserve

            2,373     (2,373 )            

Transactions with non-controlling shareholders

            (4,175 )       (4,175 )   (1,660 )   (5,835 )

Capital contribution from non-controlling interests

                        1,470     1,470  

Issuance of shares held as treasury shares (Note 20)

    41     (41 )                    

Share-based payment

            6,281         6,281         6,281  

Business combination (Note 24)

                        18,143     18,143  

Disposal of subsidiaries due to loss of control

                        (2,541 )   (2,541 )

Dividend to non-controlling shareholders

                        (1,744 )   (1,744 )

Total transactions with owners

    41     (41 )   4,479     (2,373 )   2,106     13,668     15,774  

Balance at 30 June 2019 (unaudited)

    306     (41 )   99,635     (297,240 )   (197,340 )   43,833     (153,507 )

   

The above unaudited interim condensed consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2018 AND 2019

 
  Six months ended 30 June  
 
  2018   2019  
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Cash flows from operating activities

             

Cash generated from operations

    26,703     52,797  

Income tax paid

    (14,380 )   (7,106 )

Net cash generated from operating activities

    12,323     45,691  

Cash flows from investing activities

             

Net cash used in business combinations

    (2,978 )   (28,880 )

Proceeds from disposal of property, plant and equipment

    15      

Purchase of property, plant and equipment

    (24,309 )   (52,189 )

Purchase of investment properties

    (31,452 )    

Purchase of intangible assets

    (341 )   (319 )

Deposit of long term investment

        (6,791 )

Balances with related parties

    (1,295 )   13,689  

Interest income received

    161     213  

Dividend received from an associate

    3,225      

Proceeds from disposal of subsidiaries

    927     1,454  

Net cash used in investing activities

    (56,047 )   (72,823 )

Cash flows from financing activities

             

Proceeds from borrowings

    30,000     57,175  

Repayment of borrowings

    (8,100 )   (24,175 )

Repayment of lease liabilities

        (22,819 )

Interest paid

    (4,186 )   (5,916 )

Capital contribution from non-controlling interests

    1,020     1,470  

Dividends paid to non-controlling interests

        (1,744 )

Net cash generated from financing activities

    18,734     3,991  

Net decrease in cash and cash equivalents

    (24,990 )   (23,141 )

Cash and cash equivalents at beginning of the period

    105,345     101,886  

Effect of changes in foreign exchange rates

    (134 )   (89 )

Cash and cash equivalents at end of the period

    80,221     78,656  

   

The above unaudited interim condensed consolidated statements of cash flow should be read in conjunction with the accompanying notes.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 General information

        Aesthetic Medical International Holdings Group Limited (the "Company") was incorporated in the Cayman Islands on 27 May 2011 as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The address of its registered office is Offshore Incorporations (Cayman) Limited, Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman KY1-1112, Cayman Islands.

        The principal activities of the Company and its subsidiaries (together, the "Group") are engaged in the provision of non-surgical aesthetic medical services, surgical aesthetic medical services, other aesthetic medical services and general healthcare services in the People's Republic of China (the "PRC").

        The accompanying unaudited interim condensed consolidated financial statements are presented in Renminbi ("RMB") and rounded to the nearest thousand yuan, unless otherwise stated.

2 Basis of preparation

        The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting". The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the years ended 31 December 2017 and 2018, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs"). The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, as modified by the revaluation of convertible redeemable preferred shares ("Series A Preferred Shares"), convertible note, exchangeable note liabilities and derivative financial instrument, which are carried at fair value.

        The Group had net current liabilities of RMB27,366,000 as at 30 June 2019. The directors of the Company have considered the Group's cash flow from future operations and available borrowing facilities to conclude that the Group has sufficient financial resources to meet its financial obligations as and when they fall due in the coming twelve months. Accordingly, the Group's unaudited interim condensed consolidated financial statements have been prepared on a going concern basis.

3 Accounting policies

        The accounting policies applied are consistent with those of the audited consolidated financial statements for the years ended 31 December 2017 and 2018, as described in those audited consolidated financial statements, except for policies regarding share-based compensation and the estimation of income tax using the tax rate that would be applicable to expected total annual earnings and the adoption of new and amended IFRSs effective for the financial year ending 31 December 2019 which are relevant to the preparation of the unaudited interim condensed consolidated financial statements.

Share-based compensation

        The Group operates a share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Accounting policies (Continued)

        At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market performance and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

        The following amendments to standards are mandatory for the first time for the financial year beginning 1 January 2019 and relevant to the Group:

New and amended IFRSs

        The impact of the adoption of IFRS 16 is disclosed below. The other standards effective from 1 January 2019 did not have significant impacts on the Group's results and financial position and did not require retrospective adjustments.

IFRS 16 Leases

        IFRS 16 has resulted in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

        The Group has adopted IFRS 16 from 1 January 2019 and has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening unaudited interim condensed consolidated balance sheet on 1 January 2019.

        On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 "Leases". These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Accounting policies (Continued)

incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 6.67%.

 
  As at
1 January
2019
 
 
  RMB'000
 

Operating lease commitments disclosed at 31 December 2018

    201,286  

Discounted using lessee's incremental borrowing rate as of 1 January 2019

    133,695  

Less: short-term leases recognised on a straight-line basis as expense

    (588 )

Less: low value leases recognised on a straight-line basis as expense

     

Lease liabilities recognised as at 1 January 2019

    133,107  
 
  As at
1 January
2019
 
 
  RMB'000
 

Analysed into:

       

Current lease liabilities

    24,329  

Non-current lease liabilities

    108,778  

    133,107  

        The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to the lease recognised in the unaudited interim condensed consolidated balance sheet.

        The change in accounting policy affected the following items on the unaudited interim condensed consolidated balance sheet on 1 January 2019:

        a.     Lease liabilities increased by approximately RMB133,107,000

        b.     Other receivables decreased by approximately RMB4,821,000

        c.     Right-of-use assets increased by approximately RMB137,928,000

        Right-of-use assets mainly represent hospitals and office premises leased by the Group.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 Accounting policies (Continued)

        The following new standards and amendments to standards have been issued but are not effective for the financial year beginning 1 January 2020 and have not been early adopted by the Group:

 
   
  Effective for annual
periods beginning
on or after
 
IFRS 3   Definition of business     1 January 2020  
Amendment to IAS 1 and IAS 8   Definition of Material     1 January 2020  
Conceptual Framework for Financial Reporting 2018   Revised Conceptual Framework for Financial Reporting     1 January 2020  
IFRS 17   Insurance contracts     1 January 2021  
Amendments to IFRS 10 and IAS 28   Sale or Contribution of Assets between an Investor and its Associate or Joint Venture     To be determined  

        The directors of the Company are in the process of assessing the financial impact of the adoption of the above new standards and amendments to standards. The directors of the Company will adopt the new standards and amendments to standards when they become effective.

4 Estimates

        The preparation of unaudited interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

        In preparing the unaudited interim condensed consolidated financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the years ended 31 December 2017 and 2018.

5 Financial risk management

5.1   Financial risk factors

        The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk.

        The unaudited interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the audited financial statements, and should be read in conjunction with the Group's audited financial statements as at 31 December 2017 and 2018.

        There have been no changes in the risk management policies since financial year end.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5 Financial risk management (Continued)

5.2   Liquidity risk

        As a result of adoption of IFRS 16, the Group recognised lease liabilities of RMB211,436,000 as at 30 June 2019. The table below analyses the Group's lease liabilities into relevant maturity grouping based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 
  As at
30 June
2019
 
 
  RMB'000
(Unaudited)

 

Less than 1 year

    49,765  

Between 1 and 5 years

    147,078  

More than 5 years

    56,018  

    252,861  

        Except for the above, compared to financial year ended 31 December 2018, there was no material change in the contractual undiscounted cash outflows for financial liabilities.

5.3   Capital risk management

        The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

        In order to maintain or adjust the capital structure, the Group may adjust the dividend payments to shareholders, return capital to shareholders, issue new shares or to obtain external borrowings.

        Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (include current and non-current borrowings, convertible note, exchangeable note liabilities and Series A Preferred Shares as shown in the consolidated balance sheets) less cash and cash equivalents.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6 Fair value estimation

        The following table presents the Group's financial liabilities that are measured at fair value as at 31 December 2018 and 30 June 2019.

 
  Level 1   Level 2   Level 3   Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

As at 31 December 2018

                         

Liabilities

                         

Financial liabilities at fair value through profit or loss

                         

Series A Preferred Shares (Note 23)

            476,112     476,112  

Convertible note (Note 23)

            70,598     70,598  

Exchangeable note liabilities (Note 23)

            185,745     185,745  

Derivative financial instrument

            301     301  

            732,756     732,756  

As at 30 June 2019 (Unaudited)

                         

Liabilities

                         

Financial liabilities at fair value through profit or loss

                         

Series A Preferred Shares (Note 23)

            433,056     433,056  

Convertible note (Note 23)

            75,956     75,956  

Exchangeable note liabilities (Note 23)

            169,552     169,552  

Derivative financial instrument

            315     315  

            678,879     678,879  

        The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

        If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

        There were no significant transfers of financial assets between level 1, level 2 and level 3 fair value hierarchy classifications.

7 Revenue

 
  Six months ended 30 June  
 
  2018   2019  
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Non-surgical aesthetic medical services

    169,887     201,140  

Surgical aesthetic medical services

    138,343     157,524  

General healthcare services and other aesthetic medical services

    48,079     34,410  

    356,309     393,074  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8 Expenses by nature

 
  Six months ended 30 June  
 
  2018   2019  
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Employee benefit expenses (Note i)

    93,226     104,795  

Advertising and marketing expenses

    112,250     116,546  

Cost of inventories and consumables

    53,740     48,169  

Operating lease rental expenses

    21,184     1,554  

Amortisation and depreciation

    16,305     40,155  

Utilities and office expenses

    23,891     21,639  

Travelling and entertainment expenses

    7,613     7,413  

Bank charges

    2,206     2,112  

Professional fees

    3,777     2,355  

Other expenses

    2,534     13,396  

    336,726     358,134  

Note i:
Share-based compensation expenses of RMB6,281,000 in the current period (six months ended 30 June 2018: Nil) were included in employee benefit expenses.

9 Finance income and costs

 
  Six months ended 30 June  
 
  2018   2019  
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Finance costs

             

Interest expense on bank borrowings

    (2,001 )   (3,110 )

Interest expense on other borrowings

        (405 )

Interest expense on convertible note

    (2,185 )   (2,370 )

Interest expense on lease liabilities

        (6,365 )

    (4,186 )   (12,250 )

Finance income

             

Interest income on short-term bank deposits

    161     213  

Finance costs—net

    (4,025 )   (12,037 )

10 Income tax expense

        Income tax expense is recognised based on management's estimate of the weighted average effective annual income tax rate expected for the full financial year.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11 Earnings per share

(a)   Basic earnings per share

        Basic earnings per share ("EPS") is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year.

(b)   Diluted earnings per share

        Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

        For the period ended 30 June 2018 and 2019, the Company has three categories of dilutive securities: Series A Preferred Shares, convertible note and exchangeable note liabilities. These dilutive securities are assumed to have been converted into ordinary shares, and the net profit is adjusted to eliminate the fair value gain or loss of these dilutive potential ordinary shares less related income tax effect.

        The following table sets forth the computation of basic and diluted profit per share:

 
  Six months ended
30 June
 
 
  2018   2019  
 
  RMB'000
(Note i)
(Unaudited)

  RMB'000
(Note i)
(Unaudited)

 

Numerator:

             

Profit attributable to owners of the Company—basic

    16,135     79,053  

Reversal of fair value gain of:

             

—Series A Preferred Shares

        (43,056 )

—Convertible note

         

—Exchangeable note liabilities

        (16,193 )

Reversal of interest expense on convertible note

         

Profit attributable to owners of the Company—diluted

    16,135     19,804  

Shares (denominator):

             

Weighted average number of shares—basic

    41,000,000     41,798,219  

Conversion of Series A Preferred Shares

    15,600,000     15,600,000  

Conversion of exchangeable note

        5,976,960  

Cancellation of ordinary shares due to conversion of exchangeable note

        (5,976,960 )

Conversion of convertible note

         

Weighted average number of shares—diluted

    56,600,000     57,398,219  

Earnings per share—basic (RMB)

    0.39     1.89  

Earnings per share—diluted (RMB)

    0.29     0.35  

Note
i:   The conversion of convertible note would be anti-dilutive and therefore, related changes in fair value and interest expense are not included in the computation of diluted earnings per share.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11 Earnings per share (Continued)

(c)   Pro forma earnings per share

        The following table sets forth the computation of unaudited pro forma basic and diluted earnings per share for the six months ended 30 June 2019 as if the Series A Preferred Shares had been converted into ordinary shares at the beginning of the period:

 
  Six months ended
30 June 2019
 
 
  RMB'000
(Note i)
(Unaudited)

 

Numerator:

       

Profit attributable to owners of the Company

    79,053  

Reversal of fair value gain of:

       

—Series A Preferred Shares

    (43,056 )

Profit attributable to owner of the Company—basic

    35,997  

Reversal of fair value gain of:

       

—Exchangeable note liabilities

    (16,193 )

—Convertible note

     

Reversal of interest expense on convertible note

     

Profit attributable to owner of the Company—diluted

    19,804  

Shares (denominator):

       

Weighted average number of shares

    41,798,219  

Pro forma effect of:

       

—Series A Preferred Shares

    15,600,000  

Weighted average number of shares—basic

    57,398,219  

Conversion of exchangeable note

    5,976,960  

Cancellation of ordinary shares due to conversion of exchangeable note

    (5,976,960 )

Conversion of convertible note

     

Weighted average number of shares—diluted

    57,398,219  

Pro forma earnings per share—basic (RMB)

    0.63  

Pro forma earnings per share—diluted (RMB)

    0.35  

Note
i:   The conversion of convertible note would be anti-dilutive and therefore, related changes in fair value and interest expense are not included in the computation of pro forma diluted earnings per share.

12 Dividends

        No dividend has been paid or declared by the Company for the six months ended 30 June 2019 (Prior period: Nil).

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13 Property, plant and equipment

 
  Buildings   Leasehold
improvements
  Machinery
and
equipment
  Office
equipment,
furniture
fixtures
and motor
vehicles
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

At 31 December 2018

                               

Cost

    2,528     234,420     162,636     33,575     433,159  

Accumulated depreciation

    (1,440 )   (85,386 )   (91,900 )   (19,405 )   (198,131 )

Net book amount

    1,088     149,034     70,736     14,170     235,028  

Six months ended 30 June 2018 (Unaudited)

                               

At 1 January 2018

                               

Opening net book amount

    1,208     120,597     73,800     14,681     210,286  

Additions

        5,017     5,746     1,463     12,226  

Written-off

            (6 )   (29 )   (35 )

Business combination

        5,261     738     367     6,366  

Disposal of subsidiaries

        (891 )   (1,040 )   (342 )   (2,273 )

Depreciation charges

    (60 )   (6,198 )   (6,345 )   (1,402 )   (14,005 )

Closing net book amount at 30 June 2018          

    1,148     123,786     72,893     14,738     212,565  

At 30 June 2018

                               

Cost

    2,528     202,915     159,811     32,904     398,158  

Accumulated depreciation

    (1,380 )   (79,129 )   (86,918 )   (18,166 )   (185,593 )

Net book amount

    1,148     123,786     72,893     14,738     212,565  
 
  Buildings   Leasehold
improvements
  Machinery
and
equipment
  Office
equipment,
furniture
fixtures
and motor
vehicles
  Right of use
assets
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

Six months ended 30 June 2019 (Unaudited)

                                     

At 1 January 2019

                                     

Opening net book amount

    1,088     149,034     70,736     14,170     137,928     372,956  

Additions

    18,420     32,506     8,983     2,635     69,764     132,308  

Written-off

            (1,175 )   (105 )       (1,280 )

Business combination (Note 24)

        14,291     3,185     1,427     29,502     48,405  

Disposal of subsidiaries (Note 25)

        (6,224 )   (1,223 )   (119 )   (10,165 )   (17,731 )

Depreciation charges

    (60 )   (6,748 )   (6,535 )   (1,784 )   (22,281 )   (37,408 )

Closing net book amount at 30 June 2019

    19,448     182,859     73,971     16,224     204,748     497,250  

At 30 June 2019

                                     

Cost

    20,948     273,919     166,652     37,072     228,522     727,113  

Accumulated depreciation

    (1,500 )   (91,060 )   (92,681 )   (20,848 )   (23,774 )   (229,863 )

Net book amount

    19,448     182,859     73,971     16,224     204,748     497,250  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13 Property, plant and equipment (Continued)

        The net book amount of approximately RMB1,148,000 and RMB1,026,000 of the Group's property, plant and equipment were pledged as security for certain bank borrowings of the Group as at 30 June 2018 and 2019 respectively.

14 Investment properties

 
  As at
30 June 2018
  As at
30 June 2019
 
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Cost

             

At 1 January

    27,824     59,276  

Additions

    31,452      

At 30 June

    59,276     59,276  

Accumulated depreciation

             

At 1 January

    (9,668 )   (12,108 )

Charge for the year

    (1,115 )   (1,325 )

At 30 June

    (10,783 )   (13,433 )

Net book amount

    48,493     45,843  

        Investment properties with net book amount of approximately RMB45,843,000 (30 June 2018: RMB48,493,000) were pledged as security for certain bank borrowings of the Group at the reporting date.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15 Intangible assets

 
  Goodwill   Computer
software
  Medical
licenses
  Tradenames   Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

At 31 December 2018

                               

Cost

    58,372     6,389     23,606     9,900     98,267  

Accumulated amortisation

    (3,893 )   (2,764 )   (23,427 )   (471 )   (30,555 )

Net book amount

    54,479     3,625     179     9,429     67,712  

Six months ended 30 June 2018 (Unaudited)

                               

Opening net book amount at 1 January 2018

    50,564     649     1,820     8,770     61,803  

Business combination

    4,487     45         1,130     5,662  

Disposal of subsidiaries

    (572 )   (19 )           (591 )

Amortisation

        (140 )   (821 )   (224 )   (1,185 )

Closing net book amount at 30 June 2018

    54,479     535     999     9,676     65,689  

At 30 June 2018

                               

Cost

    54,479     3,121     23,364     9,900     90,864  

Accumulated amortisation

        (2,586 )   (22,365 )   (224 )   (25,175 )

Net book amount

    54,479     535     999     9,676     65,689  

Six months ended 30 June 2019 (Unaudited)

                               

Opening net book amount at 1 January 2019

    54,478     3,626     179     9,429     67,712  

Additions

        319             319  

Business combination (Note 24)

    61,534             43,470     105,004  

Disposal of subsidiaries (Note 25)

    (367 )   (16 )           (383 )

Amortisation

        (435 )   (179 )   (808 )   (1,422 )

Closing net book amount at 30 June 2019

    115,645     3,494         52,091     171,230  

At 30 June 2019

                               

Cost

    115,645     6,622     23,237     53,370     198,874  

Accumulated amortisation

        (3,128 )   (23,237 )   (1,279 )   (27,644 )

Net book amount

    115,645     3,494         52,091     171,230  

F-106


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16 Trade and other receivables, deposits and prepayments

 
  As at
31 December
2018
  As at
30 June
2019
 
 
  RMB'000
  RMB'000
 
 
   
  (Unaudited)
 

Trade receivables

    10,760     27,764  

Other receivables

    31,492     3,404  

Deposits

    6,685     22,864  

Prepayments

    41,174     51,692  

Deferred offering costs

    11,415     14,503  

Advances to employees

    3,880     3,034  

    94,646     95,497  

Less: Non-current portion

             

Prepayments and deposits

    (5,166 )   (19,708 )

Current portion

    89,480     75,789  

17 Inventories

 
  As at 31 December 2018   As at 30 June 2019  
 
  RMB'000
  RMB'000
 
 
   
  (Unaudited)
 

Pharmaceuticals

    1,968     3,281  

Medical consumables

    19,175     24,663  

    21,143     27,944  

18 Share capital

 
  Ordinary shares of US$0.001 each  
 
  Number of
shares
  Nominal
value
  Nominal
value
 
 
   
  US$'000
  RMB'000
 

Authorised:

                   

As at 1 January 2018, 30 June 2018, 1 January 2019 and 30 June 2019 (Unaudited)

    121,983,052     122     802  

Issued and paid:

                   

As at 1 January 2019

    41,798,219     42     265  

Issuance of shares held as treasury shares (Note 20)

    5,940,452     6     41  

As at 30 June 2019

    47,738,671     48     306  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19 Other reserves

 
  Capital
reserve
  Merger
reserve
  Statutory
reserve
  Share-based
compensation
reserve
  Other
reserve
  Total  
 
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
  RMB'000
 

At 1 January 2018

    35,609     (10,000 )   33,104     67,960     (59,989 )   66,684  

Translation of foreign operations

                    135     135  

Transfer to statutory reserve

            1,317             1,317  

Disposal of a subsidiary due to loss of control

            (17 )           (17 )

Further acquisition of interests in a subsidiary

                    (2,250 )   (2,250 )

Partial disposal of interests in a subsidiary without loss of control

                    683     683  

At 30 June 2018 (Unaudited)

    35,609     (10,000 )   34,404     67,960     (61,421 )   66,552  

At 1 January 2019

    61,303     (10,000 )   37,962     67,960     (61,980 )   95,245  

Translation of foreign operations

                    (89 )   (89 )

Transfer to statutory reserve

            2,373             2,373  

Further acquisition of interests in a subsidiary

                    (4,828 )   (4,828 )

Partial disposal of interests in a subsidiary without loss of control

                    653     653  

Share-based payment reserves (Note 20)

                6,281         6,281  

At 30 June 2019 (Unaudited)

    61,303     (10,000 )   40,335     74,241     (66,244 )   99,635  

20 Share based compensation

        The Group has adopted a share-based compensation plan, namely the Aesthetic Medical International Holdings Group Limited Share Incentive Plan, (the "Share Incentive Plan"). The Share Incentive Plan was approved by the board of directors of the Company on 1 June 2019. In this connection, 5,940,452 ordinary shares of the Company have been issued on 1 June 2019 and were held as treasury shares of the Company as of 30 June 2019. These ordinary shares are reserved to be issued to any qualified employees, directors and consultants as determined by the board of directors of the Company under the Share Incentive Plan. The options will be exercisable only if option holders continue their employment before exercising the options. The maximum term of any issued stock option is ten years from the grant date.

        One-fourth (1/4) of granted options shall vest and become exercisable upon the first anniversary of the effective date of a registration statement covering any public offering of the Company's securities ("First Vesting Date"). The remaining 75% of the total number of ordinary shares subject to the option shall vest in 36 equal monthly installments, with the first installment vesting on the last day of the month following First Vesting Date and an additional installment vesting on the last day of each of the 35 months thereafter.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20 Share based compensation (Continued)

        The option holder may elect at any time to exercise any part or all of the vested options before the expiry date.

        Movements in the number of options for the period ended 31 December 2018 and 30 June 2019 are as follows:

 
  Number of
options
  Weighted-average
exercise price
  Weighted-average
grant date fair
value
 
 
   
  RMB
  RMB
 

Outstanding as of 1 January 2018, 30 June 2018, 31 December 2018, 1 January 2019 and 1 June 2019

             

Granted as of 1 June 2019

    5,814,952     0.007     30.91  

Outstanding as of 30 June 2019

    5,814,952     0.007     30.91  

        The fair value of share options were valued using Binomial option-pricing model. Assumptions used in the Binomial option-pricing model are presented below:

 
  Six-month period
ended 30 June
2019

Risk free interest rate

  2.26%

Expected dividend yield

  0

Expected volatility

  57.87%

Exercise multiples

  2.2 ~ 2.8

Contractual life

  10

        Share options outstanding as of 30 June 2019 have the following expiry date and exercise prices:

Grant date
  Expiry date   Exercise price   Share options
30 June 2019
 

1 June 2019

  31 May 2029   US$ 0.001     5,814,952  

Weighted average remaining contractual life of options outstanding at end of period:

    9.92  

        Share-based compensation expenses of RMB6,281,000 has been charged to the unaudited interim condensed consolidated statements of comprehensive income in the current period.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21 Trade and accruals, other payables and provisions

 
  As at
31 December 2018
  As at
30 June 2019
 
 
  RMB'000
  RMB'000
 
 
   
  (Unaudited)
 

Trade payables

    14,356     17,962  

Accrued employee benefits

    14,873     14,765  

Accrued operating expenses

    6,053     1,441  

Accrued professional service fees

    12,276     13,792  

Deposits received

    2,277     2,147  

Duty and tax payable other than corporate income tax

    5,615     6,091  

Other payables to suppliers of plant and equipment

    9,164     5,224  

Others

    7,734     7,307  

    72,348     68,729  

22 Borrowings

 
  As at
31 December 2018
  As at
30 June 2019
 
 
  RMB'000
  RMB'000
 
 
   
  (Unaudited)
 

Non-current

             

Bank borrowings

             

—secured

    19,876     17,829  

Other borrowings

             

—secured

        12,667  

    19,876     30,496  

Current

             

Bank borrowings

             

—secured

    77,130     89,622  

Other borrowings

             

—secured

        15,783  

    77,130     105,405  

    97,006     135,901  

        The carrying amounts of borrowings approximate their fair values and are denominated in RMB.

        The effective interest rates on the borrowings from banks was 6.05% as at 30 June 2019 (31 December 2018: 6.67%).

        Bank borrowings are secured by the following:

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

22 Borrowings (Continued)

23 Convertible redeemable preferred shares, convertible note and exchangeable note liabilities

        The movement of the convertible financial instruments including are set out as below:

 
  Convertible
redeemable
preferred
shares
  Convertible
note
  Exchangeable
note liabilities
 
 
  RMB'000
  RMB'000
  RMB'000
 

For the period ended 30 June 2018

                   

At 1 January 2018

    249,864     61,446     128,820  

Change in fair value

             

At 30 June 2018 (Unaudited)

    249,864     61,446     128,820  

Fair value change for the period included in statement of comprehensive income for liabilities held at the period end

             

For the period ended 30 June 2019

                   

At 1 January 2019

    476,112     70,598     185,745  

Change in fair value

    (43,056 )   5,358     (16,193 )

At 30 June 2019 (Unaudited)

    433,056     75,956     169,552  

Fair value change for the period included in statement of comprehensive income for liabilities held at the period end

    (43,056 )   5,358     (16,193 )

24 Business combination

(a)
Jinan Pengai Medical Aesthetic Clinic Co., Ltd.

        In January 2017, the Group disposed of its entire 95% equity interest in Jinan Pengai Medical Aesthetic Clinic Co., Ltd. ("Jinan Pengai") to an independent third party (the "Buyer") at a consideration of RMB13,450,000. As of 31 December 2018, the consideration receivable balance in relation to the disposal was RMB13,450,000.

        In January 2019, after due negotiation about the settlement of the consideration receivable between the Group and the Buyer, the Group entered into an agreement with the Buyer to acquire back the 95% equity interest in Jinan Pengai at a consideration of RMB13,450,000.

        As a result of the acquisition, the Group is expected to increase its presence in Jinan. The goodwill of approximately RMB9,048,000 arising from the acquisition is attributable to synergies expected to be generated from the acquisition. None of the goodwill recognised is expected to be deductible for income tax purpose.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24 Business combination (Continued)

        The following table summarises the consideration paid for Jinan Pengai.

 
  RMB'000
(Unaudited)
 

Purchase consideration

       

Settlement of receivable due from the Buyer

    13,450  

Settlement of pre-existing balance with Jinan Pengai

    1,190  

Total purchase consideration

    14,640  

        The assets and liabilities recognised as a result of the acquisition are as follows:

 
  RMB'000
(Unaudited)
 

Cash and cash equivalents

    66  

Trade receivables and other receivables

    1,638  

Inventories

    367  

Properties, plant and equipment

    5,324  

Intangible assets

    4,630  

Trade payables and other payables

    (1,544 )

Lease liabilities

    (3,331 )

Deferred tax liabilities

    (1,054 )

Non-controlling interest

    (305 )

Net identifiable assets acquired

    5,791  

Add: goodwill (Note 15)

    8,849  

Net assets acquired

    14,640  

        An analysis of net outflow of cash and cash equivalents in respect of the acquisition is as follows:

 
  RMB'000
(Unaudited)
 

Cash paid

     

Cash and cash equivalents

    66  

Net inflow of cash and cash equivalents included in cash flows from investing activities

    66  

        Acquisition-related costs have been charged to general and administrative expenses in unaudited interim condensed consolidated statement of comprehensive income for the six months ended 30 June 2019.

        For the six months ended 30 June 2019, the revenue included in unaudited interim condensed consolidated statement of comprehensive income since 1 January 2019 contributed by Jinan Pengai was approximately RMB6,229,000. Jinan Pengai also contributed loss of approximately RMB312,000 over the same period.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24 Business combination (Continued)

(b)
Shenzhen Pengai Yueji Medical Aesthetic Clinic Co. Ltd

        In March 2019, the Group acquired an additional 30% equity interest of Shenzhen Pengai Yueji Medical Aesthetic Clinic Co., Ltd. ("Shenzhen Yueji") at a consideration of RMB30,000,000. This resulted in an increase of the Company's equity interest of Shenzhen Yueji from 30% to 60%. Shenzhen Yueji became a subsidiary of the Company since then.

        The following table summarises the consideration for this transaction.

 
  RMB'000
(Unaudited)
 

Total consideration

       

Fair value of the previously held equity interest in Shenzhen Yueji at the acquisition date

    30,000  

Cash consideration

    30,000  

Settlement of pre-existing balance with Shenzhen Yueji

    19,442  

    79,442  

        The assets and liabilities recognised as a result of the acquisition are as follows:

 
  RMB'000
(Unaudited)
 

Cash and cash equivalents

    1,054  

Trade and other receivables

    8,056  

Inventories

    1,966  

Property, plant and equipment

    43,081  

Intangible assets

    38,840  

Trade payables and other payables

    (10,491 )

Borrowings

    (3,400 )

Lease liabilities

    (26,057 )

Income tax payable

    (131 )

Deferred tax liabilities

    (8,323 )

Non-controlling interest

    (17,838 )

Net identifiable assets acquired

    26,757  

Add: goodwill (Note 15)

    52,685  

Net assets acquired

    79,442  

        An analysis of net outflow of cash and cash equivalents in respect of the acquisition is as follows:

 
  RMB'000
(Unaudited)
 

Cash paid

    (30,000 )

Cash and cash equivalents

    1,054  

Net outflow of cash and cash equivalents included in cash flows from investing activities

    (28,946 )

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24 Business combination (Continued)

        Acquisition-related costs have been charged to general and administrative expenses in unaudited interim condensed consolidated statement of comprehensive income for the six months ended 30 June 2019.

        For the six months ended 30 June 2019, the revenue included in unaudited interim condensed consolidated statement of comprehensive income since 1 April 2019 contributed by Shenzhen Yueji was approximately RMB17,878,161. Shenzhen Yueji also contributed profit of approximately RMB5,534,000 over the same period.

        The following table set out the pro-forma revenue and profit after tax of the Group had the acquisition taken place from 1 January 2019:

 
  Six months
ended
30 June
2019
 
 
  RMB'000
(Unaudited)

 

Pro forma consolidated statement of comprehensive income:

       

Revenue

    419,480  

Profit after tax

    26,876  

25 Disposals of subsidiaries

        In January 2019, the Group disposed of its entire equity interest in Yantai Pengai to an individual third party. Details of the net assets of Yantai Pengai disposed of and their financial impacts are summarised as follows:

 
  RMB'000  
 
  (Unaudited)
 

Net assets disposed of:

       

Property, plant and equipment

    10,540  

Goodwill

    367  

Inventories

    157  

Trade and other receivables

    5,891  

Cash and cash equivalents

    241  

Income tax payable

    (271 )

Trade payables and other payables

    (1,834 )

Accruals, other payables and provisions

    (4,683 )

Contract liabilities

    (133 )

Lease liabilities

    (8,079 )

Non-controlling interests

    (609 )

Net assets of subsidiary

    1,587  

Gain on disposal of subsidiary

    3,301  

Cash consideration

    4,888  

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25 Disposals of subsidiaries (Continued)

        An analysis of the net outflow of cash and cash equivalents in respect of the disposal of the Yantai Pengai is as follows:

 
  RMB'000  
 
  (Unaudited)
 

Cash received

    3,160  

Cash and cash equivalents disposed of

    (241 )

Net cash inflow in respect of disposal of Yantai Pengai

    2,919  

        As at 30 June 2019, the consideration receivable balance in relation to the disposal of Yantai Pengai is approximately RMB728,000 (Unaudited).

        In May 2019, the Group disposed of its 5% equity interest of Baotou Pengai to an individual third party. As a result, the equity interest of Baotou Pengai held by the Group was decreased from 51% to 46% and the Group lost the control. Details of the net assets of Baotou Pengai disposed of and their financial impacts are summarised as follows:

 
  RMB'000  
 
  (Unaudited)
 

Net assets disposed of:

       

Property, plant and equipment

    7,191  

Intangible assets

    16  

Deferred tax assets

    182  

Inventory

    236  

Other receivables

    682  

Current income tax recoverable

    14  

Cash and cash equivalents

    1,465  

Trade and other payables

    (5,560 )

Contract liabilities

    (17 )

Lease liabilities

    (367 )

Non-controlling interests

    (1,932 )

Net assets of subsidiary

    1,910  

Loss on disposal of subsidiary

    (261 )

    1,649  

Satisfied by:

       

Cash consideration

    150  

Fair value of the equity interest in an associate at the acquisition date

    1,499  

Total consideration

    1,649  

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Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25 Disposals of subsidiaries (Continued)

        An analysis of the net outflow of cash and cash equivalents in respect of the disposal of the Baotou Pengai is as follows:

 
  2019  
 
  RMB'000
(Unaudited)

 

Cash received

     

Cash and cash equivalents disposed of

    (1,465 )

Net cash outflow in respect of disposal of Baotou Pengai

    (1,465 )

        As at 30 June 2019, the consideration receivable balance in relation to the disposal of Baotou Pengai is approximately RMB150,000 (unaudited).

26 Commitments and contingencies

 
  As at
31 December
2018
  As at
30 June
2019
 
 
  RMB'000
  RMB'000
 
 
   
  (Unaudited)
 

Contracted but not provided for

             

—Property, plant and equipment

    106      

—Intangible assets

        13  

    106     13  

        Certain subsidiaries of the Company have been named as defendants in several litigations in the PRC. The maximum amount of the damages claimed by the plaintiffs amounted to an aggregate of approximately RMB2,600,000. The Group believes these claims are without merits and will defend vigorously. The Group considers that the likelihood of an unfavorable outcome is not probable and no accrual has been recorded by the Group as of 30 June 2019 in respect of these claims.

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Table of Contents


AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

27 Related party transactions

        Apart from those disclosed elsewhere in the unaudited interim condensed consolidated financial statements, the following significant transactions and balances were carried out with related companies:

 
  Six months
ended
30 June
2018
  Six months
ended
30 June
2019
 
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Rental expenses, depreciation and interest expense (Note i)

             

—A related company

    970     1,147  

—Non-controlling interests

    710     1,055  

Acquisition of additional interest in subsidiaries

             

—A director

    6,250      

License income from an associate

             

—An associate

    1,133      

Service fee expenses

             

—A related company

    2,500     2,500  

Interest expense from convertible note

             

—A shareholder

    2,114     2,370  

Note i:

The amounts represented rental expenses for the six months ended 30 June 2018. As the Group applied IFRS 16 since 1 January 2019, such transactions have been classified and presented as depreciation of the right-of-use assets and interest expense accrued over the lease liabilities for the six months ended 30 June 2019.

        The above transactions were conducted at prices and terms mutually agreed between the parties involved.

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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

27 Related party transactions (Continued)

 
  As at
31 December
2018
  As at
30 June
2019
 
 
  RMB'000
  RMB'000
 
 
   
  (Unaudited)
 

Current (Note i)

             

Amounts due from related parties

             

Amounts due from related companies

    18,070     427  

Amounts due from directors

    24,777      

Amounts due from non-controlling interests

    12,507     2,724  

    55,354     3,151  

Amounts due to related parties

             

Amounts due to related companies

    14     644  

Amounts due to non-controlling interests

    204     74  

    218     718  

Note i:    Balances due from/to related parties are unsecured, interest free, repayable on demand and are denominated in RMB. Their carrying values approximate to their fair values.

        Key management includes directors and senior managements. The compensation paid or payable to key management for employee services is shown below:

 
  Six months ended  
 
  30 June
2018
  30 June
2019
 
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Basic salaries and bonus

    9,041     9,446  

Pension costs—defined contribution plans

    110     122  

    9,151     9,568  
 
  Six months ended  
 
  30 June
2018
  30 June
2019
 
 
  RMB'000
(Unaudited)

  RMB'000
(Unaudited)

 

Bank borrowings of the Group secured by personal guarantees from Dr. Zhou Pengwu and Ms. Ding Wenting and corporate guarantee from a related company

    26,009     21,917  

F-118


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AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

28 Subsequent event

        In September 2019, holder of the Exchangeable Note and the Holding Companies owned by Dr. Zhou Pengwu and Ms. Ding Wenting agreed that immediately prior to the completion of the Company's IPO, the outstanding principal amount of the Exchangeable Note shall be automatically converted into 5,976,960 Series B Preferred Shares of the Company.

F-119


Table of Contents

 

Through and including                (25 days after the commencement of this offering), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This delivery 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.

Aesthetic Medical International Holdings Group Limited

American Depositary Shares

Representing                Ordinary Shares

Cantor   Haitong International

Prime Number Capital

Maxim Group LLC   CMBI   Zinvest Global

   


Table of Contents

Part II
Information not required in prospectus

Item 6.    Indemnification of directors and officers

        Cayman Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

        The post-offering amended and restated articles of association that we expect to adopt to become effective immediately upon completion of this offering provide that we shall indemnify our directors and officers (each an indemnified person) against all actions, costs, charges, expenses, losses, and damages incurred or sustained by such indemnified person, other than by reason of such person's own dishonesty, 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 as a director or officer of our company, which is to include without prejudice to the generality of the foregoing, any costs, expenses, losses or damages 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 10.1 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 is filed as Exhibit 1.1 to this registration statement, will also provide for indemnification 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

        In the three years preceding the filing of this registration statement, we have issued and sold the following securities that were not registered under the Securities Act. We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions, Regulation D under the Securities Act, Rule 701 under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering. No underwriters were used in the below issuances.

II-1


Table of Contents

Item 8.    Exhibits and financial statement schedules

(a)   Exhibits

        See Exhibit Index beginning on page II-3 of this registration statement.

        All 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 notes thereto.

Item 9.    Undertakings

        The undersigned Registrant hereby undertakes:

II-2


Table of Contents


Exhibit index

Exhibit
number
  Exhibit title
  1.1 * Form of Underwriting Agreement

 

3.1

 

Further Amended and Restated 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, to be effective immediately upon completion of this offering

 

4.1

 

Form of Deposit Agreement between the registrant, the depositary and owners and holders of the ADSs

 

4.2

 

Form of registrant's Specimen American Depositary Receipt (included in Exhibit 4.1)

 

4.3

*

Registrant's Specimen Certificate for its Ordinary Shares

 

4.4

 

Further Amended and Restated Shareholder and Note Holder Agreement between the registrant and other parties named therein dated December 31, 2018

 

4.5

*

Form of convertible note dated December 8, 2016 between the registrant and Peak Asia Investment Holdings V Limited

 

4.6

 

Form of letter agreement in relation to the exchangeable notes between the holder and issuers of the exchangeable notes dated September 30, 2019

 

4.7

 

Form of the exchangeable notes between the holder and issuers of the exchangeable notes

 

5.1

 

Form of Opinion of Conyers Dill & Pearman regarding the validity of the ordinary shares being registered

 

8.1

 

Form of Opinion of Conyers Dill & Pearman regarding certain Cayman Islands tax matters

 

8.2

 

Opinion of Han Kun Law Offices regarding certain PRC tax matters (included in Exhibit 99.2)

 

8.3

 

Opinion of O'Melveny & Myers regarding certain US tax matters

 

10.1

 

Form of Indemnification Agreement between the registrant and directors and officers

 

10.2

 

Form of Employment Agreement between the registrant and officers

 

10.3

 

English translation of supplemental real estate lease agreement dated May 9, 2017 by and between Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd. and the lessor

 

10.4

 

English translation of real estate lease agreement dated February 28, 2017 by and between Shenzhen Pengcheng Hospital Co., Ltd. and the lessor

 

10.5

 

English translation of real estate lease agreement dated February 28, 2017 by and between Shenzhen Pengcheng Hospital Co., Ltd. and the lessor

 

10.6

 

English translation of real estate lease agreement dated March 28, 2015 by and between Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd. and the lessor

 

21.1

 

Subsidiaries of the registrant

 

23.1

 

Consent of PricewaterhouseCoopers Zhong Tian LLP, Independent Registered Public Accounting Firm

 

23.2

 

Consent of Conyers Dill & Pearman (included in Exhibit 5.1 and Exhibit 8.1)

 

23.3

 

Consent of Han Kun Law Offices (included in Exhibit 99.2)

 

23.4

 

Consent of O'Melveny & Myers (included in Exhibit 8.3)

 

23.5

 

Consent of Frost & Sullivan

II-3


Table of Contents

Exhibit
number
  Exhibit title
  23.6   Consent of Xue Hongwei

 

23.7

 

Consent of Lu Feng

 

23.8

 

Consent of Tsang Eric Chi Wai

 

24.1

 

Power of Attorney (included on signature page)

 

99.1

 

Code of Business Conduct and Ethics of the registrant

 

99.2

 

Opinion of Han Kun Law Offices regarding certain PRC law matters

*
To be filed by amendment.

II-4


Table of Contents

Signatures

        Pursuant to the requirements of the Securities Act of 1933, 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 Shenzhen, China on September 30, 2019.

  AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

 

By:

 

/s/ ZHOU PENGWU


      Name:   Dr. Zhou Pengwu

      Title:   Chairman and Chief Executive Officer

        Power of attorney KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors and officers of Aesthetic Medical International Holdings Group Limited whose signature appears below hereby constitutes and appoints each of Dr. Zhou Pengwu and Wu Guanhua, as true and lawful attorneys-in-fact for the undersigned, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead of the undersigned, in any and all capacities, to sign the name of each of the undersigned in the capacities indicated below to the registration statement on Form F-1, or the Registration Statement, and file with the Securities and Exchange Commission under the Securities Act of 1933 with respect to such ordinary shares of the registrant, or Shares, the Registration Statement and any and all amendments (including post-effective amendments) and exhibits to this Registration Statement (or any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933) and any and all applications and other instruments or documents to be filed with the Securities and Exchange Commission pertaining to the registration of the securities covered hereby whether such amendments or supplements are filed before or after the effective date of such Registration Statement, granting unto said attorney-in-fact, and each of them, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable to be done in connection therewith and about the premises, as fully to all intents and purposes as he or she might or could do in person to enable the registrant to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of Shares, and each of the undersigned hereby ratifies and confirms all that said attorney-in-fact, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 
/s/ ZHOU PENGWU

Name: Dr. Zhou Pengwu
  Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)   September 30, 2019

/s/ WU GUANHUA

Name: Wu Guanhua

 

Chief Financial Officer (Principal Financial and Accounting Officer)

 

September 30, 2019

II-5


Table of Contents

Signature
 
Title
 
Date

 

 

 

 

 
/s/ DING WENTING

Name: Ding Wenting
                        Vice-chairwoman   September 30, 2019

/s/ HU QING

Name: Hu Qing

 

                      Director

 

September 30, 2019

/s/ ZHOU YITAO

Name: Zhou Yitao

 

                      Director

 

September 30, 2019

/s/ WEI ZHINAN NELSON

Name: Wei Zhinan Nelson

 

                      Director

 

September 30, 2019

/s/ YAN HONGFEI

Name: Yan Hongfei

 

                      Director

 

September 30, 2019

/s/ ZHANG JIANBIN

Name: Zhang Jianbin

 

                      Director

 

September 30, 2019

II-6


Table of Contents

Signature of authorized representative in the United States

        Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of Aesthetic Medical International Holdings Group Limited, has signed this registration statement or amendment thereto in Newark, Delaware, United States on September 30, 2019.

  Puglisi & Associates
(Authorized U.S. Representative)

 

By:

 

/s/ DONALD J. PUGLISI


      Name:   Donald J. Puglisi

      Title:   Managing Director

II-7




Exhibit 3.1

 

THE COMPANIES LAW (REVISED)

 

OF THE CAYMAN ISLANDS

 

COMPANY LIMITED BY SHARES

 

FURTHER AMENDED AND RESTATED MEMORANDUM AND ARTICLES

 

OF

 

ASSOCIATION

 

OF

 


 

Aesthetic Medical International Holdings Group Limited

(formerly known as Pengai Aesthetic Medical Group)

 


 

(adopted by a special resolution passed on December 31, 2018)

 


 

THE COMPANIES LAW (REVISED)

 

OF THE CAYMAN ISLANDS

 

COMPANY LIMITED BY SHARES

 

 

FURTHER AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION

 

OF

 

Aesthetic Medical International Holdings Group Limited

(formerly known as Pengai Aesthetic Medical Group)

 

(adopted by a special resolution passed on December 31, 2018)

 

1.                                      The name of the Company is Aesthetic Medical International Holdings Group Limited (formerly known as Pengai Aesthetic Medical Group).

 

2.                                      The Registered Office of the Company shall be at the offices of Offshore Incorporations (Cayman) Limited, P. O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 - 1205 Cayman Islands or at such other place in the Cayman Islands as the Directors may from time to time decide.

 

3.                                      The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law (Revised) or as the same may be revised from time to time, or any other law of the Cayman Islands.

 

4.                                      The Company has unrestricted corporate capacity.  Without limitation to the foregoing, as provided by Section 27(2) of the Companies Law (Revised), the Company has and is capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit. Without in any way limiting the unrestricted nature of its objects, the Company may accept mortgages over land or any other property irrespective of location.

 

5.                                      Nothing in any of the preceding paragraphs permits the Company to carry on any of the following businesses without being duly licensed, namely:

 

a.                                      the business of a bank or trust company without being licensed in that behalf under the Banks and Trust Companies Law (Revised); or

 

1


 

b.                                      insurance business from within the Cayman Islands or the business of an insurance manager, agent, sub-agent or broker without being licensed in that behalf under the Insurance Law (Revised); or

 

c.                                       the business of company management without being licensed in that behalf under the Companies Management Law (Revised).

 

6.                                      The liability of each Member is limited to the amount from time to time unpaid on such Member’s Shares.

 

7.                                      The authorized share capital of the Company is US$150,000 divided into (i) 121,983,052 Ordinary Shares of par value US$0.001 each, (ii) 15,600,000 Series A Preferred Shares of par value US$0.001 each, and (iii) 12,416,948 Series B Preferred Shares of par value US$0.001 each.

 

8.                                      If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section 193 of the Companies Law (Revised) and, subject to the provisions of the Companies Law (Revised) and the Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.

 

9.                                      Capitalised terms that are not defined in this Memorandum of Association bear the same meaning as those given in the Articles of Association of the Company.

 

2


 

THE COMPANIES LAW (REVISED)

 

OF THE CAYMAN ISLANDS

 

COMPANY LIMITED BY SHARES

 

 

FURTHER AMENDED AND RESTATED ARTICLES OF ASSOCIATION

 

OF

 

Aesthetic Medical International Holdings Group Limited

(formerly known as Pengai Aesthetic Medical Group)

 

(adopted by a special resolution passed on December 31, 2018)

 

INTERPRETATION

 

1.                                      In these Articles Table A in the First Schedule to the Statute does not apply and, unless there is something in the subject or context inconsistent therewith:

 

Accounting Standards

means (i) in relation to each of the Company, the BVI Subsidiary and the HK Subsidiary, International Financial Reporting Standards as promulgated from time to time by the International Accounting Standards Board (the “IASB”) (including, without limitation, standards and interpretations approved by the IASB and International Accounting Principles issued under previous constitutions thereof), together with the IASB’s pronouncements thereon from time to time, (ii) in relation to each of the WFOE and the Domestic Company, the accounting principles, standards and practices generally accepted in the PRC, each applied on a consistent basis.

 

 

ADV

means Peak Asia Investment Holdings V Limited, a company incorporated and existing under the laws of the British Virgin Islands.

 

 

ADV Directors

shall have the meaning set forth in Article 62.

 

 

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.

 


 

Applicable Conversion Price

means, with respect to the Series A Preferred Shares, then-effective Series A Conversion Price; and with respect to Series B Preferred Shares, then-effective Series B Conversion Price.

 

 

Applicable Conversion Shares

means, with respect to Series A Preferred Shares, the then Ordinary Shares issuable upon conversion of Series A Preferred Shares; with respect to Series B Preferred Shares, the then Ordinary Shares issuable upon conversion of Series B Preferred Shares.

 

 

Approved Sale

shall have the meaning set forth in Article 117.

 

 

Articles

means these articles of association of the Company as originally formed or as from time to time altered or supplemented by Special Resolution.

 

 

As-If Converted Basis

means, with respect to any Ordinary Share Equivalents held by any member of the Company, the number of Ordinary Shares that would be held thereby upon the exchange, conversion or exercise of such Ordinary Share Equivalents, including, without limitation any issued and outstanding Notes and the Preferred Shares.

 

 

Associate

means, with respect to any Person, (1) a corporation or organization (other than the Group Companies) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of twenty percent (20%) or more of any class of Equity Securities of such corporation or organization, (2) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar capacity, or (3) any Relative of such Person.

 

 

Auditor

means the Person for the time being performing the duties of auditor of the Company (if any).

 

 

Automatic Conversion”

shall have the meaning set forth in Article 8.3(C) hereof.

 

2


 

Boardor Board of Directors

means the board of directors of the Company.

 

 

Business

means the business of providing cosmetic plastic surgery, health, skincare clinic and spa, health and therapeutic body treatment, general medical services and activities ancillary thereto.

 

 

Business Day

means any day other than a Saturday, Sunday or other day on which commercial banks in the PRC or the Hong Kong S.A.R. (“Hong Kong”) are required or authorized by law or executive order to be closed or on which a tropical cyclone warning no. 8 or above or a “black” rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m. Hong Kong time.

 

 

BVI Subsidiary

means DRAGON JADE HOLDINGS LIMITED 龍翠控股有限公司, a BVI business company incorporated and existing under the laws of the British Virgin Islands.

 

 

Charter Documents

means, with respect to a particular legal entity, the articles or certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.

 

 

Chuangrui

SCI AESTHETIC HOLDING CO., LTD. (BVI Company Number: 1993837), a company incorporated in British Virgin Islands and having its registered office at Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Island.

 

 

Chuangrui Preference Amount

shall have the meaning set forth in Article 8.2(A).

 

 

CN Purchase Agreement

means the convertible note purchase agreement dated November 9, 2016 between ADV and the Company with respect to the issuance of certain convertible notes by the Company to ADV.

 

3


 

Company

means the above named company.

 

 

Consideration Per Share

means RMB 31.80212.

 

 

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; provided, that such 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 terms “Controlled” and “Controlling” have meanings correlative to the foregoing.

 

 

Conversion Shares

means Ordinary Shares issuable upon conversion of any Preferred Shares.

 

 

Convertible Notes

means any convertible notes issued by the Company to ADV pursuant to the CN Purchase Agreement.

 

 

Convertible Securities”

shall have the meaning set forth in Article 8.3(E)(5)(a)(ii) hereof.

 

 

Deemed Liquidation Event

means any of the following events:

 

 

 

(1)           any consolidation, amalgamation, scheme of arrangement or merger of any Material Group Company with or into any other Person (except another Material Group Company) or other reorganization in which the Members or shareholders of such Material Group Company immediately prior to such consolidation, amalgamation, merger, scheme of arrangement or reorganization own less than fifty percent (50%) of the surviving entity’s voting power in the aggregate immediately after such consolidation, merger, amalgamation, scheme of arrangement or reorganization, or any transaction or series of related transactions to which such Material Group Company is a party in which in excess of fifty percent (50%) of such Material Group Company’s voting power is transferred; or

 

4


 

 

(2)           a sale, transfer, lease or other disposition of all or substantially all of the assets of any Material Group Company (or any series of related transactions resulting in such sale, transfer, lease or other disposition of all or substantially all of the assets of such Material Group Company).

 

 

Director

means a director serving on the Board for the time being of the Company and shall include an alternate Director appointed in accordance with these Articles.

 

 

Domestic Company

means 深圳鹏爱医院投资管理有限公司, a company established under the laws of the PRC.

 

 

Drag Holders

shall have the meaning set forth in Article 117.

 

 

Electronic Record

has the same meaning as given in the Electronic Transactions Law (Revised).

 

 

EN Purchase Agreement

means the exchangeable note purchase agreement dated November 9, 2016 among ADV, the Company, the Founders and the Founder Holdcos with respect to the issuance of certain exchangeable notes by the Founder Holdcos to ADV.

 

 

Equity Securities

means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security issued by such Person and convertible into, exchangeable or exercisable for any of the foregoing, or any contract with such Person providing for the acquisition of any of the foregoing.

 

 

ESOP

means the employee share incentive plan of the Company to be adopted pursuant to Article 8.4(B)(2)(11) hereof covering the grant of Ordinary Shares (or awards therefor) to senior officers or key employees/service providers of a Group Company.

 

 

Exchangeable Notes

means the exchangeable notes issued by the Founder Holdcos to ADV pursuant to the EN Purchase Agreement.

 

5


 

Excepted Issuances”

shall have the meaning set forth in Article 8.3(E)(5)(a)(iii) hereof.

 

 

Exempted Distribution

means (a) a dividend payable solely in Ordinary Shares, (b) the purchase, repurchase or redemption of Ordinary Shares by the Company at no more than cost from terminated employees, officers or consultants in accordance with the ESOP, or pursuant to the exercise of a contractual right of first refusal held by the Company, if any, or pursuant to written contractual arrangements with the Company approved by the Board (so long as such approval includes the approval of at least two Investor Directors), (c) the purchase, repurchase or redemption of the Preferred Shares (including in connection with the conversion of such Preferred Shares into Ordinary Shares) or any Note (including any Equity Securities converted or exchanged from any Note), (d) any interests or principal payable on any Note.

 

 

First Closing Date

shall have the meaning set forth in the CN Purchase Agreement.

 

 

Founders

means collectively, Zhou Pengwu (周鹏武), a Chinese citizen with ID number #####, and Ding Wenting (丁文婷), a Chinese citizen with ID number #####.

 

 

Founder Holdcos

means, collectively, Pengai Hospital Management Corporation, a company incorporated and existing under the laws of the British Virgin Islands, Seefar Global Holdings Limited 世發環球控股有限公司, a company incorporated and existing under the laws of the British Virgin Islands; and Jubilee Set Investments Limited 立禧投資有限公司, a company incorporated and existing under the laws of the British Virgin Islands, and the “Founder Holdco” means any of them.

 

 

Governmental Authority

means any government of any nation 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 without limitation, any government authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

 

6


 

Group Company

means each of the Company and all of its direct or indirect Subsidiaries, and “Group” refers to all of the Group Companies collectively.

 

 

HK Subsidiary

means Peng Oi Investment (Hong Kong) Holdings Limited, a limited liability company limited by shares incorporated under the laws of Hong Kong.

 

 

IDG

means collectively IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P., a limited partnership organized and existing under the laws of the State of Delaware of the United States, IDG-ACCEL CHINA GROWTH FUND III L.P., a Cayman Islands exempted limited partnership, and IDG-ACCEL CHINA III INVESTORS L.P. a Cayman Islands exempted limited partnership.

 

 

IDG Director

shall have the meaning set forth in Article 62.

 

 

Indebtedness

of any Person means, without duplication, each of the following of such Person: (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including without limitation, obligations so evidenced that are incurred in connection with the acquisition of properties, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all obligations that are capitalized in accordance with the applicable accounting standards, (vii) all obligations under banker’s acceptance, letter of credit or similar facilities, (viii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person, (ix) all obligations in respect of any interest rate swap, hedge or cap agreement, and (x) all guarantees issued in respect of the Indebtedness referred to in clauses (i) through (ix) above of any other Person, but only to the extent of the Indebtedness guaranteed.

 

7


 

Initiating Holders

shall have the meaning set forth in Article 8.5(A).

 

 

Initial Completion Date

shall have the meaning set forth in the Investment Agreement.

 

 

Initial Redemption Notice

shall have the meaning set forth in Article 8.5(A).

 

 

Interested Transaction

shall have the meaning set forth in Article 86 hereof.

 

 

Investment Agreement

means the investment agreement dated September 20, 2018 entered into between the Company and WISE SUNNY LIMITED (as amended and supplemented by the supplemental agreement dated November 1, 2018 entered into between WISE SUNNY LIMITED and the Company, the second supplemental agreement dated November 30, 2018 entered into between WISE SUNNY LIMITED and the Company, and the third supplemental agreement dated December 31, 2018 between WISE SUNNY LIMITED and the Company).

 

 

Investor Director

shall have the meaning set forth in Article 62.

 

 

Lien

means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by contract, understanding, law, equity or otherwise.

 

 

Majority Holders

means the holders holding Notes and/or Preferred Shares representing at least 51% of the total voting power of the Notes and Preferred Shares, determined on an As-If Converted Basis.

 

 

Majority Preferred Holders

means the holders holding Preferred Shares representing at least 51% of the total voting power of the Preferred Shares, determined on an As-If Converted Basis.

 

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“Material Group Company”

(i) means any Group Company that directly or indirectly (a) owns or Controls all or substantially all of the assets of the Group, taken as a whole, or (b) conducts all or substantially all of the operations of the Group, taken as a whole, and (ii) includes, without limitation, each of the WFOE and the Domestic Company.

 

 

Member

has the same meaning as in the Statute.

 

 

Memorandum

means the memorandum of association of the Company as originally formed or as from time to time altered or supplemented by Special Resolution.

 

 

New Securities”

shall have the meaning set forth in Article 8.3(E)(5)(a)(iii) hereof.

 

 

Note”

means any of (i) the Exchangeable Notes and (ii) the Convertible Notes, and collectively, the “Notes”.

 

 

Offeror

shall have the meaning set forth in Article 117.

 

 

Options”

shall have the meaning set forth in Article 8.3(E)(5)(a)(i) hereof.

 

 

Ordinary Resolution

means, in accordance with these Articles, a Members’ resolution passed either (i) as a written resolution signed by the relevant Members pursuant to Article 40B, or (ii) at a meeting by Members holding at least a simple majority of the voting power of (a) all of the issued and outstanding Shares of the Company.

 

 

Ordinary Share

means an ordinary share of US$0.001 par value per share in the share capital of the Company having the rights attaching to it as set out herein.

 

 

Person

means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.

 

 

PRC

means the People’s Republic of China, but solely for the purposes hereof excludes the Hong Kong Special Administrative Region, Macau Special Administrative Region and the island of Taiwan.

 

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Preferred Shares

means the Series A Preferred Shares and the Series B Preferred Shares.

 

 

Qualified IPO

means a firm commitment underwritten public offering of the Ordinary Shares of the Company (or depositary receipts or depositary shares therefor) in the United States pursuant to an effective registration statement under the United States Securities Act of 1933, as amended, or on any other internationally recognized stock exchange (e.g., Shanghai Stock Exchange, Shenzhen Stock Exchange (the main board), Hong Kong Stock Exchange), with an offering price (net of underwriting commissions and expenses) that implies a market capitalization of the Company immediately prior to such offering of not less than US$200,000,000 and that results in gross proceeds to the Company of at least US$50,000,000, or in a public offering of the Ordinary Shares of the Company (or depositary receipts or depositary shares therefor) in another jurisdiction which results in the Ordinary Shares trading publicly on a recognized international securities exchange approved by the Majority Holders, so long as such offering satisfies the foregoing market capitalization and gross proceeds requirements.

 

 

Recapitalization

means any reorganization, restructuring, reclassification or other similar event by the Company of its capital structure.

 

 

Redeeming Preferred Share

shall have the meaning set forth in Article 8.5(A).

 

 

Redeeming Preferred Shareholder

shall have the meaning set forth in Article 8.5(A).

 

 

Redemption Date

shall have the meaning set forth in Article 8.5(B).

 

 

Redemption Event

means either of the following events: (a) no Group Company has successfully completed a Qualified IPO within four (4) years from the Series B Nominal Issue Date, or (b) an Event of Default (as defined in any of the Notes) has occurred and is continuing.

 

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Redemption Price

shall have the meaning set forth in Article 8.5(A).

 

 

Redemption Price Payment Date

shall have the meaning set forth in Article 8.5(A).

 

 

Redemption Notices

shall have the meaning set forth in Article 8.5(A).

 

 

Register of Members

means the register maintained in accordance with the Statute and includes (except where otherwise stated) any branch or duplicate Register of Members.

 

 

Registered Office

means the registered office for the time being of the Company.

 

 

Related Party

means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security of any Group Company, any Affiliate or Relative (as applicable) of any of the foregoing, or Associate of any Affiliate, officer, director, supervisory board member, or holder of any Equity Security of any Group Company.

 

 

Relative

with respect to a nature Person means the spouse of such Person and any parent, grandparent, sibling or child of such Person or spouse.

 

 

Right of First Refusal and Co-Sale Agreement

has the meaning given to such term in the Shareholder and Note Holder Agreement.

 

 

Seal

means the common seal of the Company and includes every duplicate seal.

 

 

Second Completion Date

shall have the meaning set forth in the Investment Agreement.

 

 

“Series A Conversion Price

shall have the meaning set forth in Article 8.3(C) hereof.

 

 

Series A Issue Date

means the date of the first issuance of a Series A Preferred Share.

 

 

Series A Issue Price”

means US$1.00, as appropriately adjusted to reflect any subdivision or consolidation of shares, share dividends, Recapitalizations and similar events with respect to the Series A Preferred Shares.

 

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Series A Preferred Share

means a redeemable Series A Preferred Share of US$0.001 par value per share in the capital of the Company having the rights, preferences and privileges attaching to it as set out herein.

 

 

Series A Preference Amount”

shall have the meaning set forth in Article 8.2(A).

 

 

“Series B Conversion Price

shall have the meaning set forth in Article 8.3(C) hereof.

 

 

Series B Nominal Issue Date

means the First Closing Date.

 

 

Series B Nominal Issue Price”

means US$2.3292, as appropriately adjusted to reflect any subdivision or consolidation of shares, share dividends, Recapitalizations and similar events with respect to the Series B Preferred Shares.

 

 

Series B Preferred Share

means a redeemable Series B Preferred Share of US$0.001 par value per share in the capital of the Company having the rights, preferences and privileges attaching to it as set out herein.

 

 

Series B Preference Amount”

shall have the meaning set forth in Article 8.2(A).

 

 

Share” and “Shares

means a share or shares in the share capital of the Company and includes a fraction of a share.

 

 

Shareholder and Note Holder Agreement”

means the Amended and Restated Shareholder and Note Holder Agreement dated 15 November, 2018 among the Company and certain other parties named therein, as amended from time to time.

 

 

Share Sale

means a transaction or series of related transactions in which a Person, or a group of related Persons, acquires any Equity Securities of the Company such that, immediately after such transaction or series of related transactions, such Person or group of related Persons holds Equity Securities of the Company representing more than fifty percent (50%) of the outstanding voting power of the Company.

 

 

Special Resolution

means, in accordance with the Statute and these Articles, a Members’ resolution expressed to be a special resolution and passed either (i) as a unanimous written resolution signed by all Members entitled to vote, or (ii) at a meeting by Members holding at least two-thirds of voting power of all of the issued and outstanding Shares of the Company.

 

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Statute

means the Companies Law of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in effect.

 

 

Subsidiary

means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.

 

 

Supermajority Holders

means the holders of Notes and/or Preferred Shares representing at least two-thirds of the total voting power of the Notes and Preferred Shares, determined on an As-If Converted Basis.

 

 

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 without limitation, enterprise income tax and individual income withholding tax), turnover (including without limitation, value-added tax, business tax, and consumption tax), resource (including without limitation, urban and township land use tax), special purpose (including without limitation, land value-added tax, urban maintenance and construction tax, and additional education fees), property (including without limitation, urban real estate tax and land use fees), documentation (including without limitation, stamp duty and deed tax), filing, recording, social insurance (including without limitation, pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including without limitation, import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clauses (i)(a) through (i)(c) above.

 

 

Third Completion Date

shall have the meaning set forth in the Investment Agreement.

 

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“WFOE”

means 鹏意达商务咨询(深圳)有限公司, a wholly foreign owned enterprise incorporated under the laws of the PRC.

 

2.                                      In the Articles:

 

2.1                               words importing the singular number include the plural number and vice-versa;

 

2.2                               words importing the masculine gender include the feminine gender;

 

2.3                               “written” and “in writing” include all modes of representing or reproducing words in visible form, including in the form of an Electronic Record;

 

2.4                               references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced from time to time;

 

2.5                               any phrase introduced by the terms “including,” “include,” “in particular” or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms;

 

2.6                               the term “voting power” refers to the number of votes attributable to the Shares (on an as-converted basis) in accordance with the terms of the Memorandum and Articles;

 

2.7                               the terms “shall”, “will”, and “agrees” are mandatory, and the term “may” is permissive;

 

2.8                               the term “day” means “calendar day” (unless the term “Business Day” is used), and “month” means calendar month;

 

2.9                               the phrase “directly or indirectly” means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and “direct or indirect” has the correlative meaning;

 

2.10                        references to any documents shall be construed as references to such document as the same may be amended, supplemented or novated from time to time;

 

2.11                        all references to dollars or to “US$” are to currency of the United States of America and all references to RMB are to currency of the PRC (and each shall be deemed to include reference to the equivalent amount in other currencies); and

 

2.12                        headings are inserted for reference only and shall be ignored in construing these Articles.

 

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2.13                        Section 8 and 19 of the Electronic Transactions law shall not apply.

 

3.                                      For the avoidance of doubt, each other Article herein is subject to the provisions of Articles 8 and 62, and, subject to the requirements of the Statute, in the event of any conflict, the provisions of Articles 8 and 62 shall prevail over any other Article herein.

 

COMMENCEMENT OF BUSINESS

 

4.                                      The business of the Company may be commenced as soon after incorporation as the Directors shall see fit notwithstanding that any part of the Shares may not have been allotted.  The Company shall have perpetual existence until wound up or struck off in accordance with the Statute and these Articles.

 

5.                                      The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company, including the expenses of registration.

 

ISSUE OF SHARES

 

6.                                      Subject to the provisions, if any, in the Memorandum (and to any direction that may be given by the Company in a general meeting), to the provisions of the Articles (including without limitation, Article 8) and to the provisions of the Shareholder and Noteholder Agreement (including without limitation, Articles 7.1 and 11.10 of the Shareholder and Noteholder Agreement)  and without prejudice to any rights, preferences and privileges attached to any existing Shares, (a) the Directors may allot, issue, grant options or warrants over or otherwise dispose of Shares (as either Ordinary Shares or Preferred Shares); (b) the Preferred Shares may be allotted and issued from time to time in one or more series; and (c) the series to which a Preferred Share belongs shall be designated prior to the allotment and issue of such Preferred Share.  In the event that any Preferred Share is converted pursuant to Article 8.3 hereof, the Preferred Share so converted shall be cancelled on redemption or purchase, and the amount of the Company’s issued share capital shall be diminished by the nominal value of those Preferred Shares; but the redemption or purchase of the Preferred Shares is not to be taken as reducing the amount of the Company’s authorised share capital.

 

7.                                      The Company shall not issue Shares to bearer.

 

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RIGHTS, PREFERENCES AND PRIVILEGES OF SHARES

 

8.                                      Certain rights, preferences and privileges of the Preferred Shares of the Company are as follows:

 

8.1                               Dividends Rights.

 

A.                                    Preference.  Each holder of a Series B Preferred Share shall be entitled to receive dividends at the rate of eight percent (8%) per annum of the Series B Nominal Issue Price, payable out of funds or assets when and as such funds or assets become legally available therefor on parity with each other, prior and in preference to, and satisfied before, any dividend on any other class or series of shares including the Series A Preferred Shares (except for applicable Exempted Distributions).  Each holder of a Series A Preferred Share shall be entitled to receive dividends at the rate of eight percent (8%) per annum of the Series A Issue Price, payable out of funds or assets when and as such funds or assets become legally available therefor on parity with each other, prior and in preference to, and satisfied before, any dividend on any other class or series of shares (except for applicable Exempted Distributions).  Such dividends shall be payable only when, as, and if declared by the Board of Directors and shall be noncumulative.

 

B.                                    Restrictions; Participation. Except for an Exempted Distribution and except for a distribution pursuant to Article 8.2, no dividend or distribution, whether in cash, in property, or in any other shares of the Company, shall be declared, paid, set aside or made with respect to the Ordinary Shares at any time unless (i) all accrued but unpaid dividends on the Preferred Shares set forth in Article 8.1(A) (if any) have been paid in full, and (ii) a dividend or distribution is likewise declared, paid, set aside or made, respectively, at the same time with respect to each outstanding Preferred Share such that the dividend or distribution declared, paid, set aside or made to the holder thereof shall be equal to the dividend or distribution that such holder would have received pursuant to this Article 8.1(B) if such Preferred Share had been converted into Ordinary Shares immediately prior to the record date for such dividend or distribution, or if no such record date is established, the date such dividend or distribution is made.

 

8.2                               Liquidation Rights.

 

A.                                    Liquidation Preferences. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, all assets and funds of the Company legally available for distribution to the Members (after satisfaction of all creditors’ claims and claims that may be preferred by law) shall be distributed to the Members of the Company as follows:

 

(1)                                 First, each holder of the Series B Preferred Shares shall be entitled to receive for each Series B Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of any other class or series of shares by reason of their ownership of such shares, the higher of (a) the amount equal to 100% of the Series B Nominal Issue Price, plus an amount accruing thereon daily at a rate of 10% per annum, compounding annually, beginning on the First Closing Date and to the date the liquidator pays the Series B Preference Amount (as defined below), and (b) the amount that such holder of the Series B Preferred Share would have received if, immediately prior to the liquidation, dissolution or winding up of the Company, such Series B Preferred Share had been converted into the then applicable number of Ordinary Shares, in each case plus all declared but unpaid dividends on such Series B Preferred Share (collectively, the “Series B Preference Amount”).  If the assets and funds thus distributed among the holders of the Series B Preferred Shares shall be insufficient to permit the payment to such holders of the full Series B Preference Amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Shares in proportion to the aggregate Series B Preference Amount each such holder is otherwise entitled to receive pursuant to this subparagraph (1).

 

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(2)                                 Second, each holder of the Series A Preferred Shares shall be entitled to receive for each Series A Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of any other class or series of shares by reason of their ownership of such shares, the higher of (a) the amount equal to 100% of the Series A Issue Price, plus an amount accruing thereon daily at a rate of 8% per annum, compounding annually, beginning on the Series A Issue Date and to the date the liquidator pays the Series A Preference Amount (as defined below), and (b) the amount that such holder of the Series A Preferred Share would have received if, immediately prior to the liquidation, dissolution or winding up of the Company, such Series A Preferred Share had been converted into the then applicable number of Ordinary Shares, in each case plus all declared but unpaid dividends on such Series A Preferred Share (collectively, the “Series A Preference Amount”).  If the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full Series A Preference Amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the aggregate Series A Preference Amount each such holder is otherwise entitled to receive pursuant to this subparagraph (2).

 

(3)                                 Third, Chuangrui shall be entitled to receive for each Ordinary Share held by Chuangrui, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of any other class or series of shares by reason of their ownership of such shares, the Consideration Per Share plus an amount accruing thereon daily at a rate of 10% per annum, compounding annually, beginning on the Initial Completion Date (for Ordinary Shares held by Chuangrui which are allotted and issued on the Initial Completion Date) and/or Second Completion Date (for Ordinary Shares held by Chuangrui which are allotted and issued on the Second Completion Date) and/or Third Completion Date (for Ordinary Shares held by Chuangrui which are allotted and issued on the Third Completion Date) in each case, up to the date the liquidator pays the Chuangrui Preference Amount (as defined below), plus any declared but unpaid dividends on such Ordinary Shares held by Chuangrui (the “Chuangrui Preference Amount”). If the assets and funds thus distributed to Chuangrui shall be insufficient to permit the payment, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably to Chuangrui.

 

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(4)                                 If there are any assets or funds remaining after the aggregate Series B Preference Amount, Series A Preference Amount and Chuangrui Preference Amount have been distributed or paid in full to the applicable holders pursuant to the above clauses, the remaining assets and funds of the Company available for distribution to the Members shall be distributed ratably among all the holders of Ordinary Shares (other than Chuangrui) according to the relative number of Ordinary Shares held by such holders of Ordinary Shares.

 

B.                                    Deemed Liquidation.  Unless waived in writing by the Majority Holders, a Deemed Liquidation Event shall be deemed to be a liquidation, dissolution or winding up of the Company for purposes of Article 8.2(A), and subject to applicable laws, any proceeds, whether in cash or properties, resulting from a Deemed Liquidation Event shall be distributed in accordance with the terms of Article 8.2(A).

 

C.                                    Valuation of Properties.  In the event the Company proposes to distribute assets other than cash in connection with any liquidation, dissolution or winding up of the Company pursuant to Article 8.2(A) or pursuant to a deemed liquidation, dissolution or winding up of the Company pursuant to Article 8.2(B), the value of the assets to be distributed to the Members shall be determined in good faith by the Board; provided that 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;

 

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provided further that 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.

 

Regardless of the foregoing, the Majority Holders shall have the right to challenge, by notice in writing to the Company, any determination by the Board of value pursuant to this Article 8.2(C), in which case the determination of value shall be made by an independent appraiser selected jointly by the Board and the Majority Holders, with the cost of such appraisal to be borne by the Company; provided that if an independent appraiser has not been selected by the Board and the Majority  Holders within thirty (30) days of the notice challenging the Board’s determination, an independent appraiser shall be appointed by the Hong Kong International Arbitration Centre Council.

 

D.                                    Notices.  In the event that the Company shall propose at any time to commence a liquidation, dissolution or winding up of the Company or in the event of a Deemed Liquidation Event, then, in connection with each such event, subject to any necessary approval required in the Statute and these Articles, the Company shall send to the holders of Preferred Shares at least twenty (20) days prior written notice of the date when the same shall take place; provided, however, that the foregoing notice periods may be shortened or waived with the vote or written consent of the Supermajority Holders.

 

E.                                     Enforcement.  In the event the requirements of this Article 8.2 are not complied with, the Company shall forthwith either (i) cause the closing of the applicable transaction to be postponed until such time as the requirements of this Article 8.2 have been complied with, or (ii) cancel such transaction.

 

8.3                               Conversion Rights

 

The holders of the Preferred Shares shall have the rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares:

 

A.                                    Optional Conversion.  Subject to the Statute and these Articles, any Preferred Share may, at the option of the holder thereof, be converted at any time after the date of issuance of such Share, without the payment of any additional consideration, into fully-paid and non assessable Ordinary Shares as provided in Article 8.3(D) below.

 

B.                                    Automatic Conversion.  Each Preferred Share shall automatically be converted (without the need for the consent or approval of any Member or the Board), without the payment of any additional consideration, as provided in Article 8.3(C) below upon the earlier of (i) the closing of a Qualified IPO, or (ii) the date specified by written consent or agreement of the Supermajority Holders.  Any conversion pursuant to this Article 8.3(C) shall be referred to as an “Automatic Conversion”.

 

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C.                                    Conversion Ratio.  Upon conversion pursuant to Article 8.3(A) or Article 8.3(B) above, (i) each Series A Preferred Share shall be converted into such number of fully paid and non-assessable Ordinary Shares as determined by dividing the applicable Series A Issue Price by the then-effective Series A Conversion Price (as defined below), and (ii) each Series B Preferred Share shall be converted into such number of fully paid and non-assessable Ordinary Shares as determined by dividing the applicable Series B Nominal Issue Price by the then-effective Series B Conversion Price (as defined below).  The “Series A Conversion Price” shall initially be the Series A Issue Price, resulting in an initial conversion ratio for the Series A Preferred Shares of 1:1, and shall be subject to adjustment and readjustment from time to time as hereinafter provided.  The “Series B Conversion Price” shall initially be the Series B Nominal Issue Price, resulting in an initial conversion ratio for the Series B Preferred Shares of 1:1, and shall be subject to adjustment and readjustment from time to time as hereinafter provided.

 

D.                                    Conversion Mechanism.  The conversion hereunder of the Preferred Shares shall be effected in the following manner:

 

(1)                                 Except as provided in Articles 8.3(D)(2) and 8.3(D)(3) below, before any holder of any Preferred Shares shall be entitled to convert the same into Ordinary Shares, such holder shall surrender the original certificate or certificates therefor duly endorsed (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor) (if any), at the office of the Company or of any transfer agent for such share to be converted and shall give notice to the Company at its principal corporate office, of the election to convert the same and shall state therein the name of such holder in which the certificate or certificates for Ordinary Shares are to be issued.  The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Shares, or to the nominee or nominees of such holder, a certificate or certificates (if applicable) for the number of Ordinary Shares to which such holder shall be entitled as aforesaid, and such conversion shall be deemed to have been made immediately prior to the close of business on the date of such notice and such surrender of the Preferred Shares to be converted, the Register of Members of the Company shall be updated accordingly to reflect the same, and the Person or Persons entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Ordinary Shares as of such date.

 

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(2)                                 If the conversion is in connection with an underwritten public offering of securities, the conversion will be conditioned upon the closing with the underwriter(s) of the sale of securities pursuant to such offering and the Person(s) entitled to receive the Ordinary Shares issuable upon such conversion shall not be deemed to have converted the applicable Preferred Shares until immediately prior to the closing of such sale of securities.

 

(3)                                 Upon the occurrence of an event of Automatic Conversion, all holders of Preferred Shares to be automatically converted will be given at least ten (10) days’ prior written notice of the date fixed (which date shall in the case of a Qualified IPO be the latest practicable date immediately prior to the closing of a Qualified IPO) and the place designated for automatic conversion of all such Preferred Shares pursuant to this Article 8.3(D).  Such notice shall be given pursuant to Articles 106 through 110 to each record holder of such Preferred Shares at such holder’s address appearing on the Register of Members.  On or before the date fixed for conversion, each holder of such Preferred Shares shall surrender the applicable original certificate or certificates duly endorsed (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor) (if any) for all such Shares to the Company at the place designated in such notice. On the date fixed for conversion, the Company shall promptly effect such conversion and update its Register of Members to reflect such conversion, and all rights with respect to such Preferred Shares so converted will terminate, with the exception of the right of a holder thereof to receive the Ordinary Shares issuable upon conversion of such Preferred Shares, and upon surrender of the original certificate or certificates therefor duly endorsed (or in lieu thereof upon delivery of an affidavit of lost certificate and indemnity therefor) (if any), to receive certificates (if applicable) for the number of Ordinary Shares into which such Preferred Shares have been converted.  All certificates evidencing such Preferred Shares shall, from and after the date of conversion, be deemed to have been retired and cancelled and the Preferred Shares represented thereby converted into Ordinary Shares for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date.

 

(4)                                 The Company may effect the conversion of Preferred Shares in any manner available under applicable law, including redeeming or repurchasing the relevant Preferred Shares and applying the proceeds thereof towards payment for the new Ordinary Shares.  For purposes of the repurchase or redemption, the Company may, subject to the Company being able to pay its debts in the ordinary course of business, make payments out of its capital.

 

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(5)                                 No fractional Ordinary Shares shall be issued upon conversion of any Preferred Shares.  In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall at the discretion of the Board of Directors either (i) pay cash equal to such fraction multiplied by the fair market value for the applicable Preferred Share as determined and approved by the Board of Directors (so long as such approval includes the approval of at least two Investor Directors), or (ii) issue one whole Ordinary Share for each fractional share to which the holder would otherwise be entitled.

 

(6)                                 Upon conversion, all declared but unpaid share dividends on the applicable Preferred Shares shall be paid in shares and all declared but unpaid cash dividends on the applicable Preferred Shares shall be paid either in cash or by the issuance of such number of further Ordinary Shares as equal to the value of such cash amount divided by the applicable conversion price, at the option of the holders of the applicable Preferred Shares.

 

E.                                     Adjustment of the Applicable Conversion Price.  The Applicable Conversion Price shall be adjusted and re-adjusted from time to time as provided below:

 

(1)                                 Adjustment for Subdivision or Consolidation of Shares.  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, consolidate the outstanding Ordinary Shares into a smaller number of shares, the Applicable Conversion Price in effect immediately prior to such consolidation shall be proportionately increased.  Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or consolidation 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 conversion price 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.

 

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(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 to the holders of Ordinary Shares payable in securities of the Company other than Ordinary Shares or payable in any other asset or property (other than cash), then, and in each such event, subject to compliance with Article 8.1(B) and to the extent not duplicative with Article 8.1(B), 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 or other asset or property which the holder of such share would have received in connection with such event had the Preferred Shares been converted into Ordinary Shares immediately prior to such event.

 

(4)                                 Adjustments for 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 or consolidation 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 in Article 8.2(B)), 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 shares would have received in connection with such event had the relevant Preferred Shares been converted into Ordinary Shares immediately prior to such event.

 

(5)                                 Adjustments to Applicable Conversion Price for Dilutive Issuance.

 

(a)                                 Special Definition.  For purpose of this Article 8.3(E)(5), the following definitions shall apply:

 

(i)                                     Options” mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Ordinary Shares or Convertible Securities.

 

(ii)                                  Convertible Securities” shall mean any indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Ordinary Shares.

 

(iii)                               New Securities” shall mean all Ordinary Shares issued (or, pursuant to Article 8.3(E)(5)(c), deemed to be issued) by the Company after the date on which these Articles are adopted, other than the following issuances (collectively, the “Excepted Issuances”):

 

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a).          any Note and any Equity Securities issued upon the conversion or exchange of any Note or a portion thereof;

 

b).          Ordinary Shares (or Options exercisable for such Ordinary Shares) to the Group Companies’ senior officers and key employees/service providers pursuant to the ESOP;

 

c).           Ordinary Shares issued or issuable pursuant to any subdivision or consolidation of shares, share dividend, combination, Recapitalization or other similar transaction of the Company, as described in Article 8.3(E)(1) through Article 8.3(E)(3) as duly approved by the Supermajority Holders;

 

d).          any Equity Securities issued as a dividend or distribution on the Preferred Shares;

 

e).           Ordinary Shares issued upon the conversion of Preferred Shares;

 

f).            any Equity Securities of the Company issued pursuant to a Qualified IPO;

 

g).           any Equity Securities of the Company issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity, in any case, duly approved in accordance with Article 8.4(B); and

 

h).          Ordinary Shares issued to banks, equipment lessors or other financial institutions, pursuant to a debt financing or equipment leasing approved by the Board (as long as such approval includes the consent of at least two Investor Directors).

 

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(b)                                 Waiver of Adjustment.  No adjustment to the Applicable Conversion Price shall be made as the result of the issuance or deemed issuance of New Securities if the Company receives written notice signed by or on behalf of the Supermajority Holders agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such New Securities.

 

(c)                                  Deemed Issuance of New Securities.  In the event the Company at any time or from time to time after the Series A Issue Date or Series B Nominal Issue Date, as applicable, shall issue any Options or Convertible Securities (other than an Exempted Issuance) or shall fix a record date for the determination of holders of any series or class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of Ordinary Shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number for anti-dilution adjustments) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities or the exercise of such Options, shall be deemed to be New Securities issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which New Securities are deemed to be issued:

 

(i)                                     no further adjustment in the Applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or Ordinary Shares upon the exercise of such Options or conversion or exchange of such Convertible Securities or upon the subsequent issue of Options for Convertible Securities or Ordinary Shares;

 

(ii)                                  if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Company, or change in the number of Ordinary Shares issuable, upon the exercise, conversion or exchange thereof, the then effective Applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect such change insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;

 

(iii)                               no readjustment pursuant to Article 8.3(E)(5)(c)(ii) shall have the effect of increasing the then effective Applicable Conversion Price to an amount which exceeds the Applicable Conversion Price that would have been in effect had no adjustments in relation to the issuance of such Options or Convertible Securities as referenced in Article 8.3(E)(5)(c)(ii) been made;

 

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(iv)                              upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities that have not been exercised, the then effective Applicable Conversion Price computed upon the date of  original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if on such date of issue (or record date):

 

(x)                                 in the case of Convertible Securities or Options for Ordinary Shares, the only New Securities issued were the Ordinary Shares, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue of such exercised Options plus the consideration actually received by the Company upon such exercise or for the issue of all such Convertible Securities that were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange, and

 

(y)                                 in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the New Securities deemed to have been then issued was the consideration actually received by the Company for the issue of such exercised Options, plus the consideration deemed to have been received by the Company (determined pursuant to Article 8.3(E)(5)(e)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and

 

(v)                                 if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Applicable Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Applicable Conversion Price shall be adjusted pursuant to this Article 8.3(E)(5)(c) as of the actual date of their issuance.

 

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(d)                                 Adjustment of the Applicable Conversion Price upon Issuance of New Securities.  In the event of an issuance of New Securities, at any time after the Series B Nominal Issue Date, for a consideration per Ordinary Share received by the Company (net of any selling concessions, discounts or commissions) less than the Applicable Conversion Price in effect immediately prior to such issue, then and in such event, such Applicable Conversion Price shall be reduced, concurrently with such issue, to the consideration per share received by the Company for such issue or deemed issue of the New Securities, provided that if such issue or deemed issue was without consideration, then the Company shall be deemed to have received an aggregate of US $0.001 of consideration for all such New Securities issued or deemed to be issued.

 

(e)                                  Determination of Consideration.  For purposes of this Article 8.3(E)(5), the consideration received by the Company for the issuance of any New Securities shall be computed as follows:

 

(i)                                     Cash and Property.  Such consideration shall:

 

(1)                                 insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company excluding amounts paid or payable for accrued interest or accrued dividends and excluding any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection with the issuance of any New Securities;

 

(2)                                 insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined and approved in good faith by the Board of Directors (so long as such approval includes the approval of at least two Investor Directors); provided, however, that no value shall be attributed to any services performed by any employee, officer or director of any Group Company;

 

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(3)                                 in the event New Securities are issued together with other Shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received which relates to such New Securities, computed as provided in clauses (1) and (2) above, as reasonably determined in good faith by the Board of Directors including the approval of at least two Investor Directors.

 

(ii)                                  Options and Convertible Securities.  The consideration per Ordinary Share received by the Company for New Securities deemed to have been issued pursuant to Article 8.3(E)(5)(c) hereof relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities (determined in the manner described in paragraph (i) above), plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of Ordinary Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

 

(6)                                 [Reserved.]

 

(7)                                 Other Dilutive Events.  In case any event shall occur as to which the other provisions of this Article 8.3(E) are not strictly applicable, but the failure to make any adjustment to the Applicable Conversion Price with respect to any Preferred Share would not fairly protect the conversion rights of the holders of such Preferred Shares in accordance with the essential intent and principles hereof, then, in each such case, the Directors, in good faith, shall determine the appropriate adjustment to be made, on a basis consistent with the essential intent and principles established in this Article 8.3(E), necessary to preserve, without dilution, the conversion rights of the holders of such Preferred Shares.

 

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(8)                                 No Impairment.  The Company will not, by amendment of these Articles or through any reorganization, Recapitalization, transfer of assets, consolidation, merger, amalgamation, scheme of arrangement, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Article 8.3 and in the taking of all such action as may be necessary or appropriate to protect the conversion rights of the holders of Preferred Shares against impairment.

 

(9)                                 Certificate of Adjustment.  In the case of any adjustment or readjustment of the Applicable Conversion Price with respect to any Preferred Share, the Directors, at the Company’s 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 deliver such certificate by notice to each registered holder of such 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 New Securities issued or sold or deemed to have been issued or sold, (ii) the number of New Securities issued or sold or deemed to be issued or sold, (iii) the Applicable Conversion Price with respect to such Preferred Share in effect before and after such adjustment or readjustment, and (iv) the type and number of Equity Securities of the Company, and the type and amount, if any, of other property which would be received upon conversion of such Preferred Shares after such adjustment or readjustment.

 

(10)                          Notice of Record Date.  In the event the Company shall propose to take any action of the type or types requiring an adjustment set forth in this Article 8.3(E), the Directors shall give notice to the holders of the relevant 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 the relevant 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.

 

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(11)                          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 Shares.  If at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, in addition to such other remedies as shall be available to the holders of Preferred Shares, the Members 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.

 

(12)                          Notices.  Any notice required or permitted pursuant to this Article 8.3 shall be given in writing and shall be given in accordance with Articles 106 through 110.

 

(13)                          No Adjustment to Below Par.  No adjustment to the Applicable Conversion Price shall be made if the result of which is to make the issue price fall below the nominal or par value of an Ordinary Share.

 

8.4                               Voting Rights.

 

A.                                    General Rights.  Subject to the provisions of the Memorandum and these Articles (including any Article providing for special voting rights), at all general meetings of the Company: (a) the holder of each Ordinary Share issued and outstanding shall have one vote in respect of each Ordinary Share held, and (b) the holder of a 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 Members 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 Members is first solicited.  Fractional votes shall not, however, be permitted and any fractional voting rights available on an as converted basis (after aggregating all shares into which the Preferred Shares held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).  To the extent that the Statute or the Articles allow the relevant Preferred Shares to vote separately as a class or series with respect to any matters, such Preferred Shares, shall have the right to vote separately as a class or series with respect to such matters.

 

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B.                                    Protective Provisions.

 

1.              Approval by Majority  Holders.  The Company shall not take, permit to occur, approve, authorize, or agree or commit to do any of the following, and each Member shall procure the Company not to, take, permit to occur, approve, authorize, or agree or commit to do any of the following, and the Company shall not permit any other Group Company to take, permit to occur, approve, authorize, or agree or commit to do any of the following, whether in a single transaction or a series of related transactions, whether directly or indirectly, and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, unless approved in accordance with applicable law and in writing by the Majority  Holders in advance.

 

(1)                                 any amendment or change of the rights, preferences, privileges, or powers of or concerning, or the limitations or restrictions provided for the benefit of, the Preferred Shares;

 

(2)                                 any action that creates, authorizes or issues (A) any class or series of Equity Securities of the Company having rights, preferences, privileges, powers, limitations or restrictions superior to or on a parity with any series of Preferred Shares, whether as to liquidation, conversion, dividend, voting, redemption, or otherwise, or any Equity Securities convertible into, exchangeable for, or exercisable into any Equity Securities having rights, preferences, privileges, powers, limitations or restrictions superior to or on a parity with any series of Preferred Shares, whether as to liquidation, conversion, dividend, voting, redemption, or otherwise, (B) any Equity Securities of the Company other than the Conversion Shares, Preferred Shares or Ordinary Shares issued upon the conversion and/or exchange of the Notes, or Ordinary Shares issued pursuant to the terms of the ESOP, or (C) any Equity Securities of any other Group Company;

 

(3)                                 any action that reclassifies any outstanding shares into shares having rights, preferences, privileges, powers, limitations or restrictions senior to or on a parity with the Series A Preferred Shares, whether as to liquidation, conversion, dividend, voting, redemption or otherwise;

 

(4)                                 any purchase, repurchase or redemption of any Equity Security of any Group Company other than (i) any Exempted Distributions, (ii) purchase or redemption of Ordinary Shares pursuant to the terms of the ESOP, (iii) redemption of any Preferred Shares pursuant to Article 8.5(A) and (iv) redemption repayment, or repurchase of any Note pursuant to the terms thereof;

 

(5)                                 any amendment or modification to or waiver under any of the Charter Documents of any Group Company;

 

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(6)                                 any declaration, set aside or payment of a dividend or other distribution by any Group Company except for any distribution or dividend with respect to which the sole recipient of any proceeds therefrom is the Company or any wholly-owned subsidiary of the Company, or the adoption of, or any change to, the dividend policy of any Group Company;

 

(7)                                 any sale, transfer, or other disposal of, or the incurrence of any Lien on, any substantial part of the assets of any Group Company, except for (i) Liens for Taxes not yet delinquent or the validity of which are being contested in good faith and for which there are adequate reserves on the applicable financial statements and (ii) Liens incurred by operation of law that are not reasonably foreseeable or controllable by the Company and would not materially interfere with, impair or impede the operation or value of the Business;

 

(8)                                 the commencement of or consent to any proceeding seeking (i) to adjudicate it as bankrupt or insolvent, (ii) liquidation, winding up, dissolution, reorganization, or arrangement of any of the Group Companies under any Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or (iii) the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property;

 

(9)                                 any Deemed Liquidation Event or Share Sale or any merger, amalgamation, scheme or arrangement or consolidation of any Group Company with any Person, or the purchase or other acquisition by any Group Company of all or substantially all of the assets, equity or business of another Person, other than in any case an Approved Sale;

 

(10)                          acquisition of another corporation or entity by any Group Company by consolidation, merger, purchase of assets, or other reorganization in which such Group Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity;

 

(11)                          any change of the size or composition of the board of directors of any Group Company;

 

(12)                          any investment in, or divestiture or sale by any Group Company of an interest in a Subsidiary; or

 

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(13)                          any action by a Group Company to authorize, approve or enter into any agreement or obligation with respect to any of the above actions.

 

Notwithstanding anything to the contrary contained herein, where any act listed in clauses (1) through (13) above requires the approval of the Members of the Company in accordance with the Statute, and if the Members vote in favour of such act but the approval of the Majority Holders has not yet been obtained, then the Majority Holders shall, in such vote, have the voting rights equal to the aggregate voting power of all the Members who vote in favour of the resolution plus one.

 

2.              Board Approvals.  The Company shall not take, permit to occur, approve, authorize, or agree or commit to do any of the following, and the Members shall not permit the Company to, take, permit to occur, approve, authorize, or agree or commit to do any of the following, whether in a single transaction or a series of related transactions, and the Company shall not permit any other Group Company to take, permit to occur, approve, authorize, or agree or commit to do any of the following, whether directly or indirectly, and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, unless approved by a majority of the board of directors of the Company (so long as such approval includes the approval of at least two Investor Directors):

 

(1)                                 creation, incurrence or assumptions by the Group Companies of Indebtedness (including but not limited to issue and sale of convertible debt) or guarantees of Indebtedness in excess of RMB 2 million individually or RMB 5 million on a consolidated basis in the aggregate during any fiscal year;

 

(2)                                 any advances or loans to any of the directors, officers or employees of any Group Company;

 

(3)                                 purchasing or leasing any automobile in excess of RMB 1 million in the aggregate in a single transaction or a series of related transactions in any twelve (12) conservative month period;

 

(4)                                 purchasing any publicly-traded securities of any other company in one or a series of related transactions exceeding US$100,000 in the aggregate in a twelve (12) consecutive months period;

 

(5)                                 authorizing any increase in the annual base compensation by more than twenty percent (20%) for any senior officers or key employees of the Group in a twelve (12) consecutive months period (for the avoidance of doubt, profits sharing received by such employees in accordance with the Company’s profit sharing policy will not be deemed to be part of the annual base compensation);

 

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(6)                                 authorizing any increase in the percentage of profit sharing received in accordance with the Company’s profit sharing policy by more than twenty percent (20%) for any senior officers or key employees of the Group in a twelve (12) consecutive months period;

 

(7)                                 any transaction, or a series of related transactions, between any Group Company, on the one hand, and a Related Party (other than another Group Company), on the other hand, in excess of US$25,000;

 

(8)                                 any material change to the business scope, business plan or nature of business of any Group Company, or creation or cessation of any business line of any Group Company;

 

(9)                                 the exclusive licensing of all or substantially all of any  Group Company’s intellectual property to a third party in one or more transactions;

 

(10)                          acquisition of another corporation or entity by any Group Company by consolidation, merger, purchase of assets, or other reorganization in which such Group Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity;

 

(11)                          subject to Section 11.5 of the Shareholder and Noteholder Agreement, the adoption, amendment or termination of the ESOP or any other equity incentive, purchase or participation plan for the benefit of any employees, officers, directors, contractors, advisors or consultants of any of the Group Companies, and the approval of any stock option, equity grant or award thereunder;

 

(12)                          the appointment or removal of the Auditors or the auditors for any other Group Company, or the change of the term of the fiscal year for any Group Company;

 

(13)                          any public offering of any Equity Securities of any Group Company;

 

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(14)                          any adoption of or change to, a significant tax or accounting practice or policy or any internal financial controls and authorization policies, or the making of any significant tax or accounting election;

 

(15)                          the approval of, or any deviation from or amendment of the investment plan of any Group Company;

 

(16)                          any amendment or modification to or waiver under any of the Charter Documents of any Group Company;

 

(17)                          any increase or decrease in registered capital of any Group Company;

 

(18)                          any Deemed Liquidation Event or Share Sale or any merger, amalgamation, scheme or arrangement or consolidation of any Group Company with any Person, or the purchase or other acquisition by any Group Company of all or substantially all of the assets, equity or business of another Person, other than in any case an Approved Sale;

 

(19)                          the approval of, or any deviation from or amendment of, the profit distribution plan of any Group Company;

 

(20)                          create (or terminate) any mortgage, charge, pledge, lien or other encumbrance with respect to any assets of any Group Company;

 

(21)                          making any guaranty or indemnity to any third party (or agree to any material amendments in respect thereof);

 

(22)                          any change in the authorized size of the Board of Directors of any Group Company;

 

(23)                          the appointment or removal of, and approval of the compensation package for, any director on the board of directors of any Group Company;

 

(24)                          the appointment or removal of, and approval of the remuneration package for, any member of the senior management of each Group Company, including the chief executive officer, the chief operating officer, the chief financial officer, and any other management member at or above the level of vice president or comparable position;

 

(25)                          the appointment or removal of, and approval of the remuneration package for, an employee of any Group Company who shall be a Principal or a Principal’s Relative;

 

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(26)                          entering into or effecting any transaction or series of related transactions (or agreeing to any material amendments in respect thereof), involving the purchase, sale, lease, rent, license, exchange, disposal or acquisition by any Group Company of any assets, properties or securities for consideration in excess of RMB 3 million (or equivalent in foreign currency); or

 

(27)                          any action by a Group Company to authorize, approve or enter into any agreement or obligation with respect to any of the above actions.

 

8.5                               Redemption Rights.

 

A.                                    Redemption. The Preferred shares shall be redeemable in the following circumstances, provided that in each circumstance a Redemption Notice (as defined below) is delivered to the Company pursuant to Article 8.5B on or prior to the later of (i) the expiration of the 54-month period immediately following the First Closing Date; and (ii) the date that is forty-five (45) days after an Initial Redemption Notice is given to the Company by any other holder of Preferred Shares which is entitled to request redemption in accordance with this Article 8.5A:

 

1.              The holders of a majority in voting power of the outstanding Series B Preferred Shares, at any time after the earlier of (i) the date that any other class or series of Equity Securities of the Company becomes redeemable, and (ii) the occurrence of any Redemption Event, shall be entitled to request redemption by the Company of all or part of their Preferred Shares.

 

2.              The holders of a majority in voting power of the outstanding Series A Preferred Shares, at any time after the date that any other class or series of Equity Securities of the Company becomes redeemable, shall be entitled to request redemption of all or part of their Preferred Shares.

 

3.              Each holder of Series A Preferred Shares shall be entitled to request redemption by the Company of all or part of its Preferred Shares if no Group Company has successfully completed a Qualified IPO within four (4) years from the Series B Nominal Issue Date.

 

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B.                                    A holder (or group of Holders) (the “Initiating Holders”) shall exercise their right of redemption hereunder by giving a written notice by hand or letter mail or courier service to the Company at its principal executive offices at any time or from time to time (the “Initial Redemption Notice”). Upon receipt of such notice, the Company shall  promptly thereafter provide all of the other holders of Preferred Shares notice (pursuant to Articles 106 through 110) of the Initial Redemption Notice and of their right to participate in such redemption, which right is exercisable by each such holder in their own discretion by delivering a written notice (each, a “Redemption Notice”) by hand or letter mail or courier service to the Company at its principal executive offices within fifteen (15) days of the giving of such notice by the Company, requesting and specifying redemption of all or part of their Preferred Shares.  The Company shall pay to each holder (each, a “Redeeming Preferred Shareholder”) of a Preferred Share for which an Initial Redemption Notice or a Redemption Notice has been timely submitted (each, a “Redeeming Preferred Share”), in respect of such Redeeming Preferred Share, an amount (the “Redemption Price”) equal to (i) with respect to each Series B Preferred Share that is being so redeemed, the sum of the Series B Nominal Issue Price, plus an amount accruing thereon daily at a rate of 10% per annum, compounding annually, beginning on the Series B Nominal Issue Date and to the Redemption Price Payment Date (as defined below), plus any declared but unpaid dividends on such Share, or (ii) with respect to each Series A Preferred Share that is being so redeemed, the sum of the Series A Issue Price, plus an amount accruing thereon daily at a rate of 10% per annum, compounding annually, beginning on the date of issuance of such Series A Preferred Share and to the Redemption Price Payment Date (as defined below), plus any declared but unpaid dividends on such Share.  Such Redemption Price shall be paid on a date (the “Redemption Price Payment Date”) to be determined at the discretion of the Company, but in any event (a) within eighteen (18) months of the date of the Initial Redemption Notice if given by the holder(s) of Series A Preferred Shares pursuant to clause A.3 above and (b) otherwise within nine (9) months of the date of the Initial Redemption Notice.  Notwithstanding anything to the contrary herein, no Redemption Price shall be payable to any holder of Series A Preferred Shares until and unless the Redemption Price with respect to each Series B Preferred Share which constitutes a Redeeming Preferred Share has been paid to the holders of such Series B Preferred Shares in full. For the avoidance of doubt, the redemption rights of holders of Series B Preferred Shares and/or the holders of Series A Preferred Shares set out in this Article 8.5 shall at all times take priority and precedence over any redemption or similar rights of any other Member and/or holder of any Equity Security of the Company.

 

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C.                                    Insufficient Funds. If the Company fails to pay on the Redemption Price Payment Date the full Redemption Price in respect of each Redeeming Preferred Share to be redeemed on such date because it has inadequate funds legally available therefor or for any other reason, the funds that are legally available shall nonetheless be paid and applied on the Redemption Price Payment Date in a pro-rata manner against each Redeeming Preferred Share of the same class/series in accordance with the relative full amounts owed thereon, and the shortfall shall be paid and applied from time to time out of legally available funds immediately as and when such funds become legally available in a pro-rata manner against each Redeeming Preferred Share of the same class/series in accordance with the relative remaining amounts owed thereon, such that, in any case, the full Redemption Price shall not be deemed to have been paid in respect of any Redeeming Preferred Share and the redemption shall not be deemed to have been consummated in respect of any Redeeming Preferred Share on the Redemption Price Payment Date, and each Redeeming Preferred Shareholder shall remain entitled to all of its rights, including (without limitation) its voting rights, in respect of each Redeeming Preferred Share, and each of the Redeeming Preferred Shares shall remain “outstanding” for the purposes of these Articles, until such time as the Redemption Price in respect of each Redeeming Preferred Share has been paid in full (the “Redemption Date”) whereupon all such rights shall automatically cease.  For the avoidance of doubt, no Redemption Price shall be payable to any holder of Series A Preferred Shares until and unless the Redemption Price with respect to each Series B Preferred Share which constitutes a Redeeming Preferred Share has been paid to all holders of Series B Preferred Shares in full.  Any portion of the Redemption Price not paid by the Company in respect of any Redeeming Preferred Share on the Redemption Price Payment Date shall continue to be owed to the holder thereof and shall accrue interest at a rate of 10% per annum from the Redemption Price Payment Date.

 

D.                                    Waivers. The Company may, with the written consent of the Majority Holders, and without the need to amend this Article, modify, waive, or deviate from any of the requirements of, or procedures set forth in, this Article.

 

E.                                     No Impairment. Once the Company has received an Initial Redemption Notice, it shall not (and shall not permit any Subsidiary to) take any action which could have the effect of delaying, undermining or restricting the redemption, and the Company shall in good faith use all reasonable efforts to increase as expeditiously as possible the amount of legally available redemption funds including without limitation, causing any other Group Company to distribute any and all available funds to the Company for purposes of paying the Redemption Price for all Redeeming Preferred Shares on the Redemption Price Payment Date, and until the date on which each Redeeming Preferred Share is redeemed, the Company shall not declare or pay any dividend not otherwise make any distribution of or otherwise decrease its profits available for distribution.

 

REGISTER OF MEMBERS

 

9.                                      The Company shall maintain or cause to be maintained the Register of Members in accordance with the Statute.  The Register of Members shall be the only evidence as to who are the Members entitled to examine the Register of Members or to vote in person or by proxy at any meeting of Members.

 

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FIXING RECORD DATE

 

10.                               The Directors may fix in advance a date as the record date for any determination of Members entitled to notice of or to vote at a meeting of the Members, or any adjournment thereof, and for the purpose of determining the Members entitled to receive payment of any dividend the Directors may, at or within ninety (90) days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination.

 

11.                               If no record date is fixed for the determination of Members entitled to notice of, or to vote at, a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is sent or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members.  When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof.

 

CERTIFICATES FOR SHARES

 

12.                               A Member shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine.  Share certificates shall be signed by one or more Directors or other Person authorised by the Directors.  The Directors may authorise certificates to be issued with the authorised signature(s) affixed by mechanical process.  All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate.  All certificates surrendered to the Company for transfer shall be cancelled and, subject to these Articles, no new certificate shall be issued until the former certificate representing a like number of relevant Shares shall have been surrendered and cancelled.

 

13.                               The Company shall not be bound to issue more than one certificate for Shares held jointly by more than one Person and delivery of a certificate to one joint holder shall be a sufficient delivery to all of them.

 

14.                               If a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably incurred by the Company in investigating evidence, as the Directors may prescribe, and (in the case of defacement or wearing out) upon delivery of the old certificate.

 

TRANSFER OF SHARES

 

15.                               The Shares of the Company are subject to transfer restrictions as set forth in the Shareholder and Note Holder Agreement and the Right of First Refusal and Co-Sale Agreement, by and among the Company and certain of its Members. The Directors will register transfers of Shares that are made in accordance with such agreements and will not register transfers of Shares that are made in violation of such agreements. The instrument of transfer of any Share shall be in writing and shall be executed by or on behalf of the transferor (and, if the Directors so require, signed by the transferee).  The transferor shall be deemed to remain the holder of a Share until the name of the transferee is entered in the Register of Members.

 

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REDEMPTION AND REPURCHASE OF SHARES

 

16.                               The Company is permitted to redeem, purchase or otherwise acquire any of the Company’s Shares, so long as such redemption, purchase or acquisition (i) is pursuant to any redemption provisions set forth in these Memorandum and Articles, (ii) is pursuant to the ESOP, (iii) is as otherwise agreed by the holder of such Share and the Company, or (iv) is pursuant to Clause 7A of the Investment Agreement, subject in the case of clause (ii) or (iii) or (iv) to compliance with any applicable restrictions set forth in the Shareholder and Note Holder Agreement, the Right of First Refusal and Co-Sale Agreement, the Memorandum and these Articles and other applicable documents governing the redemption or repurchase of such Shares.

 

17.                               Subject to the provisions of the Statute and these Articles, the Company may issue Shares that are to be redeemed or are liable to be redeemed at the option of the Member or the Company. Subject to the provisions of the Statute and these Articles, the Directors may authorize the redemption or purchase by the Company of its own Shares in such manner and on such terms as they think fit and may make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Statute, including out of capital.

 

VARIATION OF RIGHTS OF SHARES

 

18.                               Subject to Article 8, if at any time the share capital of the Company is divided into different classes of Shares, the rights attached to any class (unless otherwise provided by the terms of issue of the Shares of that class) may only be varied with the consent in writing of Members holding not less than a majority of the votes entitled to be cast by holders (in person or by proxy) of Shares on a poll at a general meeting of such class affected by the proposed variation of rights or with the sanction of a resolution of such Members holding not less than a majority of the votes which could be cast by holders (in person or by proxy) of Shares of such class on a poll at a general meeting but not otherwise if such variation materially and adversely impacts on a relative basis the specific rights of such class in comparison with the other classes.

 

19.                               For the purpose of the preceding Article, all of the provisions of these Articles relating to general meetings shall apply, to the extent applicable, mutatis mutandis, to every such separate meeting except that the necessary quorum shall be one or more Persons holding or representing by proxy at least a majority of the issued Shares of such class and that any Member holding Shares of such class, present in person or by proxy, may demand a poll.

 

20.                               Subject to Article 8, the rights conferred upon the holders of Shares or any class of Shares shall not, unless otherwise expressly provided by the terms of issue of such Shares, be deemed to be varied by the creation, redesignation, or issue of Shares ranking senior thereto or pari passu therewith.

 

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COMMISSION ON SALE OF SHARES

 

21.                               The Company may, with the approval of the Board (so long as such approval includes the approval of at least two Investor Directors), so far as the Statute permits, pay a commission to any Person in consideration of his or her subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares of the Company.  Such commissions may be satisfied by the payment of cash and/or the issue of fully or partly paid-up Shares.  The Company may also on any issue of Shares pay such brokerage as may be lawful.

 

NON-RECOGNITION OF INTERESTS

 

22.                               The Company shall not be bound by or compelled to recognise in any way (even when having notice thereof) any equitable, contingent, future or partial interest in any Share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any Share other than an absolute right to the entirety thereof in the registered holder.

 

TRANSMISSION OF SHARES

 

23.                               If a Member dies, the survivor or survivors where such Member was a joint holder, and his or her legal personal representatives where such Member was a sole holder, shall be the only Persons recognised by the Company as having any title to such Member’s interest.  The estate of a deceased Member is not thereby released from any liability in respect of any Share that had been jointly held by such Member.

 

24.                               Any Person becoming entitled to a Share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors, elect either to become the holder of the Share or to have some Person nominated by him or her as the transferee, but the Directors shall, in any case, have the same right to decline or suspend registration as they would have had in the case of a transfer by that Member before his death or bankruptcy pursuant to Article 15.  If he or she elects to become the holder, he or she shall give written notice to the Company to that effect.

 

25.                               If the Person so becoming entitled shall elect to be registered as the holder, such Person shall deliver or send to the Company a notice in writing signed by such Person stating that he or she so elects.

 

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AMENDMENTS OF MEMORANDUM AND ARTICLES OF ASSOCIATION AND ALTERATION OF CAPITAL

 

26.                               Subject to Article 8, the Company may by Ordinary Resolution:

 

A.                                    increase the share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine;

 

B.                                    consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares;

 

C.                                    by subdivision of its existing Shares or any of them divide the whole or any part of its share capital into Shares of smaller amount than is fixed by the Memorandum or into Shares without par value;

 

D.                                    cancel any Shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any Person; and

 

E.                                     perform any action not required to be performed by Special Resolution.

 

27.                               Subject to the provisions of the Statute and the provisions of these Articles as regards the matters to be dealt with by Ordinary Resolution, and subject further to Article 8, the Company may by Special Resolution:

 

A.                                    change its name;

 

B.                                    alter or add to these Articles;

 

C.                                    alter or add to the Memorandum with respect to any objects, powers or other matters specified therein; and.

 

D.                                    reduce its share capital and any capital redemption reserve fund.

 

REGISTERED OFFICE

 

28.                               Subject to the provisions of the Statute, the Company may by resolution of the Directors change the location of its Registered Office.

 

GENERAL MEETINGS

 

29.                               All general meetings other than annual general meetings shall be called extraordinary general meetings.

 

30.                               The Company shall, if required by the Statute, in each year hold a general meeting as its annual general meeting, and shall specify the meeting as such in the notices calling it.  The annual general meeting shall be held at such time and place as the Directors shall appoint.  At these meetings, the report of the Directors (if any) shall be presented.

 

31.                               The Directors may call general meetings, and they shall on a Members requisition forthwith proceed to convene an extraordinary general meeting of the Company.

 

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32.                               A Members requisition is a requisition of Members of the Company holding, on the date of deposit of the requisition, not less than twenty percent (20%) of the paid up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company.

 

33.                               The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists.

 

34.                               If the Directors do not within twenty-one (21) days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one (21) days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three (3) months after the expiration of the said twenty-one (21) days.

 

35.                               A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors.

 

NOTICE OF GENERAL MEETINGS

 

36.                               At least twenty-one (21) days’ notice shall be given of any general meeting unless such notice is waived either before, at or after such meeting both (i) by the Members (or their proxies) holding a majority of the aggregate voting power of all of the Ordinary Shares entitled to attend and vote thereat (including the Preferred Shares on an as converted basis), and (ii) by the Majority Preferred Holders (or their proxies). Every notice shall be exclusive of the day on which it is given or deemed to be given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner, if any, as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of the Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed both (i) by the Members (or their proxies) holding a majority of the aggregate voting power of all of the Ordinary Shares entitled to attend and vote thereat (including the Preferred Shares on an as converted basis), and (ii) by the Majority Preferred Holders (or their proxies).

 

37.                               The officer of the Company who has charge of the Register of Members of the Company shall prepare and make, at least two (2) days before every general meeting, a complete list of the Members entitled to vote at the general meeting, arranged in alphabetical order, and showing the address of each Member and the number of shares registered in the name of each Member.  Such list shall be open to examination by any Member for any purpose germane to the meeting, during ordinary business hours, for a period of at least two (2) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held.  The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Member of the Company who is present.

 

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PROCEEDINGS AT GENERAL MEETINGS

 

38.                               The holders of a majority of the aggregate voting power of all of the Ordinary Shares entitled to notice of and to attend and vote at such general meeting (including the Preferred Shares on an as converted basis) and the Majority Preferred Holders together present in person or by proxy or if a company or other non-natural Person by its duly authorised representative shall be a quorum. Subject to Article 41, no business shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business.

 

39.                               A Person may participate at a general meeting by conference telephone or other communications equipment by means of which all the Persons participating in the meeting can communicate with each other.  Participation by a Person in a general meeting in this manner is treated as presence in person at that meeting.

 

40.                               A resolution in writing (in one or more counterparts) shall be as valid and effective as if the resolution had been passed at a duly convened and held general meeting of the Company if:

 

A.                                    in the case of a Special Resolution, it is signed by all Members required for such Special Resolution to be deemed effective under the Statute; or

 

B.                                    in the case of any resolution passed other than as a Special Resolution, it is signed by Members for the time being holding Shares carrying in aggregate not less than the minimum number of votes that would be necessary to authorize or take such action at a general meeting at which all Shares entitled to vote thereon were present and voted (calculated in accordance with Article 8.4(A)) (or, being companies, signed by their duly authorised representative).

 

41.                               A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes present may continue to transact business until adjournment.  If, however, such quorum shall not be present or represented at any general meeting, the Members (or their proxies) holding a majority of the aggregate voting power of all of the Shares of the Company represented at the meeting may adjourn the meeting from time to time, until a quorum shall be present or represented.

 

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42.                               The chairman, if any, of the Board of Directors shall preside as chairman at every general meeting of the Company, or if there is no such chairman, or if he or she shall not be present within ten (10) minutes after the time appointed for the holding of the meeting, or is unwilling or unable to act, the Directors present shall elect one of their number, or shall designate a Member, to be chairman of the meeting; provided that, if notice of such meeting has been duly delivered to all Members ten (10) days prior to the scheduled meeting in accordance with the notice procedures hereunder, and the quorum is not present within one hour from the time appointed for the meeting solely because of the absence of any holder of Preferred Shares, the meeting shall be adjourned to the seventh (7th) following Business Day at the same time and place (or to such other time or such other place as the directors may determine) with notice delivered to all Members seven (7) days prior to the adjourned meeting in accordance with the notice procedures under Articles 106 through 110 and if at the adjourned meeting the quorum is not present within one hour from the time appointed for the meeting solely because of the absence of the Majority Preferred Holders, then the separate requirement that the Majority Holders be present for a quorum to be established shall not apply to such adjourned meeting for purposes of establishing a quorum.  At such adjourned meeting, any business may be transacted that might have been transacted at the meeting as originally notified.

 

43.                               With the consent of a general meeting at which a quorum is present, the chairman may (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.  When a general meeting is adjourned, notice of the adjourned meeting shall be given as in the case of an original meeting.

 

44.                               A resolution put to the vote of the meeting shall be decided by poll and not on a show of hands.

 

45.                               On a poll a Member shall have one vote for each Ordinary Share he holds on an as converted basis, unless any Share carries special voting rights.

 

46.                               Except on a poll on a question of adjournment, a poll shall be taken as the chairman directs, and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded.

 

47.                               A poll on a question of adjournment shall be taken forthwith.

 

48.                               A poll on any other question shall be taken at such time as the chairman of the general meeting directs, and any business other than that upon which a poll has been demanded or is contingent thereon may proceed pending the taking of the poll.

 

VOTES OF MEMBERS

 

49.                               Except as otherwise required by law or these Articles, the Ordinary Shares and the Preferred Shares shall vote together on an as converted basis on all matters submitted to a vote of Members.

 

50.                               In the case of joint holders of record, the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the Register of Members.

 

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51.                               A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote by his or her committee, receiver, or other Person on such Member’s behalf appointed by that court, and any such committee, receiver, or other Person may vote by proxy.

 

52.                               No Person shall be entitled to vote at any general meeting or at any separate meeting of the holders of a class or series of Shares unless he or she is registered as a Member on the record date for such meeting nor unless all calls or other monies then payable by such Member in respect of Shares have been paid.

 

53.                               No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at the meeting shall be valid.  Any objection made in due time shall be referred to the chairman whose decision shall be final and conclusive.

 

54.                               Votes may be cast either personally or by proxy.  A Member may appoint more than one proxy or the same proxy under one or more instruments to attend and vote at a meeting.

 

55.                               A Member holding more than one Share need not cast the votes in respect of his or her Shares in the same way on any resolution and therefore may vote a Share or some or all such Shares either for or against a resolution and/or abstain from voting a Share or some or all of the Shares and, subject to the terms of the instrument appointing him or her, a proxy appointed under one or more instruments may vote a Share or some or all of the Shares in respect of which he or she is appointed either for or against a resolution and/or abstain from voting.

 

PROXIES

 

56.                               The instrument appointing a proxy shall be in writing, be executed under the hand of the appointor or of his or her attorney duly authorised in writing, or, if the appointor is a corporation, under the hand of an officer or attorney duly authorised for that purpose.  A proxy need not be a Member of the Company.

 

57.                               The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, no later than the time for holding the meeting or adjourned meeting.

 

58.                               The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked.  An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll.

 

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59.                               Votes given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the Company at the Registered Office before the commencement of the general meeting or adjourned meeting at which it is sought to use the proxy.

 

CORPORATE MEMBERS

 

60.                               Any corporation or other non-natural Person that is a Member may in accordance with its constitutional documents, or in the absence of such provision by resolution of its directors or other governing body, authorise such Person as it thinks fit to act as its representative at any meeting of the Company or any class of Members, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he or she represents as the corporation could exercise if it were an individual Member.

 

SHARES THAT MAY NOT BE VOTED

 

61.                               Shares in the Company that are beneficially owned by the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding Shares at any given time.

 

APPOINTMENT OF DIRECTORS

 

62.                               The authorized number of directors on the Board shall be eight (8) individual directors, with the composition of the Board determined as follows: (a) the holders of a majority of the voting power of the outstanding Ordinary Shares shall have the right to designate, appoint, remove, replace and reappoint five (5) individual directors on the Board (the “Ordinary Directors”), four (4) of whom shall be executive officers of the Group Companies, , and (b) the holders of a majority of the voting power of outstanding Series A Preferred Shares shall have the right to designate, appoint, remove, replace and reappoint three (3) individual directors on the Board, including one (1) individual designated by IDG or any Affiliated fund of IDG (the “IDG Director”) for so long as IDG owns no less than fifty percent (50%) of the Shares owned by it immediately after the Effective Date, calculated on an As-If Converted Basis, and two (2) individuals designated by ADV (the “ADV Directors”, and together with the IDG Director, the “Investor Directors”) for so long as ADV owns no less than fifty percent (50%) of the Series A Preferred Shares owned by it immediately after the Effective Date.

 

POWERS OF DIRECTORS

 

63.                               Subject to the provisions of the Statute, the Memorandum and these Articles and to any directions given by Special Resolution, the business of the Company shall be managed by or under the direction of the Directors who may exercise all the powers of the Company; provided, however, that the Company shall not carry out any action inconsistent with Article 8.  No alteration of the Memorandum or these Articles and no such direction shall invalidate any prior act of the Directors that would have been valid if that alteration had not been made or that direction had not been given.  A duly convened meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors.

 

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64.                               All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall determine.

 

65.                               Subject to Article 8, the Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

 

66.                               Subject to Article 8, the Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture shares, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of the Company or of any third party.

 

VACATION OF OFFICE AND REMOVAL OF DIRECTOR

 

67.                               The office of a Director shall be vacated if:

 

A.                                    such Director gives notice in writing to the Company that he or she resigns the office of Director, indicating the date on which such resignation takes effect; or

 

B.                                    such Director dies, becomes bankrupt or makes any arrangement or composition with such Director’s creditors generally; or

 

C.                                    such Director is found to be or becomes of unsound mind.

 

68.                               Any Director who shall have been elected by a specified group of Members may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the group of Members then entitled to elect such Director in accordance with Article 62, given at an extraordinary meeting of such Members duly called or by an action by written consent for that purpose.  Any vacancy in the Board of Directors caused as a result of such removal or one or more of the events set out in Article 67 of any Director who shall have been elected by a specified group of Members, may be filled by, and only by, the affirmative vote of the group of Members then entitled to elect such Director in accordance with Article 62, given at an extraordinary meeting of such Members duly called or by an action by written consent for that purpose, unless otherwise agreed upon among such Members.

 

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PROCEEDINGS OF DIRECTORS

 

69.                               A Director may by a written instrument appoint an alternate who need not be a Director, and an alternate is entitled to attend meetings in the absence of the Director who appointed him and to vote or consent in place of the Director.  At all meetings of the Board of Directors, a majority of the number of the Directors in office elected in accordance with Article 62 that includes at least two Investor Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the Directors present (in person or in alternate) that includes at least two Investor Directors at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Statute, the Memorandum or these Articles and except that the annual budget and strategic plan for the Group Companies need to be approved by at least two-thirds of the directors of the Board of Directors.  If only one Director is elected, such sole Director shall constitute a quorum.  If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting, until a quorum shall be present, provided that, if notice of the board meeting has been duly delivered to all directors of the Board prior to the scheduled meeting in accordance with the notice procedures hereunder, and the quorum is not present within one hour from the time appointed for the meeting solely because of the absence of the Investor Directors, the meeting shall be adjourned to the fifth (5th) following Business Day at the same time and place (or to such other time or such other place as the directors may determine) with notice delivered to all directors in accordance with the notice procedures hereunder and, if at the adjourned meeting, the quorum is not present within one hour from the time appointed for the meeting solely because of the absence of the Investor Directors, then the presence of the Investor Directors shall not be required at such adjourned meeting solely for purpose of determining if a quorum has been established.

 

70.                               Subject to the provisions of these Articles, the Directors may regulate their proceedings as they think fit, provided however that the board meetings shall be held at least once every three (3) months unless the Board otherwise approves (so long as such approval includes the approval of at least two Investor Directors) and that the written notice of each meeting given to the Directors shall include an agenda of the business to be transacted at the meeting.

 

71.                               A Person may participate in a meeting of the Directors or committee of the Board of Directors by conference telephone or other communications equipment by means of which all the Persons participating in the meeting can communicate with each other at the same time.  Participation by a Person in a meeting in this manner is treated as presence in person at that meeting.  Unless otherwise determined by the Directors, the meeting shall be deemed to be held at the place where the chairman is at the start of the meeting.

 

72.                               A resolution in writing (in one or more counterparts) signed by all the Directors or all the members of a committee of the Board of Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors, or committee of the Board of Directors as the case may be, duly convened and held.

 

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73.                               Meetings of the Board of Directors may be called by any Director on forty-eight (48) hours’ notice to each Director in accordance with Articles 106 through 110.

 

74.                               The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose.

 

75.                               The Directors may elect a chairman of their board and determine the period for which he or she is to hold office; but if no such chairman is elected, or if at any meeting the chairman shall not be present within ten (10) minutes after the time appointed for holding the same, the Directors present may choose one of their members to be chairman of the meeting.

 

76.                               All acts done by any meeting of the Directors or of a committee of the Board of Directors shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and qualified to be a Director.

 

PRESUMPTION OF ASSENT

 

77.                               A Director of the Company who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless the Director’s dissent shall be entered in the minutes of the meeting or unless the Director shall file his or her written dissent from such action with the Person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such Person immediately after the adjournment of the meeting.  Such right to dissent shall not apply to a Director who voted in favour of such action.

 

DIRECTORS’ INTERESTS

 

78.                               Subject to Article 81, a Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his or her office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine.

 

79.                               Subject to Article 81, a Director may act by himself or herself or his or her firm in a professional capacity for the Company and such Director or firm shall be entitled to remuneration for professional services as if such Director were not a Director.

 

80.                               Subject to Article 81, a Director of the Company may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as Member or otherwise, and no such Director shall be accountable to the Company for any remuneration or other benefits received by such Director as a director or officer of, or from his or her interest in, such other company.

 

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81.                               In addition to any further restrictions set forth in these Articles, no Person shall be disqualified from the office of Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director shall be in any way interested (each, an “Interested Transaction”) be or be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such Interested Transaction by reason of such Director holding office or of the fiduciary relation thereby established, and any such director may vote at a meeting of directors on any resolution concerning a matter in which that director has an interest (and if he votes his vote shall be counted) and shall be counted towards a quorum of those present at such meeting, in each case so long as the material facts of the interest of each Director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith to and are known by the other Directors. A general notice or disclosure to the Directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof that a Director is a member of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under this Article 81.

 

MINUTES

 

82.                               The Directors shall cause minutes to be made in books kept for the purpose of all appointments of officers made by the Directors, all proceedings at meetings of the Company or the holders of any series of Shares and of the Directors, and of committees of the Board of Directors including the names of the Directors present at each meeting.

 

DELEGATION OF DIRECTORS’ POWERS

 

83.                               Subject to these Articles, the Board of Directors may, with prior consent of at least two Investor Directors, establish any committees and approve the delegation of any of their powers to any committee consisting of one or more Directors.  The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee.

 

84.                               The Board of Directors may also, delegate to any managing Director or any Director holding any other executive office such of their powers as they consider desirable to be exercised by such Person provided that the appointment of a managing Director shall be revoked forthwith if he or she ceases to be a Director.  Any such delegation may be made subject to any conditions the Board of Directors, may impose, and either collaterally with or to the exclusion of their own powers and may be revoked or altered.

 

85.                               Subject to these Articles, the Directors may by power of attorney or otherwise appoint any company, firm, Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or authorised signatory of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such attorneys or authorised signatories as the Directors may think fit and may also authorise any such attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in him or her.

 

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86.                               Subject to these Articles, the Directors may appoint such officers as they consider necessary on such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors may think fit.  Unless otherwise specified in the terms of an officer’s appointment, an officer may be removed by resolution of the Directors or Members.

 

NO MINIMUM SHAREHOLDING

 

87.                               There is no minimum shareholding required to be held by a Director.

 

REMUNERATION OF DIRECTORS

 

88.                               The remuneration to be paid to the Directors, if any, shall be such remuneration as determined by the Board (including the consent of at least two Investor Directors).  The Directors shall also be entitled to be paid all reasonable travelling, hotel and other out-of-pocket expenses properly incurred by them in connection with their attendance at meetings of the Board of Directors or committees of the Board of Directors, or general meetings of the Company, or separate meetings of the holders of any series of Shares or debentures of the Company, or otherwise in connection with the business of the Company.

 

89.                               The Directors may by resolution of the majority of the Board (including the consent of at least two Investor Directors) approve additional remuneration to any Director for any services other than his or her ordinary routine work as a Director.  Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity, shall be in addition to his or her remuneration as a Director.

 

SEAL

 

90.                               The Company may, if the Directors so determine, have a Seal.  The Seal shall only be used by the authority of the Directors or of a committee of the Board of Directors authorised by the Board of Directors.  Every instrument to which the Seal has been affixed shall be signed by at least one Person who shall be either a Director or some officer or other Person appointed by the Directors for the purpose.

 

91.                               The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile of the common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used.

 

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92.                               A Director or officer, representative or attorney of the Company may without further authority of the Directors affix the Seal over his or her signature alone to any document of the Company required to be authenticated by him or her under seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever.

 

DIVIDENDS, DISTRIBUTIONS AND RESERVE

 

93.                               Subject to the Statute and these Articles (including without limitation, Article 8), the Directors may declare dividends and distributions on Shares in issue and authorise payment of the dividends or distributions out of the assets of the Company lawfully available therefor.  No dividend or distribution shall be paid except out of the realised or unrealised profits of the Company, or out of the share premium account or as otherwise permitted by the Statute.

 

94.                               All dividends and distributions shall be declared and paid according to the provisions of Article 8.

 

95.                               The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) then payable by such Member to the Company on account of calls or otherwise.

 

96.                               Subject to the provisions of Article 8, the Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of shares, debentures or securities of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional Shares and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the basis of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors.

 

97.                               Any dividend, distribution, interest or other monies payable in cash in respect of Shares may be paid by wire transfer to the holder or by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the registered address of the holder who is first named on the Register of Members or to such Person and to such address as such holder or joint holders may in writing direct.  Every such cheque or warrant shall be made payable to the order of the Person to whom it is sent.  Any one of two or more joint holders may give effectual receipts for any dividends, bonuses or other monies payable in respect of the Share held by them as joint holders.

 

98.                               No dividend or distribution shall bear interest against the Company, except as expressly provided in these Articles.

 

99.                               Any dividend that cannot be paid to a Member and/or that remains unclaimed after six (6) months from the date of declaration of such dividend may, in the discretion of the Directors, be paid into a separate account in the Company’s name, provided that the Company shall not be constituted as a trustee in respect of that account and the dividend shall remain as a debt due to the Member.  Any dividend that remains unclaimed after a period of six (6) years from the date of declaration of such dividend shall be forfeited and shall revert to the Company.

 

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CAPITALIZATION

 

100.                        Subject to these Articles, including but not limited to Article 8, the Directors may capitalise any sum standing to the credit of any of the Company’s reserve accounts (including share premium account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend as set forth in Article 8 hereof and to apply such sum on their behalf in paying up in full unissued Shares for allotment and distribution credited as fully paid-up to and amongst them in the proportion aforesaid.  In such event, the Directors shall do all acts and things required to give effect to such capitalization, with full power to the Directors to make such provisions as they think fit for the case of Shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned).  The Directors may authorise any Person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalization and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.

 

BOOKS OF ACCOUNT

 

101.                        The Directors shall cause proper books of account to be kept at such place as they may from time to time designate with respect to all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place, all sales and purchases of goods by the Company and the assets and liabilities of the Company.  Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Company’s affairs and to explain its transactions.  The Directors shall from time to time determine whether and to what extent and at what times and places, and under what conditions or regulations, the accounts and books of the Company or any of them shall be open to inspection of Members not being Directors and no such Member shall have any right of inspecting any account or book or document of the Company except as conferred by the Statute or authorized by the Directors or the Company in general meeting or in a written agreement binding on the Company.

 

102.                        The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law.

 

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AUDIT

 

103.                        The Directors may appoint an Auditor of the Company who shall hold office until removed from office by a resolution of the Directors, and may fix the Auditor’s remuneration.

 

104.                        Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the Auditor.

 

105.                        Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment in the case of a company that is registered with the Registrar of Companies as an ordinary company, and at the next extraordinary general meeting following their appointment in the case of a company that is registered with the Registrar of Companies as an exempted company and at any other time during their term of office, upon request of the Directors or any general meeting of the Members.

 

NOTICES

 

106.                        Except as otherwise provided in these Articles, notices shall be in writing.  Notice may be given by the Company to any Member or Director either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to such Member or Director (as the case may be) or to the address of such Member or Director as shown in the Register of Members or the Register of Directors (as the case may be) (or where the notice is given by electronic mail by sending it to the electronic mail address provided by such Member or Director).

 

107.                        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 (not including Saturdays or Sundays or public holidays) after the letter containing the same is sent as aforesaid.  Where a notice is sent by fax to a fax number provided by the intended recipient, service of the notice shall be deemed to be effected when the receipt of the fax is acknowledged by the recipient.  Where a notice is given by electronic mail to the electronic mail address provided by the intended recipient, service shall be deemed to be effected when the receipt of the electronic mail is acknowledged by the recipient.

 

108.                        A notice may be given by the Company to the Person or Persons that the Company has been advised are entitled to a Share or Shares in consequence of the death or bankruptcy of a Member in the same manner as other notices that are required to be given under these Articles and shall be addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the Persons claiming to be so entitled, or at the option of the Company, by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred.

 

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109.                        Notice of every general meeting shall be given in any manner hereinbefore authorised to every Person shown as a Member in the Register of Members on the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the Register of Members and every Person upon whom the ownership of a Share devolves by reason of his or her being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his or her death or bankruptcy would be entitled to receive notice of the meeting, and no other Person shall be entitled to receive notices of general meetings.

 

110.                        Whenever any notice is required by law or these Articles to be given to any Director, member of a committee or Member, a waiver thereof in writing, signed by the Person or Persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

 

WINDING UP

 

111.                        If the Company shall be wound up, assets available for distribution amongst the Members shall be distributed, in accordance with Article 8.

 

112.                        If the Company shall be wound up, the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and, subject to Article 8, determine how the division shall be carried out as between the Members or different classes of Members.  The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability.

 

INDEMNITY

 

113.                        To the maximum extent permitted by applicable law, the Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses that they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own fraud or dishonesty, and no such Director or officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director or officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other Persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his or her office or trust unless the same shall happen through the fraud or dishonesty of such Director or officer or trustee.  Except with respect to proceedings to enforce rights to indemnification pursuant to this Article, the Company shall indemnify any such indemnitee pursuant to this Article in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors.  The right to indemnification conferred in this Article shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition to the maximum extent provided by, and subject to the requirements of, applicable law, so long as the indemnitee agrees with the Company to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Article.

 

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114.                        To the maximum extent permitted by applicable law, the Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall not be personally liable to the Company or its Members for monetary damages for breach of their duty in their respective offices, except such (if any) as they shall incur or sustain by or through their own fraud or dishonesty respectively.

 

FINANCIAL YEAR

 

115.                        Unless the Directors otherwise prescribe, the financial year of the Company shall end on the 31st of December in each year and, following the year of incorporation, shall begin on the 1st of January in each year.

 

TRANSFER BY WAY OF CONTINUATION

 

116.                        If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution and the written consent of the Majority Holders, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.

 

DRAG ALONG RIGHTS

 

117.                        Subject to the Right of First Refusal and Co-Sale Agreement, if at any time from and after the fourth (4th) anniversary date of December 8, 2016, the Supermajority Holders (collectively, the “Drag Holders”) approve a Deemed Liquidation Event, Share Sale or other sale of the Company, whether structured as a merger, consolidation, reorganization, asset sale, share sale, sale of control of the Company, or otherwise, to any Person that is a bona fide third party purchaser that is not a Drag Holder or an Affiliate of any Drag Holder (the “Offeror”), where (a) the Offeror offers a purchase price reflecting a valuation of the Group Companies as a whole immediately prior to such Deemed Liquidation Event, Share Sale or other sale of the Company of no less than the lower of (A) US$ 390 million, and (B) an amount determined in accordance with the appraiser selection procedure as set forth on Schedule D of the Right of First Refusal and Co-Sale Agreement, or (b) the Offeror is selected through a bidding or auction where there were at least two (2) bona fide third party bidders who submitted binding bids in accordance with bidding procedures reasonably agreed by the Drag Holders and the Principals (the “Approved Sale”), then at the request of the Drag Holders the Company shall promptly notify in writing (“Drag Notice”) each other Member of such approval and the material terms and conditions of such proposed Approved Sale, whereupon each such Member shall, in accordance with instructions received from the Company at the direction of the Drag Holders:

 

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(i)                                     Sell, at the same time as the Drag Holders sell to the Offeror, in the Approved Sale, all of its Equity Securities of the Company or the same percentage of its Equity Securities of the Company as the Drag Holders sell, on the same terms and conditions as were agreed to by the Drag Holders; provided, however, that such terms and conditions, including with respect to price paid or received per Equity Security of the Company, may differ as between different classes of Equity Securities of the Company in accordance with their relative liquidation preferences as set forth in Article 8.2 and provided further that some Members may be given the right or opportunity to exchange or roll a portion of their Equity Securities of the Company for Equity Securities of the acquirer or an Affiliate thereof in the Approved Sale but in such event there shall be no obligation to afford such right or opportunity to all of such Members.

 

(ii)                                  Vote all of its Equity Securities of the Company (a) in favor of such Approved Sale, (b) against any other consolidation, Recapitalization, amalgamation, merger, sale of securities, sale of assets, business combination, or transaction that would interfere with, delay, restrict, or otherwise adversely affect such Approved Sale, and (c) against any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the definitive agreement(s) related to such Approved Sale or that could result in any of the conditions to the closing obligations under such agreement(s) not being fulfilled, and, in connection therewith, to be present (in person or by proxy) at all relevant meetings of the shareholders of the Company (or adjournments thereof) or to approve and execute all relevant written consents in lieu of a meeting.

 

(iii)                               Not exercise any dissenters’ or appraisal rights under applicable law with respect to such Approved Sale.

 

(iv)                              Take all necessary actions in connection with the consummation of such Approved Sale as reasonably requested by the Drag Holders, including but not limited to the execution and delivery of any share transfer or other agreements prepared in connection with such Approved Sale, and the delivery, at the closing of such Approved Sale involving a sale of stock, of all certificates representing stock held or controlled by such Member, duly endorsed for transfer or accompanied by a duly executed share transfer form, or affidavits and indemnity undertakings with respect to lost certificates.

 

(v)                                 Restructure such Approved Sale, as and if reasonably requested by the Drag Holders, as a merger, consolidation, restructuring or similar transaction, or a sale of all or substantially all of the assets of the Company, or otherwise.

 

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In any such Approved Sale, (i) each such Member shall bear a proportionate share (based upon the relative proceeds received in such transaction) of the Drag Holders’ reasonable fees and expenses incurred in the transaction, including, without limitation, legal, accounting and investment banking fees and expenses, and (ii) each such Member shall severally, but not jointly, on a pro rata basis (based upon the relative proceeds received in such transaction) join in any indemnification obligations that are part of the terms and conditions of such Approved Sale (other than those that relate specifically to a particular Member, such as indemnification with respect to representations and warranties given by such Member regarding such Member’s title to and ownership of shares, due authorization, enforceability, and no conflicts, which shall instead be given solely by such Member) but only up to the net proceeds paid to such Member in connection with such Approved Sale.

 

In the event that any such Member fails for any reason to take any of the foregoing actions after reasonable notice thereof, such Member hereby grants an irrevocable power of attorney and proxy to any Director approving the Approved Sale to take all necessary actions and execute and deliver all documents deemed by such Director to be reasonably necessary to effectuate the terms hereof; in addition, at the request of two-thirds of the Drag Holders, such Member shall purchase all Equity Securities the Drag Holders proposed to sell in such Approved Sale, at the same price and subject to the same terms and  conditions.  None of the transfer restrictions set forth in Section 2 of the Right of First Refusal and Co-Sale Agreement or in the Other Restriction Agreements (as defined in the Right of First Refusal and Co-Sale Agreement) shall apply in connection with an Approved Sale, notwithstanding anything contained to the contrary herein and therein.

 

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Exhibit 4.1

 

 

DEPOSIT AGREEMENT

 

 

by and among

 

AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

 

as Issuer,

 

DEUTSCHE BANK TRUST COMPANY AMERICAS

 

as Depositary,

 

AND

 

THE HOLDERS AND BENEFICIAL OWNERS
OF AMERICAN DEPOSITARY SHARES EVIDENCED BY
AMERICAN DEPOSITARY RECEIPTS ISSUED HEREUNDER

 

 

Dated as of [·], 2019

 

 


 

DEPOSIT AGREEMENT

 

DEPOSIT AGREEMENT, dated as of [·], 2019, by and among (i) Aesthetic Medical International Holdings Group Limited, a company incorporated in the Cayman Islands, with its principal executive office at 1122 Nanshan Boulevard, Nanshan District, Shenzhen, Guangdong Province, China 518052 and its registered office at the offices of Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205 Cayman Islands (together with its successors, the “Company”), (ii) Deutsche Bank Trust Company Americas, an indirect wholly owned subsidiary of Deutsche Bank A.G., acting in its capacity as depositary, with its principal office at 60 Wall Street, New York, NY 10005, United States of America (the “Depositary”, which term shall include any successor depositary hereunder) and (iii) all Holders and Beneficial Owners of American Depositary Shares evidenced by American Depositary Receipts issued hereunder (all such capitalized terms as hereinafter defined).

 

W I T N E S S E T H  T H A T:

 

WHEREAS, the Company desires to establish an ADR facility with the Depositary to provide for the deposit of the Shares and the creation of American Depositary Shares representing the Shares so deposited;

 

WHEREAS, the Depositary is willing to act as the depositary for such ADR facility upon the terms set forth in this Deposit Agreement;

 

WHEREAS, the American Depositary Receipts evidencing the American Depositary Shares issued pursuant to the terms of this Deposit Agreement are to be substantially in the form of Exhibit A and Exhibit B annexed hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in this Deposit Agreement;

 

WHEREAS, the American Depositary Shares to be issued pursuant to the terms of this Deposit Agreement are accepted for trading on NASDAQ; and

 

WHEREAS, the Board of Directors of the Company (or an authorized committee thereof) has duly approved the establishment of an ADR facility upon the terms set forth in this Deposit Agreement, the execution and delivery of this Deposit Agreement on behalf of the Company, and the actions of the Company and the transactions contemplated herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I.

 

DEFINITIONS

 

All capitalized terms used, but not otherwise defined, herein shall have the meanings set forth below, unless otherwise clearly indicated:

 

SECTION 1.1  “Affiliate” shall have the meaning assigned to such term by the Commission under Regulation C promulgated under the Securities Act.

 

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SECTION 1.2  “Agent” shall mean such entity or entities as the Depositary may appoint under Section 7.8 hereof, including the Custodian or any successor or addition thereto.

 

SECTION 1.3  “American Depositary Share(s)” and “ADS(s)” shall mean the securities represented by the rights and interests in the Deposited Securities granted to the Holders and Beneficial Owners pursuant to this Deposit Agreement and evidenced by the American Depositary Receipts issued hereunder.  Each American Depositary Share shall represent the right to receive [·] Share[s], until there shall occur a distribution upon Deposited Securities referred to in Section 4.2 hereof or a change in Deposited Securities referred to in Section 4.9 hereof with respect to which additional American Depositary Receipts are not executed and delivered and thereafter each American Depositary Share shall represent the Shares or Deposited Securities specified in such Sections.

 

SECTION 1.4  “Article” shall refer to an article of the American Depositary Receipts as set forth in the Form of Face of Receipt and Form of Reverse of Receipt in Exhibit A and Exhibit B annexed hereto.

 

SECTION 1.5  “Articles of Association” shall mean the articles of association of the Company, as amended from time to time.

 

SECTION 1.6  “ADS Record Date” shall have the meaning given to such term in Section 4.7 hereof.

 

SECTION 1.7  “Beneficial Owner” shall mean as to any ADS, any person or entity having a beneficial interest in such ADS.  A Beneficial Owner need not be the Holder of the ADR evidencing such ADSs. A Beneficial Owner may exercise any rights or receive any benefits hereunder solely through the Holder of the ADR(s) evidencing the ADSs in which such Beneficial Owner has an interest.

 

SECTION 1.8  “Business Day” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not (a) a day on which banking institutions in the Borough of Manhattan, The City of New York are authorized or obligated by law or executive order to close and (b) a day on which the market(s) in which ADSs are traded are closed.

 

SECTION 1.9  “Commission” shall mean the Securities and Exchange Commission of the United States or any successor governmental agency in the United States.

 

SECTION 1.10  “Company” shall mean Aesthetic Medical International Holdings Group Limited, a company incorporated and existing under the laws of the Cayman Islands, and its successors.

 

SECTION 1.11  “Corporate Trust Office” when used with respect to the Depositary, shall mean the corporate trust office of the Depositary at which at any particular time its depositary receipts business shall be administered, which, at the date of this Deposit Agreement, is located at 60 Wall Street, New York, New York 10005, U.S.A.

 

SECTION 1.12  “Custodian” shall mean, as of the date hereof, Deutsche Bank AG, Hong Kong Branch, having its principal office at 57/F International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong S.A.R., People’s Republic of China, as the custodian for the purposes of this Deposit Agreement, and any other firm or corporation which may hereinafter be appointed by the Depositary pursuant to the terms of Section 5.5 hereof as a successor or an additional custodian or custodians hereunder, as the context shall require.  The term “Custodian” shall mean all custodians, collectively.

 

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SECTION 1.13  “Deliver”, “Deliverable” and “Delivery” shall mean, when used in respect of American Depositary Shares, Receipts, Deposited Securities and Shares, the physical delivery of the certificate representing such security, or the electronic delivery of such security by means of book-entry transfer, as appropriate, including, without limitation, through DRS/Profile.  With respect to DRS/Profile ADRs, the terms “execute”, “issue”, “register”, “surrender”, “transfer” or “cancel” refer to applicable entries or movements to or within DRS/Profile.

 

SECTION 1.14  “Deposit Agreement” shall mean this Deposit Agreement and all exhibits annexed hereto, as the same may from time to time be amended and supplemented in accordance with the terms hereof.

 

SECTION 1.15  “Depositary” shall mean Deutsche Bank Trust Company Americas, an indirect wholly owned subsidiary of Deutsche Bank AG, in its capacity as depositary under the terms of this Deposit Agreement, and any successor depositary hereunder.

 

SECTION 1.16  “Deposited Securities” as of any time shall mean Shares at such time deposited or deemed to be deposited under this Deposit Agreement and any and all other securities, property and cash received or deemed to be received by the Depositary or the Custodian in respect thereof and held hereunder, subject, in the case of cash, to the provisions of Section 4.6.

 

SECTION 1.17  “Dollars” and “$” shall mean the lawful currency of the United States.

 

SECTION 1.18  “DRS/Profile” shall mean the system for the uncertificated registration of ownership of securities pursuant to which ownership of ADSs is maintained on the books of the Depositary without the issuance of a physical certificate and transfer instructions may be given to allow for the automated transfer of ownership between the books of DTC and the Depositary.  Ownership of ADSs held in DRS/Profile is evidenced by periodic statements issued by the Depositary to the Holders entitled thereto.

 

SECTION 1.19  “DTC” shall mean The Depository Trust Company, the central book-entry clearinghouse and settlement system for securities traded in the United States, and any successor thereto.

 

SECTION 1.20  “DTC Participants” shall mean participants within DTC.

 

SECTION 1.21  “Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as from time to time amended.

 

SECTION 1.22  “Foreign Currency” shall mean any currency other than Dollars.

 

SECTION 1.23  “Foreign Registrar” shall mean the entity, if any, that carries out the duties of registrar for the Shares or any successor as registrar for the Shares and any other appointed agent of the Company for the transfer and registration of Shares or, if no such agent is so appointed and acting, the Company.

 

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SECTION 1.24  “Holder” shall mean the person in whose name a Receipt is registered on the books of the Depositary (or the Registrar, if any) maintained for such purpose.  A Holder may or may not be a Beneficial Owner.  A Holder shall be deemed to have all requisite authority to act on behalf of those Beneficial Owners of the ADRs registered in such Holder’s name.

 

SECTION 1.25  “Indemnified Person” and “Indemnifying Person” shall have the respective meanings set forth in Section 5.8 hereof.

 

SECTION 1.26  “Losses” shall have the meaning set forth in Section 5.8 hereof.

 

SECTION 1.27  “Memorandum” shall mean the memorandum of association of the Company.

 

SECTION 1.28  “Opinion of Counsel” shall mean a written opinion from legal counsel to the Company who is acceptable to the Depositary.

 

SECTION 1.29  “Receipt(s); “American Depositary Receipt(s)”; and “ADR(s)” shall mean the certificate(s) or statement(s) issued by the Depositary evidencing the American Depositary Shares issued under the terms of this Deposit Agreement, as such Receipts may be amended from time to time in accordance with the provisions of this Deposit Agreement.  References to Receipts shall include physical certificated Receipts as well as ADSs issued through any book-entry system, including, without limitation, DRS/Profile, unless the context otherwise requires.

 

SECTION 1.30  “Registrar” shall mean the Depositary or any bank or trust company having an office in the Borough of Manhattan, The City of New York, which shall be appointed by the Depositary to register ownership of Receipts and transfer of Receipts as herein provided, and shall include any co-registrar appointed by the Depositary for such purposes.  Registrars (other than the Depositary) may be removed and substitutes appointed by the Depositary.

 

SECTION 1.34 “Restricted Securities” shall mean Shares which (i) have been acquired directly or indirectly from the Company or any of its Affiliates in a transaction or chain of transactions not involving any public offering and subject to resale limitations under the Securities Act or the rules issued thereunder, or (ii) are held by an officer or director (or persons performing similar functions) or other Affiliate of the Company or (iii) are subject to other restrictions on sale or deposit under the laws of the United States or the Cayman Islands, under a shareholders’ agreement, shareholders’ lock-up agreement or the Articles of Association or under the regulations of an applicable securities exchange unless, in each case, such Shares are being sold to persons other than an Affiliate of the Company in a transaction (x) covered by an effective resale registration statement or (y) exempt from the registration requirements of the Securities Act (as hereafter defined) and the Shares are not, when held by such person, Restricted Securities.

 

SECTION 1.36  “Securities Act” shall mean the United States Securities Act of 1933, as from time to time amended.

 

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SECTION 1.37  “Shares” shall mean ordinary shares in registered form of the Company, par value $0.001 each, heretofore or hereafter validly issued and outstanding and fully paid.  References to Shares shall include evidence of rights to receive Shares, whether or not stated in the particular instance; provided, however, that in no event shall Shares include evidence of rights to receive Shares with respect to which the full purchase price has not been paid or Shares as to which pre-emptive rights have theretofore not been validly waived or exercised; provided further, however, that, if there shall occur any change in par value, split-up, consolidation, reclassification, exchange, conversion or any other event described in Section 4.9 hereof in respect of the Shares, the term “Shares” shall thereafter, to the extent permitted by law, represent the successor securities resulting from such change in par value, split-up, consolidation, reclassification, exchange, conversion or event.

 

SECTION 1.38  “United States” or “U.S.” shall mean the United States of America.

 

ARTICLE II.

 

APPOINTMENT OF DEPOSITARY; FORM OF RECEIPT; DEPOSIT OF SHARES; EXECUTION AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS

 

SECTION 2.1  Appointment of Depositary.  The Company hereby appoints the Depositary as exclusive depositary for the Deposited Securities and hereby authorizes and directs the Depositary to act in accordance with the terms set forth in this Deposit Agreement.  Each Holder and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms of this Deposit Agreement, shall be deemed for all purposes to (a) be a party to and bound by the terms of this Deposit Agreement and the applicable ADR(s) and (b) 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 this Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of this Deposit Agreement and the applicable ADR(s) (the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof).

 

SECTION 2.2  Form and Transferability of Receipts.

 

(a)           Form.  Receipts in certificated form shall be substantially in the form set forth in Exhibit A and Exhibit B annexed to this Deposit Agreement, with appropriate insertions, modifications and omissions, as hereinafter provided.  Receipts may be issued in denominations of any number of American Depositary Shares.  No Receipt in certificated form shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose, unless such Receipt shall have been dated and signed by the manual or facsimile signature of a duly authorized signatory of the Depositary.  The Depositary shall maintain books on which each Receipt so executed and Delivered, in the case of Receipts in certificated form, and each Receipt issued through any book-entry system, including, without limitation, DRS/Profile, in either case as hereinafter provided, and the transfer of each such Receipt shall be registered.  Receipts in certificated form bearing the manual or facsimile signature of a duly authorized signatory of the Depositary who was at any time a proper signatory of the Depositary shall bind the Depositary, notwithstanding the fact that such signatory has ceased to hold such office prior to the execution and Delivery of such Receipts by the Registrar or did not hold such office on the date of issuance of such Receipts.

 

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Notwithstanding anything in this Deposit Agreement or in the form of Receipt to the contrary, to the extent available by the Depositary, ADSs shall be evidenced by Receipts issued through any book-entry system, including, without limitation, DRS/Profile, unless certificated Receipts are specifically requested by the Holder.  Holders and Beneficial Owners shall be bound by the terms and conditions of this Deposit Agreement and of the form of Receipt, regardless of whether their Receipts are in certificated form or are issued through any book-entry system, including, without limitation, DRS/Profile.

 

(b)           Legends.  In addition to the foregoing, the Receipts may, and upon the written request of the Company shall, be endorsed with, or have incorporated in the text thereof, such legends or recitals or modifications not inconsistent with the provisions of this Deposit Agreement as may be (i) necessary to enable the Depositary and the Company to perform their respective obligations hereunder, (ii) required to comply with any applicable laws or regulations, or with the rules and regulations of any securities exchange or market upon which ADSs may be traded, listed or quoted, or to conform with any usage with respect thereto, (iii) necessary to indicate any special limitations or restrictions to which any particular ADRs or ADSs are subject by reason of the date of issuance of the Deposited Securities or otherwise or (iv) required by any book-entry system in which the ADSs are held.  Holders and Beneficial Owners shall be deemed, for all purposes, to have notice of, and to be bound by, the terms and conditions of the legends set forth, in the case of Holders, on the ADR registered in the name of the applicable Holders or, in the case of Beneficial Owners, on the ADR representing the ADSs owned by such Beneficial Owners.

 

(c)           Title. Subject to the limitations contained herein and in the form of Receipt, title to a Receipt (and to the ADSs evidenced thereby), when properly endorsed (in the case of certificated Receipts) or upon delivery to the Depositary of proper instruments of transfer, shall be transferable by delivery with the same effect as in the case of a negotiable instrument under the laws of the State of New York; provided, however, that the Depositary, notwithstanding any notice to the contrary, may treat the Holder thereof as the absolute owner thereof for the purpose of determining the person entitled to distribution of dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes and neither the Depositary nor the Company will have any obligation or be subject to any liability under the Deposit Agreement to any holder of a Receipt, unless such holder is the Holder thereof.

 

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SECTION 2.3  Deposits.

 

(a)           Subject to the terms and conditions of this Deposit Agreement and applicable law, Shares or evidence of rights to receive Shares may be deposited by any person (including the Depositary in its individual capacity but subject, however, in the case of the Company or any Affiliate of the Company, to Section 5.7 hereof) at any time beginning on the 181st day after the date of the prospectus contained in the registration statement on Form F-1 under which the ADSs are first sold or on such earlier date as the Company (with the approval of the underwriters referred to in the said prospectus) may specify in writing to the Depositary, whether or not the transfer books of the Company or the Foreign Registrar, if any, are closed, by Delivery of the Shares to the Custodian.  Except for Shares deposited by the Company in connection with the initial sale of ADSs under the registration statement on Form F-1, no deposit of Shares shall be accepted under this Deposit Agreement prior to such date.  Every deposit of Shares shall be accompanied by the following: (A)(i) in the case of Shares represented by certificates issued in registered form, appropriate instruments of transfer or endorsement, in a form satisfactory to the Custodian, (ii) in the case of Shares represented by certificates issued in bearer form, such Shares or the certificates representing such Shares and (iii) in the case of Shares Delivered by book-entry transfer, confirmation of such book-entry transfer to the Custodian or that irrevocable instructions have been given to cause such Shares to be so transferred, (B) such certifications and payments (including, without limitation, the Depositary’s fees and related charges) and evidence of such payments (including, without limitation, stamping or otherwise marking such Shares by way of receipt) as may be required by the Depositary or the Custodian in accordance with the provisions of this Deposit Agreement, (C) if the Depositary so requires, a written order directing the Depositary to execute and Deliver to, or upon the written order of, the person or persons stated in such order a Receipt or Receipts for the number of American Depositary Shares representing the Shares so deposited, (D) evidence satisfactory to the Depositary (which may include an opinion of counsel reasonably satisfactory to the Depositary provided at the cost of the person seeking to deposit Shares) that all conditions to such deposit have been met and all necessary approvals have been granted by, and there has been compliance with the rules and regulations of, any applicable governmental agency and (E) if the Depositary so requires, (i) an agreement, assignment or instrument satisfactory to the Depositary or the Custodian which provides for the prompt transfer by any person in whose name the Shares are or have been recorded to the Custodian of any distribution, or right to subscribe for additional Shares or to receive other property in respect of any such deposited Shares or, in lieu thereof, such indemnity or other agreement as shall be satisfactory to the Depositary or the Custodian and (ii) if the Shares are registered in the name of the person on whose behalf they are presented for deposit, a proxy or proxies entitling the Custodian to exercise voting rights in respect of the Shares for any and all purposes until the Shares so deposited are registered in the name of the Depositary, the Custodian or any nominee.  No Share shall be accepted for deposit unless accompanied by confirmation or such additional evidence, if any is required by the Depositary, that is reasonably satisfactory to the Depositary or the Custodian that all conditions to such deposit have been satisfied by the person depositing such Shares under the laws and regulations of the Cayman Islands and any necessary approval has been granted by any governmental body in the Cayman Islands, if any, which is then performing the function of the regulator of currency exchange.  The Depositary may issue Receipts against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares.  Without limitation of the foregoing, the Depositary shall not knowingly accept for deposit under this Deposit Agreement any Shares or other Deposited Securities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such Shares or other Deposited Securities, or any Shares or other Deposited Securities the deposit of which would violate any provisions of the Memorandum and Articles of Association.  The Depositary shall use commercially reasonable efforts to comply with reasonable written instructions of the Company that the Depositary shall not accept for deposit hereunder any Shares specifically identified in such instructions at such times and under such circumstances as may reasonably be specified in such instructions in order to facilitate the Company’s compliance with the securities laws in the United States and other jurisdictions, provided that the Company shall indemnify the Depositary and the Custodian for any claims and losses arising from not accepting the deposit of any Shares identified in the Company’s instructions.

 

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(b)           As soon as practicable after receipt of any permitted deposit hereunder and compliance with the provisions of this Deposit Agreement, the Custodian shall present the Shares so deposited, together with the appropriate instrument or instruments of transfer or endorsement, duly stamped, to the Foreign Registrar for transfer and registration of the Shares (as soon as transfer and registration can be accomplished and at the expense of the person for whom the deposit is made) in the name of the Depositary, the Custodian or a nominee of either.  Deposited Securities shall be held by the Depositary or by a Custodian for the account and to the order of the Depositary or a nominee, in each case for the account of the Holders and Beneficial Owners, at such place or places as the Depositary or the Custodian shall determine.

 

(c)           In the event any Shares are deposited which entitle the holders thereof to receive a per-share distribution or other entitlement in an amount different from the Shares then on deposit, the Depositary is authorized to take any and all actions as may be necessary (including, without limitation, making the necessary notations on Receipts) to give effect to the issuance of such ADSs and to ensure that such ADSs are not fungible with other ADSs issued hereunder until such time as the entitlement of the Shares represented by such non-fungible ADSs equals that of the Shares represented by ADSs prior to such deposit. The Company agrees to give timely written notice to the Depositary if any Shares issued or to be issued contain rights different from those of any other Shares theretofore issued and shall assist the Depositary with the establishment of procedures enabling the identification of such non-fungible Shares upon Delivery to the Custodian.

 

SECTION 2.4  Execution and Delivery of Receipts.  After the deposit of any Shares pursuant to Section 2.3 hereof, the Custodian shall notify the Depositary of such deposit and the person or persons to whom or upon whose written order a Receipt or Receipts are Deliverable in respect thereof and the number of American Depositary Shares to be evidenced thereby.  Such notification shall be made by letter, first class airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by cable, telex, SWIFT, facsimile or electronic transmission.  After receiving such notice from the Custodian, the Depositary, subject to this Deposit Agreement (including, without limitation, the payment of the fees, expenses, taxes and/or other charges owing hereunder), shall issue the ADSs representing the Shares so deposited to or upon the order of the person or persons named in the notice delivered to the Depositary and shall execute and Deliver a Receipt registered in the name or names requested by such person or persons evidencing in the aggregate the number of American Depositary Shares to which such person or persons are entitled.

 

SECTION 2.5  Transfer of Receipts; Combination and Split-up of Receipts.

 

(a)           Transfer.  The Depositary, or, if a Registrar (other than the Depositary) for the Receipts shall have been appointed, the Registrar, subject to the terms and conditions of this Deposit Agreement, shall register transfers of Receipts on its books, upon surrender at the Corporate Trust Office of the Depositary of a Receipt by the Holder thereof in person or by duly authorized attorney, properly endorsed in the case of a certificated Receipt or accompanied by, or in the case of Receipts issued through any book-entry system, including, without limitation, DRS/Profile, receipt by the Depositary of, proper instruments of transfer (including signature guarantees in accordance with standard industry practice) and duly stamped as may be required by the laws of the State of New York, of the United States, of the Cayman Islands and of any other applicable jurisdiction.  Subject to the terms and conditions of this Deposit Agreement, including payment of the applicable fees and charges of the Depositary set forth in Section 5.9 hereof and Article (9) of the Receipt, the Depositary shall execute a new Receipt or Receipts and Deliver the same to or upon the order of the person entitled thereto evidencing the same aggregate number of American Depositary Shares as those evidenced by the Receipts surrendered.

 

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(b)           Combination and Split Up.  The Depositary, subject to the terms and conditions of this Deposit Agreement shall, upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts and upon payment to the Depositary of the applicable fees and charges set forth in Section 5.9 hereof and Article (9) of the Receipt, execute and Deliver a new Receipt or Receipts for any authorized number of American Depositary Shares requested, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered.

 

(c)           Co-Transfer Agents.  The Depositary may appoint one or more co-transfer agents for the purpose of effecting transfers, combinations and split-ups of Receipts at designated transfer offices on behalf of the Depositary. In carrying out its functions, a co-transfer agent may require evidence of authority and compliance with applicable laws and other requirements by Holders or persons entitled to such Receipts and will be entitled to protection and indemnity, in each case to the same extent as the Depositary. Such co-transfer agents may be removed and substitutes appointed by the Depositary.  Each co-transfer agent appointed under this Section 2.5 (other than the Depositary) shall give notice in writing to the Depositary accepting such appointment and agreeing to be bound by the applicable terms of this Deposit Agreement.

 

(d)           Substitution of Receipts. At the request of a Holder, the Depositary shall, for the purpose of substituting a certificated Receipt with a Receipt issued through any book-entry system, including, without limitation, DRS/Profile, or vice versa, execute and Deliver a certificated Receipt or deliver a statement, as the case may be, for any authorized number of ADSs requested, evidencing the same aggregate number of ADSs as those evidenced by the relevant Receipt.

 

SECTION 2.6  Surrender of Receipts and Withdrawal of Deposited Securities.  Upon surrender, at the Corporate Trust Office of the Depositary, of American Depositary Shares for the purpose of withdrawal of the Deposited Securities represented thereby, and upon payment of (i) the fees and charges of the Depositary for the making of withdrawals of Deposited Securities and cancellation of Receipts (as set forth in Section 5.9 hereof and Article (9) of the Receipt) and (ii) all fees, taxes and/or governmental charges payable in connection with such surrender and withdrawal, and subject to the terms and conditions of this Deposit Agreement, the Memorandum and Articles of Association, Section 7.11 hereof and any other provisions of or governing the Deposited Securities and other applicable laws, the Holder of such American Depositary Shares shall be entitled to Delivery, to him or upon his order, of the Deposited Securities at the time represented by the American Depositary Shares so surrendered.  American Depositary Shares may be surrendered for the purpose of withdrawing Deposited Securities by Delivery of a Receipt evidencing such American Depositary Shares (if held in certificated form) or by book-entry Delivery of such American Depositary Shares to the Depositary.

 

A Receipt surrendered for such purposes shall, if so required by the Depositary, be properly endorsed in blank or accompanied by proper instruments of transfer in blank, and if the Depositary so requires, the Holder thereof shall execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of a person or persons designated in such order. Thereupon, the Depositary shall direct the Custodian to Deliver (without unreasonable delay) at the designated office of the Custodian or through a book-entry delivery of the Shares (in either case, subject to Sections 2.7, 3.1, 3.2, 5.9, hereof and to the other terms and conditions of this Deposit Agreement, to the Memorandum and Articles of Association, and to the provisions of or governing the Deposited Securities and applicable laws, now or hereafter in effect) to or upon the written order of the person or persons designated in the order delivered to the Depositary as provided above, the Deposited Securities represented by such American Depositary Shares, together with any certificate or other proper documents of or relating to title of the Deposited Securities as may be legally required, as the case may be, to or for the account of such person.

 

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The Depositary may refuse to accept for surrender American Depositary Shares only in the circumstances described in Article (4) of the Receipt.  Subject thereto, in the case of surrender of a Receipt evidencing a number of American Depositary Shares representing other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be Delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) issue and Deliver to the person surrendering such Receipt a new Receipt evidencing American Depositary Shares representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Shares represented by the Receipt surrendered and remit the proceeds of such sale (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and (b) taxes and/or governmental charges) to the person surrendering the Receipt.

 

At the request, risk and expense of any Holder so surrendering a Receipt, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any cash or other property (other than securities) held in respect of, and any certificate or certificates and other proper documents of or relating to title to, the Deposited Securities represented by such Receipt to the Depositary for delivery at the Corporate Trust Office of the Depositary, and for further Delivery to such Holder.  Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex or facsimile transmission. Upon receipt by the Depositary of such direction, the Depositary may make delivery to such person or persons entitled thereto at the Corporate Trust Office of the Depositary of any dividends or cash distributions with respect to the Deposited Securities represented by such American Depositary Shares, or of any proceeds of sale of any dividends, distributions or rights, which may at the time be held by the Depositary.

 

SECTION 2.7  Limitations on Execution and Delivery, Transfer, etc. of Receipts; Suspension of Delivery, Transfer, etc..

 

(a)           Additional Requirements.  As a condition precedent to the execution and Delivery, registration, registration of transfer, split-up, subdivision, combination or surrender of any Receipt, the Delivery of any distribution thereon (whether in cash or shares) or withdrawal of any Deposited Securities, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of the Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in Section 5.9 hereof and Article (9) of the Receipt hereto, (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature or any other matter contemplated by Section 3.1 hereof and (iii) compliance with (A) any laws or governmental regulations relating to the execution and Delivery of Receipts or American Depositary Shares or to the withdrawal or Delivery of Deposited Securities and (B) such reasonable regulations and procedures as the Depositary may establish consistent with the provisions of this Deposit Agreement and applicable law.

 

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(b)           Additional Limitations.  The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the issuance of ADSs against the deposit of particular Shares may be withheld, or the registration of transfer of Receipts in particular instances may be refused, or the registration of transfers of Receipts generally may be suspended, during any period when the transfer books of the Depositary are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law, any government or governmental body or commission or any securities exchange on which the Receipts or Shares are listed, or under any provision of this Deposit Agreement or provisions of, or governing, the Deposited Securities, or any meeting of shareholders of the Company or for any other reason, subject, in all cases, to Section 7.10 hereof.

 

(c)           The Depositary shall not issue ADSs prior to the receipt of Shares or deliver Shares prior to the receipt and cancellation of ADSs.

 

SECTION 2.8  Lost Receipts, etc.  To the extent the Depositary has issued Receipts in physical certificated form, in case any Receipt shall be mutilated, destroyed, lost or stolen, unless the Depositary has notice that such ADR has been acquired by a bona fide purchaser, subject to Section 5.9 hereof, the Depositary shall execute and Deliver a new Receipt (which, in the discretion of the Depositary may be issued through any book-entry system, including, without limitation, DRS/Profile, unless specifically requested otherwise) in exchange and substitution for such mutilated Receipt upon cancellation thereof, or in lieu of and in substitution for such destroyed, lost or stolen Receipt.  Before the Depositary shall execute and Deliver a new Receipt in substitution for a destroyed, lost or stolen Receipt, the Holder thereof shall have (a) filed with the Depositary (i) a request for such execution and Delivery before the Depositary has notice that the Receipt has been acquired by a bona fide purchaser and (ii) a sufficient indemnity bond in form and amount acceptable to the Depositary and (b) satisfied any other reasonable requirements imposed by the Depositary.

 

SECTION 2.9  Cancellation and Destruction of Surrendered Receipts; Maintenance of Records.  All Receipts surrendered to the Depositary shall be cancelled by the Depositary. The Depositary is authorized to destroy Receipts so cancelled in accordance with its customary practices.  Cancelled Receipts shall not be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose.

 

SECTION 2.10   Maintenance of Records     .  The Depositary agrees to maintain records of all Receipts surrendered and Deposited Securities withdrawn under Section 2.6, substitute Receipts Delivered under Section 2.8 and cancelled or destroyed Receipts under Section 2.9, in keeping with the procedures ordinarily followed by stock transfer agents located in the United States.

 

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ARTICLE III.

 

CERTAIN OBLIGATIONS OF HOLDERS
AND BENEFICIAL OWNERS OF RECEIPTS

 

SECTION 3.1  Proofs, Certificates and Other Information.  Any person presenting Shares for deposit shall provide, any Holder and any Beneficial Owner may be required to provide, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary or the Custodian such proof of citizenship or residence, taxpayer status, payment of all applicable taxes or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Securities, compliance with applicable laws and the terms of this Deposit Agreement and the provisions of, or governing, the Deposited Securities or other information, to execute such certifications and to make such representations and warranties and to provide such other information and documentation as the Depositary may deem necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations hereunder. The Depositary and the Registrar, as applicable, may withhold the execution or Delivery or registration of transfer of any Receipt or the distribution or sale of any dividend or other distribution of rights or of the proceeds thereof, or to the extent not limited by the terms of Section 7.11 hereof, the Delivery of any Deposited Securities, until such proof or other information is filed or such certifications are executed, or such representations and warranties are made, or such other documentation or information provided, in each case to the Depositary’s and the Company’s satisfaction. The Depositary shall from time to time on the written request of the Company advise the Company of the availability of any such proofs, certificates or other information and shall, at the Company’s sole expense, provide or otherwise make available copies thereof to the Company upon written request therefor by the Company, unless such disclosure is prohibited by law.  Each Holder and Beneficial Owner agrees to provide, any information requested by the Company or the Depositary pursuant to this Section 3.1.  Nothing herein shall obligate the Depositary to (i) obtain any information for the Company if not provided by the Holders or Beneficial Owners or (ii) verify or vouch for the accuracy of the information so provided by the Holders or Beneficial Owners.

 

Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian, the Agents and each of their respective directors, officers, employees, agents and Affiliates against, and to hold each of them harmless from, any Losses which any of them may incur or which may be made against any of them as a result of or in connection with any inaccuracy in or omission from any such proof, certificate, representation, warranty, information or document furnished by or on behalf of such Holder and/or Beneficial Owner or as a result of any such failure to furnish any of the foregoing.

 

The obligations of Holders and Beneficial Owners under Section 3.1 shall survive any transfer of Receipts, any surrender of Receipts or withdrawal of Deposited Securities or the termination of the Deposit Agreement.

 

SECTION 3.2  Liability for Taxes and Other Charges.  If any present or future tax or other governmental charge shall become payable by the Depositary or the Custodian with respect to any ADR or any Deposited Securities or American Depositary Shares, such tax or other governmental charge shall be payable by the Holders and Beneficial Owners to the Depositary and such Holders and Beneficial Owners shall be deemed liable therefor.  The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Securities and may sell for the account of a Holder and/or Beneficial Owner any or all of the Deposited Securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) and charges, with the Holder and the Beneficial Owner remaining fully liable for any deficiency.  In addition to any other remedies available to it, the Depositary and the Custodian may refuse the deposit of Shares, and the Depositary may refuse to issue ADSs, to Deliver ADRs, to register the transfer, split-up or combination of ADRs and (subject to Section 7.11 hereof) the withdrawal of Deposited Securities, until payment in full of such tax, charge, penalty or interest is received. The liability of Holders and Beneficial Owners under this Section 3.2 shall survive any transfer of Receipts, any surrender of Receipts and withdrawal of Deposited Securities or the termination of this Deposit Agreement.

 

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SECTION 3.3  Representations and Warranties on Deposit of Shares.  Each person depositing Shares under this Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares and the certificates therefor are duly authorized, validly issued, fully paid, non-assessable and were legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares have been validly waived or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim and are not, and the American Depositary Shares issuable upon such deposit will not be, Restricted Securities, (v) the Shares presented for deposit have not been stripped of any rights or entitlements and (vi) the Shares are not subject to any lock-up agreement with the Company or other party, or the Shares are subject to a lock-up agreement but such lock-up agreement has terminated or the lock-up restrictions imposed thereunder have expired.  Such representations and warranties shall survive the deposit and withdrawal of Shares, the issuance and cancellation of American Depositary Shares in respect thereof and the transfer of such American Depositary SharesIf any such representations or warranties are false in any way, the Company and the Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.

 

SECTION 3.4  Compliance with Information Requests.  Notwithstanding any other provision of the Deposit Agreement, the Articles of Association and applicable law, each Holder and Beneficial Owner agrees to (a) provide such information as the Company or the Depositary may request pursuant to  law (including, without limitation, relevant Cayman Islands law, any applicable law of the United States, the Memorandum and Articles of Association, any resolutions of the Company’s Board of Directors adopted pursuant to the Memorandum and Articles of Association, the requirements of any markets or exchanges upon which the Shares, ADSs or Receipts are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or Receipts may be transferred), (b) be bound by and subject to applicable provisions of the laws of the Cayman Islands, the Memorandum and Articles of Association and the requirements of any markets or exchanges upon which the ADSs, Receipts or Shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs, Receipts or Shares may be transferred, to the same extent as if such Holder and Beneficial Owner held Shares directly, in each case irrespective of whether or not they are Holders or Beneficial Owners at the time such request is made and, without limiting the generality of the foregoing, (c) comply with all applicable provisions of Cayman Islands law, the rules and requirements of any stock exchange on which the Shares are, or will be registered, traded or listed and the Articles of Association regarding any such Holder or Beneficial Owner’s interest in Shares (including the aggregate of ADSs and Shares held by each such Holder or Beneficial Owner) and/or the disclosure of interests therein, whether or not the same may be enforceable against such Holder or Beneficial Owner. The Depositary agrees to use its reasonable efforts to forward upon the request of the Company, and at the Company’s expense, any such request from the Company to the Holders and to forward to the Company any such responses to such requests received by the Depositary.

 

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ARTICLE IV.

 

THE DEPOSITED SECURITIES

 

SECTION 4.1  Cash Distributions.  Whenever the Depositary receives confirmation from the Custodian of receipt of any cash dividend or other cash distribution on any Deposited Securities, or receives proceeds from the sale of any Shares, rights, securities or other entitlements under the terms hereof, the Depositary will, if at the time of receipt thereof any amounts received in a Foreign Currency can in the judgment of the Depositary (pursuant to Section 4.6 hereof) be converted on a practicable basis into Dollars transferable to the United States, promptly convert or cause to be converted such cash dividend, distribution or proceeds into Dollars (on the terms described in Section 4.6 hereof) and will distribute promptly the amount thus received (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and (b) taxes and/or governmental charges) to the Holders of record as of the ADS Record Date in proportion to the number of American Depositary Shares held by such Holders respectively as of the ADS Record Date.  The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent.  Any such fractional amounts shall be rounded down to the nearest whole cent and so distributed to Holders entitled thereto.  Holders and Beneficial Owners understand that in converting Foreign Currency, amounts received on conversion are calculated at a rate which exceeds the number of decimal places used by the Depositary to report distribution rates.  The excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment.  If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders of the ADSs representing such Deposited Securities shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority.  Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request.  The Depositary shall forward to the Company or its agent such information from its records as the Company may reasonably request to enable the Company or its agent to file with governmental agencies such reports as are necessary to obtain benefits under the applicable tax treaties for the Holders and Beneficial Owners of Receipts.

 

SECTION 4.2  Distribution in Shares.  If any distribution upon any Deposited Securities consists of a dividend in, or free distribution of, Shares, the Company shall cause such Shares to be deposited with the Custodian and registered, as the case may be, in the name of the Depositary, the Custodian or any of their nominees.  Upon receipt of confirmation of such deposit from the Custodian, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.7 hereof and shall, subject to Section 5.9 hereof, either (i) distribute to the Holders as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date, additional ADSs, which represent in the aggregate the number of Shares received as such dividend, or free distribution, subject to the other terms of this Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes and/or governmental charges), or (ii) if additional ADSs are not so distributed, each ADS issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional Shares distributed upon the Deposited Securities represented thereby (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes and/or governmental charges).  In lieu of Delivering fractional ADSs, the Depositary shall sell the number of Shares represented by the aggregate of such fractions and distribute the proceeds upon the terms described in Section 4.1 hereof. The Depositary may withhold any such distribution of Receipts if it has not received satisfactory assurances from the Company (including an Opinion of Counsel furnished at the expense of the Company) that such distribution does not require registration under the Securities Act or is exempt from registration under the provisions of the Securities Act.  To the extent such distribution may be withheld, the Depositary may dispose of all or a portion of such distribution in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of applicable taxes and/or governmental charges and fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary) to Holders entitled thereto upon the terms described in Section 4.1 hereof.

 

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SECTION 4.3  Elective Distributions in Cash or Shares.  Whenever the Company intends to distribute a dividend payable at the election of the holders of Shares in cash or in additional Shares, the Company shall give notice thereof to the Depositary at least 30 days prior to the proposed distribution stating whether or not it wishes such elective distribution to be made available to Holders of ADSs.  Upon receipt of notice indicating that the Company wishes such elective distribution to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available to the Holders of ADSs.  The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution is available to Holders of ADRs, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7 hereof (including, without limitation, any legal opinions of counsel in any applicable jurisdiction that the Depositary in its reasonable discretion may request, at the expense of the Company) and (iii) the Depositary shall have determined that such distribution is lawful and reasonably practicable.  If the above conditions are not satisfied, the Depositary shall, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in the local market in respect of the Shares for which no election is made, either cash upon the terms described in Section 4.1 hereof or additional ADSs representing such additional Shares upon the terms described in Section 4.2 hereof.  If the above conditions are satisfied, the Depositary shall establish an ADS Record Date (on the terms described in Section 4.7 hereof) and establish procedures to enable Holders to elect the receipt of the proposed dividend in cash or in additional ADSs.  The Company shall assist the Depositary in establishing such procedures to the extent necessary.  Subject to Section 5.9 hereof, if a Holder elects to receive the proposed dividend in cash, the dividend shall be distributed upon the terms described in Section 4.1 hereof or in ADSs, the dividend shall be distributed upon the terms described in Section 4.2 hereof.  Nothing herein shall obligate the Depositary to make available to Holders a method to receive the elective dividend in Shares (rather than ADSs).  There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares.

 

SECTION 4.4  Distribution of Rights to Purchase Shares.

 

(a)           Distribution to ADS Holders.  Whenever the Company intends to distribute to the holders of the Deposited Securities rights to subscribe for additional Shares, the Company shall give notice thereof to the Depositary at least 60 days prior to the proposed distribution stating whether or not it wishes such rights to be made available to Holders of ADSs.  Upon timely receipt of a notice indicating that the Company wishes such rights to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall determine, whether it is lawful and reasonably practicable to make such rights available to the Holders.  The Depositary shall make such rights available to Holders only if (i) the Company shall have timely requested that such rights be made available to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7 hereof and (iii) the Depositary shall have determined that such distribution of rights is lawful and reasonably practicable.  In the event any of the conditions set forth above are not satisfied, the Depositary shall proceed with the sale of the rights as contemplated in Section 4.4(b) below or, if timing or market conditions may not permit, do nothing thereby allowing such rights to lapse.  In the event all conditions set forth above are satisfied, the Depositary shall establish an ADS Record Date (upon the terms described in Section 4.7 hereof) and establish procedures to distribute such rights (by means of warrants or otherwise) and to enable the Holders to exercise the rights (upon payment of applicable fees and charges of, and expenses incurred by, the Depositary and taxes and/or other governmental charges).  Nothing herein shall obligate the Depositary to make available to the Holders a method to exercise such rights to subscribe for Shares (rather than ADSs).

 

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(b)           Sale of Rights.  If (i) the Company does not timely request the Depositary to make the rights available to Holders or requests that the rights not be made available to Holders, (ii) the Depositary fails to receive satisfactory documentation within the terms of Section 5.7 hereof or determines it is not lawful or reasonably practicable to make the rights available to Holders or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine whether it is lawful and reasonably practicable to sell such rights, and if it so determines that it is lawful and reasonably practicable, endeavour to sell such rights in a riskless principal capacity or otherwise, at such place and upon such terms (including public or private sale) as it may deem proper.  The Company shall assist the Depositary to the extent necessary to determine such legality and practicability.  The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) upon the terms set forth in Section 4.1 hereof.

 

(c)           Lapse of Rights.  If the Depositary is unable to make any rights available to Holders upon the terms described in Section 4.4(a) hereof or to arrange for the sale of the rights upon the terms described in Section 4.4(b) hereof, the Depositary shall allow such rights to lapse.

 

The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale or exercise or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.

 

Notwithstanding anything to the contrary in this Section 4.4, if registration (under the Securities Act or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act covering such offering is in effect or (ii) unless the Company furnishes at its expense the Depositary with opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case satisfactory to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws.  In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of property (including rights) an amount on account of taxes and/or other governmental charges, the amount distributed to the Holders shall be reduced accordingly.  In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes and/or charges.

 

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There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to exercise rights on the same terms and conditions as the holders of Shares or be able to exercise such rights.  Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights or otherwise to register or qualify the offer or sale of such rights or securities under the applicable law of any other jurisdiction for any purpose.

 

SECTION 4.5  Distributions Other Than Cash, Shares or Rights to Purchase Shares.

 

(a)           Whenever the Company intends to distribute to the holders of Deposited Securities property other than cash, Shares or rights to purchase additional Shares, the Company shall give notice thereof to the Depositary at least 30 days prior to the proposed distribution and shall indicate whether or not it wishes such distribution to be made to Holders of ADSs.  Upon receipt of a notice indicating that the Company wishes such distribution be made to Holders of ADSs, the Depositary shall determine whether such distribution to Holders is lawful and practicable.  The Depositary shall not make such distribution unless (i) the Company shall have timely requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7 hereof and (iii) the Depositary shall have determined that such distribution is lawful and reasonably practicable.

 

(b)           Upon receipt of satisfactory documentation and the request of the Company to distribute property to Holders of ADSs and after making the requisite determinations set forth in (a) above, the Depositary may distribute the property so received to the Holders of record as of the ADS Record Date, in proportion to the number of ADSs held by such Holders respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary  and (ii) net of any taxes and/or other governmental charges.  The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) and other governmental charges applicable to the distribution.

 

(c)           If (i) the Company does not request the Depositary to make such distribution to Holders or requests the Depositary not to make such distribution to Holders, (ii) the Depositary does not receive satisfactory documentation within the terms of Section 5.7 hereof or (iii) the Depositary determines that all or a portion of such distribution is not reasonably practicable or feasible, the Depositary shall endeavor to sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem proper and shall distribute the net proceeds, if any, of such sale received by the Depositary (net of applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) to the Holders as of the ADS Record Date upon the terms of Section 4.1 hereof.  If the Depositary is unable to sell such property, the Depositary may dispose of such property in any way it deems reasonably practicable under the circumstances for nominal or no consideration and Holders and Beneficial Owners shall have no rights thereto or arising therefrom.

 

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SECTION 4.6  Conversion of Foreign Currency.  Whenever the Depositary or the Custodian shall receive Foreign Currency, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and in the judgment of the Depositary such Foreign Currency can at such time be converted on a practicable basis (by sale or in any other manner that it may determine in accordance with applicable law) into Dollars transferable to the United States and distributable to the Holders entitled thereto, the Depositary shall convert or cause to be converted, by sale or in any other manner that it may determine, such Foreign Currency into Dollars, and shall distribute such Dollars (net of any fees, expenses, taxes and/or other governmental charges incurred in the process of such conversion) in accordance with the terms of the applicable sections of this Deposit Agreement.  If the Depositary shall have distributed warrants or other instruments that entitle the holders thereof to such Dollars, the Depositary shall distribute such Dollars to the holders of such warrants and/or instruments upon surrender thereof for cancellation, in either case without liability for interest thereon. Such distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Holders on account of exchange restrictions, the date of delivery of any Receipt or otherwise.

 

In converting Foreign Currency, amounts received on conversion may be calculated at a rate which exceeds the number of decimal places used by the Depositary to report distribution rates (which in any case will not be less than two decimal places).  Any excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment.

 

If such conversion or distribution can be effected only with the approval or license of any government or agency thereof, the Depositary may file such application for approval or license, if any, as it may deem necessary, practicable and at nominal cost and expense.  Nothing herein shall obligate the Depositary to file or cause to be filed, or to seek effectiveness of any such application or license.

 

If at any time the Depositary shall determine that in its judgment the conversion of any Foreign Currency and the transfer and distribution of proceeds of such conversion received by the Depositary is not practical or lawful, or if any approval or license of any governmental authority or agency thereof that is required for such conversion, transfer and distribution is denied, or not obtainable at a reasonable cost, within a reasonable period or otherwise sought, the Depositary shall, in its sole discretion but subject to applicable laws and regulations, either (i) distribute the Foreign Currency (or an appropriate document evidencing the right to receive such Foreign Currency) received by the Depositary to the Holders entitled to receive such Foreign Currency or (ii) hold such Foreign Currency uninvested and without liability for interest thereon for the respective accounts of the Holders entitled to receive the same.

 

Holders and Beneficial Owners are directed to refer to Section 7.9 hereof for certain disclosure related to conversion of Foreign Currency.

 

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SECTION 4.7  Fixing of Record Date.  Whenever necessary in connection with any distribution (whether in cash, Shares, rights, or other distribution), or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each American Depositary Share, or whenever the Depositary shall receive notice of any meeting of or solicitation of holders of Shares or other Deposited Securities, or whenever the Depositary shall find it necessary or convenient, the Depositary shall fix a record date (the “ADS Record Date”), as close as practicable to the record date fixed by the Company with respect to the Shares (if applicable), for the determination of the Holders who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, to give or withhold such consent, to receive such notice or solicitation or to otherwise take action or to exercise the rights of Holders with respect to such changed number of Shares represented by each American Depositary Share or for any other reason.  Subject to applicable law and the provisions of Sections 4.1 through 4.6 hereof and to the other terms and conditions of this Deposit Agreement, only the Holders of record at the close of business in New York on such ADS Record Date shall be entitled to receive such distribution, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.

 

SECTION 4.8  Voting of Deposited Securities.  Subject to the next sentence, as soon as practicable after receipt of notice of any meeting at which the holders of Deposited Securities are entitled to vote, or of solicitation of consents or proxies from holders of Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or such solicitation of consents or proxies. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least 30 Business Days prior to the date of such vote or meeting) and at the Company’s expense, and provided no U.S. legal prohibitions exist, mail by regular, ordinary mail delivery (or by electronic mail or as otherwise may be agreed between the Company and the Depositary in writing from time to time) or otherwise distribute as soon as practicable after receipt thereof to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy; (b) a statement that the Holders at the close of business on the ADS Record Date will be entitled, subject to any applicable law, the provisions of this Deposit Agreement, the Company’s Memorandum and Articles of Association and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by such Holder’s American Depositary Shares; and (c) a brief statement as to the manner in which such voting instructions may be given to the Depositary, or in which instructions may be deemed to have been given in accordance with this Section 4.8, including an express indication that instructions may be given (or be deemed to have been given in accordance with the immediately following paragraph of this section if no instruction is received) to the Depositary to give a discretionary proxy to a person or persons designated by the Company.  Voting instructions may be given only in respect of a number of American Depositary Shares representing an integral number of Deposited Securities.  Upon the timely receipt of voting instructions of a Holder on the ADS Record Date in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of this Deposit Agreement, the Company’s Memorandum and Articles of Association and the provisions of or governing the Deposited Securities, to vote or cause the Custodian to vote the Deposited Securities (in person or by proxy) represented by American Depositary Shares evidenced by such Receipt in accordance with such voting instructions.

 

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In the event that (i) the Depositary timely receives voting instructions from a Holder which fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs or (ii) no timely instructions are received by the Depositary from a Holder with respect to any of the Deposited Securities represented by the ADSs held by such Holder on the ADS Record Date, the Depositary shall (unless otherwise specified in the notice distributed to Holders) deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to such Deposited Securities and the Depositary shall give a discretionary proxy to a person designated by the Company to vote such Deposited Securities, provided, however, that no such instruction shall be deemed to have been given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information as promptly as practicable in writing, if applicable) that (x) the Company does not wish to give such proxy, (y) the Company is aware or should reasonably be aware that substantial opposition exists from Holders against the outcome for which the person designated by the Company would otherwise vote or (z) the outcome for which the person designated by the Company would otherwise vote would materially and adversely affect the rights of holders of Deposited Securities, provided, further, that the Company will have no liability to any Holder or Beneficial Owner resulting from such notification.

 

In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with the Memorandum and Articles of Association, 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 have no obligation to demand voting on a poll basis with respect to any resolution and shall have no liability to any Holder or Beneficial Owner for not having demanded voting on a poll basis.

 

Neither the Depositary nor the Custodian shall, under any circumstances exercise any discretion as to voting, and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of for purposes of establishing a quorum or otherwise, the Deposited Securities represented by ADSs except pursuant to and in accordance with such written instructions from Holders, including the deemed instruction to the Depositary to give a discretionary proxy to a person designated by the Company.  Deposited Securities represented by ADSs for which (i) no timely voting instructions are received by the Depositary from the Holder, or (ii) timely voting instructions are received by the Depositary from the Holder but such voting instructions fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs, shall be voted in the manner provided in this Section 4.8.  Notwithstanding anything else contained herein, and subject to applicable law, regulation and the Memorandum and Articles of Association, the Depositary shall, if so requested in writing by the Company, represent all Deposited Securities (whether or not voting instructions have been received in respect of such Deposited Securities from Holders as of the ADS Record Date) for the purpose of establishing quorum at a meeting of shareholders.

 

There can be no assurance that Holders or Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.

 

Notwithstanding the above, save for applicable provisions of the law of the Cayman Islands, and in accordance with the terms of Section 5.3 hereof, the Depositary shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities or the manner in which such vote is cast or the effect of such vote.

 

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SECTION 4.9  Changes Affecting Deposited Securities.  Upon any change in par value, split-up, subdivision, cancellation, consolidation or any other reclassification of Deposited Securities or upon any recapitalization, reorganization, amalgamation, merger or consolidation or sale of assets affecting the Company or to which it is otherwise a party, any securities which shall be received by the Depositary or the Custodian in exchange for, or in conversion of or replacement or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Securities under this Deposit Agreement and the Receipts shall, subject to the provisions of this Deposit Agreement and applicable law, evidence American Depositary Shares representing the right to receive such additional securities.  Alternatively, the Depositary may, with the Company’s approval, and shall, if the Company shall so request, subject to the terms of this Deposit Agreement and receipt of an Opinion of Counsel furnished at the Company’s expense satisfactory to the Depositary (stating that such distributions are not in violation of any applicable laws or regulations), execute and deliver additional Receipts, as in the case of a stock dividend on the Shares, or call for the surrender of outstanding Receipts to be exchanged for new Receipts. In either case, as well as in the event of newly deposited Shares, necessary modifications to the form of Receipt contained in Exhibit A and Exhibit B hereto, specifically describing such new Deposited Securities and/or corporate change, shall also be made. The Company agrees that it will, jointly with the Depositary, amend the Registration Statement on Form F-6 as filed with the Commission to permit the issuance of such new form of Receipt. Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall, if the Company requests, subject to receipt of an Opinion of Counsel (furnished at the Company’s expense) satisfactory to the Depositary that such action is not in violation of any applicable laws or regulations, sell such securities at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) for the account of the Holders otherwise entitled to such securities upon an averaged or other practicable basis without regard to any distinctions among such Holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to Section 4.1 hereof. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or feasible to make such securities available to Holders in general or to any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale or (iii) any liability to the purchaser of such securities.

 

SECTION 4.10  Available Information.  The Company is subject to the periodic reporting requirements of the Exchange Act applicable to foreign private issuers (as defined in Rule 405 of the Securities Act) and accordingly files certain information with the Commission.  These reports and documents can be inspected and copied at the Commission’s website at www.sec.gov or at the public reference facilities maintained by the Commission located at 100 F Street, N.E., Washington D.C. 20549, U.S.A.

 

SECTION 4.11  Reports.  The Depositary shall make available during normal business hours on any Business Day for inspection by Holders at its Corporate Trust Office any reports and communications, including any proxy soliciting materials, received from the Company which are both received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Securities and made generally available to the holders of such Deposited Securities by the Company.  The Company agrees to provide to the Depositary, at the Company’s expense, all such documents that it provides to the Custodian.  Unless otherwise agreed in writing by the Company and the Depositary, the Depositary shall, at the expense of the Company and in accordance with Section 5.6 hereof, also mail to Holders by regular, ordinary mail delivery or by electronic transmission (if agreed by the Company and the Depositary) copies of notices and reports when furnished by the Company pursuant to Section 5.6 hereof.

 

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SECTION 4.12  List of Holders.  Promptly upon written request by the Company, the Depositary shall, at the expense of the Company, furnish to it a list, as of a recent date, of the names, addresses and holdings of American Depositary Shares by all persons in whose names Receipts are registered on the books of the Depositary.

 

SECTION 4.13  Taxation; Withholding.  The Depositary will, and will instruct the Custodian to, forward to the Company or its agents such information from its records as the Company may request to enable the Company or its agents to file necessary tax reports with governmental authorities or agencies. The Depositary, the Custodian or the Company and its agents may, but shall not be obligated to, file such reports as are necessary to reduce or eliminate applicable taxes on dividends and on other distributions in respect of Deposited Securities under applicable tax treaties or laws for the Holders and Beneficial Owners. Holders and Beneficial Owners of American Depositary Shares may be required from time to time, and in a timely manner, to provide and/or file such proof of taxpayer status, residence and beneficial ownership (as applicable), to execute such certificates and to make such representations and warranties, or to provide any other information or documents, as the Depositary or the Custodian may deem necessary or proper to fulfill the Depositary’s or the Custodian’s obligations under applicable law. The Holders and Beneficial Owners shall indemnify the Depositary, the Company, the Custodian, the Agents and their respective directors, officers, 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 by the Beneficial Owner or Holder or out of or in connection with any inaccuracy in or omission from any such proof, certificate, representation, warranty, information or document furnished by or on behalf of such Holder or Beneficial Owner. The obligations of Holders and Beneficial Owners under this Section 4.13 shall survive any transfer of Receipts, any surrender of Receipts and withdrawal of Deposited Securities or the termination of this Deposit Agreement.

 

The Company shall remit to the appropriate governmental authority or agency any amounts required to be withheld by the Company and owing to such governmental authority or agency.  Upon any such withholding, the Company shall remit to the Depositary information, in a form reasonably satisfactory to the Depositary, about such taxes and/or governmental charges withheld or paid, and, if so requested, the tax receipt (or other proof of payment to the applicable governmental authority) therefor.  The Depositary shall, to the extent required by U.S. law, report to Holders (i) any taxes withheld by it; (ii) any taxes withheld by the Custodian, subject to information being provided to the Depositary by the Custodian and (iii) any taxes withheld by the Company, subject to information being provided to the Depositary by the Company. The Depositary and the Custodian shall not be required to provide the Holders with any evidence of the remittance by the Company (or its agents) of any taxes withheld, or of the payment of taxes by the Company, except to the extent the evidence is provided by the Company to the Depositary.  None of the Depositary, the Custodian or the Company shall be liable for the failure by any Holder or Beneficial Owner 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.

 

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In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charge which the Depositary is obligated to withhold, the Depositary shall withhold the amount required to be withheld and may by public or private sale dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes and/or charges and the Depositary shall distribute the net proceeds of any such sale after deduction of such taxes and/or charges to the Holders entitled thereto in proportion to the number of American Depositary Shares held by them respectively.

 

The Depositary is under no obligation to provide the Holders and Beneficial Owners with any information about the tax status of the Company.  The Depositary shall not incur any liability for any tax consequences that may be incurred by Holders and Beneficial Owners on account of their ownership of the American Depositary Shares, including without limitation, tax consequences resulting from the Company (or any of its subsidiaries) being treated as a “Passive Foreign Investment Company” (as defined in the U.S. Internal Revenue Code of 1986, as amended and the regulations issued thereunder) or otherwise.

 

ARTICLE V.

 

THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY

 

SECTION 5.1  Maintenance of Office and Transfer Books by the Registrar.  Until termination of this Deposit Agreement in accordance with its terms, the Depositary or if a Registrar for the Receipts shall have been appointed, the Registrar shall maintain in the Borough of Manhattan, the City of New York, an office and facilities for the execution and delivery, registration, registration of transfers, combination and split-up of Receipts, the surrender of Receipts and the Delivery and withdrawal of Deposited Securities in accordance with the provisions of this Deposit Agreement.

 

The Depositary or the Registrar as applicable, shall keep books for the registration of Receipts and transfers of Receipts which at all reasonable times shall be open for inspection by the Company and by the Holders of such Receipts, provided that such inspection shall not be, to the Depositary’s or the Registrar’s knowledge, for the purpose of communicating with Holders of such Receipts in the interest of a business or object other than the business of the Company or other than a matter related to this Deposit Agreement or the Receipts.

 

The Depositary or the Registrar, as applicable, may close the transfer books with respect to the Receipts, at any time and from time to time, when deemed necessary or advisable by it in connection with the performance of its duties hereunder, or at the reasonable written request of the Company.

 

If any Receipts or the American Depositary Shares evidenced thereby are listed on one or more stock exchanges or automated quotation systems in the United States, the Depositary shall act as Registrar or appoint a Registrar or one or more co-registrars for registration of Receipts and transfers, combinations and split-ups, and to countersign such Receipts in accordance with any requirements of such exchanges or systems. Such Registrar or co-registrars may be removed and a substitute or substitutes appointed by the Depositary.

 

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If any Receipts or the American Depositary Shares evidenced thereby are listed on one or more securities exchanges, markets or automated quotation systems, (i) the Depositary shall be entitled to, and shall, take or refrain from taking such action(s) as it may deem necessary or appropriate to comply with the requirements of such securities exchange(s), market(s) or automated quotation system(s) applicable to it, notwithstanding any other provision of this Deposit Agreement; and (ii) upon the reasonable request of the Depositary, the Company shall provide the Depositary such information and assistance as may be reasonably necessary for the Depositary to comply with such requirements, to the extent that the Company may lawfully do so.

 

Each Registrar and co-registrar appointed under this Section 5.1 shall give notice in writing to the Depositary accepting such appointment and agreeing to be bound by the applicable terms of the Deposit Agreement.

 

SECTION 5.2  Exoneration.  None of the Depositary, the Custodian or the Company shall be obligated to do or perform any act which is inconsistent with the provisions of this Deposit Agreement or shall incur any liability to Holders, Beneficial Owners or any third parties (i) if the Depositary, the Custodian or the Company or their respective controlling persons or agents (including without limitation, the Agents) shall be prevented or forbidden from, or delayed in, doing or performing any act or thing required by the terms of this Deposit Agreement, by reason of any provision of any present or future law or regulation of the United States or any state thereof, the Cayman Islands or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of the possible criminal or civil penalties or restraint, or by reason of any provision, present or future, of the Memorandum and Articles of Association or any provision of or governing any Deposited Securities, or by reason of any act of God or war or other circumstances beyond its control (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, revolutions, rebellions, explosions and computer failure), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement or in the Memorandum and Articles of Association or provisions of or governing Deposited Securities, (iii) for any action or inaction of the Depositary, the Custodian or the Company or their respective controlling persons or agents (including without limitation, the Agents) in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for the inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of this Deposit Agreement, made available to Holders of American Depositary Shares or (v) for any special, consequential, indirect or punitive damages for any breach of the terms of this Deposit Agreement or otherwise.

 

The Depositary, its controlling persons, its agents (including without limitation, the Agents), the Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.

 

No disclaimer of liability under the Securities Act or the Exchange Act is intended by any provision of this Deposit Agreement.

 

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SECTION 5.3  Standard of Care.  The Company and the Depositary and their respective directors, officers, Affiliates, employees and agents (including without limitation, the Agents) assume no obligation and shall not be subject to any liability under this Deposit Agreement or any Receipts to any Holder(s) or Beneficial Owner(s) or other persons, except in accordance with Section 5.8 hereof, provided, that the Company and the Depositary and their respective directors, officers, Affiliates, employees and agents (including without limitation, the Agents) agree to perform their respective obligations specifically set forth in this Deposit Agreement or the applicable ADRs without gross negligence or willful misconduct.

 

Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their respective controlling persons, directors, officers, affiliates, employees or agents (including without limitation, the Agents), shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or in respect of the Receipts, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expenses (including fees and disbursements of counsel) and liabilities be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary).

 

The Depositary and its directors, officers, affiliates, employees and agents (including without limitation, the Agents) shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast or the effects of any vote.  The Depositary shall not incur any liability for any failure to determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Securities, for the validity or worth of the Deposited Securities or for any tax consequences that may result from the ownership of ADSs, Shares or Deposited Securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of this Deposit Agreement or for the failure or timeliness of any notice from the Company, or for any action or non action by it in reliance upon the opinion, advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder or any other person believed by it in good faith to be competent to give such advice or information.  The Depositary and its agents (including without limitation, the Agents) shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without gross negligence or willful misconduct while it acted as Depositary.

 

SECTION 5.4  Resignation and Removal of the Depositary; Appointment of Successor Depositary.  The Depositary may at any time resign as Depositary hereunder by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall, in the event no successor depositary has been appointed by the Company, be entitled to take the actions contemplated in Section 6.2 hereof) and (ii) the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided, save that, any amounts, fees, costs or expenses owed to the Depositary hereunder or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such resignation.

 

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The Company shall use reasonable efforts to appoint such successor depositary, and give notice to the Depositary of such appointment, not more than 90 days after delivery by the Depositary of written notice of resignation as provided in this Section 5.4.  In the event that notice of the appointment of a successor depositary is not provided by the Company in accordance with the preceding sentence, the Depositary shall be entitled to take the actions contemplated in Section 6.2 hereof.

 

The Depositary may at any time be removed by the Company by written notice of such removal, which removal shall be effective on the later of (i) the 90th day after delivery thereof to the Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2 hereof if a successor depositary has not been appointed), and (ii)  the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided, save that, any amounts, fees, costs or expenses owed to the Depositary hereunder or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such removal.

 

In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York.  Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed (except as required by applicable law), shall become fully vested with all the rights, powers, duties and obligations of its predecessor.  The predecessor depositary, upon payment of all sums due to it and on the written request of the Company, shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in Sections 5.8 and 5.9 hereof), (ii) duly assign, transfer and deliver all right, title and interest to the Deposited Securities to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding Receipts and such other information relating to Receipts and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly mail notice of its appointment to such Holders.

 

Any corporation into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act and, notwithstanding anything to the contrary in this Deposit Agreement, the Depositary may assign or otherwise transfer all or any of its rights and benefits under this Deposit Agreement (including any cause of action arising in connection with it) to Deutsche Bank AG or any branch thereof or any entity which is a direct or indirect subsidiary or other affiliate of Deutsche Bank AG.

 

SECTION 5.5  The Custodian.  The Custodian or its successors in acting hereunder shall be subject at all times and in all respects to the direction of the Depositary for the Deposited Securities for which the Custodian acts as custodian and shall be responsible solely to it.  If any Custodian resigns or is discharged from its duties hereunder with respect to any Deposited Securities and no other Custodian has previously been appointed hereunder, the Depositary shall promptly appoint a substitute custodian.  The Depositary shall require such resigning or discharged Custodian to deliver the Deposited Securities held by it, together with all such records maintained by it as Custodian with respect to such Deposited Securities as the Depositary may request, to the Custodian designated by the Depositary.  Whenever the Depositary determines, in its discretion, that it is appropriate to do so, it may appoint an additional entity to act as Custodian with respect to any Deposited Securities, or discharge the Custodian with respect to any Deposited Securities and appoint a substitute custodian, which shall thereafter be Custodian hereunder with respect to the Deposited Securities.  After any such change, the Depositary shall give notice thereof in writing to all Holders.

 

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Upon the appointment of any successor depositary, any Custodian then acting hereunder shall, unless otherwise instructed by the Depositary, continue to be the Custodian of the Deposited Securities without any further act or writing and shall be subject to the direction of the successor depositary. The successor depositary so appointed shall, nevertheless, on the written request of any Custodian, execute and deliver to such Custodian all such instruments as may be proper to give to such Custodian full and complete power and authority to act on the direction of such successor depositary.

 

SECTION 5.6  Notices and Reports.  On or before the first date on which the Company gives notice, by publication or otherwise, of any meeting of holders of Shares or other Deposited Securities, or of any adjourned meeting of such holders, or of the taking of any action by such holders other than at a meeting, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of Deposited Securities, the Company shall transmit to the Depositary and the Custodian a copy of the notice thereof in English but otherwise in the form given or to be given to holders of Shares or other Deposited Securities. The Company shall also furnish to the Custodian and the Depositary a summary, in English, of any applicable provisions or proposed provisions of the Memorandum and Articles of Association that may be relevant or pertain to such notice of meeting or be the subject of a vote thereat.

 

The Company will also transmit to the Depositary (a) English language versions of the other notices, reports and communications which are made generally available by the Company to holders of its Shares or other Deposited Securities and (b) English language versions of the Company’s annual and other reports prepared in accordance with the applicable requirements of the Commission.  The Depositary shall arrange, at the request of the Company and at the Company’s expense, for the mailing of copies thereof to all Holders, or by any other means as agreed between the Company and the Depositary (at the Company’s expense) or make such notices, reports and other communications available for inspection by all Holders, provided, that, the Depositary shall have received evidence sufficiently satisfactory to it, including in the form of an Opinion of Counsel regarding U.S. law or of any other applicable jurisdiction, furnished at the expense of the Company, as the Depositary reasonably requests, that the distribution of such notices, reports and any such other communications to Holders from time to time is valid and does not or will not infringe any local, U.S. or other applicable jurisdiction regulatory restrictions or requirements if so distributed and made available to Holders.  The Company will timely provide the Depositary with the quantity of such notices, reports, and communications, as requested by the Depositary from time to time, in order for the Depositary to effect such mailings. The Company has delivered to the Depositary and the Custodian a copy of the Memorandum and Articles of Association along with the provisions of or governing the Shares and any other Deposited Securities issued by the Company or any Affiliate of the Company, in connection with the Shares, in each case, to the extent not in English, along with a certified English translation thereof, and promptly upon any amendment thereto or change therein, the Company shall deliver to the Depositary and the Custodian a copy of such amendment thereto or change therein, to the extent not in English, along with a certified English translation thereof. The Depositary may rely upon such copy for all purposes of this Deposit Agreement.

 

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The Depositary will make available, at the expense of the Company, a copy of any such notices, reports or communications issued by the Company and delivered to the Depositary for inspection by the Holders of the Receipts evidencing the American Depositary Shares representing such Shares governed by such provisions at the Depositary’s Corporate Trust Office, at the office of the Custodian and at any other designated transfer office.

 

SECTION 5.7  Issuance of Additional Shares, ADSs etc.  The Company agrees that in the event it or any of its Affiliates proposes (i) an issuance, sale or distribution of additional Shares, (ii) an offering of rights to subscribe for Shares or other Deposited Securities, (iii) an issuance of securities convertible into or exchangeable for Shares, (iv) an issuance of rights to subscribe for securities convertible into or exchangeable for Shares, (v) an elective dividend of cash or Shares, (vi) a redemption of Deposited Securities, (vii) a meeting of holders of Deposited Securities, or solicitation of consents or proxies, relating to any reclassification of securities, merger, subdivision, amalgamation or consolidation or transfer of assets, (viii) any reclassification, recapitalization, reorganization, merger, amalgamation, consolidation or sale of assets which affects the Deposited Securities or (ix) a distribution of property other than cash, Shares or rights to purchase additional Shares it will obtain U.S. legal advice and take all steps necessary to ensure that the application of the proposed transaction to Holders and Beneficial Owners does not violate the registration provisions of the Securities Act, or any other applicable laws (including, without limitation, the Investment Company Act of 1940, as amended, the Exchange Act or the securities laws of the states of the United States).  In support of the foregoing, the Company will furnish to the Depositary at its request, at the Company’s expense, (a) a written opinion of U.S. counsel (satisfactory to the Depositary) stating whether or not application of such transaction to Holders and Beneficial Owners (1) requires a registration statement under the Securities Act to be in effect or (2) is exempt from the registration requirements of the Securities Act and/or (3) dealing with such other issues requested by the Depositary; (b) a written opinion of Cayman Islands counsel (satisfactory to the Depositary) stating that (1) making the transaction available to Holders and Beneficial Owners does not violate the laws or regulations of the Cayman Islands and (2) all requisite regulatory consents and approvals have been obtained in the Cayman Islands; and (c) as the Depositary may request, a written Opinion of Counsel in any other jurisdiction in which Holders or Beneficial Owners reside to the effect that making the transaction available to such Holders or Beneficial Owners does not violate the laws or regulations of such jurisdiction.  If the filing of a registration statement is required, the Depositary shall not have any obligation to proceed with the transaction unless it shall have received evidence reasonably satisfactory to it that such registration statement has been declared effective and that such distribution is in accordance with all applicable laws or regulations.  If, being advised by counsel, the Company determines that a transaction is required to be registered under the Securities Act, the Company will either (i) register such transaction to the extent necessary, (ii) alter the terms of the transaction to avoid the registration requirements of the Securities Act or (iii) direct the Depositary to take specific measures, in each case as contemplated in this Deposit Agreement, to prevent such transaction from violating the registration requirements of the Securities Act.

 

The Company agrees with the Depositary that neither the Company nor any of its Affiliates will at any time (i) deposit any Shares or other Deposited Securities, either upon original issuance or upon a sale of Shares or other Deposited Securities previously issued and reacquired by the Company or by any such Affiliate, or (ii) issue additional Shares, rights to subscribe for such Shares, securities convertible into or exchangeable for Shares or rights to subscribe for such securities, unless such transaction and the securities issuable in such transaction are exempt from registration under the Securities Act or have been registered under the Securities Act (and such registration statement has been declared effective).

 

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Notwithstanding anything else contained in this Deposit Agreement, nothing in this Deposit Agreement shall be deemed to obligate the Company to file any registration statement in respect of any proposed transaction.

 

SECTION 5.8  Indemnification.  The Company agrees to indemnify the Depositary, any Custodian and each of their respective directors, officers, employees, agents (including without limitation, the Agents) and Affiliates against, and hold each of them harmless from, any losses, liabilities, taxes, costs, claims, judgments, proceedings, actions, demands and any charges or expenses of any kind whatsoever (including, but not limited to, reasonable fees and expenses of counsel together with, in each case, value added tax and any similar tax charged or otherwise imposed in respect thereof) (collectively referred to as “Losses”) which the Depositary or any agent (including without limitation, the Agents) thereof may incur or which may be made against it as a result of or in connection with its appointment or the exercise of its powers and duties under this Agreement or that may arise (a) out of or in connection with any offer, issuance, sale, resale, transfer, deposit or withdrawal of Receipts, American Depositary Shares, the Shares, or other Deposited Securities, as the case may be, (b) out of or in connection with any offering documents in respect thereof or (c) out of or in connection with acts performed or omitted, including, but not limited to, any delivery by the Depositary on behalf of the Company of information regarding the Company in connection with this Deposit Agreement, the Receipts, the American Depositary Shares, the Shares, or any Deposited Securities, in any such case (i) by the Depositary, the Custodian or any of their respective directors, officers, employees, agents (including without limitation, the Agents) and Affiliates, except to the extent any such Losses arise out of the gross negligence or wilful misconduct of any of them, or (ii) by the Company or any of its directors, officers, employees, agents and Affiliates.

 

The Depositary agrees to indemnify the Company and hold it harmless from any Losses which may arise out of acts performed or omitted to be performed by the Depositary arising out of its gross negligence or wilful misconduct.  Notwithstanding the above, in no event shall the Depositary or any of its directors, officers, employees, agents (including without limitation, the Agents) and/or Affiliates be liable for any special, consequential, indirect or punitive damages to the Company, Holders, Beneficial Owners or any other person.

 

Any person seeking indemnification hereunder (an “Indemnified Person”) shall notify the person from whom it is seeking indemnification (the “Indemnifying Person”) of the commencement of any indemnifiable action or claim promptly after such Indemnified Person becomes aware of such commencement (provided that the failure to make such notification shall not affect such Indemnified Person’s rights to indemnification except to the extent the Indemnifying Person is materially prejudiced by such failure) and shall consult in good faith with the Indemnifying Person as to the conduct of the defense of such action or claim that may give rise to an indemnity hereunder, which defense shall be reasonable under the circumstances. No Indemnified Person shall compromise or settle any action or claim that may give rise to an indemnity hereunder without the consent of the Indemnifying Person, which consent shall not be unreasonably withheld.

 

The obligations set forth in this Section shall survive the termination of this Deposit Agreement and the succession or substitution of any party hereto.

 

SECTION 5.9  Fees and Charges of Depositary.  The Company, the Holders, the Beneficial Owners, and persons depositing Shares or surrendering ADSs for cancellation and withdrawal of Deposited Securities shall be required to pay to the Depositary the Depositary’s fees and related charges identified as payable by them respectively as provided for under Article (9) of the Receipt.  All fees and charges so payable may, at any time and from time to time, be changed by agreement between the Depositary and the Company, but, in the case of fees and charges payable by Holders and Beneficial Owners, only in the manner contemplated in Section 6.1 hereof.  The Depositary shall provide, without charge, a copy of its latest fee schedule to anyone upon request.

 

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The Depositary and the Company may reach separate agreement in relation to the payment of any additional remuneration to the Depositary in respect of any exceptional duties which the Depositary finds necessary or desirable and agreed by both parties in the performance of its obligations hereunder and in respect of the actual costs and expenses of the Depositary in respect of any notices required to be given to the Holders in accordance with Article (20) of the Receipt.

 

In connection with any payment by the Company to the Depositary:

 

(i)                                     all fees, taxes, duties, charges, costs and expenses which are payable by the Company shall be paid or be procured to be paid by the Company (and any such amounts which are paid by the Depositary shall be reimbursed to the Depositary by the Company upon demand therefor);

 

(ii)                                  such payment shall be subject to all necessary applicable exchange control and other consents and approvals having been obtained. The Company undertakes to use its reasonable endeavours to obtain all necessary approvals that are required to be obtained by it in this connection; and

 

(iii)                               the Depositary may request, in its sole but reasonable discretion after reasonable consultation with the Company, an Opinion of Counsel regarding U.S. law, the laws of the Cayman Islands or of any other relevant jurisdiction, to be furnished at the expense of the Company, if at any time it deems it necessary to seek such an Opinion of Counsel regarding the validity of any action to be taken or instructed to be taken under this Agreement.

 

The Company agrees to promptly pay to the Depositary such other fees, charges and expenses and to reimburse the Depositary for such out-of-pocket expenses as the Depositary and the Company may agree to in writing from time to time.  Responsibility for payment of such charges may at any time and from time to time be changed by agreement between the Company and the Depositary.

 

All payments by the Company to the Depositary under this Section 5.9 shall be paid without set-off or counterclaim, and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imports, duties, fees, assessments or other charges of whatever nature, imposed by the Cayman Islands or by any department, agency or other political subdivision or taxing authority thereof or therein, and all interest, penalties or similar liabilities with respect thereto.

 

The right of the Depositary to receive payment of fees, charges and expenses as provided above shall survive the termination of this Deposit Agreement.  As to any Depositary, upon the resignation or removal of such Depositary as described in Section 5.4 hereof, such right shall extend for those fees, charges and expenses incurred prior to the effectiveness of such resignation or removal.

 

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SECTION 5.10  Restricted Securities Owners/Ownership Restrictions.  From time to time or upon request of the Depositary, the Company shall provide to the Depositary a list setting forth, to the actual knowledge of the Company, those persons or entities who beneficially own Restricted Securities and the Company shall update such list on a regular basis. The Depositary may rely on such list or update but shall not be liable for any action or omission made in reliance thereon. The Company agrees to advise in writing each of the persons or entities who, to the knowledge of the Company, holds Restricted Securities that such Restricted Securities are ineligible for deposit hereunder and, to the extent practicable, shall require each of such persons to represent in writing that such person will not deposit Restricted Securities hereunder.  Holders and Beneficial Owners shall comply with any limitations on ownership of Shares under the Memorandum and Articles of Association or applicable Cayman Islands law as if they held the number of Shares their ADSs represent. The Company shall, in accordance with Article (24) of the Receipt, inform Holders and Beneficial Owners and the Depositary of any other limitations on ownership of Shares that the Holders and Beneficial Owners may be subject to by reason of the number of ADSs held under the Articles of Association or applicable Cayman Islands law, as such restrictions may be in force from time to time.

 

The Company may, in its sole discretion, but subject to applicable law, instruct the Depositary to take action with respect to the ownership interest of any Holder or Beneficial Owner pursuant to the Memorandum and Articles of Association, including but not limited to, the removal or limitation of voting rights or the mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the Shares represented by the ADRs held by such Holder or Beneficial Owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and the Memorandum and Articles of Association; provided that any such measures are practicable and legal and can be undertaken without undue burden or expense, and provided further the Depositary’s agreement to the foregoing is conditional upon it being advised of any applicable changes in the Memorandum and Articles of Association.  The Depositary shall have no liability for any actions taken in accordance with such instructions.

 

ARTICLE VI.

 

AMENDMENT AND TERMINATION

 

SECTION 6.1  Amendment/Supplement.  Subject to the terms and conditions of this Section 6.1 and applicable law, the Receipts outstanding at any time, the provisions of this Deposit Agreement and the form of Receipt attached hereto and to be issued under the terms hereof may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable and not materially prejudicial to the Holders without the consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than charges in connection with foreign exchange control regulations, and taxes and/or other governmental charges, delivery and other such expenses payable by Holders or Beneficial Owners), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding Receipts until 30 days after notice of such amendment or supplement shall have been given to the Holders of outstanding Receipts. Notice of any amendment to the Deposit Agreement or form of Receipts shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the Commission’s, the Depositary’s or the Company’s website or upon request from the Depositary).The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the American Depositary Shares to be registered on Form F-6 under the Securities Act or (b) the American Depositary Shares or the Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such American Depositary Share or Shares, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement as amended and supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such Receipt and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require amendment or supplement of the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and the Receipt at any time in accordance with such changed laws, rules or regulations.  Such amendment or supplement to the Deposit Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, rules or regulations.

 

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SECTION 6.2  Termination.  The Depositary shall, at any time at the written direction of the Company, terminate this Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 90 days prior to the date fixed in such notice for such termination, provided that, the Depositary shall be reimbursed for any amounts, fees, costs or expenses owed to it in accordance with the terms of this Deposit Agreement and in accordance with any other agreements as otherwise agreed in writing between the Company and the Depositary from time to time, prior to such termination shall take effect. If 90 days shall have expired after (i) the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and in either case a successor depositary shall not have been appointed and accepted its appointment as provided in Section 5.4 hereof, the Depositary may terminate this Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 30 days prior to the date fixed for such termination. On and after the date of termination of this Deposit Agreement, each Holder will, upon surrender of such Receipt at the Corporate Trust Office of the Depositary, upon the payment of the charges of the Depositary for the surrender of Receipts referred to in Section 2.6 hereof and subject to the conditions and restrictions therein set forth, and upon payment of any applicable taxes and/or governmental charges, be entitled to Delivery, to him or upon his order, of the amount of Deposited Securities represented by such Receipt. If any Receipts shall remain outstanding after the date of termination of this Deposit Agreement, the Registrar thereafter shall discontinue the registration of transfers of Receipts, and the Depositary shall suspend the distribution of dividends to the Holders thereof, and shall not give any further notices or perform any further acts under this Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Deposited Securities, shall sell rights or other property as provided in this Deposit Agreement, and shall continue to Deliver Deposited Securities, subject to the conditions and restrictions set forth in Section 2.6 hereof, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for Receipts surrendered to the Depositary (after deducting, or charging, as the case may be, in each case, the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of this Deposit Agreement and any applicable taxes and/or governmental charges or assessments). At any time after the expiration of six months from the date of termination of this Deposit Agreement, the Depositary may sell the Deposited Securities then held hereunder and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, in an unsegregated account, without liability for interest for the pro rata benefit of the Holders of Receipts whose Receipts have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under this Deposit Agreement with respect to the Receipts and the Shares, Deposited Securities and American Depositary Shares, except to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of this Deposit Agreement and any applicable taxes and/or governmental charges or assessments). Upon the termination of this Deposit Agreement, the Company shall be discharged from all obligations under this Deposit Agreement except for its obligations to the Depositary hereunder. The obligations under the terms of the Deposit Agreement and Receipts of Holders and Beneficial Owners of ADSs outstanding as of the effective date of any termination shall survive such effective date of termination and shall be discharged only when the applicable ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement and the Holders have each satisfied any and all of their obligations hereunder (including, but not limited to, any payment and/or reimbursement obligations which relate to prior to the effective date of termination but which payment and/or reimbursement is claimed after such effective date of termination).

 

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Notwithstanding anything contained in the Deposit Agreement or any ADR, in connection with the termination of the Deposit Agreement, the Depositary may, independently and without the need for any action by the Company, make available to Holders of ADSs a means to withdraw the Deposited Securities represented by their ADSs and to direct the deposit of such Deposited Securities into an unsponsored American depositary shares program established by the Depositary, upon such terms and conditions as the Depositary may deem reasonably appropriate, subject however, in each case, to satisfaction of the applicable registration requirements by the unsponsored American depositary shares program under the Securities Act, and to receipt by the Depositary of payment of the applicable fees and charges of, and reimbursement of the applicable expenses incurred by, the Depositary.

 

ARTICLE VII.

 

MISCELLANEOUS

 

SECTION 7.1  Counterparts.  This Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of such counterparts together shall constitute one and the same agreement. Copies of this Deposit Agreement shall be maintained with the Depositary and shall be open to inspection by any Holder during business hours.

 

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SECTION 7.2  No Third-Party Beneficiaries.  This Deposit Agreement is for the exclusive benefit of the parties hereto (and their successors) and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person, except to the extent specifically set forth in this Deposit Agreement.  Nothing in this Deposit Agreement shall be deemed to give rise to a partnership or joint venture among the parties hereto nor establish a fiduciary or similar relationship among the parties.  The parties hereto acknowledge and agree that (i) the Depositary and its Affiliates may at any time have multiple banking relationships with the Company and its Affiliates, (ii) the Depositary and its Affiliates may be engaged at any time in transactions in which parties adverse to the Company or the Holders or Beneficial Owners may have interests and (iii) nothing contained in this Agreement shall (a) preclude the Depositary or any of its Affiliates from engaging in such transactions or establishing or maintaining such relationships, or (b) obligate the Depositary or any of its Affiliates to disclose such transactions or relationships or to account for any profit made or payment received in such transactions or relationships.

 

SECTION 7.3  Severability.  In case any one or more of the provisions contained in this Deposit Agreement or in the Receipts should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby.

 

SECTION 7.4  Holders and Beneficial Owners as Parties; Binding Effect.  The Holders and Beneficial Owners from time to time of American Depositary Shares shall be parties to the Deposit Agreement and shall be bound by all of the terms and conditions hereof and of any Receipt by acceptance hereof or any beneficial interest therein.

 

SECTION 7.5  Notices.  Any and all notices to be given to the Company shall be deemed to have been duly given if personally delivered or sent by first-class mail, air courier or cable, telex, facsimile transmission or electronic transmission, confirmed by letter, addressed to Aesthetic Medical International Holdings Group Limited, 1122 Nanshan Boulevard, Nanshan District, Shenzhen, Guangdong Province, China 518052, Attention: Fan Peng, (Chief Strategy Officer), telephone +86 (0755) 2559 8065, facsimile +86 (0755) 2559 8065 or to any other address which the Company may specify in writing to the Depositary or at which it may be effectively given such notice in accordance with applicable law.

 

Any and all notices to be given to the Depositary shall be deemed to have been duly given if personally delivered or sent by first-class mail, air courier or cable, telex, facsimile transmission or by electronic transmission (if agreed by the Company and the Depositary), at the Company’s expense, unless otherwise agreed in writing between the Company and the Depositary, confirmed by letter, addressed to Deutsche Bank Trust Company Americas, 60 Wall Street, New York, New York 10005, USA, Attention: ADR Department, telephone:  +1 212 250-9100, facsimile:  + 1 212 797 0327 or to any other address which the Depositary may specify in writing to the Company. Any and all notices to be given to any Holder shall be deemed to have been duly given if personally delivered or sent by first-class mail or cable, telex, facsimile transmission or by electronic transmission (if agreed by the Company and the Depositary), at the Company’s expense, unless otherwise agreed in writing between the Company and the Depositary, addressed to such Holder at the address of such Holder as it appears on the transfer books for Receipts of the Depositary, or, if such Holder shall have filed with the Depositary a written request that notices intended for such Holder be mailed to some other address, at the address specified in such request. Notice to Holders shall be deemed to be notice to Beneficial Owners for all purposes of this Deposit Agreement.

 

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Delivery of a notice sent by mail, air courier or cable, telex, facsimile or electronic transmission shall be deemed to be effective at the time when a duly addressed letter containing the same (or a confirmation thereof in the case of a cable, telex, facsimile or electronic transmission) is deposited, postage prepaid, in a post-office letter box or delivered to an air courier service. The Depositary or the Company may, however, act upon any cable, telex, facsimile or electronic transmission received by it from the other or from any Holder, notwithstanding that such cable, telex, facsimile or electronic transmission shall not subsequently be confirmed by letter as aforesaid, as the case may be.

 

SECTION 7.6  Governing Law and Jurisdiction.  This Deposit Agreement and the Receipts shall be interpreted in accordance with, and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, the laws of the State of New York without reference to the principles of choice of law thereof.   Subject to the Depositary’s rights under the third paragraph of this Section 7.6, the Company and the Depositary agree that the federal or state courts in the City of New York shall have exclusive jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute between them that may arise out of or in connection with this Deposit Agreement and, for such purposes, each irrevocably submits to the exclusive jurisdiction of such courts. Notwithstanding the above, the parties hereto agree that any judgment and/or order from any such New York court can be enforced in any court having jurisdiction thereof.   The Company hereby irrevocably designates, appoints and empowers Law Debenture Corporate Services Inc. (the “Process Agent”), now at 801 2nd Avenue, Suite 403, New York, NY 10017, United States, as its authorized agent to receive and accept for and on its behalf, and on behalf of its properties, assets and revenues, service by mail of any and all legal process, summons, notices and documents that may be served in any suit, action or proceeding brought against the Company in any federal or state court as described in the preceding sentence or in the next paragraph of this Section 7.6. If for any reason the Process Agent shall cease to be available to act as such, the Company agrees to designate a new agent in the City of New York on the terms and for the purposes of this Section 7.6 reasonably satisfactory to the Depositary. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding against the Company, by service by mail of a copy thereof upon the Process Agent (whether or not the appointment of such Process Agent shall for any reason prove to be ineffective or such Process Agent shall fail to accept or acknowledge such service), with a copy mailed to the Company by registered or certified air mail, postage prepaid, to its address provided in Section 7.5 hereof. The Company agrees that the failure of the Process Agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon.

 

The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any actions, suits or proceedings brought in any court as provided in this Section 7.6, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

 

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The Company, the Depositary and by holding an American Depositary Share (or interest therein) Holders and Beneficial Owners each agree that, notwithstanding the foregoing, with regard to any claim or dispute or difference of whatever nature between or involving the parties hereto arising directly or indirectly from the relationship created by this Deposit Agreement, the Depositary, in its sole discretion, shall be entitled to refer such dispute or difference for final settlement by arbitration (“Arbitration”) in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “Rules”) then in force.  The arbitration shall be conducted by three arbitrators, one nominated by the Depositary, one nominated by the Company, and one nominated by the two party-appointed arbitrators within 30 calendar days of the confirmation of the nomination of the second arbitrator.  If any arbitrator has not been nominated within the time limits specified herein and in the Rules, then such arbitrator shall be appointed by the American Arbitration Association in accordance with the Rules.  Judgment upon the award rendered by the arbitrators may be enforced in any court having jurisdiction thereof.  The seat and place of any reference to arbitration shall be New York City, New York, and the procedural law of such arbitration shall be New York law.  The language to be used in the arbitration shall be English. The fees of the arbitrator and other costs incurred by the parties in connection with such Arbitration shall be paid by the party or parties that is (are) unsuccessful in such Arbitration. For the avoidance of doubt this paragraph does not preclude Holders and Beneficial Owners from pursuing claims under the Securities Act or the Exchange Act in federal courts.

 

Holders and Beneficial Owners understand, and holding an American Depositary Share or an interest therein, such Holders and Beneficial Owners each irrevocably agree that any legal suit, action or proceeding against or involving the Company or the Depositary, arising out of or based upon the Deposit Agreement, American Depositary Shares, Receipts or the transactions contemplated hereby or thereby or by virtue of ownership thereof, may only be instituted in a state or federal court in New York, New York, and by holding an American Depositary Share or an interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.   Holders and Beneficial Owners agree that the provisions of this paragraph shall survive such Holders’ and Beneficial Owners’ ownership of American Depositary Shares or interests therein.

 

EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH HOLDER AND BENEFICIAL OWNER AND/OR HOLDER OF INTERESTS IN ANY ADRs) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE DEPOSITARY AND/OR 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 HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR ANY OTHER THEORY).

 

The provisions of this Section 7.6 shall survive any termination of this Deposit Agreement, in whole or in part.

 

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SECTION 7.7  Assignment.  Subject to the provisions and exceptions set forth in Section 5.4 hereof, this Deposit Agreement may not be assigned by either the Company or the Depositary.

 

SECTION 7.8  Agents.  The Depositary shall be entitled, in its sole but reasonable discretion, to appoint one or more agents (the “Agents”) of which it shall have control for the purpose, inter alia, of making distributions to the Holders or otherwise carrying out its obligations under this Agreement.

 

SECTION 7.9  Affiliates etc.  The Depositary reserves the right to utilize and retain a division or Affiliate(s) of the Depositary to direct, manage and/or execute any public and/or private sale of Shares, rights, securities, property or other entitlements hereunder and to engage in the conversion of Foreign Currency hereunder.  It is anticipated that such division and/or Affiliate(s) will charge the Depositary a fee and/or commission in connection with each such transaction, and seek reimbursement of its costs and expenses related thereto.  Such fees/commissions, costs and expenses, shall be deducted from amounts distributed hereunder and shall not be deemed to be fees of the Depositary under Article (9) of the Receipt or otherwise.  Persons are advised that in converting foreign currency into U.S. dollars the Depositary may utilize Deutsche Bank AG or its affiliates (collectively, “DBAG”) to effect such conversion by seeking to enter into a foreign exchange (“FX”) transaction with DBAG.  When converting currency, the Depositary is not acting as a fiduciary for the holders or beneficial owners of depositary receipts or any other person.  Moreover, in executing FX transactions, DBAG will be acting in a principal capacity, and not as agent, fiduciary or broker, and may hold positions for its own account that are the same, similar, different or opposite to the positions of its customers, including the Depositary.  When the Depositary seeks to execute an FX transaction to accomplish such conversion, customers should be aware that DBAG is a global dealer in FX for a full range of FX products and, as a result, the rate obtained in connection with any requested foreign currency conversion may be impacted by DBAG executing FX transactions for its own account or with another customer.  In addition, in order to source liquidity for any FX transaction relating to any foreign currency conversion, DBAG may internally share economic terms relating to the relevant FX transaction with persons acting in a sales or trading capacity for DBAG or one of its agents.  DBAG may charge fees and/or commissions to the Depositary or add a mark-up in connection with such conversions, which are reflected in the rate at which the foreign currency will be converted into U.S. dollars. The Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its Affiliates and in ADSs.

 

SECTION 7.10  Exclusivity.  The Company agrees not to appoint any other depositary for the issuance or administration of depositary receipts evidencing any class of stock of the Company so long as Deutsche Bank Trust Company Americas is acting as Depositary hereunder.

 

SECTION 7.11  Compliance with U.S. Securities Laws.  Notwithstanding anything in this Deposit Agreement to the contrary, the withdrawal or Delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Instruction I.A.(1) of the General Instructions to Form F-6 Registration Statement, as amended from time to time, under the Securities Act.

 

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SECTION 7.12  Titles.  All references in this Deposit Agreement to exhibits, Articles, sections, subsections, and other subdivisions refer to the exhibits, Articles, sections, subsections and other subdivisions of this Deposit Agreement unless expressly provided otherwise.  The words “this Deposit Agreement”, “herein”, “hereof”, “hereby”, “hereunder”, and words of similar import refer to the Deposit Agreement as a whole as in effect between the Company, the Depositary and the Holders and Beneficial Owners of ADSs and not to any particular subdivision unless expressly so limited.  Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa unless the context otherwise requires.  Titles to sections of this Deposit Agreement are included for convenience only and shall be disregarded in construing the language contained in this Deposit Agreement.

 

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IN WITNESS WHEREOF, AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED and DEUTSCHE BANK TRUST COMPANY AMERICAS have duly executed this Deposit Agreement as of the day and year first above set forth and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of American Depositary Shares evidenced by Receipts issued in accordance with the terms hereof.

 

 

AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

DEUTSCHE BANK TRUST COMPANY AMERICAS

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

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EXHIBIT A

 

 

 

 

CUSIP                     

 

 

 

 

 

 

 

ISIN                 

 

 

 

 

 

 

 

American Depositary
 Shares (Each

 

 

 

American Depositary
Share

 

 

 

representing [•]

 

 

 

Fully Paid
Ordinary Shares)

 

[FORM OF FACE OF RECEIPT]

 

AMERICAN DEPOSITARY RECEIPT

 

for

 

AMERICAN DEPOSITARY SHARES

 

representing

 

DEPOSITED ORDINARY SHARES

 

of

 

AESTHETIC MEDICAL INTERNATIONAL HOLDINGS GROUP LIMITED

 

(Incorporated under the laws of the Cayman Islands)

 

DEUTSCHE BANK TRUST COMPANY AMERICAS, as depositary (herein called the “Depositary”), hereby certifies that                  is the owner of                American Depositary Shares (hereinafter “ADS”), representing deposited ordinary shares, each of Par Value of U.S. $0.001 including evidence of rights to receive such ordinary shares (the “Shares”) of Aesthetic Medical International Holdings Group Limited, a company incorporated under the laws of the Cayman Islands (the “Company”). As of the date of the Deposit Agreement (hereinafter referred to), each ADS represents [•] Shares deposited under the Deposit Agreement with the Custodian which at the date of execution of the Deposit Agreement is Deutsche Bank AG, Hong Kong Branch (the “Custodian”). The ratio of Depositary Shares to shares of stock is subject to subsequent amendment as provided in Article IV of the Deposit Agreement.  The Depositary’s Corporate Trust Office is located at 60 Wall Street, New York, New York 10005, U.S.A.

 

(1)                                 The Deposit Agreement.  This American Depositary Receipt is one of an issue of American Depositary Receipts (“Receipts”), all issued or to be issued upon the terms and conditions set forth in the Deposit Agreement, dated as of [•], 2019 (as amended from time to time, the “Deposit Agreement”), by and among the Company, the Depositary, and all Holders and Beneficial Owners from time to time of Receipts issued thereunder, each of whom by accepting a Receipt agrees to become a party thereto and becomes bound by all the terms and conditions thereof. The Deposit Agreement sets forth the rights and obligations of Holders and Beneficial Owners of Receipts and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other securities, property and cash from time to time, received in respect of such Shares and held thereunder (such Shares, other securities, property and cash are herein called “Deposited Securities”). Copies of the Deposit Agreement are on file at the Corporate Trust Office of the Depositary and the Custodian.

 

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Each owner and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the Deposit Agreement, shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and applicable ADR(s), and (b) 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(s), to adopt any and all procedures necessary to comply with applicable law 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(s) (the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof).

 

The statements made on the face and reverse of this Receipt are summaries of certain provisions of the Deposit Agreement and the Memorandum and Articles of Association (as in effect on the date of the Deposit Agreement) and are qualified by and subject to the detailed provisions of the Deposit Agreement, to which reference is hereby made. All capitalized terms used herein which are not otherwise defined herein shall have the meanings ascribed thereto in the Deposit Agreement. To the extent there is any inconsistency between the terms of this Receipt and the terms of the Deposit Agreement, the terms of the Deposit Agreement shall prevail. Prospective and actual Holders and Beneficial Owners are encouraged to read the terms of the Deposit Agreement. The Depositary makes no representation or warranty as to the validity or worth of the Deposited Securities.  The Depositary has made arrangements for the acceptance of the American Depositary Shares into DTC.  Each Beneficial Owner of American Depositary Shares held through DTC must rely on the procedures of DTC and the DTC Participants to exercise and be entitled to any rights attributable to such American Depositary Shares.  The Receipt evidencing the American Depositary Shares held through DTC will be registered in the name of a nominee of DTC.  So long as the American Depositary Shares are held through DTC or unless otherwise required by law, ownership of beneficial interests in the Receipt registered in the name of DTC (or its nominee) will be shown on, and transfers of such ownership will be effected only through, records maintained by (i) DTC (or its nominee), or (ii) DTC Participants (or their nominees).

 

(2)                                 Surrender of Receipts and Withdrawal of Deposited Securities.  Upon surrender, at the Corporate Trust Office of the Depositary, of ADSs evidenced by this Receipt for the purpose of withdrawal of the Deposited Securities represented thereby, and upon payment of (i) the fees and charges of the Depositary for the making of withdrawals of Deposited Securities and cancellation of Receipts (as set forth in Section 5.9 of the Deposit Agreement and Article (9) hereof) and (ii) all fees, taxes and/or governmental charges payable in connection with such surrender and withdrawal, and, subject to the terms and conditions of the Deposit Agreement, the Memorandum and Articles of Association, Section 7.11 of the Deposit Agreement, Article (22) hereof and the provisions of or governing the Deposited Securities and other applicable laws, the Holder of the American Depositary Shares evidenced hereby is entitled to Delivery, to him or upon his order, of the Deposited Securities represented by the ADS so surrendered.  ADS may be surrendered for the purpose of withdrawing Deposited Securities by Delivery of a Receipt evidencing such ADS (if held in registered form) or by book-entry delivery of such ADS to the Depositary.

 

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A Receipt surrendered for such purposes shall, if so required by the Depositary, be properly endorsed in blank or accompanied by proper instruments of transfer in blank, and if the Depositary so requires, the Holder thereof shall execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of a person or persons designated in such order. Thereupon, the Depositary shall direct the Custodian to Deliver (without unreasonable delay) at the designated office of the Custodian or through a book-entry delivery of the Shares (in either case subject to the terms and conditions of the Deposit Agreement, to the Memorandum and Articles of Association, and to the provisions of or governing the Deposited Securities and applicable laws, now or hereafter in effect), to or upon the written order of the person or persons designated in the order delivered to the Depositary as provided above, the Deposited Securities represented by such ADSs, together with any certificate or other proper documents of or relating to title for the Deposited Securities or evidence of the electronic transfer thereof (if available) as the case may be to or for the account of such person.  Subject to Article (4) hereof, in the case of surrender of a Receipt evidencing a number of ADSs representing other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be Delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) issue and Deliver to the person surrendering such Receipt a new Receipt evidencing American Depositary Shares representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Shares represented by the Receipt so surrendered and remit the proceeds thereof (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and (b) taxes and/or governmental charges) to the person surrendering the Receipt.  At the request, risk and expense of any Holder so surrendering a Receipt, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any cash or other property (other than securities) held in respect of, and any certificate or certificates and other proper documents of or relating to title to, the Deposited Securities represented by such Receipt to the Depositary for Delivery at the Corporate Trust Office of the Depositary, and for further Delivery to such Holder.  Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex or facsimile transmission. Upon receipt of such direction by the Depositary, the Depositary may make delivery to such person or persons entitled thereto at the Corporate Trust Office of the Depositary of any dividends or cash distributions with respect to the Deposited Securities represented by such Receipt, or of any proceeds of sale of any dividends, distributions or rights, which may at the time be held by the Depositary.

 

(3)                                 Transfers, Split-Ups and Combinations of Receipts.  Subject to the terms and conditions of the Deposit Agreement, the Registrar shall register transfers of Receipts on its books, upon surrender at the Corporate Trust Office of the Depositary of a Receipt by the Holder thereof in person or by duly authorized attorney, properly endorsed in the case of a certificated Receipt or accompanied by, or in the case of Receipts issued through any book-entry system, including, without limitation, DRS/Profile, receipt by the Depositary of proper instruments of transfer (including signature guarantees in accordance with standard industry practice) and duly stamped as may be required by the laws of the State of New York, of the United States, of the Cayman Islands and of any other applicable jurisdiction.  Subject to the terms and conditions of the Deposit Agreement, including payment of the applicable fees and expenses incurred by, and charges of, the Depositary, the Depositary shall execute and Deliver a new Receipt(s) (and if necessary, cause the Registrar to countersign such Receipt(s)) and deliver same to or upon the order of the person entitled to such Receipts evidencing the same aggregate number of ADSs as those evidenced by the Receipts surrendered. Upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts upon payment of the applicable fees and charges of the Depositary, and subject to the terms and conditions of the Deposit Agreement, the Depositary shall execute and deliver a new Receipt or Receipts for any authorized number of ADSs requested, evidencing the same aggregate number of ADSs as the Receipt or Receipts surrendered.

 

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(4)                                 Pre-Conditions to Registration, Transfer, Etc.  As a condition precedent to the execution and Delivery, registration, registration of transfer, split-up, subdivision, combination or surrender of any Receipt, the delivery of any distribution thereon (whether in cash or shares) or withdrawal of any Deposited Securities, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of the Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in the Deposit Agreement and in this Receipt, (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature or any other matter and (iii) compliance with (A) any laws or governmental regulations relating to the execution and Delivery of Receipts and ADSs or to the withdrawal of Deposited Securities and (B) such reasonable regulations of the Depositary or the Company consistent with the Deposit Agreement and applicable law.

 

The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the issuance of ADSs against the deposit of particular Shares may be withheld, or the registration of transfer of Receipts in particular instances may be refused, or the registration of transfer of Receipts generally may be suspended, during any period when the transfer books of the Depositary are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law, any government or governmental body or commission or any securities exchange upon which the Receipts or Share are listed, or under any provision of the Deposit Agreement or provisions of, or governing, the Deposited Securities or any meeting of shareholders of the Company or for any other reason, subject in all cases to Article (22) hereof.

 

The Depositary shall not issue ADSs prior to the receipt of Shares or deliver Shares prior to the receipt and cancellation of ADSs.

 

(5)                                 Compliance With Information Requests.  Notwithstanding any other provision of the Deposit Agreement or this Receipt, each Holder and Beneficial Owner of the ADSs represented hereby agrees to comply with requests from the Company pursuant to the laws of the Cayman Islands, the rules and requirements of NASDAQ and any other stock exchange on which the Shares are, or will be registered, traded or listed, the Memorandum and Articles of Association, which are made to provide information as to the capacity in which such Holder or Beneficial Owner owns ADSs and regarding the identity of any other person interested in such ADSs and the nature of such interest and various other matters whether or not they are Holders and/or Beneficial Owner at the time of such request. The Depositary agrees to use reasonable efforts to forward any such requests to the Holders and to forward to the Company any such responses to such requests received by the Depositary.

 

(6)                                 Liability of Holder for Taxes, Duties and Other Charges.  If any tax or other governmental charge shall become payable by the Depositary or the Custodian with respect to any Receipt or any Deposited Securities or ADSs, such tax or other governmental charge shall be payable by the Holders and Beneficial Owners to the Depositary. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Securities and may sell for the account of the Holder and/or Beneficial Owner any or all of the Deposited Securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the Holder and the Beneficial Owner hereof remaining fully liable for any deficiency.  The Custodian may refuse the deposit of Shares, and the Depositary may refuse to issue ADSs, to deliver Receipts, register the transfer, split-up or combination of ADRs and (subject to Article (22) hereof) the withdrawal of Deposited Securities, until payment in full of such tax, charge, penalty or interest is received.

 

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The liability of Holders and Beneficial Owners under the Deposit Agreement shall survive any transfer of Receipts, any surrender of Receipts and withdrawal of Deposited Securities or the termination of the Deposit Agreement.

 

Holders understand that in converting Foreign Currency, amounts received on conversion are calculated at a rate which may exceed the number of decimal places used by the Depositary to report distribution rates (which in any case will not be less than two decimal places).  Any excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment.

 

(7)                                 Representations and Warranties of Depositors.  Each person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares (and the certificates therefor) are duly authorized, validly issued, fully paid, non-assessable and were legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares, have been validly waived or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, Restricted Securities, (v) the Shares presented for deposit have not been stripped of any rights or entitlements and (vi) the Shares are not subject to any lock-up agreement with the Company or other party, or the Shares are subject to a lock-up agreement but such lock-up agreement has terminated or the lock-up restrictions imposed thereunder have expired or been validly waived.  Such representations and warranties shall survive the deposit and withdrawal of Shares and the issuance, cancellation and transfer of ADSs.  If any such representations or warranties are false in any way, the Company and Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.

 

(8)                                 Filing Proofs, Certificates and Other Information.  Any person presenting Shares for deposit shall provide, any Holder and any Beneficial Owner may be required to provide, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary such proof of citizenship or residence, taxpayer status, payment of all applicable taxes and/or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Securities, compliance with applicable laws and the terms of the Deposit Agreement and the provisions of, or governing, the Deposited Securities or other information as the Depositary deems necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations under the Deposit Agreement. Pursuant to the Deposit Agreement, the Depositary and the Registrar, as applicable, may withhold the execution or Delivery or registration of transfer of any Receipt or the distribution or sale of any dividend or other distribution of rights or of the proceeds thereof, or to the extent not limited by the terms of Article (22) hereof or the terms of the Deposit Agreement, the Delivery of any Deposited Securities until such proof or other information is filed or such certifications are executed, or such representations and warranties are made, or such other documentation or information provided, in each case to the Depositary’s and the Company’s satisfaction. The Depositary shall from time to time on the written request of the Company advise the Company of the availability of any such proofs, certificates or other information and shall, at the Company’s sole expense, provide or otherwise make available copies thereof to the Company upon written request therefor by the Company, unless such disclosure is prohibited by law. Each Holder and Beneficial Owner agrees to provide any information requested by the Company or the Depositary pursuant to this paragraph. Nothing herein shall obligate the Depositary to (i) obtain any information for the Company if not provided by the Holders or Beneficial Owners or (ii) verify or vouch for the accuracy of the information so provided by the Holders or Beneficial Owners.

 

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Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian, the Agents and each of their respective directors, officers, employees, agents and Affiliates against, and to hold each of them harmless from, any Losses which any of them may incur or which may be made against any of them as a result of or in connection with any inaccuracy in or omission from any such proof, certificate, representation, warranty, information or document furnished by or on behalf of such Holder and/or Beneficial Owner or as a result of any such failure to furnish any of the foregoing.

 

The obligations of Holders and Beneficial Owners under the Deposit Agreement shall survive any transfer of Receipts, any surrender of Receipts and withdrawal of Deposited Securities or the termination of this Deposit Agreement.

 

(9)                                 Charges of Depositary.  The Depositary reserves the right to charge the following fees for the services performed under the terms of the Deposit Agreement, provided, however, that no fees shall be payable upon distribution of cash dividends so long as the charging of such fee is prohibited by the exchange, if any, upon which the ADSs are listed:

 

(i)                                     to any person to whom ADSs are issued or to any person to whom a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash), a fee not in excess of U.S. $ 5.00 per 100 ADSs (or fraction thereof) so issued under the terms of the Deposit Agreement to be determined by the Depositary;

 

(ii)                                  to any person surrendering ADSs for withdrawal of Deposited Securities or whose ADSs are cancelled or reduced for any other reason including, inter alia, cash distributions made pursuant to a cancellation or withdrawal, a fee not in excess of U.S. $ 5.00 per 100 ADSs reduced, cancelled or surrendered (as the case may be);

 

(iii)                               to any holder of ADSs (including, without limitation, Holders), a fee not in excess of U.S. $ 5.00 per 100 ADSs  held for the distribution of cash dividends;

 

(iv)                              to any holder of ADSs (including, without limitation, Holders), a fee not in excess of U.S. $ 5.00 per 100 ADSs  held for the distribution of cash entitlements (other than cash dividends) and/or cash proceeds, including proceeds from the sale of rights, securities and other entitlements;

 

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(v)                                 to any holder of ADSs (including, without limitation, Holders), a fee not in excess of U.S. $ 5.00 per 100 ADSs (or portion thereof) issued upon the exercise of rights; and

 

(vi)                              for the operation and maintenance costs in administering the ADSs an annual fee of U.S. $ 5.00 per 100 ADSs, such fee to be assessed against Holders of record as of the date or dates set by the Depositary as it sees fit and collected at the sole discretion of the Depositary by billing such Holders for such fee or by deducting such fee from one or more cash dividends or other cash distributions.

 

In addition, Holders, Beneficial Owners, any person depositing Shares for deposit and any person surrendering ADSs for cancellation and withdrawal of Deposited Securities will be required to pay the following charges:

 

(i)                                     taxes (including applicable interest and penalties) and other governmental charges;

 

(ii)                                  such registration fees as may from time to time be in effect for the registration of Shares or other Deposited Securities with the Foreign Registrar and applicable to transfers of Shares or other Deposited Securities to or from the name of the Custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively;

 

(iii)                               such cable, telex, facsimile and electronic transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the depositor depositing or person withdrawing Shares or Holders and Beneficial Owners of ADSs;

 

(iv)                              the expenses and charges incurred by the Depositary and/or a division or Affiliate(s) of the Depositary in the conversion of Foreign Currency;

 

(v)                                 such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Shares, Deposited Securities, ADSs and ADRs;

 

(vi)                              the fees and expenses incurred by the Depositary in connection with the delivery of Deposited Securities, including any fees of a central depository for securities in the local market, where applicable;

 

(vii)                           any additional fees, charges, costs or expenses that may be incurred by the Depositary or a division or Affiliate(s) of the Depositary from time to time.

 

Any other fees and charges of, and expenses incurred by, the Depositary or the Custodian under the Deposit Agreement shall be for the account of the Company unless otherwise agreed in writing between the Company and the Depositary from time to time.  All fees and charges may, at any time and from time to time, be changed by agreement between the Depositary and Company but, in the case of fees and charges payable by Holders or Beneficial Owners, only in the manner contemplated by Article (20) hereof.

 

The Depositary may make payments to the Company and/or may share revenue with the Company derived from fees collected from Holders and Beneficial Owners, upon such terms and conditions as the Company and the Depositary may agree from time to time.

 

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(10)                          Title to Receipts.  It is a condition of this Receipt, and every successive Holder of this Receipt by accepting or holding the same consents and agrees, that title to this Receipt (and to each ADS evidenced hereby) is transferable by delivery of the Receipt, provided it has been properly endorsed or accompanied by proper instruments of transfer, such Receipt being a certificated security under the laws of the State of New York.  Notwithstanding any notice to the contrary, the Depositary may deem and treat the Holder of this Receipt (that is, the person in whose name this Receipt is registered on the books of the Depositary) as the absolute owner hereof for all purposes.  The Depositary shall have no obligation or be subject to any liability under the Deposit Agreement or this Receipt to any holder of this Receipt or any Beneficial Owner unless such holder is the Holder of this Receipt registered on the books of the Depositary or, in the case of a Beneficial Owner, such Beneficial Owner or the Beneficial Owner’s representative is the Holder registered on the books of the Depositary.

 

(11)                          Validity of Receipt.  This Receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose, unless this Receipt has been (i) dated, (ii) signed by the manual or facsimile signature of a duly authorized signatory of the Depositary, (iii) if a Registrar for the Receipts shall have been appointed, countersigned by the manual or facsimile signature of a duly authorized signatory of the Registrar and (iv) registered in the books maintained by the Depositary or the Registrar, as applicable, for the issuance and transfer of Receipts.  Receipts bearing the facsimile signature of a duly-authorized signatory of the Depositary or the Registrar, who at the time of signature was a duly-authorized signatory of the Depositary or the Registrar, as the case may be, shall bind the Depositary, notwithstanding the fact that such signatory has ceased to be so authorized prior to the execution and delivery of such Receipt by the Depositary or did not hold such office on the date of issuance of such Receipts.

 

(12)                          Available Information; Reports; Inspection of Transfer Books.  The Company is subject to the periodic reporting requirements of the Exchange Act applicable to foreign private issuers (as defined in Rule 405 of the Securities Act) and accordingly files certain information with the Commission.  These reports and documents can be inspected and copied at the public reference facilities maintained by the Commission located at 100 F Street, N.E., Washington D.C. 20549, U.S.A.  The Depositary shall make available during normal business hours on any Business Day for inspection by Holders at its Corporate Trust Office any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company.

 

The Depositary or the Registrar, as applicable, shall keep books for the registration of Receipts and transfers of Receipts which at all reasonable times shall be open for inspection by the Company and by the Holders of such Receipts, provided that such inspection shall not be, to the Depositary’s or the Registrar’s knowledge, for the purpose of communicating with Holders of such Receipts in the interest of a business or object other than the business of the Company or other than a matter related to the Deposit Agreement or the Receipts.

 

The Depositary or the Registrar, as applicable, may close the transfer books with respect to the Receipts, at any time or from time to time, when deemed necessary or advisable by it in good faith in connection with the performance of its duties hereunder, or at the reasonable written request of the Company subject, in all cases, to Article (22) hereof.

 

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Dated:

DEUTSCHE BANK TRUST

 

COMPANY AMERICAS, as Depositary

 

 

 

By:

 

 

 

 

By:

 

 

The address of the Corporate Trust Office of the Depositary is 60 Wall Street, New York, New York 10005, U.S.A.

 

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EXHIBIT B

 

[FORM OF REVERSE OF RECEIPT]
SUMMARY OF CERTAIN ADDITIONAL PROVISIONS
OF THE DEPOSIT AGREEMENT

 

(13)                          Dividends and Distributions in Cash, Shares, etc.  Whenever the Depositary receives confirmation from the Custodian of receipt of any cash dividend or other cash distribution on any Deposited Securities, or receives proceeds from the sale of any Shares, rights securities or other entitlements under the Deposit Agreement, the Depositary will, if at the time of receipt thereof any amounts received in a Foreign Currency can, in the judgment of the Depositary (upon the terms of the Deposit Agreement), be converted on a practicable basis, into Dollars transferable to the United States, promptly convert or cause to be converted such dividend, distribution or proceeds into Dollars and will distribute promptly the amount thus received (net of applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) to the Holders of record as of the ADS Record Date in proportion to the number of ADSs representing such Deposited Securities held by such Holders respectively as of the ADS Record Date.  The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent.  Any such fractional amounts shall be rounded down to the nearest whole cent and so distributed to Holders entitled thereto.  Holders and Beneficial Owners understand that in converting Foreign Currency, amounts received on conversion are calculated at a rate which exceeds the number of decimal places used by the Depositary to report distribution rates. The excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment. If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the ADSs representing such Deposited Securities shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority.  Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request. The Depositary shall forward to the Company or its agent such information from its records as the Company may reasonably request to enable the Company or its agent to file with governmental agencies such reports as are necessary to obtain benefits under the applicable tax treaties for the Holders and Beneficial Owners of Receipts.

 

If any distribution upon any Deposited Securities consists of a dividend in, or free distribution of, Shares, the Company shall cause such Shares to be deposited with the Custodian and registered, as the case may be, in the name of the Depositary, the Custodian or their nominees.  Upon receipt of confirmation of such deposit, the Depositary shall, subject to and in accordance with the Deposit Agreement, establish the ADS Record Date and either (i) distribute to the Holders as of the ADS Record Date in proportion to the number of ADSs held by such Holders as of the ADS Record Date, additional ADSs, which represent in aggregate the number of Shares received as such dividend, or free distribution, subject to the terms of the Deposit Agreement (including, without limitation, the applicable fees and charges of, and expenses incurred by, the Depositary, and taxes and/or governmental charges), or (ii) if additional ADSs are not so distributed, each ADS issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional Shares distributed upon the Deposited Securities represented thereby (net of the applicable fees and charges of, and the expenses incurred by, the Depositary, and taxes and/or governmental charges).  In lieu of delivering fractional ADSs, the Depositary shall sell the number of Shares represented by the aggregate of such fractions and distribute the proceeds upon the terms set forth in the Deposit Agreement.

 

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In the event that (x) the Depositary determines that any distribution in property (including Shares) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, or, (y) if the Company, in the fulfillment of its obligations under the Deposit Agreement, has either (a) furnished an opinion of U.S. counsel determining that Shares must be registered under the Securities Act or other laws in order to be distributed to Holders (and no such registration statement has been declared effective), or (b) fails to timely deliver the documentation contemplated in the Deposit Agreement, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of taxes and/or governmental charges, and fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary) to Holders entitled thereto upon the terms of the Deposit Agreement. The Depositary shall hold and/or distribute any unsold balance of such property in accordance with the provisions of the Deposit Agreement.

 

Upon timely receipt of a notice indicating that the Company wishes an elective distribution to be made available to Holders upon the terms described in the Deposit Agreement, the Depositary shall, upon provision of all documentation required under the Deposit Agreement, (including, without limitation, any legal opinions the Depositary may request under the Deposit Agreement) determine whether such distribution is lawful and reasonably practicable.  If so, the Depositary shall, subject to the terms and conditions of the Deposit Agreement, establish an ADS Record Date according to Article (14) hereof and establish procedures to enable the Holder hereof to elect to receive the proposed distribution in cash or in additional ADSs.  If a Holder elects to receive the distribution in cash, the dividend shall be distributed as in the case of a distribution in cash.  If the Holder hereof elects to receive the distribution in additional ADSs, the distribution shall be distributed as in the case of a distribution in Shares upon the terms described in the Deposit Agreement.  If such elective distribution is not lawful or reasonably practicable or if the Depositary did not receive satisfactory documentation set forth in the Deposit Agreement, the Depositary shall, to the extent permitted by law, distribute to Holders, on the basis of the same determination as is made in the Cayman Islands, in respect of the Shares for which no election is made, either (x) cash or (y) additional ADSs representing such additional Shares, in each case, upon the terms described in the Deposit Agreement.  Nothing herein shall obligate the Depositary to make available to the Holder hereof a method to receive the elective dividend in Shares (rather than ADSs).  There can be no assurance that the Holder hereof will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares.

 

Whenever the Company intends to distribute to the holders of the Deposited Securities rights to subscribe for additional Shares, the Company shall give notice thereof to the Depositary at least 60 days prior to the proposed distribution stating whether or not it wishes such rights to be made available to Holders of ADSs. Upon timely receipt by the Depositary of a notice indicating that the Company wishes such rights to be made available to Holders of ADSs, the Company shall determine whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to any Holders only if the Company shall have timely requested that such rights be made available to Holders, the Depositary shall have received the documentation required by the Deposit Agreement, and the Depositary shall have determined that such distribution of rights is lawful and reasonably practicable.  If such conditions are not satisfied, the Depositary shall sell the rights as described below.  In the event all conditions set forth above are satisfied, the Depositary shall establish an ADS Record Date and establish procedures (x) to distribute such rights (by means of warrants or otherwise) and (y) to enable the Holders to exercise the rights (upon payment of the applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges).  Nothing herein or in the Deposit Agreement shall obligate the Depositary to make available to the Holders a method to exercise such rights to subscribe for Shares (rather than ADSs).  If (i) the Company does not timely request the Depositary to make the rights available to Holders or if the Company requests that the rights not be made available to Holders, (ii) the Depositary fails to receive the documentation required by the Deposit Agreement or determines it is not lawful or reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine whether it is lawful and reasonably practicable to sell such rights, and if it so determines that it is lawful and reasonably practicable, endeavour to sell such rights in a riskless principal capacity or otherwise, at such place and upon such terms (including public and/or private sale) as it may deem proper.  The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) upon the terms hereof and in the Deposit Agreement.  If the Depositary is unable to make any rights available to Holders or to arrange for the sale of the rights upon the terms described above, the Depositary shall allow such rights to lapse.  The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.

 

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Notwithstanding anything herein to the contrary, if registration (under the Securities Act and/or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act covering such offering is in effect or (ii) unless the Company furnishes to the Depositary opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case satisfactorily to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws.  In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of property (including rights) an amount on account of taxes and/or other governmental charges, the amount distributed to the Holders shall be reduced accordingly. In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes and/or charges.

 

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There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to exercise rights on the same terms and conditions as the holders of Shares or to exercise such rights.  Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights or otherwise to register or qualify the offer or sale of such rights or securities under the applicable law of any other jurisdiction for any purpose.

 

Upon receipt of a notice regarding property other than cash, Shares or rights to purchase additional Shares, to be made to Holders of ADSs, the Depositary shall determine, after consultation with the Company, whether such distribution to Holders is lawful and reasonably practicable.  The Depositary shall not make such distribution unless (i) the Company shall have timely requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received the documentation required by the Deposit Agreement, and (iii) the Depositary shall have determined that such distribution is lawful and reasonably practicable.  Upon satisfaction of such conditions, the Depositary shall distribute the property so received to the Holders of record as of the ADS Record Date, in proportion to the number of ADSs held by such Holders respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of any taxes and/or governmental charges.  The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.

 

If the conditions above are not satisfied, the Depositary shall sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem proper and shall distribute the proceeds of such sale received by the Depositary (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and (b) taxes and/or governmental charges) to the Holders upon the terms hereof and of the Deposit Agreement.  If the Depositary is unable to sell such property, the Depositary may dispose of such property in any way it deems reasonably practicable under the circumstances.

 

(14)                          Fixing of Record Date.  Whenever necessary in connection with any distribution (whether in cash, Shares, rights or other distribution), or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each ADS, or whenever the Depositary shall receive notice of any meeting of or solicitation of holders of Shares or other Deposited Securities, or whenever the Depositary shall find it necessary or convenient in connection with the giving of any notice, or any other matter, the Depositary shall fix a record date (the “ADS Record Date”), as close as practicable to the record date fixed by the Company with respect to the Shares (if applicable), for the determination of the Holders who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, or to give or withhold such consent, or to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each ADS or for any other reason. Subject to applicable law and the terms and conditions of this Receipt and the Deposit Agreement, only the Holders of record at the close of business in New York on such ADS Record Date shall be entitled to receive such distributions, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.

 

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(15)                          Voting of Deposited Securities. Subject to the next sentence, as soon as practicable after receipt of notice of any meeting at which the holders of Deposited Securities are entitled to vote, or of solicitation of consents or proxies from holders of Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or such solicitation of consents or proxies. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least 30 Business Days prior to the date of such vote or meeting) and at the Company’s expense, and provided no U.S. legal prohibitions exist, mail by regular, ordinary mail delivery (or by electronic mail or as otherwise may be agreed between the Company and the Depositary in writing from time to time) or otherwise distribute as soon as practicable after receipt thereof to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy; (b) a statement that the Holders at the close of business on the ADS Record Date will be entitled, subject to any applicable law, the provisions of this Deposit Agreement, the Company’s Memorandum and Articles of Association and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by such Holder’s American Depositary Shares; and (c) a brief statement as to the manner in which such voting instructions may be given to the Depositary, or in which instructions may be deemed to have been given in accordance with this Article (15), including an express indication that instructions may be given (or be deemed to have been given in accordance with the immediately following paragraph of this section if no instruction is received) to the Depositary to give a discretionary proxy to a person or persons designated by the Company.  Voting instructions may be given only in respect of a number of American Depositary Shares representing an integral number of Deposited Securities.  Upon the timely receipt of voting instructions of a Holder on the ADS Record Date in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of this Deposit Agreement, the Company’s Memorandum and Articles of Association and the provisions of or governing the Deposited Securities, to vote or cause the Custodian to vote the Deposited Securities (in person or by proxy) represented by American Depositary Shares evidenced by such Receipt in accordance with such voting instructions.

 

In the event that (i) the Depositary timely receives voting instructions from a Holder which fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs or (ii) no timely instructions are received by the Depositary from a Holder with respect to any of the Deposited Securities represented by the ADSs held by such Holder on the ADS Record Date, the Depositary shall (unless otherwise specified in the notice distributed to Holders) deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to such Deposited Securities and the Depositary shall give a discretionary proxy to a person designated by the Company to vote such Deposited Securities, provided, however, that no such instruction shall be deemed to have been given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information as promptly as practicable in writing, if applicable) that (x) the Company does not wish to give such proxy, (y) the Company is aware or should reasonably be aware that substantial opposition exists from Holders against the outcome for which the person designated by the Company would otherwise vote or (z) the outcome for which the person designated by the Company would otherwise vote would materially and adversely affect the rights of holders of Deposited Securities, provided, further, that the Company will have no liability to any Holder or Beneficial Owner resulting from such notification.

 

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In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with the Memorandum and Articles of Association, 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 have no obligation to demand voting on a poll basis with respect to any resolution and shall have no liability to any Holder or Beneficial Owner for not having demanded voting on a poll basis.

 

Neither the Depositary nor the Custodian shall, under any circumstances exercise any discretion as to voting, and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of for purposes of establishing a quorum or otherwise, Deposited Securities represented by ADSs except pursuant to and in accordance with such written instructions from Holders, including the deemed instruction to the Depositary to give a discretionary proxy to a person designated by the Company.  Deposited Securities represented by ADSs for which (i) no timely voting instructions are received by the Depositary from the Holder, or (ii) timely voting instructions are received by the Depositary from the Holder but such voting instructions fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs, shall be voted in the manner provided in this Article (15).  Notwithstanding anything else contained herein, and subject to applicable law, regulation and the Memorandum and Articles of Association, the Depositary shall, if so requested in writing by the Company, represent all Deposited Securities (whether or not voting instructions have been received in respect of such Deposited Securities from Holders as of the ADS Record Date) for the purpose of establishing quorum at a meeting of shareholders.

 

There can be no assurance that Holders or Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.

 

Notwithstanding the above, save for applicable provisions of the law of the Cayman Islands, and in accordance with the terms of Section 5.3 of the Deposit Agreement, the Depositary shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities or the manner in which such vote is cast or the effect of such vote.

 

(16)                          Changes Affecting Deposited Securities.  Upon any change in par value, split-up, subdivision, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger, amalgamation or consolidation or sale of assets affecting the Company or to which it otherwise is a party, any securities which shall be received by the Depositary or a Custodian in exchange for, or in conversion of or replacement or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Securities under the Deposit Agreement, and the Receipts shall, subject to the provisions of the Deposit Agreement and applicable law, evidence ADSs representing the right to receive such additional securities. Alternatively, the Depositary may, with the Company’s approval, and shall, if the Company shall so requests, subject to the terms of the Deposit Agreement and receipt of satisfactory documentation contemplated by the Deposit Agreement, execute and deliver additional Receipts as in the case of a stock dividend on the Shares, or call for the surrender of outstanding Receipts to be exchanged for new Receipts, in either case, as well as in the event of newly deposited Shares, with necessary modifications to this form of Receipt specifically describing such new Deposited Securities and/or corporate change. Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall if the Company requests, subject to receipt of satisfactory legal documentation contemplated in the Deposit Agreement, sell such securities at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) for the account of the Holders otherwise entitled to such securities and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to the Deposit Agreement. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or feasible to make such securities available to Holders in general or any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such securities.

 

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(17)                          Exoneration.  None of the Depositary, the Custodian or the Company shall be obligated to do or perform any act which is inconsistent with the provisions of the Deposit Agreement or shall incur any liability to Holders, Beneficial Owners or any third parties (i) if the Depositary, the Custodian or the Company or their respective controlling persons or agents shall be prevented or forbidden from, or subjected to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the Deposit Agreement and this Receipt, by reason of any provision of any present or future law or regulation of the United States, the Cayman Islands or any other country, or of any other governmental authority or regulatory authority or stock exchange, or by reason of any provision, present or future of the Memorandum and Articles of Association or any provision of or governing any Deposited Securities, or by reason of any act of God or war or other circumstances beyond its control, (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, revolutions, rebellions, explosions and computer failure), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement or in the Memorandum and Articles of Association or provisions of or governing Deposited Securities, (iii) for any action or inaction of the Depositary, the Custodian or the Company or their respective controlling persons or agents in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for any inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of ADS or (v) for any special, consequential, indirect or punitive damages for any breach of the terms of the Deposit Agreement or otherwise.  The Depositary, its controlling persons, its agents (including without limitation, the Agents), any Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.  No disclaimer of liability under the Securities Act or the Exchange Act is intended by any provision of the Deposit Agreement.

 

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(18)                          Standard of Care.  The Company and the Depositary and their respective directors, officers, Affiliates, employees and agents (including without limitation, the Agents) assume no obligation and shall not be subject to any liability under the Deposit Agreement or the Receipts to Holders or Beneficial Owners or other persons, except in accordance with Section 5.8 of the Deposit Agreement, provided, that the Company and the Depositary and their respective directors, officers, Affiliates, employees and agents (including without limitation, the Agents) agree to perform their respective obligations specifically set forth in the Deposit Agreement without gross negligence or wilful misconduct.  The Depositary and its directors, officers, Affiliates, employees and agents (including without limitation, the Agents) shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast or the effect of any vote.  The Depositary shall not incur any liability for any failure to determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Securities, for the validity or worth of the Deposited Securities or for any tax consequences that may result from the ownership of ADSs, Shares or Deposited Securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement or for the failure or timeliness of any notice from the Company or for any action or non action by it in reliance upon the opinion, advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder or any other person believed by it in good faith to be competent to give such advice or information. The Depositary and its agents (including without limitation, the Agents) shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without gross negligence or willful misconduct while it acted as Depositary.

 

(19)                          Resignation and Removal of the Depositary; Appointment of Successor Depositary.  The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall, in the event no successor depositary has been appointed by the Company, be entitled to take the actions contemplated in the Deposit Agreement), or (ii) the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement, save that, any amounts, fees, costs or expenses owed to the Depositary under the Deposit Agreement or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such resignation. The Company shall use reasonable efforts to appoint such successor depositary, and give notice to the Depositary of such appointment, not more than 90 days after delivery by the Depositary of written notice of resignation as provided in the Deposit Agreement.  The Depositary may at any time be removed by the Company by written notice of such removal which notice shall be effective on the later of (i) the 90th day after delivery thereof to the Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in the Deposit Agreement if a successor depositary has not been appointed), or (ii) the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement save that, any amounts, fees, costs or expenses owed to the Depositary under the Deposit Agreement or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such removal. In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York and if it shall have not appointed a successor depositary the provisions referred to in Article (21) hereof and correspondingly in the Deposit Agreement shall apply. Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor.  The predecessor depositary, upon payment of all sums due to it and on the written request of the Company, shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in the Deposit Agreement), (ii) duly assign, transfer and deliver all right, title and interest to the Deposited Securities to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding Receipts and such other information relating to Receipts and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly mail notice of its appointment to such Holders.  Any corporation into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act and, notwithstanding anything to the contrary in the Deposit Agreement, the Depositary may assign or otherwise transfer all or any of its rights and benefits under the Deposit Agreement (including any cause of action arising in connection with it) to Deutsche Bank AG or any branch thereof or any entity which is a direct or indirect subsidiary or other affiliate of Deutsche Bank AG.

 

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(20)                          Amendment/Supplement.  Subject to the terms and conditions of this Article (20), and applicable law, this Receipt and any provisions of the Deposit Agreement may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable without the consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than the charges of the Depositary in connection with foreign exchange control regulations, and taxes and/or other governmental charges, delivery and other such expenses), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding Receipts until 30 days after notice of such amendment or supplement shall have been given to the Holders of outstanding Receipts. Notice of any amendment to the Deposit Agreement or form of Receipts shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the Commission’s, the Depositary’s or the Company’s website or upon request from the Depositary). The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act or (b) the ADSs or Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such ADS, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement as amended or supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such Receipt and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require amendment or supplement of the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and the Receipt at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, or rules or regulations.

 

57


 

(21)                          Termination.  The Depositary shall, at any time at the written direction of the Company, terminate the Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 90 days prior to the date fixed in such notice for such termination provided that, the Depositary shall be reimbursed for any amounts, fees, costs or expenses owed to it in accordance with the terms of the Deposit Agreement and in accordance with any other agreements as otherwise agreed in writing between the Company and the Depositary from time to time, prior to such termination shall take effect. If 90 days shall have expired after (i) the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and in either case a successor depositary shall not have been appointed and accepted its appointment as provided herein and in the Deposit Agreement, the Depositary may terminate the Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 30 days prior to the date fixed for such termination. On and after the date of termination of the Deposit Agreement, each Holder will, upon surrender of such Holder’s Receipt at the Corporate Trust Office of the Depositary, upon the payment of the charges of the Depositary for the surrender of Receipts referred to in Article (2) hereof and in the Deposit Agreement and subject to the conditions and restrictions therein set forth, and upon payment of any applicable taxes and/or governmental charges, be entitled to delivery, to him or upon his order, of the amount of Deposited Securities represented by such Receipt. If any Receipts shall remain outstanding after the date of termination of the Deposit Agreement, the Registrar thereafter shall discontinue the registration of transfers of Receipts, and the Depositary shall suspend the distribution of dividends to the Holders thereof, and shall not give any further notices or perform any further acts under the Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Deposited Securities, shall sell rights or other property as provided in the Deposit Agreement, and shall continue to deliver Deposited Securities, subject to the conditions and restrictions set forth in the Deposit Agreement, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for Receipts surrendered to the Depositary (after deducting, or charging, as the case may be, in each case the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes and/or governmental charges or assessments). At any time after the expiration of six months from the date of termination of the Deposit Agreement, the Depositary may sell the Deposited Securities then held hereunder and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, in an unsegregated account, without liability for interest for the pro rata benefit of the Holders of Receipts whose Receipts have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement with respect to the Receipts and the Shares, Deposited Securities and ADSs, except to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes and/or governmental charges or assessments) and except as set forth in the Deposit Agreement. Upon the termination of the Deposit Agreement, the Company shall be discharged from all obligations under the Deposit Agreement except as set forth in the Deposit Agreement. The obligations under the terms of the Deposit Agreement and Receipts of Holders and Beneficial Owners of ADSs outstanding as of the effective date of any termination shall survive such effective date of termination and shall be discharged only when the applicable ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement and the Holders have each satisfied any and all of their obligations hereunder (including, but not limited to, any payment and/or reimbursement obligations which relate to prior to the effective date of termination but which payment and/or reimbursement is claimed after such effective date of termination).

 

58


 

Notwithstanding anything contained in the Deposit Agreement or any ADR, in connection with the termination of the Deposit Agreement, the Depositary may, independently and without the need for any action by the Company, make available to Holders of ADSs a means to withdraw the Deposited Securities represented by their ADSs and to direct the deposit of such Deposited Securities into an unsponsored American depositary shares program established by the Depositary, upon such terms and conditions as the Depositary may deem reasonably appropriate, subject however, in each case, to satisfaction of the applicable registration requirements by the unsponsored American depositary shares program under the Securities Act, and to receipt by the Depositary of payment of the applicable fees and charges of, and reimbursement of the applicable expenses incurred by, the Depositary.

 

(22)                          Compliance with U.S. Securities Laws; Regulatory Compliance.  Notwithstanding any provisions in this Receipt or the Deposit Agreement to the contrary, the withdrawal or Delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Section I.A.(1) of the General Instructions to Form F-6 Registration Statement, as amended from time to time, under the Securities Act.

 

(23)                       Certain Rights of the Depositary. The Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its Affiliates and in ADSs. The Depositary may issue ADSs against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares.

 

(24)                       Ownership Restrictions.  Owners and Beneficial Owners shall comply with any limitations on ownership of Shares under the Memorandum and Articles of Association or applicable Cayman Islands law as if they held the number of Shares their American Depositary Shares represent.  The Company shall inform the Owners, Beneficial Owners and the Depositary of any such ownership restrictions in place from time to time.

 

59


 

(25)                          Waiver. EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH HOLDER AND BENEFICIAL OWNER AND/OR HOLDER OF INTERESTS IN ANY ADRs) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE DEPOSITARY AND/OR 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 HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR ANY OTHER THEORY).

 

60


 

(ASSIGNMENT AND TRANSFER SIGNATURE LINES)

 

FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and transfer(s) unto                                whose taxpayer identification number is                         and whose address including postal zip code is                             , the within Receipt and all rights thereunder, hereby irrevocably constituting and appointing                          attorney-in-fact to transfer said Receipt on the books of the Depositary with full power of substitution in the premises.

 

Dated:

 

 

Name:

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

Title:

 

 

 

 

 

 

 

 

NOTICE: The signature of the Holder to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatsoever.

 

 

 

 

 

 

 

If the endorsement be executed by an attorney, executor, administrator, trustee or guardian, the person executing the endorsement must give his/her full title in such capacity and proper evidence of authority to act in such capacity, if not on file with the Depositary, must be forwarded with this Receipt.

SIGNATURE GUARANTEED

 

 

 

 

 

 

 

 

61


 

ARTICLE I.

DEFINITIONS

1

 

 

 

 

 

SECTION 1.1

“Affiliate”

1

 

SECTION 1.2

“Agent”

2

 

SECTION 1.3

“American Depositary Share(s)” and “ADS(s)”

2

 

SECTION 1.4

“Article”

2

 

SECTION 1.5

“Articles of Association”

2

 

SECTION 1.6

“ADS Record Date”

2

 

SECTION 1.7

“Beneficial Owner”

2

 

SECTION 1.8

“Business Day”

2

 

SECTION 1.9

“Commission”

2

 

SECTION 1.10

“Company”

2

 

SECTION 1.11

“Corporate Trust Office”

2

 

SECTION 1.12

“Custodian”

2

 

SECTION 1.13

“Deliver” and “Delivery”

3

 

SECTION 1.14

“Deposit Agreement”

3

 

SECTION 1.15

“Depositary”

3

 

SECTION 1.16

“Deposited Securities”

3

 

SECTION 1.17

“Dollars” and “$”

3

 

SECTION 1.18

“DRS/Profile”

3

 

SECTION 1.19

“DTC”

3

 

SECTION 1.20

“Exchange Act”

3

 

SECTION 1.21

“Foreign Currency”

3

 

SECTION 1.22

“Foreign Registrar”

3

 

SECTION 1.23

“Holder”

4

 

SECTION 1.24

“Indemnified Person” and “Indemnifying Person”

4

 

SECTION 1.25

“Losses”

4

 

SECTION 1.26

“Memorandum”

4

 

SECTION 1.27

“Opinion of Counsel”

4

 

SECTION 1.28

“Receipt(s); “American Depositary Receipt(s)”; and “ADR(s)”

4

 

SECTION 1.29

“Registrar”

4

 

SECTION 1.30

“Restricted Securities”

4

 

SECTION 1.31

“Securities Act”

4

 

SECTION 1.32

“Share(s)”

5

 

SECTION 1.33

“United States” or “U.S.”

5

 

 

 

 

ARTICLE II.

APPOINTMENT OF DEPOSITARY; FORM OF RECEIPT; DEPOSIT OF SHARES; EXECUTION AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS

5

 

 

 

 

SECTION 2.1

Appointment of Depositary

5

 

SECTION 2.2

Form and Transferability of Receipts

5

 

SECTION 2.3

Deposits

7

 

SECTION 2.4

Execution and Delivery of Receipts

8

 

SECTION 2.5

Transfer of Receipts; Combination and Split-up of Receipts

8

 

SECTION 2.6

Surrender of Receipts and Withdrawal of Deposited Securities

9

 

SECTION 2.7

Limitations on Execution and Delivery, Transfer, etc. of Receipts; Suspension of Delivery, Transfer, etc.

10

 

SECTION 2.8

Lost Receipts, etc.

11

 


 

 

SECTION 2.9

Cancellation and Destruction of Surrendered Receipts; Maintenance of Records

11

 

SECTION 2.10

Maintenance of Records

11

 

 

 

 

ARTICLE III.

CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF RECEIPTS

12

 

 

 

 

SECTION 3.1

Proofs, Certificates and Other Information

12

 

SECTION 3.2

Liability for Taxes and Other Charges

12

 

SECTION 3.3

Representations and Warranties on Deposit of Shares

13

 

SECTION 3.4

Compliance with Information Requests

13

 

 

 

 

ARTICLE IV

THE DEPOSITED SECURITIES

14

 

 

 

 

 

SECTION 4.1

Cash Distributions

14

 

SECTION 4.2

Distribution in Shares

14

 

SECTION 4.3

Elective Distributions in Cash or Shares

15

 

SECTION 4.4

Distribution of Rights to Purchase Shares

15

 

SECTION 4.5

Distributions Other Than Cash, Shares or Rights to Purchase Shares

17

 

SECTION 4.6

Conversion of Foreign Currency

18

 

SECTION 4.7

Fixing of Record Date

19

 

SECTION 4.8

Voting of Deposited Securities

19

 

SECTION 4.9

Changes Affecting Deposited Securities

21

 

SECTION 4.10

Available Information

21

 

SECTION 4.11

Reports

21

 

SECTION 4.12

List of Holders

22

 

SECTION 4.13

Taxation; Withholding

22

 

 

 

 

ARTICLE V.

THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY

23

 

 

 

 

SECTION 5.1

Maintenance of Office and Transfer Books by the Registrar

23

 

SECTION 5.2

Exoneration

24

 

SECTION 5.3

Standard of Care

25

 

SECTION 5.4

Resignation and Removal of the Depositary; Appointment of Successor Depositary

25

 

SECTION 5.5

The Custodian

26

 

SECTION 5.6

Notices and Reports

27

 

SECTION 5.7

Issuance of Additional Shares, ADSs etc.

28

 

SECTION 5.8

Indemnification

29

 

SECTION 5.9

Fees and Charges of Depositary

29

 

SECTION 5.10

Restricted Securities Owners/Ownership Restrictions

31

 

 

 

 

ARTICLE VI.

AMENDMENT AND TERMINATION

31

 

 

 

 

SECTION 6.1

Amendment/Supplement

31

 

SECTION 6.2

Termination

32

 

 

 

 

ARTICLE VII.

MISCELLANEOUS

33

 

 

 

 

 

SECTION 7.1

Counterparts

33

 

SECTION 7.2

No Third-Party Beneficiaries

34

 

SECTION 7.3

Severability

34

 

SECTION 7.4

Holders and Beneficial Owners as Parties; Binding Effect

34

 

SECTION 7.5

Notices

34

 

SECTION 7.6

Governing Law and Jurisdiction

35

 

63


 

 

SECTION 7.7

Assignment

37

 

SECTION 7.8

Agents

37

 

SECTION 7.9

Affiliates etc.

37

 

SECTION 7.10

Exclusivity

37

 

SECTION 7.11

Compliance with U.S. Securities Laws

37

 

SECTION 7.12

Titles

38

 

 

 

 

EXHIBIT A

 

 

40

EXHIBIT B

 

 

49

 

64




Exhibit 4.4

 

FURTHER AMENDED AND RESTATED
SHAREHOLDER AND NOTE HOLDER AGREEMENT

 

THIS FURTHER AMENDED AND RESTATED SHAREHOLDER AND NOTE HOLDER AGREEMENT (this “Agreement”) is entered into on December 31, 2018 (the “Commencement Date”), by and among

 

1.                                      Aesthetic Medical International Holdings Group Limited (formerly known as Pengai Aesthetic Medical Group), an exempted company incorporated and existing under the laws of the Cayman Islands (the “Company”),

 

2.                                      DRAGON JADE HOLDINGS LIMITED 龍翠控股有限公司, a business company duly established and validly existing under the laws of British Virgin Islands (the “BVI Subsidiary”),

 

3.                                      Peng Oi Investment (Hong Kong) Holdings Limited, a limited liability company limited by shares incorporated under the Laws of Hong Kong (the “HK Subsidiary”),

 

4.                                      鹏意达商务咨询(深圳)有限公司, a foreign invested commercial enterprise incorporated under the Laws of the PRC (the “WFOE”),

 

5.                                      深圳鹏爱医院投资管理有限公司, a company established under the Laws of the PRC (the “Domestic Company”),

 

6.                                      each of the individuals and entities listed on Schedule A-1 attached hereto (each such individual, a “Principal” and collectively, the “Principals”; and each such entity, a “Principal Holdco” and collectively, the “Principal Holdcos”), and

 

7.                                      each of the Persons named on Schedule A-2 hereto (each an “Investor” and collectively, the “Investors”).

 

Each of the parties to this Agreement is referred to herein individually as a “Party” and collectively as the “Parties”. Capitalized terms used herein without definition shall have the meanings set forth in the Purchase Agreements (as applicable).

 

RECITALS

 

A                                       The Company holds 100% of the equity of the BVI Subsidiary; the BVI Subsidiary holds 100% of the equity of the HK Subsidiary; the HK Subsidiary owns an interest in 100% of the registered capital of the WFOE, and the WFOE owns an interest in 100% of the registered capital of the Domestic Company. Each Principal holds such amount of equity of Principal Holdco as specified on Schedule A-1.

 

B                                       None of the Company, the BVI Subsidiary or the HK Subsidiary engages in any substantive business or operations. The WFOE and the Domestic Company are engaged in the Business (as defined below). The Company seeks expansion capital to grow the Business and, correspondingly, seeks to secure an investment from the Investors, on the terms and conditions set forth herein.

 

C                                       The Company, the BVI Subsidiary, the HK Subsidiary, the WFOE, the Domestic Company, the Principals, the Principal Holdcos and the Investors have entered into an amended and restated shareholder and note holder agreement dated November 15, 2018 (the “Prior Agreement”).

 


 

D                                       Chuangrui had agreed to subscribe for shares in the Company on the terms and conditions set forth in the investment agreement dated September 20, 2018 (as amended and supplemented by the supplemental agreement dated November 1, 2018 entered into between Wise Sunny Limited, an Affiliate of Chuangrui, and the Company, and the second supplemental agreement dated November 30, 2018 entered into between Wise Sunny Limited and the Company) (the “Prior Investment Agreement”). Wise Sunny Limited and the Company have entered into a third supplemental agreement dated December 31, 2018 (the “Third Supplemental Agreement”) to amend certain terms in the Prior Investment Agreement (together with the Third Supplemental Agreement, the “Investment Agreement”). A capitalization table of the Company’s outstanding share capital at the time of the execution of this Agreement is set forth in Schedule B attached hereto.

 

E                                        To amend the terms of this Agreement pursuant to the Third Supplemental Agreement, and to regulate the relationship of the shareholders and note holders of the Company inter se as shareholders and note holders of the Company and in the conduct of the business and affairs of the Company in the spirit of mutual confidence and co-operation, the Parties have agreed to enter into this Agreement on the terms and conditions hereinafter set out.

 

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.

 

1.1          The following terms shall have the meanings ascribed to them below:

 

Accounting Standards” means International Financial Reporting Standards as promulgated from time to time by the International Accounting Standards Board (the “IASB”) (including, without limitation, standards and interpretations approved by the IASB and International Accounting Principles issued under previous constitutions thereof), together with the IASB’s pronouncements thereon from time to time, applied on a consistent basis.

 

ADV” means Peak Asia Investment Holdings V Limited, a company incorporated and existing under the laws of the British Virgin Islands.

 

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. In the case of an Investor, the term “Affiliate” also includes (v) any direct or indirect shareholder of the Investor, (w) any of such shareholder’s or Investors’ general partners or limited partners, (x) the fund manager managing such shareholder or Investor (and general partners, limited partners and officers thereof) and other funds managed by such fund manager, and (y) trusts controlled by or for the benefit of any such Person referred to in (v), (w) or (x).

 

2


 

Applicable Securities Laws” means (i) with respect to any offering of securities in the United States, or any other act or omission within that jurisdiction, the securities laws of the United States, including without limitation, the Exchange Act and the Securities Act, and any applicable Law of any state of the United States, and (ii) with respect to any offering of securities in any jurisdiction other than the United States, or any related act or omission in that jurisdiction, the applicable Laws of that jurisdiction.

 

Approved Sale” has the meaning given to such term in the Memorandum and Articles.

 

As-If Converted Basis” means, with respect to any Ordinary Share Equivalents held by any member of the Company, the number of Ordinary Shares that would be held thereby upon the exchange, conversion or exercise of such Ordinary Share Equivalents, including, without limitation any issued and outstanding Notes and the Preferred Shares.

 

Associate” means, with respect to any Person, (1) a corporation or organization (other than the Group Companies) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of twenty percent (20%) or more of any class of Equity Securities of such corporation or organization, (2) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar capacity, or (3) any Relative of such Person.

 

Auditor” means the Person for the time being performing the duties of auditor of the Company (if any).

 

Board” or “Board of Directors” means the board of directors of the Company.

 

Business” means cosmetic plastic surgery services, skincare clinic and spa services, health and therapeutic body treatment services, general medical services and activities ancillary thereto of the Group Companies in the PRC.

 

Business Day” means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, Hong Kong or New York (if on that day a payment is to be made pursuant to this Agreement in New York City).

 

Big-Four Firm” means Deloitte & Touche, Ernst & Young, KPMG or PricewaterhouseCoopers.

 

Chuangrui” means SCI AESTHETIC HOLDING CO., LTD. (BVI Company Number: 1993837), a company incorporated in British Virgin Islands and having its registered office at Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Island.

 

Convertible Notes” means the convertible notes issued by the Company to ADV pursuant to the Convertible Note Purchase Agreement.

 

CN Basic Documents” has the meaning given to such term in the Convertible Note Purchase Agreement.

 

CFC” means a controlled foreign corporation as defined in the Code.

 

3


 

Charter Documents” means, with respect to a particular legal entity, the articles or certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.

 

Circular 37” means the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Investment and Financing and Round Trip Investment via Overseas Special Purpose Companies issued by SAFE on July 4, 2014.

 

Closing” has the meaning set forth in the Purchase Agreements (as applicable).

 

Code” means the United States Internal Revenue Code of 1986, as amended.

 

Commission” means (i) with respect to any offering of securities in the United States, the Securities and Exchange Commission of the United States or any other federal agency at the time administering the Securities Act, and (ii) with respect to any offering of securities in a jurisdiction other than the United States, the regulatory body of the jurisdiction with authority to supervise and regulate the offering or sale of securities in that jurisdiction.

 

Company Account” means the bank account(s) in the name of each of the Group Company.

 

Consent” means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.

 

Consideration” has the meaning given to such term in the Investment Agreement.

 

Consideration Per Share” has the meaning given to such term in the Investment Agreement.

 

Contract” means a contract, agreement, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, and other legally binding arrangement, whether written or oral.

 

Control” 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; provided, that such 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 terms “Controlled” and “Controlling” have meanings correlative to the foregoing.

 

Conversion Shares” means Ordinary Shares issuable upon conversion of any Preferred Shares.

 

Convertible Note Purchase Agreement” means the Convertible Note Purchase Agreement, dated November 9, 2016, by and between the Company and ADV.

 

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Deemed Liquidation Event” has the meaning given to such term in the Memorandum and Articles.

 

Director” means a director serving on the Board.

 

Effective Date” means December 8, 2016.

 

Exchange Notes” means the exchangeable notes issued by the Principal Holdcos to ADV pursuant to the Exchangeable Note Purchase Agreement.

 

Exchangeable Note Purchase Agreement” means the Exchangeable Note Purchase Agreement, dated November 9, 2016, by and among the Company, the Principal Holdcos and ADV.

 

EN Basic Documents” has the meaning given to such term in the Exchangeable Note Purchase Agreement.

 

Equity Securities” means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security issued by such Person and convertible into, exchangeable or exercisable for any of the foregoing, or any Contract with such Person providing for the acquisition of any of the foregoing.

 

ESOP” means the employee share incentive plan of the Company adopted pursuant to the Memorandum and Articles covering the grant of Ordinary Shares (or awards therefor) to senior officers or key employees/service providers of a Group Company.

 

Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

 

First Closing Date” has the meaning given to such term in the Memorandum and Articles.

 

Form F-3” means Form F-3 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.

 

Form S-3” means Form S-3 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.

 

Governmental Authority” means any government of any nation 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 governmental authority, agency, department, board, commission or instrumentality of the PRC 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.

 

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Group Company” means each of the Company, the BVI Subsidiary, the HK Subsidiary, the Domestic Company, and the WFOE, together with each Subsidiary of any of the foregoing, and “Group” refers to all of Group Companies collectively.

 

Holders” means the holders of Registrable Securities who are parties to this Agreement from time to time, and their permitted transferees that become parties to this Agreement from time to time, which for the avoidance of doubt, excludes Chuangrui.

 

Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China.

 

IDG” means collectively IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P., a limited partnership organized and existing under the laws of the State of Delaware of the United States, IDG-ACCEL CHINA GROWTH FUND III L.P., a Cayman Islands exempted limited partnership, and IDG-ACCEL CHINA III INVESTORS L.P. a Cayman Islands exempted limited partnership.

 

Indebtedness” of any Person means, without duplication, each of the following of such Person: (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including without limitation, obligations so evidenced that are incurred in connection with the acquisition of properties, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all obligations that are capitalized in accordance with Accounting Standards, (vii) all obligations under banker’s acceptance, letter of credit or similar facilities, (viii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person, (ix) all obligations in respect of any interest rate swap, hedge or cap agreement, and (x) all guarantees issued in respect of the Indebtedness referred to in clauses (i) through (ix) above of any other Person, but only to the extent of the Indebtedness guaranteed.

 

Initial Completion Date” has the meaning given to such term in the Investment Agreement.

 

Initiating Holders” means, with respect to a request duly made under Section 2.1 or Section 2.2 to Register any Registrable Securities, the Holders initiating such request.

 

Intellectual Property” means any and all (i) patents, patent rights and applications therefor and 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, mask works and registrations and applications therefor, author’s rights and works of authorship (including without limitation, artwork, software, computer programs, source code, object code and executable code, firmware, development tools, files, records and data, and related documentation), (iv) URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications, proprietary data, customer lists, databases, proprietary processes, technology, formulae, and algorithms and other intellectual property, (vi) trade names, trade dress, trademarks, domain names, service marks, logos, business names, and registrations and applications therefor, and (vii) the goodwill symbolized or represented by the foregoing.

 

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IPO” means the first firm underwritten registered public offering by the Company of its Ordinary Shares pursuant to a Registration Statement that is filed with and declared effective by either the Commission under the Securities Act or another Governmental Authority for a public offering in a jurisdiction other than the United States.

 

Law” or “Laws” means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable Governmental Orders.

 

Liabilities” means, with respect to any Person, all liabilities, obligations and commitments of such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

 

Lien” means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by Contract, understanding, law, equity or otherwise.

 

Major Investor” means each Investor that, together with its Affiliates, holds in the aggregate at least 1,500,000 Ordinary Shares determined on an As-If Converted Basis (as adjusted in connection with share splits or share consolidation, reclassification, or other similar event).

 

Majority Investors” means the Investors holding Notes and/or Preferred Shares representing at least 51% of the total voting power of the Notes and Preferred Shares, determined on an As-If Converted Basis.

 

Memorandum and Articles” means the Further Amended and Restated Memorandum of Association and Articles of Association of the Company, as each may be amended and/or restated from time to time.

 

Members” has the meaning given to such term in the Memorandum and Articles.

 

Notes” means, collectively, the Convertible Notes and the Exchangeable Notes.

 

Ordinary Share Equivalents” means any Equity Security which is by its terms convertible into or exchangeable or exercisable for, directly or indirectly, Ordinary Shares or other share capital of the Company, including without limitation, the Preferred Shares and the Notes.

 

Ordinary Shares” means the Company’s ordinary shares, par value US$0.001 per share.

 

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Person” means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

 

PFIC” means passive foreign investment company as defined in the Code.

 

PRC” means the People’s Republic of China, but solely for the purposes of this Agreement, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.

 

Preferred Shares” means the Series A Preferred Shares and the Series B Preferred Shares.

 

Public Official” means any executive, official, or employee of a Governmental Authority, political party or member of a political party, political candidate; executive, employee or officer of a public international organization; or director, officer or employee or agent of a wholly owned or partially state-owned or controlled enterprise, including without limitation, a PRC state-owned or controlled enterprise.

 

Purchase Agreements” means, collectively, the Convertible Note Purchase Agreement and the Exchangeable Note Purchase Agreement.

 

Qualified IPO” has the meaning given to such term in the Memorandum and Articles.

 

Registrable Securities” means (i) the Ordinary Shares calculated on an As-If Converted Basis, (ii) any Ordinary Shares of the Company issued or issuable as a dividend or other distribution with respect to, in exchange for, or in replacement of, the shares referenced in (i) herein, and (iii) any Ordinary Shares owned or hereafter acquired by the Investors, which for the avoidance of doubt, excludes the Ordinary Shares held by Chuangrui. For purposes of this Agreement, Registrable Securities shall cease to be Registrable Securities when such Registrable Securities have been disposed of pursuant to an effective Registration Statement.

 

Registration” means a registration effected by preparing and filing a Registration Statement and the declaration or ordering of the effectiveness of that Registration Statement; and the terms “Register” and “Registered” have meanings concomitant with the foregoing.

 

Registration Statement” means a registration statement prepared on Form F-1, F-3, S-1, or S-3 under the Securities Act, or on any comparable form in connection with registration in a jurisdiction other than the United States.

 

Related Party” means any Affiliate, officer, director, supervisory board member, employee, or holder of any Equity Security of any Group Company, any Affiliate or Relative (as applicable) of any of the foregoing, or Associate of any Affiliate, officer, director, supervisory board member, or holder of any Equity Security of any Group Company.

 

Relative” means with respect to a nature Person means the spouse of such Person and any parent, grandparent, sibling or child of such Person or spouse.

 

Right of First Refusal & Co-Sale Agreement” means the Further Amended and Restated Right of First Refusal and Co-Sale Agreement entered into by and among the Investors, the Principals and the Company on or about the Commencement Date, as amended from time to time.

 

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SAFE” means the State Administration of Foreign Exchange of the PRC.

 

SAFE Rules and Regulations” means collectively, the Circular 37, and any other applicable SAFE rules and regulations.

 

Second Completion Date” has the meaning given to such term in the Investment Agreement.

 

Securities Act” means the United States Securities Act of 1933, as amended.

 

Series A Issue Date” has the meaning given to such term in the Memorandum and Articles.

 

Series A Issue Price” has the meaning given to such term in the Memorandum and Articles.

 

Series A Preferred Shares” means the redeemable Series A Preferred Shares of the Company, par value US$0.001 per share, with the rights and privileges as set forth in the Memorandum and Articles.

 

Series A Sellers” means, collectively, China Growth Equity Investments Limited, CMHJ TECHNOLOGY FUND II, L.P., Gerald Scott Klayman, Ko (Guang) Su, TDR ADVISORS INC., and Uptown Alliance Limited.

 

Series B Nominal Issue Price” has the meaning given to such term in the Memorandum and Articles.

 

Series B Preferred Shares” means the redeemable Series B Preferred Shares of the Company, par value US$0.001 per share, with the rights and privileges as set forth in the Memorandum and Articles.

 

Shareholder” means a holder of any Shares.

 

Shares” means the Ordinary Shares and the Preferred Shares.

 

Share Sale” has the meaning set forth in the Memorandum and Articles.

 

Subsidiary” means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.

 

Supermajority Investors” means the holders of Notes and/or Preferred Shares representing at least two-thirds of the total voting power of the Notes and Preferred Shares, determined on an As-If Converted Basis.

 

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 without limitation, enterprise income tax and individual income withholding tax), turnover (including without limitation, value-added tax, business tax, and consumption tax), resource (including without limitation, urban and township land use tax), special purpose (including without limitation, land value-added tax, urban maintenance and construction tax, and additional education fees), property (including without limitation, urban real estate tax and land use fees), documentation (including without limitation, stamp duty and deed tax), filing, recording, social insurance (including without limitation, pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including without limitation, import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clauses (i)(a) through (i)(c) above.

 

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Third Completion Date” has the meaning given to such term in the Investment Agreement.

 

Transaction Documents” means, collectively, the CN Basic Documents, the EN Basic Documents and the Investment Agreement.

 

US” means the United States of America.

 

United States Person” means United States person as defined in Section 7701(a)(30) of the Code.

 

1.2          Other Defined Terms. The following terms shall have the meanings defined for such terms in the Sections set forth below:

 

Agreement

 

Preamble

Additional Ordinary Shares

 

Section 11.10 (i)

ADV Director

 

Section 9.1 (i)

BVI Subsidiary

 

Preamble

Chuangrui Preference Amount

 

Section 11.11(iii)

Company

 

Preamble

Confidential Information

 

Section 11.15

Direct US Investor

 

Section 11.13 (iii)

Dispute

 

Section 12.5 (i)

Domestic Company

 

Preamble

Commencement Date

 

Preamble

Exempt Registrations

 

Section 3.4

Participation Notice

 

Section 7.4

HK Subsidiary

 

Preamble

HKIAC Rules

 

Section 12.5 (i)

IDG Director

 

Section 9.1 (i)

Indirect US Investor

 

Section 11.13 (iii)

Investment Agreement

 

Recitals

Investor Director

 

Section 9.1 (i)

Investors

 

Preamble

New Securities

 

Section 7.3

New Securities Price Per Share

 

Section 11.10 (i)

Observer

 

Section 9.4

Ordinary Directors

 

Section 9.1 (i)

Party

 

Preamble

PFIC Shareholders

 

Section 11.13 (iii)

PRC

 

Preamble

Preemptive Right

 

Section 7.1

Principal

 

Preamble

Principal Holdco

 

Preamble

Prior Agreement

 

Recitals

Prior Investment Agreement

 

Recitals

Pro Rata Share

 

Section 7.2

Restricted Business

 

Section 11.9

Rights Holder

 

Section 7.1

Third Supplemental Agreement

 

Recitals

Security Holder

 

Section 11.2

Series A Preference Amount

 

Section 11.11(ii)

Series B Preference Amount

 

Section 11.11(i)

Subsidiary Board

 

Section 9.1 (iv)

Violation

 

Section 5.1 (i)

WFOE

 

Preamble

 

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1.3          Interpretation. For all purposes of this Agreement, except as otherwise expressly herein provided, (i) the terms defined in this Section 1 shall have the meanings assigned to them in this Section 1 and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein have the meanings assigned under the Accounting Standards, (iii) all references in this Agreement to designated “Sections” and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement, (iv) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, (v) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision, (vi) all references in this Agreement to designated Schedules, Exhibits and Appendices are to the Schedules, Exhibits and Appendices attached to this Agreement, (vii) references to this Agreement, any other Transaction Documents and any other document shall be construed as references to such document as the same may be amended, supplemented or novated from time to time, (viii) the term “or” is not exclusive, (ix) the terms “shall,” “will,” and “agrees” are mandatory, and the term “may” is permissive, (x) the phrase “directly or indirectly” means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and “direct or indirect” has the correlative meaning, (xi) the term “voting power” refers to the number of votes attributable to the Shares (on an As-If Converted Basis) in accordance with the terms of the Memorandum and Articles, (xii) the headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement, (xiii) references to laws include any such law modifying, re-enacting, extending or made pursuant to the same or which is modified, re-enacted, or extended by the same or pursuant to which the same is made, and (xiv) all references to dollars or to “US$” are to currency of the United States of America and all references to RMB are to currency of the PRC (and each shall be deemed to include reference to the equivalent amount in other currencies).

 

2.             Demand Registration.

 

2.1          Registration Other Than on Form F-3 or Form S-3. Subject to the terms of this Agreement, at any time or from time to time after the earlier of (i) the fourth (4th) anniversary of the Effective Date or (ii) the date that is twelve (12) months after the closing of the IPO, Holders holding fifty percent (50%) or more of the voting power of the then outstanding Registrable Securities held by all Holders may request in writing that the Company effect a Registration of Registrable Securities (A) representing at least twenty percent (20%) of the then outstanding Registrable Securities held by such Holders, or (B) having an anticipated aggregate offering price, net of underwriting discounts and commissions, in excess of $5,000,000, on any internationally recognized exchange that is reasonably acceptable to such requesting Holders. Upon receipt of such a request, the Company shall (x) promptly give written notice of the proposed Registration to all other Holders and (y) as soon as practicable, use its reasonable best efforts to cause the Registrable Securities specified in the request, together with any Registrable Securities of any Holder who requests in writing to join such Registration within fifteen (15) days after the Company’s delivery of written notice, to be Registered and/or qualified for sale and distribution in such jurisdiction as the Company undertakes its IPO. The Company shall be obligated to consummate no more than two (2) Registrations pursuant to this Section 2.1 that have been declared and ordered effective; provided that if the Registrable Securities included in the Registration are less than fifty percent (50%) of the Registrable Securities sought to be included in the Registration pursuant to this Section 2.1 for any reason other than solely due to the action or inaction of the Holders including Registrable Securities in such Registration (including, without limitation, due to exclusion in an underwritten offering under Section 2.4), such Registration shall not be deemed to constitute one of the Registration rights granted pursuant to this Section 2.1.

 

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2.2          Registration on Form F-3 or Form S-3. The Company shall use its best efforts to qualify for registration on Form F-3 or Form S-3. Subject to the terms of this Agreement, if the Company qualifies for registration on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States), any Holder may request the Company to file, in any jurisdiction in which the Company has had a registered underwritten public offering, a Registration Statement on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States), including without limitation any registration statement filed under the Securities Act providing for the registration of, and the sale on a continuous or a delayed basis by the Holders of, all of the Registrable Securities pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission. Upon receipt of such a request, the Company shall (i) promptly give written notice of the proposed Registration to all other Holders and (ii) as soon as practicable, use its reasonable best efforts to cause the Registrable Securities specified in the request, together with any Registrable Securities of any Holder who requests in writing to join such Registration within fifteen (15) days after the Company’s delivery of written notice, to be Registered and qualified for sale and distribution in such jurisdiction. The Company shall be obligated to consummate no more than two (2) Registrations that have been declared and ordered effective within any twelve (12)-month period pursuant to this Section 2.2; provided that if the Registrable Securities included in such Registration are less than fifty percent (50%) of the Registrable Securities sought to be included in the Registration pursuant to this Section 2.2 solely due to the action or inaction of the Holders including Registrable Securities in such Registration, such Registration shall not be deemed to constitute one of the Registration rights granted pursuant to this Section 2.2.

 

2.3          Right of Deferral.

 

(i)            The Company shall not be obligated to Register or qualify Registrable Securities pursuant to this Section 2:

 

(1)           if, within ten (10) days of the receipt of any request of the Holders to Register any Registrable Securities under Section 2.1 or Section 2.2, the Company gives notice to the Initiating Holders of its bona fide intention to effect the filing for its own account of a Registration Statement of Ordinary Shares within ninety (90) days of receipt of that request; provided, that the Company is actively employing in good faith its reasonable best efforts to cause that Registration Statement to become effective within ninety (90) days of receipt of that request; provided, further, that the Holders are entitled to join such Registration in accordance with Section 3 (other than an Exempt Registration);

 

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(2)           during the period starting with the date of filing by the Company of, and ending six (6) months following the effective date of any Registration Statement pertaining to Ordinary Shares of the Company other than an Exempt Registration; provided, that the Holders are entitled to join such Registration in accordance with Section 3;

 

(3)           in any jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such Registration or qualification, unless the Company is already subject to service of process in such jurisdiction; or

 

(4)           with respect to the registration on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States), if Form F 3 is not available for such offering by the Holders, or 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 $500,000.

 

(ii)           If, after receiving a request from Holders pursuant to Section 2.1 or Section 2.2 hereof, the Company furnishes to the Holders a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board, it would be materially detrimental to the Company or its members for a Registration Statement to be filed in the near future, then the Company shall have the right to defer such filing for a period during which such filing would be materially detrimental, provided, that the Company may not utilize this right for more than ninety (90) days on any one occasion or more than once during any twelve (12) month period; provided, further, that the Company may not Register any other its Securities during such period (except for Exempt Registrations).

 

2.4          Underwritten Offerings. If, in connection with a request to Register Registrable Securities under Section 2.1 or Section 2.2, the Initiating Holders seek to distribute such Registrable Securities in an underwritten offering, they shall so advise the Company as a part of the request, and the Company shall include such information in the written notice to the other Holders described in Section 2.1 and Section 2.2. In such event, the right of any Holder to include its Registrable Securities in such Registration shall be conditioned upon such Holder’s participation in such underwritten offering and the inclusion of such Holder’s Registrable Securities in the underwritten offering (unless otherwise mutually agreed by the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwritten offering shall enter into an underwriting agreement in customary form with the underwriter or underwriters of internationally recognized standing selected for such underwritten offering by the Company and reasonably acceptable to the holders of at least a majority of the voting power of all Registrable Securities proposed to be included in such Registration. Notwithstanding any other provision of this Agreement, if the managing underwriter advises the Company that marketing factors (including without limitation the aggregate number of securities requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Registrable Securities to be underwritten in a Registration pursuant to Section 2.1 or Section 2.2, the underwriters may exclude up to fifty percent (50%) of the Registrable Securities requested to be Registered but only after first excluding all other Equity Securities from the Registration and underwritten offering and so long as the number of shares to be included in the Registration on behalf of the non-excluded Holders is allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested by such Holders to be included; provided that any Initiating Holder shall have the right to withdraw its request for Registration from the underwriting by written notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement, and such withdrawal request for Registration shall not be deemed to constitute one of the Registration rights granted pursuant to Section 2.1 or Section 2.2, as the case may be. If any Holder disapproves the terms of any underwriting, the Holder may elect to withdraw therefrom by written notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from such underwritten offering shall be withdrawn from the Registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to a Holder to the nearest one hundred (100) shares.

 

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3.             Piggyback Registrations.

 

3.1          Registration of the Company’s Securities. Subject to the terms of this Agreement, if the Company proposes to Register for its own account any of its Equity Securities, or for the account of any holder (other than a Holder) of Equity Securities any of such holder’s Equity Securities, in connection with the public offering of such securities (except for Exempt Registrations), the Company shall promptly give each Holder written notice of such Registration and, upon the written request of any Holder given within fifteen (15) days after delivery of such notice, the Company shall use its reasonable best efforts to include in such Registration any Registrable Securities thereby requested to be Registered by such Holder. If a Holder decides not to include all or any of its Registrable Securities in such Registration by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent Registration Statement or Registration Statements as may be filed by the Company, all upon the terms and conditions set forth herein.

 

3.2          Right to Terminate Registration. The Company shall have the right to terminate or withdraw any Registration initiated by it under Section 3.1 prior to the effectiveness of such Registration, whether or not any Holder has elected to participate therein. The expenses of such withdrawn Registration shall be borne by the Company in accordance with Section 4.3.

 

3.3          Underwriting Requirements.

 

(i)            In connection with any offering involving an underwriting of the Company’s Equity Securities, the Company shall not be required to Register the Registrable Securities of a Holder under this Section 3 unless such Holder’s Registrable Securities are included in the underwritten offering and such Holder enters into an underwriting agreement in customary form with the underwriter or underwriters of internationally recognized standing selected by the Company and setting forth such terms for the underwritten offering as have been agreed upon between the Company and the underwriters. In the event the underwriters advise Holders seeking Registration of Registrable Securities pursuant to this Section 3 in writing that market factors (including the aggregate number of Registrable Securities requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Registrable Securities to be underwritten, the underwriters may exclude all of the Registrable Securities requested to be Registered in the IPO and up to fifty percent (50%) of the Registrable Securities requested to be Registered in any other public offering, but in any case only after first excluding all other Equity Securities (except for securities sold for the account of the Company) from the Registration and underwriting and so long as the Registrable Securities to be included in such Registration on behalf of any non-excluded Holders are allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested by such Holders to be included. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to a Holder to the nearest one hundred (100) shares.

 

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(ii)           If any Holder disapproves the terms of any underwriting, the Holder may elect to withdraw therefrom by written notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from the underwritten offering shall be withdrawn from the Registration.

 

3.4          Exempt Registrations. The Company shall have no obligation to Register any Registrable Securities under this Section 3 in connection with a Registration by the Company (i) relating solely to the sale of securities to participants in a Company share plan, (ii) relating to a corporate reorganization or other transaction under Rule 145 of the Securities Act (or comparable provision under the Laws of another jurisdiction, as applicable), (iii) on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities and does not permit secondary sales (collectively, “Exempt Registrations”).

 

4.             Registration Procedures.

 

4.1          Registration Procedures and Obligations. Whenever required under this Agreement to effect the Registration of any Registrable Securities held by the Holders, the Company shall, as expeditiously as reasonably possible:

 

(i)            Prepare and file with the Commission a Registration Statement with respect to those Registrable Securities and use its reasonable best efforts to cause that Registration Statement to become effective, and, upon the request of the Holders holding at least a majority in voting power of the Registrable Securities Registered thereunder, keep the Registration Statement effective until the distribution thereunder has been completed;

 

(ii)           Prepare and file with the Commission amendments and supplements to that Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to comply with the provisions of Applicable Securities Laws with respect to the disposition of all securities covered by the Registration Statement;

 

(iii)          Furnish to the Holders the number of copies of a prospectus, including a preliminary prospectus, required by Applicable Securities Laws, and any other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

 

(iv)          Use its reasonable best efforts to Register and qualify the securities covered by the Registration Statement under the securities Laws of any jurisdiction, as reasonably requested by the Holders, provided, that the Company shall not be required to qualify to do business or file a general consent to service of process in any such jurisdictions;

 

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(v)           In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in customary form, with the managing underwriter(s) of the offering;

 

(vi)          Promptly notify each Holder of Registrable Securities covered by the Registration Statement at any time when a prospectus relating thereto is required to be delivered under Applicable Securities Laws of (a) the issuance of any stop order by the Commission, or (b) the happening of any event or the existence of any condition as a result of which any prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, or if in the opinion of counsel for the Company it is necessary to supplement or amend such prospectus to comply with law, and at the request of any such Holder promptly prepare and furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made or such prospectus, as supplemented or amended, shall comply with law;

 

(vii)         Furnish, at the request of any Holder requesting Registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered for sale in connection with a Registration pursuant to this Agreement, (A) an opinion, dated the date of the sale, of the counsel representing the Company for the purposes of the Registration, in form and substance as is customarily given to underwriters in an underwritten public offering; and (B) comfort letters dated as of (x) the effective date of the registration statement covering such Registrable Securities, and (y) the date of the sale as contemplated in Rule 159 under the Securities Act, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters;

 

(viii)        Otherwise comply with all applicable rules and regulations of the Commission to the extent applicable to the applicable registration statement and use its reasonable best efforts to make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Act, no later than forty-five (45) days after the end of a twelve (12) month period (or ninety (90) days, if such period is a fiscal year) beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of such registration statement, which statement shall cover such twelve (12) month period, subject to any proper and necessary extensions;

 

(ix)          Not, without the written consent of the holders of at least a majority of voting power of the then outstanding Registrable Securities, make any offer relating to the Securities that would constitute a “free writing prospectus,” as defined in Rule 405 promulgated under the Act;

 

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(x)           Provide a transfer agent and registrar for all Registrable Securities Registered pursuant to the Registration Statement and, where applicable, a number assigned by the Committee on Uniform Securities Identification Procedures for all those Registrable Securities, in each case not later than the effective date of the Registration; and

 

(xi)          Take all reasonable action necessary to list the Registrable Securities on the primary exchange on which the Company’s securities are then traded or, in connection with a Qualified IPO, the primary exchange on which the Company’s securities will be traded.

 

4.2          Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the Registration of such Holder’s Registrable Securities.

 

4.3          Expenses of Registration. All expenses, other than the underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to this Agreement (which shall be borne by the Holders requesting Registration on a pro rata basis in proportion to their respective numbers of Registrable Securities sold in such Registration), incurred in connection with Registrations, filings or qualifications pursuant to this Agreement, including (without limitation) all Registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and reasonable fees and disbursement of one counsel for all selling Holders, shall be borne by the Company. The Company shall not, however, be required to pay for any expenses of any Registration proceeding begun pursuant to Section 2.1 or Section 2.2 of this Agreement if the Registration request is subsequently withdrawn at the request of the Holders holding at least a majority of the voting power of the Registrable Securities requested to be Registered by all Holder in such Registration (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be thereby Registered in the withdrawn Registration) unless the Holders of at least a supermajority of the voting power of the Registrable Securities then outstanding agree that such registration constitutes the use by the Holders of one (1) demand registration pursuant to Section 2.1 (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (1) such demand registration); provided, 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 from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and the Company shall pay any and all such expenses.

 

5.             Registration-Related Indemnification.

 

5.1          Company Indemnity.

 

(i)            To the maximum extent permitted by Law, the Company will indemnify and hold harmless each Holder, such Holder’s partners, officers, directors, shareholders, members, and legal counsel, any underwriter (as defined in the Securities Act) and each Person, if any, who controls (as defined in the Securities Act) such Holder or underwriter, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under Laws which are applicable to the Company and relate to action or inaction required of the Company in connection with any Registration, qualification, or compliance, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a “Violation”): (a) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, on the effective date thereof (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), (b) the omission or alleged omission to state in the Registration Statement, on the effective date thereof (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), a material fact required to be stated therein or necessary to make the statements therein not misleading, or (c) any violation or alleged violation by the Company of Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws. The Company will reimburse, as incurred, each such Holder, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action.

 

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(ii)           The indemnity agreement contained in this Section 5.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises solely out of or is solely based upon a Violation that occurs in reliance upon and in conformity with written information furnished for use in connection with such Registration by any such Holder, such Holder’s partners, officers, directors, and legal counsel, any underwriter (as defined in the Securities Act) and each Person, if any, who controls (as defined in the Securities Act) such Holder or underwriter.

 

5.2          Holder Indemnity.

 

(i)            To the maximum extent permitted by Law, each selling Holder that has included Registrable Securities in a Registration will, severally and not jointly, indemnify and hold harmless the Company, its directors and officers, any other Holder selling securities in connection with such Registration and each Person, if any, who controls (within the meaning of the Securities Act) the Company, such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs solely in reliance upon and in conformity with written information furnished by such Holder for use in connection with such Registration; and each such Holder will reimburse, as incurred, any Person intended to be indemnified pursuant to this Section 5.2, for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability or action. No Holder’s liability under this Section 5.2 (when combined with any amounts paid by such Holder pursuant to Section 5.4) shall exceed the net proceeds received by such Holder from the offering of securities made in connection with that Registration.

 

(ii)           The indemnity contained in this Section 5.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld or delayed).

 

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5.3          Notice of Indemnification Claim. Promptly after receipt by an indemnified party under Section 5.1 or Section 5.2 of notice of the commencement of any action (including without limitation, any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under Section 5.1 or Section 5.2, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the indemnifying parties. An indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonably incurred fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this Section 5, but the omission to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 5. 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 the plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

 

5.4          Contribution. If any indemnification provided for in Section 5.1 or Section 5.2 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other, in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined 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 (after combined with any amounts paid by such Holder pursuant to Section 5.2) 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.

 

5.5          Underwriting Agreement. To the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

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5.6          Survival. The obligations of the Company and Holders under this Section 5 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Agreement, regardless of the expiration of any statutes of limitation or extensions of such statutes.

 

6.             Additional Registration-Related Undertakings.

 

6.1          Reports under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any comparable provision of any Applicable Securities Laws that may at any time permit a Holder to sell securities of the Company to the public without Registration or pursuant to a Registration on Form F-3 or Form S-3 (or any comparable form in a jurisdiction other than the United States), the Company agrees to:

 

(i)            make and keep public information available, as those terms are understood and defined in Rule 144 (or comparable provision, if any, under Applicable Securities Laws in any jurisdiction where the Company’s securities are listed), at all times following 90 days after the effective date of the first Registration under the Securities Act filed by the Company for an offering of its securities to the general public;

 

(ii)           file with the Commission in a timely manner all reports and other documents required of the Company under all Applicable Securities Laws; and

 

(iii)          at any time following ninety (90) days after the effective date of the first Registration under the Securities Act filed by the Company for an offering of its securities to the general public by the Company, promptly furnish to any Holder holding Registrable Securities, upon request (a) a written statement by the Company that it has complied with the reporting requirements of all Applicable Securities Laws at any time after it has become subject to such reporting requirements or, at any time after so qualified, that it qualifies as a registrant whose securities may be resold pursuant to Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Company’s securities are listed), (b) a copy of the most recent annual or quarterly report of the Company and such other reports and documents as filed by the Company with the Commission, and (c) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission, that permits the selling of any such securities without Registration or pursuant to Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Company’s Securities are listed).

 

6.2          Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the written consent of holders of at least a supermajority of the voting power of the then outstanding Registrable Securities held by all Holders (calculated on an as-converted to Ordinary Share basis), enter into any agreement with any holder or prospective holder of any Equity Securities of the Company that would allow such holder or prospective holder (i) to include such Equity Securities in any Registration filed under Section 2 or Section 3, unless under the terms of such agreement such holder or prospective holder may include such Equity Securities in any such Registration only to the extent that the inclusion of such Equity Securities will not reduce the amount of the Registrable Securities of the Holders that are included, (ii) to demand Registration of their Equity Securities, or (iii) cause the Company to include such Equity Securities in any Registration filed under Section 2 or Section 3 hereof on a basis pari passu with or more favorable to such holder or prospective holder than is provided to the Holders of Registrable Securities.

 

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6.3          “Market Stand-Off” Agreement. Each holder of Registrable Securities agrees, if so required by the managing underwriter(s), that it will not during the period commencing on the date of the final prospectus relating to the Company’s IPO and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days from the date of such final prospectus) (i) lend, offer, pledge, hypothecate, hedge, sell, make any short sale of, loan, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Equity Securities of the Company owned immediately prior to the date of the final prospectus relating to the IPO (other than those included in such offering), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such Equity Securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Equity Securities of the Company or such other securities, in cash or otherwise; provided, that (a) the forgoing provisions of this Section shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, and shall not be applicable to any Holder unless all directors, officers and all other holders of at least one percent (1%) of the outstanding share capital of the Company (calculated on an as-converted to Ordinary Share basis) must be bound by restrictions at least as restrictive as those applicable to any such Holder pursuant to this Section, (y) this Section shall not apply to a Holder to the extent that any other Person subject to substantially similar restrictions is released in whole or in part, and (z) the lockup agreements shall permit a Holder to transfer their Registrable Securities to their respective Affiliates so long as the transferees enter into the same lockup agreement. The Investors agree to execute and deliver to the underwriters a lockup agreement containing substantially similar terms and conditions as those contained herein.

 

6.4          Termination of Registration Rights. The registration rights set forth in Section 2 and Section 3 of this Agreement shall terminate on the earlier of (i) the date that is five (5) years from the date of closing of the IPO, (ii) with respect to any Holder, the date on which such Holder may sell all of such Holder’s Registrable Securities under Rule 144 of the Securities Act in any ninety (90)-day period.

 

6.5          Exercise of Ordinary Share Equivalents. Notwithstanding anything to the contrary provided in this Agreement, the Company shall have no obligation to Register Registrable Securities which, if constituting Ordinary Share Equivalents, have not been exercised, converted or exchanged, as applicable, for Ordinary Shares as of the effective date of the applicable Registration Statement, but the Company shall cooperate and facilitate any such exercise, conversion or exchange as requested by the applicable Holder.

 

6.6          Intent. The terms of Sections 2 through 6 are drafted primarily in contemplation of an offering of securities in the United States of America. The parties recognize, however, the possibility that securities may be qualified or registered for offering to the public in a jurisdiction other than the United States of America where registration rights have significance or that the Company might effect an offering in the United States of America in the form of American Depositary Receipts or American Depositary Shares. Accordingly:

 

(i)            it is their intention that, whenever this Agreement refers to a Law, form, process or institution of the United States of America but the parties wish to effectuate qualification or registration in a different jurisdiction where registration rights have significance, reference in this Agreement to the Laws or institutions of the United States shall be read as referring, mutatis mutandis, to the comparable Laws or institutions of the jurisdiction in question; and

 

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(ii)           it is agreed that the Company will not undertake any listing of American Depositary Receipts, American Depositary Shares or any other security derivative of the Ordinary Shares unless arrangements have been made reasonably satisfactory to the Supermajority Investors to ensure that the spirit and intent of this Agreement will be realized and that the Company is committed to take such actions as are necessary such that the Holders will enjoy rights corresponding to the rights hereunder to sell their Registrable Securities in a public offering in the United States of America as if the Company had listed Ordinary Shares in lieu of such derivative securities.

 

7.             Preemptive Right.

 

7.1          General. The Company hereby grants to each Major Investor, Principal and Chuangrui (subject to Chuangrui holding not less than 1% of all the outstanding Shares (on an As-If Converted Basis)) (each a “Rights Holder”) the right of first refusal to purchase such Rights Holder’s Pro Rata Share (as defined below) (and any oversubscription, as provided below), of all (or any part) of any New Securities (as defined below) that the Company may from time to time issue after the date of this Agreement (the “Preemptive Right”), provided that no Principal shall have the Preemptive Right with respect to any New Securities issued at a price per share lower than the Series B Issue Price (as defined in the Memorandum and Articles).

 

7.2          Pro Rata Share. A Rights Holder’s “Pro Rata Share” for purposes of the Preemptive Rights is the ratio of (a) the number of Ordinary Shares that it holds, determined on an As-If Converted Basis, to (b) the total number of Ordinary Shares then outstanding immediately prior to the issuance of New Securities giving rise to the Preemptive Rights determined on an As-If Converted Basis.

 

7.3          New Securities. For purposes hereof, “New Securities” shall mean any Equity Securities of the Company issued after the Commencement Date, except for:

 

(i)            any Note and any Equity Securities issued upon the conversion or exchange of any Note;

 

(ii)           Ordinary Shares (or Options exercisable for such Ordinary Shares) duly issued (or issuable pursuant to such Options) to the Group Companies’ senior officers and key employees/service providers pursuant to the ESOP adopted in accordance with Section 10.2(xi) hereof;

 

(iii)          Ordinary Shares issued or issuable pursuant to any subdivision or consolidation of shares, share dividend, combination, recapitalization or other similar transaction of the Company, as described in Article 8.3(E)(1) through Article 8.3(E)(3) as duly approved by the Supermajority Investors;

 

(iv)          any Equity Securities issued as a dividend or distribution on the Preferred Shares;

 

(v)           Ordinary Shares issued upon the conversion of Preferred Shares;

 

(vi)          any Equity Securities of the Company issued pursuant to a Qualified IPO;

 

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(vii)         any Equity Securities of the Company issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity, in any case, duly approved in accordance with Section 10 hereof; and

 

(viii)        Ordinary Shares issued to banks, equipment lessors or other financial institutions, pursuant to a debt financing or equipment leasing approved by the Board (as long as such approval includes the consent of at least two Investor Directors).

 

7.4          Procedures. In the event that the Company proposes to undertake an issuance of New Securities (in a single transaction or a series of related transactions), it shall give to each Rights Holder written notice of its intention to issue New Securities (the “Participation Notice”), describing the amount and type of New Securities, the price and the general terms upon which the Company proposes to issue such New Securities. Each Rights Holder shall have ten (10) Business Days from the date of receipt of any such Participation Notice to agree in writing to purchase up to such Rights Holder’s Pro Rata Share of such New Securities for the price and upon the terms and conditions specified in the Participation Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Rights Holder’s Pro Rata Share). If any Rights Holder fails to so respond in writing within such ten (10) Business Day period, then such Rights Holder shall forfeit the right hereunder to purchase its Pro Rata Share of such New Securities, but shall not be deemed to forfeit any right with respect to any other issuance of New Securities.

 

7.5          Failure to Exercise. In the event no Rights Holder exercises the Preemptive Rights within ten (10) Business Days following the issuance of the Participation Notice, the Company shall have ninety (90) days thereafter to complete the sale of the New Securities described in the Participation Notice with respect to which the Preemptive Rights hereunder were not exercised at the same or higher price and upon non-price terms not more favorable to the purchasers thereof than specified in the Participation Notice. In the event that the Company has not issued and sold such New Securities within such ninety (90) day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Rights Holders pursuant to this Section 7.

 

8.             Information and Inspection Rights.

 

8.1          Delivery of Financial Statements. The Group Companies shall deliver to each Major Investor the following documents or reports and deliver to Chuangrui the documents or reports set out in Sections 8.1(i), 8.1(ii), 8.1(iv)(A) and 8.1(v) below:

 

(i)            within ninety (90) days after the end of each fiscal year of the Company, a consolidated income statement and statement of cash flows for the Company for such fiscal year and a consolidated balance sheet for the Company as of the end of the fiscal year, audited and certified by a Big-Four Firm or another internationally reputable firm of independent certified public accountants approved by at least two Investor Directors, and a management report including a comparison of the financial results of such fiscal year with the corresponding annual budget approved by at least two-thirds of the directors of the Board of Directors, all prepared in English and in accordance with the Accounting Standards consistently applied throughout the period;

 

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(ii)           within thirty (30) days after the end of each fiscal year of the Company, the management accounts (balance sheet, profit and loss statement, and statement of cash flows) of the Group and each Group Company;

 

(iii)          within thirty (30) days of the end of each month, (A) a consolidated unaudited income statement and statement of cash flows for such month and a consolidated balance sheet for the Company as of the end of such month, and a comparison of the financial results of such month with the corresponding monthly budget, in accordance with the Accounting Standards consistently applied throughout the period (except for customary year-end adjustments and except for the absence of notes), and certified by the chief financial officer of the Company; and (B) all the customer transaction data of each Group Company extracted from the Group Companies’ CRM system Hong Mai, including but not limited to treatment date, treatment price, transaction amount, price discount, segment, treatment type and detailed description;

 

(iv)          within thirty (30) days of the end of each quarter, (A) the financial statements (balance sheet, profit and loss statement, and statement of cash flows) of each Group Company; (B) the operating data of the Group and each Group Company, including commission cost paid to channel partners (i.e. beauty salons), breakdown of cost of goods sold, breakdown of selling, general and administrative expenses; (C) the loan agreements of all outstanding loans, each of which shall include outstanding balance, interest rate, tenor and amortization schedule, collateral information, loan covenants and other information reasonably requested by such Major Investor;

 

(v)           an annual budget and strategic plan for the Group Companies approved by at least two-thirds of the directors of the Board of Directors within thirty (30) days prior to the beginning of each fiscal year, setting forth: the projected balance sheets, income statements and statements of cash flows for each month during such fiscal year of each Group Company; projected detailed budgets for each such month; any dividend or distribution projected to be declared or paid; the projected incurrence, assumption or refinancing of indebtedness; and all other material matters relating to the operation, development and business of the Group Companies;

 

(vi)          copies of all documents or other information sent to all other shareholders and any reports publicly filed by the Company with any relevant securities exchange, regulatory authority or governmental agency, no later than five (5) days after such documents or information are filed by the Company;

 

(vii)         capitalization table of the Group Companies, certified by the chief executive officer of the Company as being true, correct and complete, no later than five (5) days after the end of each fiscal quarter; and

 

(viii)        as soon as practicable, any other information reasonably requested by any such holder of Preferred Shares.

 

8.2          Inspection Rights. The Group Companies and the Principals covenant and agree that each Major Investor and Chuangrui shall have the right, at its own expenses, to reasonably inspect facilities, properties, records and books of each Group Company at any time during regular working hours on reasonable prior notice to such Group Company and the right to discuss the business, operation, conditions and prospects of a Group Company with any Group Company’s directors, officers, employees, accountants, auditors, legal counsels and investment bankers.

 

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9.             Election of Directors.

 

9.1          Board of Directors.

 

(i)            The Company shall have, and the Parties hereto agree to cause the Company to have, a Board consisting of eight (8) authorized individual directors. The holders of a majority of the voting power of the outstanding Ordinary Shares shall have the right to designate, appoint, remove, replace and reappoint five (5) directors on the Board (the “Ordinary Directors”), four (4) of whom shall be executive officers of the Group Companies; IDG (or any Affiliated fund of IDG) shall have the right to designate, appoint, remove, replace and reappoint one (1) director on the Board (the “IDG Director”) for so long as IDG owns no less than fifty percent (50%) of the Shares owned by it immediately after the Effective Date, calculated on an As-If Converted Basis; and ADV (or any Affiliated fund of ADV) shall have the right to designate, appoint, remove, replace and reappoint two (2) directors on the Board (the “ADV Directors” and together with the IDG Director, the “Investor Directors”) for so long as ADV owns no less than fifty percent (50%) of the Series A Preferred Shares owned by it immediately after the Effective Date.

 

(ii)           For so long as ADV owns any outstanding Share, ADV shall be entitled to appoint one observer on the Board to attend and speak at all board meetings (in a nonvoting observer capacity), who shall be entitled to receive all information and documents sent to the Directors at the same time when such information and documents are sent to the Directors.

 

(iii)          For so long as Chuangrui holds not less than 1% of all the outstanding Shares (on an As-If Converted Basis), Chuangrui shall have the right to appoint one observer on the Board to attend and speak at all board meetings (in a nonvoting observer capacity), who shall be entitled to receive all information and documents sent to the Directors at the same time when such information and documents are sent to the Directors.

 

(iv)          The Company shall, and the Parties hereto shall cause each of the other Group Companies to, (i) have a board of directors or similar governing body (the “Subsidiary Board”), (ii) the authorized size of such Subsidiary Board at all times be the same authorized size as the Board, and (iii) the composition of such Subsidiary Board to at all times consist of the same persons as directors as those then on the Board.

 

9.2          Voting Agreements

 

(i)            With respect to each election of directors of the Board, each holder of voting securities of the Company shall vote at each meeting of shareholders of the Company, or in lieu of any such meeting shall give such holder’s written consent with respect to, as the case may be, all of such holder’s voting securities of the Company as may be necessary (i) to keep the authorized size of the Board at eight (8) directors, (ii) to cause the election or re-election as members of the Board, and during such period to continue in office, each of the individuals designated pursuant to Section 9.1, and (iii) against any nominees not designated pursuant to Section 9.1.

 

(ii)           Any Director designated pursuant to Section 9.1 may be removed from the Board, either for or without cause, only upon the vote or written consent of the Person or group of Persons then entitled to designate such Director pursuant to Section 9.1 or by the Company at any time when the Person or group of Persons no longer are entitled to designate such Director pursuant to Section 9.1, and the Parties agree not to seek, vote for or otherwise effect the removal of any such Director without such vote or written consent. Any Person or group of Persons then entitled to designate any individual to be elected as a Director on the Board shall have the exclusive right at any time or from time to time to remove any such Director occupying such position and to fill any vacancy caused by the death, disability, retirement, resignation or removal of any Director occupying such position or any other vacancy therein, and each other Party agrees to cooperate with such Person or group of Persons in connection with the exercise of such right. Each holder of voting securities of the Company agrees to always vote such holder’s respective voting securities of the Company at a meeting of the members of the Company (and given written consents in lieu thereof) in support of the foregoing.

 

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(iii)          The Company agrees to take such action, and each other Party hereto agrees to take such action, as is necessary to cause the election or appointment to the Subsidiary Board of each director designated to serve on the Board pursuant to Section 9.1. Upon a removal or replacement of such director from the Board in accordance with Section 9.2(ii), the Company agrees to take such action, and each other Party hereto agrees to take such action, as is necessary to cause the removal of such director from the Subsidiary Board.

 

9.3          Quorum. The Board and the Subsidiary Board shall hold no less than one (1) board meeting during each fiscal quarter. A meeting of the Board and the Subsidiary Board shall only proceed where there are present (whether in person or by means of a conference telephone or any other equipment which allows all participants in the meeting to speak to and hear each other simultaneously) a majority of all Directors of such Group Company then in office, provided that such majority includes at least two Investor Directors, and the Parties shall cause the foregoing to be the quorum requirements for the Board and the Subsidiary Board. Notwithstanding the foregoing, if notice of the board meeting has been duly delivered to all directors of the Board or the Subsidiary Board seven days prior to the scheduled meeting in accordance with the notice procedures under the Charter Documents of the applicable Group Company, and the number of directors required to be present under this Section 9.3 for such meeting to proceed is not present within one hour from the time appointed for the meeting solely because of the absence of the Investor Directors, each holder of voting securities of the Company, or the applicable Group Company, as the case may be, shall procure that the directors present at the meeting shall adjourn the meeting to the fifth (5th) following Business Day at the same time and place (or to such other time or such other place as the directors may determine) with notice delivered to all directors one day prior to the adjourned meeting in accordance with the notice procedures under the Charter Documents of the applicable Group Company and, if at the adjourned meeting, the number of directors required to be present under this Section 9.3 for such meeting to proceed is not present within one hour from the time appointed for the meeting solely because of the absence of the Investor Directors, then the presence of the Investor Directors shall not be required at such adjourned meeting solely for purpose of determining if a quorum has been established.

 

9.4          Expenses. The Company will promptly pay or reimburse each non-employee Board member and each non-employee Subsidiary Board member for all reasonable out-of-pocket expenses incurred in connection with attending board or committee meetings and otherwise performing their duties as directors and committee members.

 

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9.5          Alternates. Subject to applicable Law, each Director shall be entitled to appoint an alternate to serve at any Board meeting, and such alternate shall be permitted to attend all Board meetings and vote on behalf of the director for whom she or he is serving as an alternate.

 

9.6          Establishment of Compensation Committee and Audit Committee. As reasonably practicable as possible following the Effective Date, the Company shall establish and maintain (i) a Compensation Committee and (ii) an Audit Committee, and an ADV Director shall be entitled to serve on each of the Compensation Committee and the Audit Committee. The Compensation Committee shall propose the terms of the Company’s equity incentive plans, and all grants of awards thereunder (including without limitation, the ESOP), to the Board for approval and adoption by the Board and the Shareholders and shall have the power and authority to (a) administer the Company’s equity incentive plans (including without limitation, the ESOP) and to grant options and awards thereunder, and (b) approve all management compensation levels and arrangements, and shall have such other powers and authorities as the Board shall delegate to it. The Audit Committee shall select the auditors of the Company and approve the scope of the Company’s annual audit, and shall have such other powers and authorities as the Board shall delegate to it.

 

9.7          D&O Insurance. The Company shall purchase and maintain, and shall cause each Group Company to purchase and maintain, directors’ and officers’ insurance on commercially reasonable and customary terms approved by the Majority Investors, in relation to any person who is or was a director or an officer of any Group Company, or who at the request of any Group Company is or was serving as a director or an officer 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. To the maximum extent permitted by the Law of the jurisdiction in which a Group Company is organized, such Group Company shall indemnify and hold harmless each of its directors and shall comply with the terms of the Indemnification Agreements, and at the request of any director who is not a party to an Indemnification Agreement, shall enter into an indemnification agreement with such director in similar form to the Indemnification Agreements.

 

9.8          Financial Controllers. As soon as practicable following the Effective Date, a vice president in charge of financial matters of the Group designated by ADV shall be duly appointed by the Company. The Principals, on the one hand, and ADV, on the other hand, shall each have the right to nominate the chief financial officer of each Group Company, subject to the approval of the relevant Subsidiary Board (including the affirmative votes of the directors appointed by the holders of a majority of the voting power of the outstanding Ordinary Shares and at least one of the ADV Directors).

 

10.          Protective Provisions.

 

10.1        Acts of the Group Companies Requiring Approval of Majority Investors. Regardless of anything else contained herein or in the Charter Documents of any Group Company, no Group Company shall take, permit to occur, approve, authorize, or agree or commit to do any of the following, and each Party shall procure each Group Company not to, and the shareholders of the Company shall procure the Company not to, take, permit to occur, approve, authorize, or agree or commit to do any of the following, whether in a single transaction or a series of related transactions, whether directly or indirectly, and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, unless approved in writing by the Majority Investors in advance.

 

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(i)            any amendment or change of the rights, preferences, privileges, or powers of or concerning, or the limitations or restrictions provided for the benefit of, the Preferred Shares;

 

(ii)           any action that creates, authorizes or issues (A) any class or series of Equity Securities of the Company having rights, preferences, privileges, powers, limitations or restrictions superior to or on a parity with any series of Preferred Shares, whether as to liquidation, conversion, dividend, voting, redemption, or otherwise, or any Equity Securities convertible into, exchangeable for, or exercisable into any Equity Securities having rights, preferences, privileges, powers, limitations or restrictions superior to or on a parity with any series of Preferred Shares, whether as to liquidation, conversion, dividend, voting, redemption, or otherwise, (B) any Equity Securities of the Company other than the Conversion Shares, Preferred Shares or Ordinary Shares issued upon the conversion and/or exchange of the Notes, or Ordinary Shares issued pursuant to the terms of the ESOP, or (C) any Equity Securities of any other Group Company;

 

(iii)          any action that reclassifies any outstanding shares into shares having rights, preferences, privileges, powers, limitations or restrictions senior to or on a parity with the Series A Preferred Shares, whether as to liquidation, conversion, dividend, voting, redemption or otherwise;

 

(iv)          any purchase, repurchase or redemption of any Equity Security of any Group Company other than (i) any Exempted Distributions, (ii) purchase or redemption of Ordinary Shares pursuant to the terms of the ESOP, (iii) redemption of any Preferred Shares pursuant to Article 8.5(A) of the Memorandum and Articles and (iv) redemption repayment, or repurchase of any Note pursuant to the terms thereof;

 

(v)           any amendment or modification to or waiver under any of the Charter Documents of any Group Company;

 

(vi)          any declaration, set aside or payment of a dividend or other distribution by any Group Company except for any distribution or dividend with respect to which the sole recipient of any proceeds therefrom is the Company or any wholly-owned subsidiary of the Company, or the adoption of, or any change to, the dividend policy of any Group Company;

 

(vii)         any sale, transfer, or other disposal of, or the incurrence of any Lien on, any substantial part of the assets of any Group Company, except for (i) Liens for Taxes not yet delinquent or the validity of which are being contested in good faith and for which there are adequate reserves on the applicable financial statements and (ii) Liens incurred by operation of law that are not reasonably foreseeable or controllable by the Company and would not materially interfere with, impair or impede the operation or value of the Business;

 

(viii)        the commencement of or consent to any proceeding seeking (i) to adjudicate it as bankrupt or insolvent, (ii) liquidation, winding up, dissolution, reorganization, or arrangement of any of the Group Companies under any Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or (iii) the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property;

 

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(ix)          any Deemed Liquidation Event or Share Sale or any merger, amalgamation, scheme or arrangement or consolidation of any Group Company with any Person, or the purchase or other acquisition by any Group Company of all or substantially all of the assets, equity or business of another Person, other than in any case an Approved Sale;

 

(x)           acquisition of another corporation or entity by any Group Company by consolidation, merger, purchase of assets, or other reorganization in which such Group Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity;

 

(xi)          any change of the size or composition of the board of directors of any Group Company;

 

(xii)         any investment in, or divestiture or sale by any Group Company of an interest in a Subsidiary; or

 

(xiii)        any action by a Group Company to authorize, approve or enter into any agreement or obligation with respect to any of the above actions

 

Notwithstanding anything to the contrary contained herein, where any act listed above requires the approval of the shareholders of the Company in accordance with the applicable Laws, and if the shareholders vote in favor of such act but the approval of the Majority Investors has not yet been obtained, then the Majority Investors shall, in such vote, have the voting rights equal to the aggregate voting power of all the shareholders who vote in favor of the resolution plus one.

 

10.2        Acts of the Group Companies Requiring Investor Directors Approval. Regardless of anything else contained herein or in the Charter Documents of any Group Company, no Group Company shall take, permit to occur, approve, authorize, or agree or commit to do any of the following, and no Party shall permit any Group Company to, and the shareholders of the Company shall not permit the Company to, take, permit to occur, approve, authorize, or agree or commit to do any of the following, whether in a single transaction or a series of related transactions, whether directly or indirectly, and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation, or otherwise, unless approved by the board of directors of such Group Company (so long as such approval includes the approval of at least two Investor Directors):

 

(i)            creation, incurrence or assumptions by the Group Companies of Indebtedness (including but not limited to issue and sale of convertible debt) or guarantees of Indebtedness in excess of RMB 2 million individually or RMB 5 million on a consolidated basis in the aggregate during any fiscal year;

 

(ii)           any advances or loans to any of the directors, officers or employees of any Group Company;

 

(iii)          purchasing or leasing any automobile in excess of RMB 1 million in the aggregate in a single transaction or a series of related transactions in any twelve (12) conservative month period;

 

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(iv)          purchasing any publicly-traded securities of any other company in one or a series of related transactions exceeding US$100,000 in the aggregate in a twelve (12) consecutive months period;

 

(v)           authorizing any increase in the annual base compensation by more than twenty percent (20%) for any senior officers or key employees of the Group in a twelve (12) consecutive months period (for the avoidance of doubt, profits sharing received by such employees in accordance with the Company’s profit sharing policy will not be deemed to be part of the annual base compensation);

 

(vi)          authorizing any increase in the percentage of profit sharing received in accordance with the Company’s profit sharing policy by more than twenty percent (20%) for any senior officers or key employees of the Group in a twelve (12) consecutive months period;

 

(vii)         any transaction, or a series of related transactions, between any Group Company, on the one hand, and a Related Party (other than another Group Company), on the other hand, in excess of US$25,000;

 

(viii)        any material change to the business scope, business plan or nature of business of any Group Company, or creation or cessation of any business line of any Group Company;

 

(ix)          the exclusive licensing of all or substantially all of any Group Company’s intellectual property to a third party in one or more transactions;

 

(x)           acquisition of another corporation or entity by any Group Company by consolidation, merger, purchase of assets, or other reorganization in which such Group Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity;

 

(xi)          subject to Section 11.5, the adoption, amendment or termination of the ESOP or any other equity incentive, purchase or participation plan for the benefit of any employees, officers, directors, contractors, advisors or consultants of any of the Group Companies, and the approval of any stock option, equity grant or award thereunder;

 

(xii)         the appointment or removal of the Auditors or the auditors for any other Group Company, or the change of the term of the fiscal year for any Group Company;

 

(xiii)        any public offering of any Equity Securities of any Group Company;

 

(xiv)        any adoption of or change to, a significant tax or accounting practice or policy or any internal financial controls and authorization policies, or the making of any significant tax or accounting election;

 

(xv)         the approval of, or any deviation from or amendment of the investment plan of any Group Company;

 

(xvi)        any amendment or modification to or waiver under any of the Charter Documents of any Group Company;

 

(xvii)       any increase or decrease in registered capital of any Group Company;

 

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(xviii)      any Deemed Liquidation Event or Share Sale or any merger, amalgamation, scheme or arrangement or consolidation of any Group Company with any Person, or the purchase or other acquisition by any Group Company of all or substantially all of the assets, equity or business of another Person, other than in any case an Approved Sale;

 

(xix)        the approval of, or any deviation from or amendment of, the profit distribution plan of any Group Company;

 

(xx)         create (or terminate) any mortgage, charge, pledge, lien or other encumbrance with respect to any assets of any Group Company;

 

(xxi)        making any guaranty or indemnity to any third party (or agree to any material amendments in respect thereof);

 

(xxii)       any change in the authorized size of the Board of Directors of any Group Company;

 

(xxiii)      the appointment or removal of, and approval of the compensation package for, any director on the board of directors of any Group Company;

 

(xxiv)     the appointment or removal of, and approval of the remuneration package for, any member of the senior management of each Group Company, including the chief executive officer, the chief operating officer, the chief financial officer, and any other management member at or above the level of vice president or comparable position;

 

(xxv)      the appointment or removal of, and approval of the remuneration package for, an employee of any Group Company who shall be a Principal or a Principal’s Relative;

 

(xxvi)     entering into or effecting any transaction or series of related transactions (or agreeing to any material amendments in respect thereof), involving the purchase, sale, lease, rent, license, exchange, disposal or acquisition by any Group Company of any assets, properties or securities for consideration in excess of RMB 3 million (or equivalent in foreign currency); or

 

(xxvii)    any action by a Group Company to authorize, approve or enter into any agreement or obligation with respect to any of the above actions.

 

10.3        Acts of the Group Companies Requiring Supermajority Directors Approval. Regardless of anything else contained herein or in the Charter Documents of any Group Company, an annual budget and strategic plan for the Group Companies shall be approved by at least two-thirds of the directors of the board of directors of such Group Company.

 

11.          Additional Covenants.

 

11.1        Business of the Group Companies. Except for holding the interest in the applicable Subsidiaries, none of the Company, the BVI Subsidiary or the HK Subsidiary shall engage in any business or operations without the consent of the Supermajority Investors. The business of each other Group Company shall be restricted to the Business, except with the approval of the Board and any required approvals under Section 10.

 

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11.2        SAFE Registration. If any holder or beneficial owner of any Equity Security of the Company (other than the Investors but including Chuangrui) (each, a “Security Holder”) is a “Domestic Resident” as defined in Circular 37 and under other SAFE Rules and Regulations and is subject to the SAFE registration or reporting requirements under Circular 37 and under other SAFE Rules and Regulations, the Parties (other than the Investors but including Chuangrui) shall use their best efforts to promptly obtain a Power of Attorney in the form attached hereto as Exhibit A from such Security Holder, and shall use their best efforts to cause the designated representative under such Power of Attorney to promptly take such actions and execute such instruments on behalf of such Security Holder to comply with the applicable SAFE registration or reporting requirements under SAFE Rules and Regulations, and in the event such Security Holder fails to comply with the applicable SAFE registration or reporting requirements under SAFE Rules and Regulations, the Parties (other than the Investors but including Chuangrui) shall use their best efforts to promptly cause such Security Holder to cease to be a holder or beneficial owner of any Equity Security of the Company.

 

11.3        Control of Subsidiaries. The Company shall institute and keep in place such arrangements as are reasonably satisfactory to the Supermajority Investors such that the Company (i) will at all times control the operations of each other Group Company, and (ii) will at all times be permitted to properly consolidate the financial results for each other Group Company in the consolidated financial statements for the Company prepared under the Accounting Standards.

 

11.4        Compliance with Laws; Registrations.

 

(i)            The Group Companies shall, and each Principal shall cause the Group Companies to, conduct their respective business in compliance in all material respects with all applicable Laws, including but not limited to Laws regarding foreign investments, corporate registration and filing, foreign exchange, medical treatment and health, food and drug safety, medical liability and insurance, advertising, intellectual property rights, labor and social welfare, and taxation, and obtain, make and maintain in effect, all Consents from the relevant Governmental Authority or other Person required in respect of the due and proper establishment and operations of each Group Company as now conducted in accordance with applicable Laws. Without limiting the generality of the foregoing, none of the Group Companies shall, and the Parties (other than the Investors) shall cause each Group Company not to, and the Parties shall ensure that its and their respective Affiliates and its respective officers, directors, and representatives shall not, directly or indirectly, (a) offer or give anything of value to any Public Official with the intent of obtaining any improper advantage, affecting or influencing any act or decision of any such Person, assisting any Group Company in obtaining or retaining business for, or with, or directing business to, any Person, or constituting a bribe, kickback or illegal or improper payment to assist any Group in obtaining or retaining business, (b) take any other action, in each case, in violation of applicable anti-corruption, recordkeeping and internal controls Laws, or (c) establish or maintain any fund or assets in which any Group Company has proprietary rights that have not been recorded in its books and records of Group Company.

 

(ii)           Without limiting the generality of the foregoing, each Principal, each Principal Holdco and each Group Company shall ensure that all filings and registrations with the PRC Governmental Authorities so required by them shall be duly completed in accordance with the relevant rules and regulations, including without limitation any such filings and registrations with the Ministry of Commerce, the State Administration of Industry and Commerce, the State Administration for Foreign Exchange, tax bureau, health regulatory authorities, and the local counterpart of each of the aforementioned governmental authorities, in each case, as applicable.

 

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11.5                        Equity Incentive Plan.

 

(i)                                     On or after the Effective Date, the Company may reserve up to such number of Ordinary Shares under the ESOP such that the total number of shares issued or reserved under the ESOP is no more than 10% of the sum of (A) the issued and outstanding Ordinary Shares, (B) the issued and outstanding Preferred Shares, and (C) the Preferred Shares issuable upon the exchange of the Exchangeable Notes.

 

(ii)                                  Except with the written consent of the Supermajority Investors, all shares, options or other securities or awards granted or issued under the ESOP shall vest as follows: 25% thereof vest at the first anniversary of the date when such shares, options or other securities or awards are granted or issued with the remaining vesting evenly in yearly installments over the next three (3) years. The exercise price of all shares, options or other securities or awards granted or issued under the ESOP shall be determined by the Board of Directors at the time of grant and shall be in no event less than the Series B Conversion Price (as defined in the Memorandum and Articles), as adjusted in connection with share splits or share consolidation, reclassification or other similar event.

 

(iii)                               No issuances or grants will be made under any ESOP unless such ESOP contains terms and conditions reasonably satisfactory to the Supermajority Investors, which among other things, shall provide for the Company’s right to repurchase any and all unvested shares, options or other securities or awards granted thereunder at a price equivalent to the actual cost under certain circumstances and shall include transfer restrictions prior to a Qualified IPO. As a condition to the issuance of any shares issued under the ESOP or the exercise, conversion or exchange of any Equity Security issued under the ESOP, the grantee shall be required to enter into the Right of First Refusal & Co-Sale Agreement as a Principal (as defined in the Right of First Refusal & Co-Sale Agreement), unless otherwise agreed by the Supermajority Investors. Any attempt to exercise any option or other security granted or issued under the ESOP in contravention of this paragraph shall be null, void and without effect.

 

(iv)                              As soon as practicable after the Effective Date, the Company shall, and shall cause each Group Company to, obtain all authorizations, consents, orders and approvals of all Governmental Authorities that may be or become necessary to effectuate the ESOP in the PRC in accordance with PRC Law; provided that the Company shall not grant any awards pursuant to the ESOP to any grantee in the PRC if any authorization, consent, order or approval of any Governmental Authority that is necessary to effectuate the ESOP in the PRC in accordance with PRC Law has not been obtained.

 

11.6                        Insurance. The Group Companies shall promptly purchase and maintain in effect, worker’s injury compensation insurance, key man insurance, and other insurance, in any case with respect to the Group’s properties, employees, products, operations, and/or business, each in the amounts not less than that are customarily obtained by companies of similar size, in a similar line of business, and with operations in the PRC.

 

11.7                        Intellectual Property Protection. Except with the written consent of the Majority Investors, the Group Companies shall take all reasonable steps to protect their respective material Intellectual Property rights, including without limitation (a) registering their material respective trademarks, brand names, domain names and copyrights, and (b) requiring each employee and consultant of each Group Company to enter into an employment agreement in form and substance reasonably acceptable to the Majority Investors, a confidential information and intellectual property assignment agreement and a non-competition and non-solicitation agreement requiring such persons to protect and keep confidential such Group Company’s confidential information, intellectual property and trade secrets, prohibiting such persons from competing with such Group Company for a reasonable time after their termination of employment with any Group Company, and requiring such persons to assign all ownership rights in their work product to such Group Company, in each case in form and substance reasonably acceptable to the Majority Investors.

 

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11.8                        Internal Control System. The Group Companies shall maintain their books and records in accordance with sound business practices and implement and maintain an adequate system of procedures and controls with respect to finance, management, and accounting that meets international standards of good practice and is reasonably satisfactory to the Majority Investors to provide reasonable assurance that (i) transactions by it are executed in accordance with management’s general or specific authorization, (ii) transactions by it are recorded as necessary to permit preparation of financial statements in conformity with the Accounting Standards and to maintain asset accountability, (iii) access to assets of it is permitted only in accordance with management’s general or specific authorization, (iv) the recorded inventory of assets is compared with the existing tangible assets at reasonable intervals and appropriate action is taken with respect to any material differences, (v) segregating duties for cash deposits, cash reconciliation, cash payment, proper approval is established, and (vi) no personal assets or bank accounts of the employees, directors, officers are mingled with the corporate assets or corporate bank account, and no Group Company uses any personal bank accounts of any employees, directors, officers thereof during the operation of the business.

 

11.9                        Non-compete. Unless the Supermajority Investors otherwise consent in writing, each Principal (a) so long as such Principal is an employee of a Group Company, shall devote such Principal’s full time and attention to the business of the Group Companies and will use such Principal’s best efforts to develop the business and interests of the Group Companies, and (b) so long as such Principal is a director, officer, employee or a direct or indirect holder of Equity Securities of a Group Company and for two (2) years after such Principal is no longer a director, officer, employee or a direct or indirect holder of Equity Securities of a Group Company, shall not, and shall cause his Affiliate or Associate not to, directly or indirectly, (i) own, manage, engage in, operate, control, work for, consult with, render services for, do business with, maintain any interest in (proprietary, financial or otherwise) or participate in the ownership, management, operation or control of, any business, whether in corporate, proprietorship or partnership form or otherwise, that is related to the business of any Group Company or otherwise competes with the Group Companies (a “Restricted Business”); provided, however, that the restrictions contained in this clause (i) shall not restrict the acquisition by such Principal, directly or indirectly, of less than 1% of the outstanding share capital of any publicly traded company engaged in a Restricted Business, (ii) solicit any Person who is or has been at any time a customer of the Group for the purpose of offering to such customer goods or services similar to or competing with those offered by any Group Company, or canvass or solicit any Person who is or has been at any time a supplier or licensor or customer of any Group Company for the purpose of inducing any such Person to terminate its business relationship with such Group Company, or (iii) solicit or entice away or endeavour to solicit or entice away any director, officer, consultant or employee of any Group Company. The Principals expressly agree that the limitations set forth in this Section are reasonably tailored and reasonably necessary in light of the circumstances. Furthermore, if any provision of this Section is more restrictive than permitted by the Laws of any jurisdiction in which a Party seeks enforcement thereof, then this Section will be enforced to the greatest extent permitted by Law. Each of the undertakings contained in this Section shall be enforceable by each Group Company and each Investor separately and independently of the right of the other Group Companies and the other Investors.

 

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11.10                 Anti-Dilution. (i) Subject to Article 11.10(ii), in the event that the Company issues New Securities at a price per share (“New Securities Price Per Share”) lower than the amount equal to the Consideration Per Share after the date of this Agreement, the Company shall issue additional Ordinary Shares (“Additional Ordinary Shares”) at nominal consideration to Chuangrui such that the Consideration divided by all of the Ordinary Shares held by Chuangrui (including the Additional Ordinary Shares) will be the same price as the New Securities Price Per Share. (ii) For the avoidance of doubt, Article 11.10(i) shall not be applicable to, and Chuangrui’s consent or approval shall not be required for, the issuance by the Company of any Ordinary Shares (or Options exercisable for such Ordinary Shares) duly issued (or issuable pursuant to such Options) to the Group Companies’ senior officers and key employees/service providers pursuant to the ESOP adopted in accordance with Section 10.2(xi) hereof or any Equity Securities of the Company issued pursuant to a Qualified IPO.

 

11.11                 Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, all assets and funds of the Company legally available for distribution to the Members (after satisfaction of all creditors’ claims and claims that may be preferred by law) shall be distributed to the Members of the Company as follows:

 

(i)                                     First, each holder of the Series B Preferred Shares shall be entitled to receive for each Series B Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of any other class or series of shares by reason of their ownership of such shares, the higher of (a) the amount equal to 100% of the Series B Nominal Issue Price, plus an amount accruing thereon daily at a rate of 10% per annum, compounding annually, beginning on the First Closing Date and to the date the liquidator pays the Series B Preference Amount (as defined below), and (b) the amount that such holder of the Series B Preferred Share would have received if, immediately prior to the liquidation, dissolution or winding up of the Company, such Series B Preferred Share had been converted into the then applicable number of Ordinary Shares, in each case plus all declared but unpaid dividends on such Series B Preferred Share (collectively, the “Series B Preference Amount”). If the assets and funds thus distributed among the holders of the Series B Preferred Shares shall be insufficient to permit the payment to such holders of the full Series B Preference Amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Shares in proportion to the aggregate Series B Preference Amount each such holder is otherwise entitled to receive pursuant to this subparagraph (i).

 

(ii)                                  Second, each holder of the Series A Preferred Shares shall be entitled to receive for each Series A Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of any other class or series of shares by reason of their ownership of such shares, the higher of (a) the amount equal to 100% of the Series A Issue Price, plus an amount accruing thereon daily at a rate of 8% per annum, compounding annually, beginning on the Series A Issue Date and to the date the liquidator pays the Series A Preference Amount (as defined below), and (b) the amount that such holder of the Series A Preferred Share would have received if, immediately prior to the liquidation, dissolution or winding up of the Company, such Series A Preferred Share had been converted into the then applicable number of Ordinary Shares, in each case plus all declared but unpaid dividends on such Series A Preferred Share (collectively, the “Series A Preference Amount”). If the assets and funds thus distributed among the holders of the Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full Series A Preference Amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Shares in proportion to the aggregate Series A Preference Amount each such holder is otherwise entitled to receive pursuant to this subparagraph (ii).

 

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(iii)                               Third, Chuangrui shall be entitled to receive for each Ordinary Share held by Chuangrui, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of any other class or series of shares by reason of their ownership of such shares, the Consideration Per Share plus an amount accruing thereon daily at a rate of 10% per annum, compounding annually, beginning on the Initial Completion Date (for Ordinary Shares held by Chuangrui which are allotted and issued on the Initial Completion Date) and/or Second Completion Date (for Ordinary Shares held by Chuangrui which are allotted and issued on the Second Completion Date) and/or Third Completion Date (for Ordinary Shares held by Chuangrui which are allotted and issued on the Third Completion Date) in each case, up to the date the liquidator pays the Chuangrui Preference Amount (as defined below), plus any declared but unpaid dividends on such Ordinary Shares held by Chuangrui (the “Chuangrui Preference Amount”). If the assets and funds thus distributed to Chuangrui shall be insufficient to permit the payment, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably to Chuangrui.

 

(iv)                              If there are any assets or funds remaining after the aggregate Series B Preference Amount, Series A Preference Amount and Chuangrui Preference Amount have been distributed or paid in full to the applicable holders pursuant to the above clauses, the remaining assets and funds of the Company available for distribution to the Members shall be distributed ratably among all the holders of Ordinary Shares (other than Chuangrui) according to the relative number of Ordinary Shares held by such holders of Ordinary Shares.

 

11.12                 No Avoidance; Voting Trust. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be performed hereunder by the Company, and the Company will at all times in good faith assist and take action as appropriate in the carrying out of all of the provisions of this Agreement. Each holder of Shares agrees that it shall not enter into any other agreements or arrangements of any kind with respect to the voting of any Shares or deposit any Shares in a voting trust or other similar arrangement.

 

11.13                 United States Tax Matters.

 

(i)                                     None of the Group Companies will take any action inconsistent with its treatment of the Company as a corporation for US federal income tax purposes or elect to be treated as an entity other than a corporation for US federal income tax purposes.

 

(ii)                                  The Company shall use, and shall cause each of its Subsidiaries to use, its best efforts to arrange its management and business activities in such a way that the Company and each of its Subsidiaries are not treated as residents for tax purposes, or is otherwise subject to income tax in, a jurisdiction other than the jurisdiction in which they have been organized.

 

36


 

(iii)                               The Company shall use its best effort to avoid future status of the Company or any of its Subsidiaries as a PFIC. Within forty-five (45) days from the end of each taxable year of the Company, the Company shall determine, in consultation with a reputable accounting firm, whether the Company or any of its Subsidiaries was a PFIC in such taxable year (including without limitation, whether any exception to PFIC status may apply). If the Company determines that the Company or any of its Subsidiaries was a PFIC in such taxable year (or if a Governmental Authority or an Investor informs the Company that it has so determined), it shall, within sixty (60) days from the end of such taxable year, provide the following information to each holder of Preferred Shares that is a United States Person (“Direct US Investor”) and each United States Person that holds either direct or indirect interest in such holder (“Indirect US Investor”) (hereinafter, collectively referred to as a “PFIC Shareholder”): (i) all information reasonably available to the Company to permit such PFIC Shareholder to (a) accurately prepare its US tax returns and comply with any other reporting requirements , if any, arising from its investment in the Company and relating to the Company or any of its Subsidiaries’ classification as a PFIC and (b) make any election (including, without limitation, a “qualified electing fund” election under Section 1295 of the Code), with respect to the Company (or any of its Subsidiaries); and (ii) a completed “PFIC Annual Information Statement” as described under Treasury Regulation Section 1.1295-1(g). The Company shall be required to provide the information described above to an Indirect US Investor only if the relevant holder of Preferred Share requests in writing that the Company provide such information to such Indirect US Investor.

 

(iv)                              Each of the Principals represents that such Person is not a United States Person and such Person is not owned, wholly or in part, directly or indirectly, by any United States Person. Each of the Principals shall provide prompt written notice to the Company of any subsequent change in its United States Person status. The Company shall use its best efforts to avoid future status of the Company or any of its Subsidiaries as a CFC. Upon written request of a holder of Preferred Shares from time to time, the Company will promptly provide in writing such information concerning its shareholders and the direct and indirect interest holders in each shareholder sufficient for such holder of Preferred Shares to determine whether the Company is a CFC. In the event that the Company does not have in its possession all the information necessary for the holder of Preferred Shares to make such determination, the Company shall promptly procure such information from its shareholders. The Company shall, (i) upon written request of a holder of Preferred Shares, furnish on a timely basis all information requested by such holder to satisfy its (or any Indirect US Investor’s) US federal income tax return filing requirements, if any, arising from its investment in the Company and relating to the Company or any of its Subsidiaries’ classification as a CFC. The Company and each of its Subsidiaries shall use their commercially reasonable best efforts to avoid generating for any taxable year in which the Company or any of its Subsidiaries is a CFC, income that would be includible in the income of such holder of Preferred Shares (or any Indirect US Investor) pursuant to Section 951 of the Code.

 

(v)                                 The Company shall comply and shall cause each of its Subsidiaries to comply with all record-keeping, reporting, and other requirements that a holder of Preferred Shares inform the Company are necessary to enable such holder to comply with any applicable US tax rules. The Company shall also provide each holder of Preferred Shares with any information reasonably requested by such holder of Preferred Shares to enable such holder to comply with any applicable US tax rules.

 

37


 

(vi)                              The cost incurred by the Company in providing the information that it is required to provide, or is required to cause to be provided, and the cost incurred by the Company in taking the action, or causing the action to be taken, as described in this Section shall be borne by the Company.

 

11.14                 Other Tax Matters. The Parties (other than the Investors) agree to jointly and severally indemnify each Investor from and against (i) any Taxes imposed on such Investor by any PRC Governmental Authority in connection with its investment in the Company, and (ii) any loss, claim, liability, expense, or other damage (including without limitation, diminution in the value of the Company business or such Investor’s investment in the Company) attributable to (a) any Taxes (or the non-payment thereof) of any Group Company for all taxable periods ending on or before the Closing and the portion through the end of the Closing for any taxable period that includes (but does not end on) the Closing, (b) any Taxes of any other Person imposed by any Governmental Authority on any Group Company as a transferee, successor, withholding agent, accomplice, or party providing conveniences in connection with an event or transaction occurring before the Closing, and (c) any breach of any representations or warranties contained in Section 11.13.

 

11.15                 Confidentiality.

 

(i)                                     The terms and conditions of the Transaction Documents (collectively, the “Confidential Information”), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except that (i) each Party, as appropriate, may disclose any of the Confidential Information to its current or bona fide prospective investors, prospective permitted transferees, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; (ii) each Investor may disclose any of the Confidential Information to its fund manager and the employees thereof so long as such Persons are under appropriate nondisclosure obligations; and (iii) if 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 Confidential Information in contravention of the provisions of this Section, such 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 and in any event shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information.

 

(ii)                                  The provisions of this Section shall terminate and supersede the provisions of any separate nondisclosure agreement executed by any of the Parties hereto with respect to the transactions contemplated hereby, including without limitation, any term sheet, letter of intent, memorandum of understanding or other similar agreement entered into by the Company and the Investors in respect of the transactions contemplated hereby.

 

12.                               Miscellaneous.

 

12.1                        Termination. This Agreement shall terminate upon mutual consent of the Parties hereto. The provisions of Sections 7, 8, 9, 10, and 11 shall terminate on the consummation of the IPO or a Deemed Liquidation Event. If this Agreement terminates, the Parties shall be released from their obligations under this Agreement, except in respect of any obligation stated, explicitly or otherwise, to continue to exist after the termination of this Agreement (including without limitation those under Sections 2 through 6 and Section 12). If any Party breaches this Agreement before the termination of this Agreement, it shall not be released from its obligations arising from such breach on termination.

 

38


 

12.2                        Further Assurances. Upon the terms and subject to the conditions herein, each of the Parties hereto 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 hereto in doing, all things necessary under applicable Laws or otherwise to consummate and make effective the transactions contemplated by this Agreement. Each Principal irrevocably agrees to cause and guarantee the performance by each of such Principal’s Principal Holding Companies of all of their respective covenants and obligations under this Agreement, as if each of such Principal’s Principal Holding Companies were an original Party to this Agreement.

 

12.3                        Assignments and Transfers; No Third Party Beneficiaries. Except as otherwise provided herein, this Agreement and the rights and obligations of the Parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, permitted assigns and legal representatives, but shall not otherwise be for the benefit of any third party. The rights of any Investor hereunder (including, without limitation, registration rights) are assignable (together with the related obligations) in connection with the transfer of Equity Securities of the Company held by such Investor but only to the extent of such transfer. Except as provided in the preceding sentence and in Section 12.9, this Agreement and the rights and obligations of each other Party hereunder shall not otherwise be assigned without the mutual written consent of the other Parties except as expressly provided herein.

 

12.4                        Governing Law. This Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflict of laws thereunder.

 

12.5                        Dispute Resolution.

 

(i)                                     Any dispute, controversy or claim (each, a “Dispute”) arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be settled by arbitration in Hong Kong under the Hong Kong International Arbitration Centre Administered Arbitration Rules (“HKIAC Rules”) in force when the Notice of Arbitration is submitted in accordance with the HKIAC Rules

 

(ii)                                  There shall be three (3) arbitrators, of whom one (1) arbitrator shall be jointly appointed by the Company and the Principals, one (1) arbitrator jointly appointed by the Investors, and the third arbitrator shall be appointed by the two arbitrators designated by the Parties. If the two arbitrators designated by the Parties are unable to agree upon a third arbitrator within thirty (30) days after the first two arbitrators are appointed, the third arbitrator shall be appointed by the HKIAC Council.

 

(iii)                               The arbitral proceedings shall be conducted in English. To the extent that the HKIAC Rules are in conflict with the provisions of this Section, including without limitation, the provisions concerning the appointment of the arbitrators, the provisions of this Section shall prevail.

 

39


 

(iv)                              In addition to the authority conferred upon the arbitral tribunal by the HKIAC Rules, the arbitral tribunal shall have the authority to order production of documents in accordance with the IBA Rules on the Taking of Evidence in International Arbitration published by International Bar Association as current on the commencement of the arbitration.

 

(v)                                 The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.

 

(vi)                              The arbitral tribunal shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive Laws of Hong Kong (without regard to principles of conflict of Laws thereunder) and shall not apply any other substantive Law.

 

(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.

 

(viii)                        During the course of the arbitral tribunal’s adjudication of the Dispute, this Agreement shall continue to be performed except with respect to the part in dispute and under adjudication.

 

12.6                        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 next-day or second-day courier service, fax, electronic mail or similar means to the address of the relevant Party as shown on Schedule C (or at such other address as such Party may designate by fifteen (15) days’ advance written notice to the other Parties to this Agreement given in accordance with this Section). 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 written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business 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, if such day is a Business Day and if sent during normal business hours of the recipient, otherwise the next Business Day. Notwithstanding the foregoing, to the extent a “with a copy to” address is designated, notice must also be given to such address in the manner above for such notice, request, consent or other communication hereunder to be effective.

 

12.7                        Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled.

 

12.8                        Rights Cumulative; Specific Performance. Each and all of the various rights, powers and remedies of a Party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party. Without limiting the foregoing, the Parties hereto acknowledge and agree irreparable harm may occur for which money damages would not be an adequate remedy in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to injunction to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement.

 

40


 

12.9                        Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Memorandum and Articles, or elsewhere, as the case may be.

 

12.10                 Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.

 

12.11                 Amendments and Waivers. Any provision in this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of (i) the Company; (ii) the Majority Investors; and (iii) Persons holding at least a majority of the Ordinary Shares held by the Principals who are then employees of the Company; provided, however, that (1) no such amendment or waiver shall be effective or enforceable in respect of a Principal or a holder of any particular series of Preferred Shares of the Company if such amendment or waiver affects such Principal or holder, respectively, materially and adversely differently from the other Principals or holders of the same series of Preferred Shares, respectively, unless such Principal or holder consents in writing to such amendment or waiver, and (2) any provision that specifically and expressly gives a right to a named Investor shall not be amended or waived without the prior written consent of such named Investor. Notwithstanding the foregoing, any Party hereunder may waive any of its/his rights hereunder without obtaining the consent of any parties. Any amendment or waiver effected in accordance with this Section 12.11 shall be binding upon all the Parties hereto.

 

12.12                 No Waiver. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.

 

12.13                 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.

 

41


 

12.14                 No Presumption. The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.

 

12.15                 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.

 

12.16                 Entire Agreement. This Agreement constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. For the avoidance of doubt, this Agreement shall supersede and replace the Prior Agreement in its entirety. The relevant Parties to the Prior Agreement hereby acknowledge and confirm that, (i) as of the Commencement Date, the Prior Agreement was terminated with immediate effect and ceased to have any further force or effect; and (ii) each of the parties to the Prior Agreement has confirmed the Prior Agreement was absolutely terminated on the Commencement Date, none of the parties to the Prior Agreement shall have any rights, claims or interests whatsoever against any of the other parties to the Prior Agreement, and to the extent that any party to the Prior Agreement has or may have any rights, claims or interests whatsoever against any of the other parties thereto under or in respect of the Prior Agreement, such rights, claims or interests have been absolutely, irrevocably and unconditionally waived, discharged and released.

 

12.17                 Control. In the event of any conflict or inconsistency between any of the terms of this Agreement and any of the terms of any of the Charter Documents for any of the Group Companies, or in the event of any dispute related to any such Charter Document, the terms of this Agreement shall prevail in all respects, the Parties shall give full effect to and act in accordance with the provisions of this Agreement over the provisions of the Charter Documents, and the Parties hereto shall exercise all voting and other rights and powers (including to procure any required alteration to such Charter Documents to resolve such conflict or inconsistency) to make the provisions of this Agreement effective, and not to take any actions that impair any provisions in this Agreement.

 

12.18                 Aggregation of Shares. All Shares held or acquired by any Affiliates shall be aggregated together for the purpose of determining the availability of any rights of any Investor under this Agreement.

 

12.19                 Use of English Language. This Agreement has been executed and delivered in the English language. Any translation of this Agreement into another language shall have no interpretive effect. All documents or notices to be delivered pursuant to or in connection with this Agreement shall be in the English language or, if any such document or notice is not in the English language, accompanied by an English translation thereof, and the English language version of any such document or notice shall control for purposes thereof.

 

[The remainder of this page has been intentionally left blank.]

 

42


 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.

 

GROUP COMPANIES:

Aesthetic Medical International Holdings Group Limited

 

 

 

 

By:

/s/ Zhou Pengwu

 

Name:

ZHOU PENGWU(周鹏武)

 

Title:

Director

 

 

 

 

DRAGON JADE HOLDINGS LIMITED 龍翠控股有限公司

 

 

 

 

By:

/s/ Zhou Pengwu

 

Name:

ZHOU PENGWU(周鹏武) on behalf of Aesthetic Medical International Holdings Group Limited

 

Title:

Director

 

 

 

 

PENG OI INVESTMENT (HONG KONG) HOLDINGS LIMITED 鹏爱投资(香港)集团有限公司

 

 

 

 

By:

/s/ Zhou Pengwu

 

Name:

ZHOU PENGWU(周鹏武)

 

Title:

Director

 

 

 

 

鹏意达商务咨询(深圳)有限公司

 

 

 

 

By:

/s/ Zhou Pengwu

 

Name:

ZHOU PENGWU(周鹏武)

 

Title:

Legal Representative

 

 

 

 

深圳鹏爱医院投资管理有限公司

 

 

 

 

By:

/s/ Zhou Pengwu

 

Name:

ZHOU PENGWU(周鹏武)

 

Title:

Legal Representative

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.

 

The undersigned (1) understands that this Agreement imposes obligations on him, and (2) understands the terms of this Agreement, and (3) has considered this Agreement with his own tax and legal advisors and will be responsible for his own liabilities resulting from this Agreement.

 

签字人理解本协议的条款,理解签字人在本协议下的义务,已与其税务和法律顾问一起审查了本协议,会履行其在本协议下的所有义务。

 

PRINCIPALS:

 

ZHOU PENGWU(周鹏武)

 

By:

/s/ Zhou Pengwu

 

Name:

Zhou Pengwu

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

DING WENTING (丁文婷)

 

By:

/s/ Ding Wenting

 

Name:

Ding Wenting

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

PRINCIPAL HOLDCOS:

 

Pengai Hospital Management Corporation

 

By:

/s/ Zhou Pengwu

 

Name:

Zhou Pengwu

 

Title:

Director

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

Seefar Global Holdings Limited 世發環球控股有限公司

 

By:

/s/ Zhou Pengwu

 

Name:

Zhou Pengwu

 

Title:

Director

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

Jubilee Set Investments Limited 立禧投資有限公司

 

By:

/s/ Ding Wenting

 

Name:

Ding Wenting

 

Title:

Director

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.

 

INVESTORS:

 

IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P.

By:

IDG Technology Venture Investment IV, LLC its General Partner

 

 

 

 

 

 

 

By:

/s/ Chi Sing Ho

 

Name:

Chi Sing Ho

 

Title:

Authorized Signatory

 

 

 

IDG-ACCEL CHINA GROWTH FUND III L.P.

By:

IDG-Accel China Growth Fund III Associates L.P. its General Partner

 

 

 

 

By:

IDG-Accel China Growth Fund GP III Associates Ltd. its General Partner

 

 

 

 

 

 

 

By:

/s/ Chi Sing HO

 

Name:

Chi Sing HO

 

Title:

Authorized Signatory

 

 

 

IDG-ACCEL CHINA III INVESTORS L.P.

By:

IDG-Accel China Growth Fund GP III Associates Ltd. its General Partner

 

 

 

 

 

 

 

By:

/s/ Chi Sing Ho

 

Name:

Chi Sing Ho

 

Title:

Authorized Signatory

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

INVESTORS:

 

Peak Asia Investment Holdings V Limited

 

 

By:

/s/ Kenichi Shu

 

Name:

Kenichi Shu

 

Title:

Director

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

SCI AESTHETIC HOLDING CO., LTD.

 

 

By:

/s/ Haofu Tang

 

Name:

Haofu Tang

 

Title:

Director

 

 

[Signature Page to Further Amended and Restated Shareholder and Note Holder Agreement]

 


 

SCHEDULE A-1

 

List of Principals

 

Principal

 

Principal’s PRC Identification Card Number

 

ZHOU PENGWU(周鹏武)

 

#####

 

DING WENTING (丁文婷)

 

#####

 

 

List of Principal Holdcos

 

Principal Holdco

 

Shareholders

 

Number of Ordinary
Shares Held

 

Pengai Hospital Management Corporation

 

ZHOU PENGWU
DING WENTING

 

3,773,334

 

Seefar Global Holdings Limited 世發環球控股 有限公司

 

ZHOU PENGWU

 

18,889,380

 

Jubilee Set Investments Limited 立禧投資有限 公司

 

DING WENTING

 

18,148,620

 

 


 

SCHEDULE A-2

 

List of Investors

 

IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P.

c/o IDG Capital Management (HK) Ltd.

Unit 1509, The Center

99 Queen’s Road

Central, Hong Kong

Attn: Chi Sing HO

Fax: ######

 

with a copy to

 

Floor 6, Tower A, COFCO Plaza,

8 Jianguomennei Dajie

Beijing, 100005, P.R. China

Attn: Ms. Jia LIU

Fax: ######

 

Davis Polk & Wardwell LLP

2201 China World Office 2

1 Jian Guo Men Wai Avenue

Chao Yang District, Beijing 100004, P.R. China

Attn: Howard Zhang

Fax: ######

 

IDG-ACCEL CHINA GROWTH FUND III L.P.

c/o IDG Capital Management (HK) Ltd.

Unit 1509, The Center

99 Queen’s Road

Central, Hong Kong

Attn: Chi Sing HO

Fax: ######

 

with a copy to

 

Floor 6, Tower A, COFCO Plaza,

8 Jianguomennei Dajie

Beijing, 100005, P.R. China

Attn: Ms. Jia LIU

Fax: ######

 

Davis Polk & Wardwell LLP

2201 China World Office 2

1 Jian Guo Men Wai Avenue

Chao Yang District, Beijing 100004, P.R. China

Attn: Howard Zhang

Fax: ######

 


 

IDG-ACCEL CHINA III INVESTORS L.P.

c/o IDG Capital Management (HK) Ltd.

Unit 1509, The Center

99 Queen’s Road

Central, Hong Kong

Attn: Chi Sing HO

Fax: ######

 

with a copy to

 

Floor 6, Tower A, COFCO Plaza,

8 Jianguomennei Dajie

Beijing, 100005, P.R. China

Attn: Ms. Jia LIU

Fax: ########

 

Davis Polk & Wardwell LLP

2201 China World Office 2

1 Jian Guo Men Wai Avenue

Chao Yang District, Beijing 100004, P.R. China

Attn: Howard Zhang

Fax: ########

 

PEAK ASIA INVESTMENT HOLDINGS V LIMITED

c/o ADV Partners Management Pte Ltd,

Address : 1 Kim Seng Promenade #13-11 Great World City West Tower, Singapore 237994

Tel :                        ########

Fax :                    ########

Attn:                    Mr. Arun Kumar

Email:            Finance@advpartners.com

 

SCI AESTHETIC HOLDING CO., LTD.

Address : Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Island

Tel                               ########

Fax :                    ########

Attn:                    Mr. Donald Tang

Email:            donaldtang@scivc.com

 


 

SCHEDULE B

 

CAPITALIZATION TABLE

 

 

 

Pre Second Completion

 

Post Second Completion

 

Post Third Completion

 

Ordinary Shareholders

 

# of Shares

 

%

 

# of Shares

 

%

 

# of Shares

 

%

 

Pengai Hospital Management Corporation

 

3,773,334

 

6.62

%

3,773,334

 

6.60

%

3,773,334

 

6.57

%

Seefar Global Holdings Limited

 

18,889,380

 

33.13

%

18,889,380

 

33.03

%

18,889,380

 

32.91

%

Jubilee Set Investments Limited

 

18,148,620

 

31.83

%

18,148,620

 

31.74

%

18,148,620

 

31.62

%

China Concentric Capital Group Ltd.

 

188,666

 

0.33

%

188,666

 

0.33

%

188,666

 

0.33

%

SCI Aesthetic Holding Co., Ltd. - First Tranche

 

408,778

 

0.72

%

408,778

 

0.71

%

408,778

 

0.71

%

SCI Aesthetic Holding Co., Ltd. - Second Tranche

 

 

%

175,094

 

0.31

%

175,094

 

0.31

%

SCI Aesthetic Holding Co., Ltd. - Third Tranche

 

 

%

 

%

214,347

 

0.37

%

Serie A Preferred Shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P.

 

3,000,000

 

5.26

%

3,000,000

 

5.25

%

3,000,000

 

5.23

%

IDG-ACCEL CHINA GROWTH FUND III L.P.

 

2,801,400

 

4.91

%

2,801,400

 

4.90

%

2,801,400

 

4.88

%

IDG-ACCEL CHINA III INVESTORS L.P.

 

198,600

 

0.35

%

198,600

 

0.35

%

198,600

 

0.35

%

Peak Asia Investment Holdings V Limited

 

9,600,000

 

16.84

%

9.600,000

 

16.79

%

9.600,000

 

16.73

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Shares

 

57,008,778

 

100.00

%

57,183,872

 

100.00

%

57,398,219

 

100.00

%

Founder

 

40,811,334

 

71.59

%

40,811,334

 

71.37

%

40,811,334

 

71.10

%

Dr. Zhou

 

20,813,780

 

36.51

%

20,813,780

 

36.40

%

20,813,780

 

36.26

%

Ms. Ding

 

19,997,554

 

35.08

%

19,997,554

 

34.97

%

19,997,554

 

34.84

%

ADV

 

9,600,000

 

16.84

%

9,600,000

 

16.79

%

9,600,000

 

16.73

%

IDG

 

6,000,000

 

10.52

%

6,000,000

 

10.49

%

6,000,000

 

10.45

%

China Concentric Capital

 

188,666

 

0.33

%

188,666

 

0.33

%

188,666

 

0.33

%

SCI Aesthetic Holding Co., Ltd

 

408,778

 

0.72

%

583,872

 

1.02

%

798,219

 

1.39

%

 


 

SCHEDULE C

 

ADDRESS FOR NOTICES

 

If to the Principals:

 

ZHOU PENGWU (周鹏武)

 

Address:

Room 1604, Changhong Tower, 3013 Sungang Road East, Luohu District, Shenzhen, Guangdong Province, China

中国广东省深圳市罗湖区笋岗东路3013号长虹大厦1604

Telephone:

########

Fax:

########

Attention:

ZHOU PENGWU

周鹏武

 

 

DING WENTING (丁文婷)

 

 

Address:

Room 1604, Changhong Tower, 3013 Sungang Road East, Luohu District, Shenzhen, Guangdong Province, China

中国广东省深圳市罗湖区笋岗东路3013号长虹大厦1604

Telephone:

########

Fax:

########

Attention:

DING WENTING

丁文婷

 

 

If to the Principal Holdcos:

 

Pengai Hospital Management Corporation

 

 

Address:

深圳市南山区南山大道1122号鹏爱医疗美容医院4楼总裁办

Telephone:

########

Attention:

ZHOU PENGWU

周鹏武

DING WENTING

丁文婷

 

 

Seefar Global Holdings Limited 世發環球控股有限公

 

 

Address:

深圳市南山区南山大道1122号鹏爱医疗美容医院4楼总裁办

Telephone:

########

Attention:

ZHOU PENGWU

周鹏武

DING WENTING

丁文婷

 


 

Jubilee Set Investments Limited 立禧投資有限公司

 

 

Address:

深圳市南山区南山大道1122号鹏爱医疗美容医院4楼总裁办

Telephone:

########

Attention:

ZHOU PENGWU

周鹏武

DING WENTING

丁文婷

 

 

If to the Group Companies:

 

Aesthetic Medical International Holdings Group Limited:

 

 

Address:

Room 1605, Changhong Tower, 3013 Sungang Road East, Luohu District, Shenzhen, Guangdong Province, China

中国广东省深圳市罗湖区笋岗东路3013号长虹大厦1605

Telephone:

########

Fax:

########

Attention:

SU JINHUI

苏锦辉

 

 

Dragon Jade Holdings Limited 龍翠控股有限公司:

 

 

Address:

深圳市南山区南山大道1122号鹏爱医疗美容医院4楼总裁办

Telephone:

########

Attention:

ZHOU PENGWU

周鹏武

DING WENTING

丁文婷

 

 

Peng Oi Investment (Hong Kong) Holdings Limited:

 

 

Address:

Room 1605, Changhong Tower, 3013 Sungang Road East, Luohu District, Shenzhen, Guangdong Province, China

中国广东省深圳市罗湖区笋岗东路3013号长虹大厦1605

Telephone:

########

Fax:

########

Attention:

SU JINHUI

苏锦辉

 

 

鹏意达商务咨询(深圳)有限公司:

 

 

Address:

Room 1605, Changhong Tower, 3013 Sungang Road East, Luohu District, Shenzhen, Guangdong Province, China

中国广东省深圳市罗湖区笋岗东路3013号长虹大厦1605

Telephone:

########

Fax:

########

Attention:

SU JINHUI

苏锦辉

 


 

深圳鹏爱医院投资管理有限公司:

 

 

Address:

Room 1604, Changhong Tower, 3013 Sungang Road East, Luohu District, Shenzhen, Guangdong Province, China

中国广东省深圳市罗湖区笋岗东路3013号长虹大厦1604

Telephone:

########

Fax:

########

Attention:

ZHOU PENGWU

周鹏武

 

 

If to the Investors:

 

IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P.

 

 

Address:

IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P.

 

c/o IDG Capital Management (HK) Ltd.

 

Unit 1509, The Center

 

99 Queen’s Road

 

Central, Hong Kong

Fax:

########

Attention:

Chi Sing HO

 

 

with a copy to

 

 

Address:

Floor 6, Tower A, COFCO Plaza,

 

8 Jianguomennei Dajie

 

Beijing, 100005, P.R. China

Fax:

########

Attention:

Ms. Jia LIU

 

 

Address:

Davis Polk & Wardwell LLP

 

2201 China World Office 2

 

1 Jian Guo Men Wai Avenue

 

Chao Yang District, Beijing 100004, P.R. China

Fax:

########

Attention:

Howard Zhang

 

 

 


 

IDG-ACCEL CHINA GROWTH FUND III L.P.

 

 

Address:

IDG-ACCEL CHINA GROWTH FUND III L.P.

 

c/o IDG Capital Management (HK) Ltd.

 

Unit 1509, The Center

 

99 Queen’s Road

 

Central, Hong Kong

Fax:

########

Attention:

Chi Sing HO

 

with a copy to

 

 

Address:

Floor 6, Tower A, COFCO Plaza,

 

8 Jianguomennei Dajie

 

Beijing, 100005, P.R. China

Fax:

########

Attention:

Ms. Jia LIU

 

 

Address:

Davis Polk & Wardwell LLP

 

2201 China World Office 2

 

1 Jian Guo Men Wai Avenue

 

Chao Yang District, Beijing 100004, P.R. China

Fax:

########

Attention:

Howard Zhang

 

 

IDG-ACCEL CHINA III INVESTORS L.P.

 

 

Address:

IDG-ACCEL CHINA III INVESTORS L.P.

 

c/o IDG Capital Management (HK) Ltd.

 

Unit 1509, The Center

 

99 Queen’s Road

 

Central, Hong Kong

Fax:

########

Attention:

Chi Sing HO

 

 

with a copy to

 

 

Address:

Floor 6, Tower A, COFCO Plaza,

 

8 Jianguomennei Dajie

 

Beijing, 100005, P.R. China

Fax:

########

Attention:

Ms. Jia LIU

 

 

Address:

Davis Polk & Wardwell LLP

 

2201 China World Office 2

 

1 Jian Guo Men Wai Avenue

 

Chao Yang District, Beijing 100004, P.R. China

Fax:

########

Attention:

Howard Zhang

 

 

PEAK ASIA INVESTMENT HOLDINGS V LIMITED

 

 

c/o ADV Partners Management Pte Ltd,

Address :

1 Kim Seng Promenade #13-11 Great World City West Tower, Singapore 237994

Tel :

########

Fax :

########

Attn:

Mr. Arun Kumar

Email:

 

 


 

SCI AESTHETIC HOLDING CO., LTD.

 

 

Address:

Rm 20K, 726 West Yan’an Rd, Shanghai, China

Telephone:

########

Fax:

########

Attention:

Mr. Donald Tang

 


 

EXHIBIT A

 

FORM OF POWER OF ATTORNEY

 

授权委托书

 

委托人:

名:

 

身份证号:

 

址:

 

编:

 

话:

 

 

 

受委托人:

名:

 

身份证号:

 

址:

 

编:

 

话:

 

委托人拟行使根据其于20                    日与 Aesthetic Medical International Holdings Group Limited, 一家根据开曼法律设立的公司(境外公司),签署之认股证 /期权协议而获得的认股权/期权。在满足认股证书/期权协议规定的相应条件的情况 下,委托人将获得境外公司的                股普通股(占境外公司总股本的        %)。现就 上述认股权/期权行使行为委托受委托人代为办理相关的外汇登记手续。

 

受委托人的代理权限为:代为提出申请,并办理有关声明、承认、变更或放弃 的手续,领取有关通知、证明、文件等资料,以及其他一切与办理此次外汇登记相关 的事宜。

 

委托人:                                (签字)

 

二零                                        

 




Exhibit 4.6

 

FORM OF LETTER AGREEMENT

IN RELATION TO EXCHANGEABLE NOTES

 

To: Peak Asia Investment Holdings V Limited

 

Date:                   

 

Dear Sirs,

 

Re: Pengai Aesthetic Medical Group Exchangeable Note No. [·]

 

Reference is made to that certain Pengai Aesthetic Medical Group (now known as Aesthetic Medical International Holdings Group Limited, the “Company”) Exchangeable Note No. [·] in the principal amount of US$[·] (the “Note”) issued by [Issuer] (the “Issuer”) to Peak Asia Investment Holdings V Limited (the “Investor”), dated December 8, 2016. The Investor and the Issuer are collectively referred to herein as the “Parties.” Capitalized terms used but not defined herein shall have the same meanings ascribed to them in the Note.

 

The Investor, as the holder of the Note, hereby agrees with the Issuer that:

 

1.                                      Mandatory Conversion. Notwithstanding anything to the contrary contained in the Note, immediately prior to, but conditional upon, the closing of the first firm underwritten registered public offering by the Company of its securities in the United States or in another jurisdiction, the outstanding principal amount of the Note held by the Investor or its affiliates, successors, transferees or assigns shall be automatically converted into such number of fully paid and non-assessable Series B Preferred Shares of the Company as is equal to the quotient of (i) the Principal Amount, divided by (ii) the then applicable Exchange Price. Notwithstanding anything herein to the contrary, the foregoing sentence shall terminate and be of no force or effect if the Company does not close a firm underwritten registered public offering of its securities in the United States or in another jurisdiction on or prior to December 31, 2019.

 

For the avoidance of doubt, Section 2.1 of the Note is hereby amended by including the following supplemental provision:

 

“Immediately prior to, but conditional upon, the closing of the first firm underwritten registered public offering by the Company of its securities in the United States or in another jurisdiction, without any action being required by the Holder, the Issuer or the Company, the outstanding principal amount of this Note shall automatically be converted into such number of Series B Preferred Shares as is equal to the quotient of (i) the Principal Amount, divided by (ii) the then applicable Exchange Price. Notwithstanding anything herein to the contrary, the foregoing sentence shall terminate and be of no force or effect if the Company does not close a firm underwritten registered public offering of its securities in the United States or in another jurisdiction on or prior to December 31, 2019.”

 

1


 

2.                                      Upon the mandatory conversion pursuant to paragraph 1 above, the Investor shall (i) cause the Note to be delivered to the Issuer for cancellation and (ii) release the Share Charge and deliver to the Issuer a deed of release in respect of the number of Shares issued pursuant to paragraph 1 (the “Release Shares”) together with the corresponding share certificates representing the Release Shares and the related instruments of transfer, bought and sold notes and other related documents previously delivered to the Investor under the Share Charge, if any.

 

3.                                      Section 7 (Governing Law; Jurisdiction) and Section 8 (Miscellaneous) of the Note shall apply mutatis mutandis to this Letter Agreement (this “Letter Agreement”).

 

4.                                      Except as amended by this Letter Agreement, the Note shall remain in full force and effect and this Letter Agreement shall bind all successors and assigns of the parties thereof.

 

[Signature Pages to Follow]

 

2


 

IN WITNESS WHEREOF, the undersigned has caused this Letter Agreement to be executed on the date first set forth above written by its officer or director thereunto duly authorized.

 

Executed as a deed by

)

 

[Issuer]

)

 

By

)

 

 

)

 

 

)

 

In the presence of:

)

Name: ZHOU PENGWU (周鹏武)

 

 

Title: Director

 

 

 

Witness

 

 

Name:

 

 

 

[Signature Page to Letter Agreement Regarding Exchangeable Note]

 


 

IN WITNESS WHEREOF, the undersigned has caused this Letter Agreement to be executed on the date first set forth above written by its officer or director thereunto duly authorized.

 

Executed as a deed by

)

 

Peak Asia Investment

)

 

Holdings V Limited

)

 

By

)

 

 

)

 

 

)

 

In the presence of:

)

Name:

 

 

Title:

 

 

 

Witness

 

 

Name:

 

 

 

[Signature Page to Letter Agreement Regarding Exchangeable Note]

 




Exhibit 4.7

 

FORM OF EXCHANGEABLE NOTE

 

THE NOTE REPRESENTED BY THIS INSTRUMENT AND THE SECURITIES ISSUABLE UPON EXCHANGE OF THE NOTE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS.

 

PENGAI AESTHETIC MEDICAL GROUP

 

EXCHANGEABLE NOTE

 

No. [·]

 

US$[·]

December 8, 2016

 

FOR VALUE RECEIVED, the undersigned, [Issuer], a business company incorporated and existing under the laws of [·] (the “Issuer”), hereby promises to pay, subject to the terms and conditions of this Exchangeable Note (this “Note”, and together with any other outstanding Exchangeable Notes issued pursuant to the Exchangeable Note Purchase Agreement (as defined below), the “Notes”), to the order of Peak Asia Investment Holdings V Limited (together with any permitted transferees, the “Holder”, and together with all other holders of Notes, the “Holders”), the principal amount of [·] United States Dollars (US$[·]) (the “Principal Amount”) and all other sums payable hereunder.

 

This Note is issued pursuant to, and in accordance with, the Exchangeable Note Purchase Agreement, dated November 9, 2016, by and among Company, the Issuer, the Holder and the other parties named therein (the “Exchangeable Note Purchase Agreement”). The Holder is entitled to the benefits of this Note and the Exchangeable Note Purchase Agreement and, subject to the terms and conditions set forth herein and therein, may enforce the agreements contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereto and thereto. All capitalized terms not otherwise defined in this Note shall have the meanings attributed to such terms in the Exchangeable Note Purchase Agreement.

 

SECTION 1
REDEMPTION

 

1.1                               Redemption on Maturity Date. The Issuer shall redeem this Note on the Maturity Date by payment of the Redemption Price to the Holder.

 

1.2                               Redemption at Option of the Holder. The Holder may, by delivering to the Issuer a notice in the form attached as Exhibit A (a “Default Redemption Notice”) at any time after the occurrence and during the continuance of an Event of Default, require the Issuer to redeem this Note at a price equal to the aggregate of the Principal Amount and the Catch-up Amount (the “Default Amount”). On the twentieth (20th) Business Day after delivery of the Default Redemption Notice, the Issuer shall pay to the Holder the Default Amount.

 

1


 

1.3          Payments.

 

(a)                                 The Issuer shall pay the applicable Redemption Price to the Holder by wire transfer in United States Dollars in immediately available funds to a bank account specified by the Holder and provided to the Issuer in writing in accordance with Section 8.1 at least five (5) Business Days before payment is due. Following payment in full of the Redemption Price, the Holder shall return this Note for cancellation.

 

(b)                                 All payments whatsoever under this Note will be made by the Issuer free and clear of, and without liability for withholding or deduction for or on account of, any present or future taxes, duties or charges of whatever nature (“Taxes”) imposed or levied by or on behalf of any applicable jurisdiction, unless the withholding or deduction of such Tax is required by law. If any deduction or withholding for any Tax shall at any time be required in respect of any amounts to be paid by the Issuer under this Note, the Issuer will pay to the relevant taxing jurisdiction the full amount required to be withheld, deducted or otherwise paid before penalties attach thereto or interest accrues thereon, and to the extent that such withholding or deduction does not constitute income tax assessed against the Holder (no matter in the form of direct taxation, withholding or whatsoever), the Issuer shall pay to the Holder such additional amounts as may be necessary in order that the net amounts paid to the Holder pursuant to the terms of this Note, after such deduction, withholding or payment (including, without limitation, any required deduction or withholding of Tax on or with respect to such additional amount), shall be not less than the amounts then due and payable to the Holder under the terms of this Note before the assessment of such Tax.

 

(c)                                  All payments by the Issuer shall be made, not later than 5 p.m. (Hong Kong time) on the due date, by remittance to such bank account as the Holder may notify the Issuer not less than 10 days in advance from time to time.

 

(d)                                 If any payment pursuant to this Note shall be due on a day that is not a Business Day, such payment shall be made without default on the next succeeding day which is a Business Day, and any interest-bearing portions of the payment shall not accrue interest during such extension.

 

SECTION 2
EXCHANGE

 

2.1                               Optional Exchange. The Holder of this Note shall have the right, but not the obligation, at any time on or before the Maturity Date, to exchange this Note in whole, but not in part, into such number of fully paid and non-assessable Exchange Shares as is equal to the quotient of (a) the Principal Amount, divided by (b) the then applicable Exchange Price.

 

2


 

2.2                               Exchange Procedures. The exchange rights set forth in Section 2.1 shall be exercised by the Holder by delivering to the Issuer pursuant to Section 8.1 a written notice in the form of Exhibit B attached hereto (a “Exchange Notice”) specifying (i) that the Holder elects to exchange the entire Note and (ii) the name or names (with address) in which the Exchange Shares, and the certificate or certificates for Exchange Shares, are to be issued. As soon as practicable after the delivery of the Exchange Notice, and in any event no later than three (3) Business Days thereafter, the Issuer shall deliver a duly executed instrument of transfer (as seller) and sold note (if applicable) in respect of the relevant Exchange Shares to be delivered pursuant to the Exchange Notice to the Holder pursuant to Section 8.1, and as soon as practicable after the receipt by the Issuer of the said instrument of transfer and the related bought note (if applicable) duly executed by the Holder as purchaser in respect of the Exchange Shares but in no event later than ten (10) Business Days thereafter (or such longer period as the Issuer and the Holder may mutually agree), the Issuer shall take all actions and execute all documents necessary to effect the transfer and registration (if not previously registered) of such Exchange Shares (including giving all necessary instruction to the relevant share registry to effect such transfer and registration (if not previously registered)) and deliver to the Holder certificate(s) representing the number of fully paid and non-assessable Exchange Shares calculated in accordance with Section 2.1. Against the Issuer’s delivery of the abovementioned Exchange Shares, the Holder shall (i) cause this Note to be delivered to the Issuer for cancellation and (ii) release the Share Charge and deliver to the Issuer a deed of release in respect of an amount of Shares equal to the Exchange Shares (the “Release Shares”) together with the corresponding share certificates representing the Release Shares and the related instruments of transfer, bought and sold notes and other related documents previously delivered to the Holder under the Share Charge, if any. Unless contrary to the laws of Hong Kong or the Cayman Islands, at the time of surrender of this Note, the Person in whose name any certificate(s) for the Exchange Shares shall be issuable upon such exchange shall be deemed by the Issuer and the Holder to be the beneficial owner of such Exchange Shares on such date, notwithstanding that the share register of the Company shall then be closed or that the certificates representing such Exchange Shares shall not then be actually delivered to such Person.

 

2.3                               Fractional Shares. No fractional Exchange Shares shall be transferred upon exchange of this Note. All Exchange Shares (including fractions thereof) into which more than one Note held by a Holder thereof may be exchangeable shall be aggregated for purposes of determining whether the exchange would result in the issuance of any fractional share. If, after the aforementioned aggregation, the exchange would result in the issuance of any fractional share, the Issuer shall, in lieu of transferring any fractional share, pay cash equal to the product of such fraction multiplied by the higher of (i) fair market value of one Exchange Share on the date of exchange of this Note and (ii) the Exchange Price.

 

3


 

2.4                               Availability of Shares. The Issuer covenants that it will cause the Company to reserve for issuance and/or transfer, each solely for the purpose of transfer or delivery upon any exchange herein provided, such number of Series B Preferred Shares equal to the number of Exchange Shares receivable hereunder. The Issuer covenants that all Exchange Shares, when issued, transferred or delivered pursuant to Section 2.2, shall be duly and validly issued and fully paid, free and clear of all Encumbrances.

 

2.5                               Adjustment of Exchange Price upon Dividend, Subdivision, Combination or Reclassification of Exchange Shares. In the event that the Company shall at any time or from time to time, prior to exchange of this Note (i) make a distribution of Series B Preferred Shares (other than a scrip dividend out of current year’s profits, in connection with which the holders of Shares have the right to elect to receive cash or Shares) by way of capitalization of profits or reserves (including any share premium account or capital redemption reserve fund), (ii) subdivide the outstanding Series B Preferred Shares into a larger number of shares, (iii) combine the outstanding Series B Preferred Shares into a smaller number of shares or (iv) issue any Ordinary Share Equivalents in a reclassification of the Series B Preferred, then, and in each such case, the Exchange Price in effect immediately prior to such event shall be adjusted (and any other appropriate actions shall be taken by the Issuer) so that the Holder shall be entitled to receive the number of Shares or other securities of the Company that the Holder would have held or been entitled to receive upon or by reason of the relevant event described above had this Note been exchanged immediately prior to the occurrence of such event or (if earlier) the record date for shareholders of the Company entitled to participate in such distribution. An adjustment made pursuant to this Section 2.5 shall become effective retroactively (x) in the case of any such distribution, to a date immediately following the close of business on the record date for the determination of holders of Series B Preferred Shares entitled to receive such distribution or (y) in the case of any such subdivision, combination or reclassification, to the close of business on the day upon which such corporate action becomes effective.

 

2.6                               Abandonment. If the Company shall set a record date for the determination of holders of Series B Preferred Shares entitled to receive a dividend or other distribution, and shall thereafter and before the distribution to shareholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then no adjustment in the Exchange Price shall be required by reason of setting such record date.

 

2.7                               Certificate as to Adjustments. Upon any adjustment in the Exchange Price (including an adjustment pursuant to Section 6.5 of the Exchangeable Note Purchase Agreement, if any), the Issuer shall, within a reasonable period (not to exceed 20 Business Days) following any of the foregoing transactions deliver to the Holders a certificate, signed by a director of the Issuer, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Exchange Price then in effect following such adjustment.

 

4


 

2.8                               Reorganization, Reclassification. In case of any merger, amalgamation, arrangement or consolidation of the Company or any capital reorganization, reclassification or other change of outstanding Shares (each, a “Transaction”), the Issuer shall execute and deliver to the Holder at least thirty (30) days prior to effecting such Transaction a certificate, signed by a director of the Issuer, stating that the rights of the Holder shall continue to be recognized and not prejudiced by the Transaction and appropriate provision shall be made therefor in the agreement, if any, relating to such Transaction. Where there is an adjustment to the Exchange Price, any certificate delivered pursuant to this Section 2.8 shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 2.5. The provisions of this Section 2.8 and any equivalent thereof in any such certificate similarly shall apply to successive transactions.

 

2.9                               Legends. The Holder agrees to the imprinting, so long as required by law, of a legend on certificates representing all of the Holder’s Exchange Shares issuable upon exchange of this Note in substantially the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE OR JURISDICTION. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS.

 

PENGAI AESTHETIC MEDICAL GROUP (THE “COMPANY”) IS A COMPANY INCORPORATED UNDER THE LAWS OF THE CAYMAN ISLANDS, AND THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE ARTICLES OF ASSOCIATION OF THE COMPANY AND THE SHAREHOLDER AND NOTEHOLDER AGREEMENT. COPIES OF THE ARTICLES OF ASSOCIATION OF THE COMPANY AND THE SHAREHOLDER AND NOTEHOLDER AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SHARES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE ARTICLES OF ASSOCIATION OF THE COMPANY AND THE SHAREHOLDER AND NOTEHOLDER AGREEMENT.

 

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SECTION 3
COVENANTS

 

3.1                               Positive Covenants. The Issuer covenants to the Holder that, from the date hereof until all amounts owing under this Note have been paid in full or this Note has been redeemed or exchanged in full, the Issuer shall:

 

(a)                                 punctually repay the principal when due, and pay any other amount due and payable under this Note in the manner specified in this Note;

 

(b)                                 give written notice promptly to the Holder of any condition or event that constitutes an Event of Default (as defined below) or Potential Event of Default by delivering a certificate specifying the nature and period of existence of such condition, event or change and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition;

 

(c)                                  comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, noncompliance with which could reasonably be expected to result in, individually or in the aggregate, a Material Adverse Change; and

 

(d)                                 execute and deliver, or cause to be executed and delivered, upon the reasonable request of the Holder and at the Issuer’s expense, such additional documents, instruments and agreements as the Holder may reasonably determine to be necessary to carry out the provisions of this Note and the Exchangeable Note Purchase Agreement and the transactions and actions contemplated hereunder and thereunder.

 

SECTION 4 EVENTS OF DEFAULT

 

4.1                               Events of Default. The occurrence and continuance of any one or more of the following events shall constitute an “Event of Default”:

 

(a)                                 the Issuer shall fail to pay any amount which is payable under this Note when due in accordance with the terms hereof and such non-payment is not remedied within ten (10) days after the relevant due date;

 

(b)                                 any representation, warranty, certification or statement made by or on behalf of the Issuer or any other Warrantor in this Note, the Exchangeable Note Purchase Agreement, or any other EN Basic Documents, or in any certificate or other document delivered pursuant hereto or thereto, shall have been false in any material respect when made (a “Breach”) and, if capable of being remedied, has not been remedied within thirty (30) days after being notified in writing of such Breach by the Holder; provided that such Breach has caused or is likely to cause a Material Adverse Change;

 

(c)                                  the Issuer, any other Warrantor or any Group Company shall commit any material default in the observance or performance of any other covenant, condition or agreement contained any EN Basic Document (except for those set forth on Section 6.4(j) of the Exchangeable Note Purchase Agreement), and such default: (i) cannot be cured or (ii) can be cured but has continued for thirty (30) days after being notified in writing of such default by the Holder;

 

6


 

(d)                                 the Issuer, any other Warrantor or any Group Company shall (i) default (but after expiration of any period of grace, if any, provided in the instrument or agreement under which such indebtedness was created) in making any payment of any principal of any indebtedness (including any other Note) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such indebtedness was created; or (iii) default in the observance or performance of any other material agreement, term, covenant or condition relating to any such indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, in each case, the effect of which default is to cause, or to permit the holder or beneficiary of such indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such indebtedness to become due and payable prior to its stated maturity;

 

(e)                                  (i) the Issuer, any other Warrantor or any Group Company shall commence any case, proceeding or other action (1) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (2) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets; or (ii) there shall be commenced against the Issuer, any other Warrantor or any Group Company any case, proceeding or other action of a nature referred to in clause (i) above which (1) results in the entry of an order for relief or any such adjudication or appointment or (2) remains undismissed, undischarged or unbonded for a period of ten (10) Business Days; or (iii) there shall be commenced against the Issuer any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distrait or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged or stayed, or bonded pending appeal, within ten (10) Business Days after the entry thereof; or (iv) the Issuer, any other Warrantor or any Group Company shall (1) make a general assignment for the benefit of its creditors, or (2) shall admit its inability to pay its debts when they become due; or (v) there shall be any order, judgment or decree entered against the Issuer, any other Warrantor or any Group Company decreeing the dissolution or split up of such entity and such order shall remain undischarged or unstayed for a period in excess of 30 days, or any Group Company shall cease to carry on all or any substantial part of its business in the ordinary course.

 

7


 

4.2                               Notice by the Issuer. Upon the occurrence of an Event of Default, the Issuer shall give the Holder prompt notice of the occurrence of such Event of Default.

 

4.3                               Consequence of Event of Default. Upon the occurrence and during the continuance of an Event of Default, the Holder may, by notice in writing to the Issuer declare this Note in whole, but not in part, and all accrued interest thereon, to be immediately due and payable and require the Issuer to redeem this Note in accordance with Section 1.2. At the time for payment of the Default Amount by the Issuer in accordance with such Section, the Holder shall surrender the Note to the Issuer in the manner and at the place designated by the Issuer and thereupon the Default Amount shall be payable to the Holder, and the Note shall be canceled and retired. For the avoidance of doubt, following the payment in full by the Issuer of the Default Amount, then notwithstanding that this Note shall not have been surrendered, interest with respect to this Note shall cease to accrue after such payment, and all rights with respect to this Note shall forthwith terminate following such payment.

 

4.4                               Expenses. The Issuer will pay all costs and expenses (including without limitation fees and expenses of legal counsel) reasonably incurred by the Holder in connection with: (i) enforcing or defending (or determining whether or how to enforce or defend) any rights under this Note or any other EN Basic Documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Note or any other EN Basic Documents, or by reason of being the holder of the Note; and (ii) the insolvency or bankruptcy of the Issuer or any work-out or restructuring of the transactions contemplated by this Note or any other EN Basic Documents.

 

SECTION 5
REGISTRATION AND TRANSFER OF NOTE

 

5.1                               Register. The Issuer shall keep at its principal office a register in which the Issuer shall provide for the registration and transfer of this Note, in which the Issuer shall record the name and address of the Holder and the name and address of each permitted transferee and prior owner of this Note. The Holder shall notify the Issuer of any change of name or address and promptly after receiving such notification the Issuer shall record such information in such register.

 

5.2                               Transfer. Except for the transfer by the Holder of the Note and its rights, interest and duties hereunder to any Affiliate(s) of the Holder or any third party that is not a Competitor, this Note and all rights hereunder shall not be transferred by the Holder without the prior written consent of the Issuer.

 

8


 

5.3                               Replacement of Note. Upon receipt by the Issuer of evidence of the loss, theft, destruction or mutilation of this Note and

 

(a)                                 in the case of loss, theft or destruction, of indemnity from the Holder reasonably satisfactory to it, or

 

(b)                                 in the case of mutilation, upon surrender and cancellation thereof,

 

the Issuer at its own expense shall within ten (10) Business Days execute and deliver to the Holder, in lieu thereof, a new Note, dated and bearing interest from the Original Issuance Date.

 

SECTION 6
DEFINITIONS

 

6.1                               Definitions. Capitalized terms used but not otherwise defined herein shall have the respective meanings as ascribed to them in the Exchangeable Note Purchase Agreement. In this Note, unless the context otherwise requires the following words and expressions have the following meanings:

 

Affiliate” of a Person (the “Subject Person”) means (a) in the case of a Person other than a natural person, any other Person that directly or indirectly Controls, is Controlled by or is under common Control with the Subject Person and (b) in the case of a natural person, any other Person that directly or indirectly is Controlled by such natural person or is a Relative of such natural person. In the case of the Holder, the term “Affiliate” includes (v) any shareholder of the Holder, (w) any of such shareholder’s general partners or limited partners, (x) the fund manager managing such shareholder (and general partners, limited partners and officers thereof) and (y) trusts controlled by or for the benefit of any such individuals referred to in (v), (w) or (x).

 

Business” has the meaning set forth in the Exchangeable Note Purchase Agreement.

 

Business Day” has the meaning set forth in the Exchangeable Note Purchase Agreement.

 

Catch-up Amount” means such amount as would, when taken together with the Principal Amount, would represent an IRR in respect of the Note equal to 10%.

 

Company” means Pengai Aesthetic Medical Group, a company incorporated and existing under the laws of the Cayman Islands.

 

Control” of a Person means (a) ownership of more than 50% of the shares in issue or other equity interests or registered capital of such Person or (b) the power to direct the management or policies of such Person, whether through the ownership of more than 50% of the voting power of such Person, through the power to appoint a majority of the members of the board of directors or similar governing body of such Person, through contractual arrangements or otherwise.

 

9


 

Competitor” means any Person that is listed on Schedule I or otherwise engaged in the Business via managing or operating at least two (2) aesthetic hospitals or clinics in the PRC, or in the case of any of the foregoing, any of their Affiliates. For the avoidance of doubt, any bona fide financial investor investing in the Business shall not be deemed as a Competitor.

 

Convertible Note Purchase Agreement” means the convertible note purchase agreement between the Holder and the Company with respect to the issuance of certain convertible note(s) by the Company to the Holder, dated November 9, 2016.

 

Encumbrance” has the meaning set forth in the Exchangeable Note Purchase Agreement.

 

EN Basic Documents” has the meaning set forth in the Exchangeable Note Purchase Agreement.

 

Exchange Price” means US$2.3292 per Share, subject to adjustment as provided in Section 6.5 of the Exchangeable Note Purchase Agreement, as well as Section 2.5 and Section 2.8 hereof.

 

Exchange Shares” means the Series B Preferred Shares.

 

Exchangeable Note Purchase Agreement” has the meaning set forth in the Preamble.

 

Group” and “Group Companies” has the meaning set forth in the Exchangeable Note Purchase Agreement.

 

Governmental Authority” means any government or political subdivision thereof; any department, agency or instrumentality of any government or political subdivision thereof; any court or arbitral tribunal; and the governing body of any securities exchange.

 

Holder” and “Holders” have the meaning ascribed to them in the Preamble.

 

Hong Kong” means Hong Kong Special Administrative Region of the People’s Republic of China.

 

IRR” means the internal rate of return achieved by the Holder with respect to the Holder’s purchase and holding of the Note, the calculation of which internal rate of return shall take into account (i) the amount and timing of the purchase of the Note and (ii) the amount and timing of any distributions and payments by the Company attributable to the Note.

 

Issuer” has the meaning set forth in the Preamble.

 

Material Adverse Change” has the meaning set forth in the Exchangeable Note Purchase Agreement.

 

10


 

Maturity Date” means the fourth (4th) anniversary of the Original Issuance Date.

 

Note” and “Notes” have the meaning ascribed to them in the Preamble.

 

Original Issuance Date” means the date of this Note.

 

Ordinary Shares” means the Ordinary Shares of the Company, par value US$0.001 per share.

 

Ordinary Share Equivalent” means any security or obligation which is by its terms convertible into or exchangeable or exercisable for Ordinary Shares or other share capital of the Company, including this Note and any option, warrant or other subscription or purchase right with respect to Ordinary Shares or such other share capital.

 

Person” means any natural person, firm, company, Governmental Authority, joint venture, partnership, association or other entity (whether or not having separate legal personality).

 

Principal Amount” has the meaning set forth in the Preamble.

 

Potential Event of Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.

 

PRC” means the People’s Republic of China and for the purpose of this Agreement shall exclude Hong Kong Special Administrative Region, Taiwan and the Macau Special Administrative Region.

 

Redemption Price” means the Principal Amount or the Default Amount, as applicable.

 

Share Charge” means the share charges under the Security Documents (as defined in the Exchangeable Note Purchase Agreement).

 

Shares” means any shares of the Company.

 

Series B Preferred Shares” means the redeemable Series B Preferred Shares of the Company, par value US$0.001 per share.

 

Warrantors” shall have the meaning set forth in the Exchangeable Note Purchase Agreement.

 

6.2                               Headings. Section headings in this Note are included herein for convenience of reference only and shall not constitute a part of this Note for any other purpose.

 

6.3                               Reference to Documents. A reference to any Section or Exhibit is, unless otherwise specified, to such Section of or Exhibit to this Note. The words “hereof,” “hereunder” and “hereto,” and words of like import, unless the context requires otherwise, refer to this Note as a whole and not to any particular Section hereof. A reference to any document (including this Note) is to that document as amended, consolidated, supplemented, novated or replaced from time to time.

 

11


 

SECTION 7
GOVERNING LAW; JURISDICTION

 

7.1                               GOVERNING LAW AND JURISDICTION. Any dispute or claim arising out of or in connection with or relating to this Note shall be settled in accordance with sections 12.1 and 12.2 (Governing Law and Dispute Resolution) of the Exchangeable Note Purchase Agreement.

 

SECTION 8
MISCELLANEOUS

 

8.1                               Notices. Each notice, demand or other communication given or made under this Note shall be in writing in English and delivered or sent to the Issuer or the Holder at its respective addresses or fax numbers specified in the Exchangeable Note Purchase Agreement (or such other address or fax number as the addressee has by five days’ prior written notice specified). Any notice, demand or other communication shall be delivered in person, sent by fax, mailed, first class, postage prepaid, or sent by commercial overnight courier service; provided that any notice, demand or other communication made by letter between countries shall be delivered by internationally recognized commercial courier service. Any notice, demand or other communication so addressed to the Issuer or the Holder, as the case may be, shall be deemed to have been delivered, (a) if delivered in person or by courier, when proof of delivery is obtained by the delivering party; (b) if sent by post within the same country, on the third Business Day following posting, and if sent by post to another country, on the seventh Business Day following posting; and (c) if given or made by fax, upon dispatch and the receipt of a transmission report confirming dispatch.

 

8.2                               Wavier. The Issuer waives presentment, notice of dishonor, protest and any other notice or formality with respect to this Note. Unless otherwise provided herein, the Issuer agrees that no omission or delay by the Holder in exercising any right under this Note shall operate as a waiver, and the single or partial exercise of any such right or rights shall not preclude any other further exercise of such right or rights.

 

8.3                               Amendment. This Note may not be amended or modified except by a written agreement executed by the Issuer and the Holder.

 

8.4                               Language. This Note is drawn up in the English language. If this Note is translated into any language other than English, the English language text shall prevail.

 

[Remainder of page intentionally left blank]

 

12


 

IN WITNESS WHEREOF, the undersigned has caused this Note to be executed on the date first above written by its officer or director thereunto duly authorized.

 

Executed as a deed by

)  

 

[Issuer]

)  

 

 

)  

 

By

)  

 

 

)  

Name:

 

)  

Title:

In the presence of:

)  

 

 

 

 

 

 

 

Witness

 

 

Name:

 

 

 

[Signature Page to Exchangeable Note]

 


 

AGREED AND ACCEPTED:

 

Peak Asia Investment Holdings V Limited

 

By:

 

 

Name:

 

 

Title:

 

 

 

[Signature Page to Exchangeable Note]

 


 

SCHEDULE I

 

LIST OF COMPETITORS

 


 

EXHIBIT A

 

FORM OF DEFAULT REDEMPTION NOTICE

 

[date]

 

To:          Pengai Hospital Management Corporation (the “Issuer”)

 

Re:          Default Redemption Notice in relation to the Exchangeable Note No. [  ] with an aggregate outstanding Principal Amount of [  ] (the “Note”). Capitalized terms used herein and not otherwise defined shall have their respective meanings as set forth in the Note.

 

Dear Sirs:

 

We, the holder of the Note, hereby deliver this Redemption Notice pursuant to Section 1.2 of the Note and hereby notify the Issuer of the exercise of the redemption right set forth in Section 1.2 of the Note to redeem [all of the outstanding principal amount of the Note] at an amount calculated pursuant to the Note as specified below.

 

Aggregate outstanding Principal Amount to be redeemed: US$ [                      ]

 

Catch-up Amount: US$ [              ]

 

Total Redemption Price: US$ [                      ]

 

Please kindly transfer to us the Default Amount in accordance with the provisions of Section 1.2 of the Note.

 

Very truly yours,

[Names of the Holder]

 

By:

 

 

Name:

 

 

Title:

 

 

 

16


 

EXHIBIT B

 

FORM OF EXCHANGE NOTICE

 

[date]

 

To:          Pengai Hospital Management Corporation (the “Issuer”)

 

Re:          Exchange Notice in relation to the Exchangeable Note No. [    ] with an aggregate outstanding Principal Amount of [    ] (the “Note”). Capitalized terms used herein and not otherwise defined shall have their respective meanings as set forth in the Note.

 

Dear Sirs:

 

We, holder of the Note, hereby deliver this Exchange Notice pursuant to Section 2.2 of the Note and hereby notify the Issuer of the exercise of the exchange right set forth in Section 2.1 of the Note to exchange all of the outstanding Principal Amount of the Note at the applicable Exchange Price.

 

Aggregate outstanding Principal Amount: US$ [                   ]

 

Exchange Price: US$ [                   ] per [Series B Preferred Shares].

 

Please kindly procure to transfer to us such number of [Series B Preferred Shares] to be transferred upon exchange of the Note in accordance with this Exchange Notice and with the provisions of Section 2.2 of the Note to the following entity(ies):

 

(1)                                 Name: [                   ]

Address: [                   ]

Number of [Series B Preferred Shares] to be transferred: [                   ]

 

(2)                                 [Repeat as necessary]

 

Very truly yours,

[Name of the Holder]

By:

 

 

Name:

 

 

Title:

 

 

 


 



Exhibit 5.1

 

[          ], 2019

 

Matter No.:827892

Doc Ref: 105446419

Anna.Chong@conyers.com

Charissa.Ball@conyers.com

 

Aesthetic Medical International Holdings Group Limited

P. O. Box 31119 Grand Pavilion

Hibiscus Way, 802 West Bay Road

Grand Cayman, KY1 - 1205

Cayman Islands

 

Dear Sirs,

 

Re: Aesthetic Medical International Holdings Group Limited (the “Company”)

 

We have acted as special legal counsel in the Cayman Islands to the Company in connection with a registration statement on form F-1 to be filed with the U.S. Securities and Exchange Commission (the “Commission”) on or about September 30, 2019 (the “Registration Statement”, which term does not include any other document or agreement whether or not specifically referred to therein or attached as an exhibit or schedule thereto) relating to the registration under the U.S. Securities Act of 1933, as amended, (the “Securities Act”) of ordinary shares, par value US$0.001 each (“Ordinary Shares”) of the Company.

 

For the purposes of giving this opinion, we have examined a copy of the Registration Statement. We have also reviewed copies of (1) the currently adopted further amended and restated memorandum and articles of association of the Company adopted by the Company on December 31, 2018, (2) the unanimous written resolutions of the directors of the Company passed on September [30], 2019 and [*] 2019 and unanimous written resolutions of the members of the Company [passed on September [30], 2019 and [*] 2019] (collectively, the “Resolutions”), (3) the latest draft of the amended and restated memorandum and articles of association of the Company conditionally adopted pursuant to the Resolutions and to become effective prior to completion of the Company’s initial public offering of Ordinary Shares represented by American Depositary Shares (the “Listing M&As”), (4) a Certificate of Good Standing issued by the Registrar of Companies in relation to the Company on [*], 2019 (the “Certificate Date”), and (5) such other documents and made such enquiries as to questions of law as we have deemed necessary in order to render the opinion set forth below.

 

We have assumed (a) the genuineness and authenticity of all signatures and the conformity to the originals of all copies (whether or not certified) examined by us and the authenticity and completeness of the originals from which such copies were taken, (b) that where a document has been examined by us in draft form, it will be or has been executed and/or filed in the form of that draft, and where a number of drafts of a document have been examined by us all changes thereto have been marked or otherwise drawn to our attention, (c) the accuracy and completeness of all factual representations made in the Registration Statement and other documents reviewed by us, (d) that the Resolutions have been passed at one or more duly convened, constituted and quorate meetings or by unanimous written resolutions, will remain in full force and effect and will not be rescinded or amended, (e) that the Listing M&As will become effective prior to the completion of the Company’s initial public offering of Ordinary Shares represented by American Depositary Shares, (f) that there is no provision of the law of any jurisdiction, other than the Cayman Islands, which would have any implication in relation to the opinions expressed herein, (g) that upon issue of any Ordinary Shares to be sold by the Company, the Company will receive consideration for the full issue price thereof which shall be equal to at least the par value thereof, and (f) the validity and binding effect under the laws of the United States of America of the Registration Statement and that the Registration Statement will be duly filed with the Commission.

 


 

We have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than the Cayman Islands.  This opinion is to be governed by and construed in accordance with the laws of the Cayman Islands and is limited to and is given on the basis of the current law and practice in the Cayman Islands.

 

On the basis of and subject to the foregoing, we are of the opinion that:

 

1.                          The Company is duly incorporated and existing under the law of the Cayman Islands and, based on the Certificate of Good Standing, is in good standing as at the Certificate Date.  Pursuant to the Companies Law (the “Law”), a company is deemed to be in good standing if all fees and penalties under the Law have been paid and the Registrar of Companies has no knowledge that the Company is in default under the Law.

 

2.                          When issued and paid for as contemplated by the Registration Statement, the Ordinary Shares will be validly issued, fully paid and non-assessable (which term means when used herein that no further sums are required to be paid by the holders thereof in connection with the issue of such shares).

 

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to our firm under the captions “Enforceability of Civil Liabilities” and “Legal Matters” in the prospectus forming a part of the Registration Statement.  In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission promulgated thereunder.

 

Yours faithfully,

 

Conyers Dill & Pearman

 




Exhibit 8.1

 

[        ], 2019

 

Matter No.:827892

Doc Ref: 105445996

Anna.Chong@conyers.com

Charissa.Ball@conyers.com

 

Aesthetic Medical International Holdings Group Limited

P. O. Box 31119 Grand Pavilion

Hibiscus Way, 802 West Bay Road

Grand Cayman, KY1 - 1205

Cayman Islands

 

 

Dear Sirs,

 

Re: Aesthetic Medical International Holdings Group Limited (the “Company”)

 

We have acted as special legal counsel in the Cayman Islands to the Company in connection with a registration statement on form F-1 to be filed with the U.S. Securities and Exchange Commission (the “Commission”) on or about September 30, 2019 (the “Registration Statement”, which term does not include any other document or agreement whether or not specifically referred to therein or attached as an exhibit or schedule thereto) relating to the registration under the U.S. Securities Act of 1933, as amended, (the “Securities Act”) of ordinary shares, par value US$0.001 each (“Ordinary Shares”) of the Company.

 

For the purposes of giving this opinion, we have examined and relied upon copies of the following documents:

 

(i)                       the Registration Statement; and

 

(ii)                    a draft of the prospectus (the “Prospectus”) contained in the Registration Statement which is in substantially final form.

 

We have also reviewed and relied upon (1) the currently adopted further amended and restated memorandum of association and articles of association of the Company adopted by the Company on December 31, 2018, (2) the latest draft of the amended and restated memorandum of association and articles of association of the Company to be conditionally adopted by the Company and proposed to become effective prior to the completion of the Company’s initial public offering of Ordinary Shares represented by American Depositary Shares, and (3) such other documents and made such enquiries as to questions of law as we have deemed necessary in order to render the opinion set forth below.

 


 

We have assumed (a) the genuineness and authenticity of all signatures, stamps and seals and the conformity to the originals of all copies of documents (whether or not certified) examined by us and the authenticity and completeness of the originals from which such copies were taken; (b) the accuracy and completeness of all factual representations made in the Prospectus and Registration Statement reviewed by us; (c) the validity and binding effect under the laws of the United States of America of the Registration Statement and the Prospectus and that the Registration Statement will be duly filed with or declared effective by the Commission; and (d) that the Prospectus, when published, will be in substantially the same form as that examined by us for purposes of this opinion.

 

We have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than the Cayman Islands. This opinion is to be governed by and construed in accordance with the laws of the Cayman Islands and is limited to and is given on the basis of the current law and practice in the Cayman Islands.

 

On the basis of and subject to the foregoing, we are of the opinion that the statements under the caption “Taxation — Cayman Islands taxation” in the Prospectus forming part of the Registration Statement, to the extent that they constitute statements of Cayman Islands law, are accurate in all material respects and that such statements constitute our opinion.

 

We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Registration Statement and further consent to the reference of our name in the Prospectus forming part of the Registration Statement.  In giving this consent, we do not hereby admit that we are experts within the meaning of Section 11 of the Securities Act or that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission promulgated thereunder.

 

Yours faithfully,

 

Conyers Dill & Pearman

 




Exhibit 8.3

 

OPINION OF O’MELVENY & MEYERS LLP

 

September 30, 2019

 

Aesthetic Medical International Holdings Group Limited

1122 Nanshan Boulevard

Nanshan District, Shenzhen

Guangdong Province, 518052

People’s Republic of China

 

Re:                             American Depositary Shares (the “ADSs”), each representing [*] ordinary shares of Aesthetic Medical International Holdings Group Limited (the “Company”)

 

Ladies and Gentlemen:

 

We have acted as counsel to the Company, a Cayman Islands company, in connection with the filing of a Registration Statement on Form F-1 (the “F-1 Registration Statement”) with the Securities and Exchange Commission on September 30, 2019 (File No. 333-      ), for registration under the Securities Act of 1933, as amended (the “Act”), of ADSs in an initial public offering.  Each ADS represents [*] ordinary shares, par value US$ 0.001 of the Company. You have requested our opinion concerning statements in the “Taxation — United States federal income taxation” section of the F-1 Registration Statement.

 

In our capacity as counsel to the Company, we have examined originals or copies of those corporate and other documents we considered appropriate, including the F-1 Registration Statement and the forms of agreements attached as exhibits thereto and such other records, documents, certificates or other instruments, and other written factual representations provided by the Company for us to rely on, as in our judgment were necessary or appropriate to enable us to render the opinion expressed below. We have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals and the conformity with originals of all documents submitted to us as copies. We have also assumed that the transactions described in the F-1 Registration Statement and the forms of agreements attached as exhibits thereto will be performed in the manner described therein. We have not made an independent investigation of documents submitted or facts represented to us.

 

On the basis of the foregoing and our consideration of those questions of law we considered relevant, and subject to the limitations, qualifications, and assumptions set forth in this opinion, we confirm that the discussion in the “Taxation — United States federal income taxation” section of the F-1 Registration Statement, to the extent that it constitutes matters of U.S. federal income tax law or legal conclusions relating to the U.S. federal income tax laws of the United States and subject to the qualifications therein, represents our opinion.

 

Our opinion is based on the existing provisions of the U.S. Internal Revenue Code of 1986, as amended, and regulations thereunder (both final and proposed) and other applicable authorities in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. We express no opinion with respect to other U.S. federal laws, the laws of any state, the laws of any foreign country or any other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. No opinion is expressed as to any matter not discussed herein. Our opinion is rendered to the Company as of the date of this letter and we undertake no obligation to update it subsequent to the date of this letter. Any changes or differences in the facts from those disclosed in the F-1 Registration Statement will affect our opinion.

 


 

We consent to the Company’s use of this opinion as an Exhibit to the F-1 Registration Statement, to the Company’s reference to our name in the “Taxation” and “Legal Matters” sections of the F-1 Registration Statement and to the discussion of this opinion in the prospectus included in the F-1 Registration Statement.  In giving such consent, we do not thereby concede that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission thereunder.

 

 

Respectfully submitted,

 

 

 

/s/ O’Melveny & Myers LLP

 




Exhibit 10.1

 

FORM OF INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (the “Agreement”) is entered into as of                  ,  2019 by and between Aesthetic Medical International Holdings Group Limited, a company incorporated and existing under the laws of the Cayman Islands (the “Company”), and the undersigned, a director and/or officer of the Company (“Indemnitee”).

 

RECITALS

 

1.                                      The Company recognizes that highly competent persons are becoming more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against risks of claims and actions against them arising out of their services to the corporation.

 

2.                                      The Board of Directors of the Company (the “Board”) has determined that the inability to attract and retain highly competent persons to serve the Company is detrimental to the best interests of the Company and its shareholders and that it is reasonable and necessary for the Company to provide adequate protection to such persons against risks of claims and actions against them arising out of their services to the Company.

 

3.                                      The Company is willing to indemnify Indemnitee to the fullest extent permitted by applicable law, and Indemnitee is willing to serve and continue to serve the Company on the condition that he or she be so indemnified.

 

AGREEMENT

 

In consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

A.                                    DEFINITIONS

 

The following terms shall have the meanings defined below:

 

Expenses shall include damages, judgments, fines, penalties, settlements and costs, attorneys’ fees and disbursements and costs of attachment or similar bond, investigations, and any expenses paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (as hereinafter defined).

 

Indemnifiable Event means any event or occurrence that takes place either before or after the execution of this Agreement, related to the fact that Indemnitee is or was a director of the Company or an officer of the Company or any of its subsidiaries, or is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture or other entity, or related to anything done or not done by Indemnitee in any such capacity.

 

Participant means a person who is a party to, or witness or participant (including on appeal) in, a Proceeding.

 

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Proceeding means any threatened, pending or completed action, suit or proceeding, or any inquiry, hearing or investigation, whether civil, criminal, administrative, investigative or other, including appeal, in which Indemnitee may be or may have been involved as a party or otherwise by reason of an Indemnifiable Event, including, without limitation, any threatened, pending or completed action, suit or proceeding by or in the right of the Company.

 

B.                                    AGREEMENT TO INDEMNIFY

 

1.                                      General Agreement.  In the event Indemnitee was, is or becomes a Participant in, or is threatened to be made a Participant in, a Proceeding, the Company shall indemnify the Indemnitee from and against any and all Expenses which Indemnitee incurs or becomes obligated to incur in connection with such Proceeding, to the fullest extent permitted by applicable law.

 

2.                                      Indemnification of Expenses of Successful Party.  Notwithstanding any other provision of this Agreement to the contrary, to the extent that Indemnitee has been successful on the merits in defense of any Proceeding or in defense of any claim, issue or matter in such Proceeding, Indemnitee shall be indemnified against all Expenses incurred in connection with such Proceeding or such claim, issue or matter, as the case may be, offset by the amount of cash, if any, received by Indemnitee resulting from his/her success therein.

 

3.                                      Partial Indemnification.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of Expenses, but not for the total amount of Expenses, the Company shall indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

 

4.                                      Exclusions.  Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification under this Agreement:

 

(a)                                 to the extent that payment is actually made to Indemnitee under a valid, enforceable and collectible insurance policy;

 

(b)                                 to the extent that Indemnitee is indemnified and actually paid other than pursuant to this Agreement;

 

(c)                                  in connection with a judicial action by or in the right of the Company, in respect of any claim, issue or matter as to which Indemnitee shall have been adjudicated by final judgment in a court of law to be liable for intentional misconduct in the performance of his/her duty to the Company unless and only to the extent that any court in which such action was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as such court shall deem proper;

 

(d)                                 in connection with any Proceeding initiated by Indemnitee against the Company, any director or officer of the Company or any other party, and not by way of defense, unless (i) the Company has joined in or the Reviewing Party (as hereinafter defined) has consented to the initiation of such Proceeding; or (ii) the Proceeding is one to enforce indemnification rights under this Agreement or any applicable law;

 

(e)                                  for a disgorgement of profits made from the purchase and sale by the Indemnitee of securities pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any applicable U.S. state statutory law or common law;

 

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(f)                                   brought about by the dishonesty or fraud of Indemnitee seeking payment hereunder; provided, however, that Indemnitee shall be protected under this Agreement as to any claims upon which suit may be brought against him/her by reason of any alleged dishonesty on his/her part, unless a judgment or other final adjudication thereof adverse to Indemnitee establishes that he/she committed (i) acts of active and deliberate dishonesty, (ii) with actual dishonest purpose and intent, and (iii) which acts were material to the cause of action so adjudicated;

 

(g)                                  for any judgment, fine or penalty which the Company is prohibited by applicable law from paying as indemnity;

 

(h)                                 arising out of Indemnitee’s personal tax matter; or

 

(i)                                     arising out of Indemnitee’s breach of an employment agreement with the Company (if any) or any other agreement with the Company or any of its subsidiaries.

 

5.                                      No Employment Rights.  Nothing in this Agreement is intended to create in Indemnitee any right to continued employment with the Company.

 

6.                                      Contribution.  If the indemnification provided in this Agreement is unavailable and may not be paid to Indemnitee for any reason other than those set forth in Section B.4 above, then the Company shall contribute to the amount of Expenses paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and by Indemnitee on the other hand from the transaction from which such Proceeding arose, and (ii) the relative fault of the Company on the one hand and of Indemnitee on the other hand in connection with the events which resulted in such Expenses, as well as any other relevant equitable considerations.  The relative fault of the Company on the one hand and of Indemnitee on the other hand shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such Expenses.  The Company agrees that it would not be just and equitable if contribution pursuant to this Section B.6 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations.

 

C.                                    INDEMNIFICATION PROCESS

 

1.                                      Notice and Cooperation by Indemnitee.  Indemnitee shall, as a condition precedent to his/her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement.  Notice to the Company shall be given in accordance with Section F.7 below.  In addition, Indemnitee shall give the Company such information and cooperation as the Company may reasonably request.

 

2.                                      Indemnification Payment.

 

(a)                                 Advancement of Expenses.  Indemnitee may submit a written request with reasonable particulars to the Company requesting that the Company advance to Indemnitee all Expenses that may be reasonably incurred by Indemnitee in connection with a Proceeding.  The Company shall, within ten (10) business days of receiving such a written request by Indemnitee, advance all requested Expenses to Indemnitee.  Any excess of the advanced Expenses over the actual Expenses will be repaid to the Company.

 

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(b)                                 Reimbursement of Expenses.  To the extent Indemnitee has not requested any advanced payment of Expenses from the Company, Indemnitee shall be entitled to receive reimbursement for the Expenses incurred in connection with a Proceeding from the Company as soon as practicable after Indemnitee makes a written request to the Company for reimbursement.

 

(c)                                  Determination by the Reviewing Party.  Notwithstanding anything foregoing to the contrary, in the event the Reviewing Party (as hereinafter defined) informs the Company that Indemnitee is not entitled to indemnification in connection with a Proceeding under this Agreement or applicable law, the Company shall be entitled to be reimbursed by Indemnitee for all the Expenses previously advanced or otherwise paid to Indemnitee in connection with such Proceeding; provided, however, that Indemnitee may bring a suit to enforce his indemnification right in accordance with Section C.3 below.

 

3.                                      Suit to Enforce Rights.  Regardless of any action by the Reviewing Party, if Indemnitee has not received full indemnification within 30 days after making a written demand in accordance with Section C.2 above, Indemnitee shall have the right to enforce his/her indemnification rights under this Agreement by commencing litigation in any court of competent jurisdiction seeking a determination by the court or challenging any determination by the Reviewing Party or any breach in any aspect of this Agreement.  Any determination by the Reviewing Party not challenged by Indemnitee and any final judgment entered by the court shall be binding on the Company and Indemnitee.

 

4.                                      Assumption of Defense.  In the event the Company is obligated under this Agreement to advance or bear any Expenses for any Proceeding against Indemnitee, the Company shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee, upon delivery to Indemnitee of written notice of its election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, unless (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded, based on written advice of counsel, that there may be a conflict of interest of such counsel retained by the Company between the Company and Indemnitee in the conduct of any such defense, or (iii) the Company ceases or terminates the employment of such counsel with respect to the defense of such Proceeding, in any of which events the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.  At all times, Indemnitee shall have the right to employ counsel in any Proceeding at Indemnitee’s expense.

 

5.                                      Defense to Indemnification, Burden of Proof and Presumptions.  It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement that it is not permissible under this Agreement or applicable law for the Company to indemnify the Indemnitee for the amount claimed.  In connection with any such action or any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified under this Agreement, the burden of proving such a defense or determination shall be on the Company.  Neither the failure of the Reviewing Party or the Company to have made a determination prior to the commencement of such action by Indemnitee that indemnification is proper under the circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor an actual determination by the Reviewing Party or the Company that Indemnitee had not met such applicable standard of conduct shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

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6.                                      No Settlement Without Consent.  Neither party to this Agreement shall settle any Proceeding in any manner that would impose any damage, loss, penalty or limitation on Indemnitee without the other party’s written consent.  Neither the Company nor Indemnitee shall unreasonably withhold its consent to any proposed settlement.

 

7.                                      Company Participation.  Subject to Section B.6, the Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial action if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense, conduct and/or settlement of such action.

 

8.                                      Reviewing Party.

 

(a)  For purposes of this Agreement, the “Reviewing Party” with respect to each indemnification request of Indemnitee shall be (A) the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, said Disinterested Directors so direct, Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; and, if it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Independent Counsel or member of the Board of Directors shall act reasonably and in good faith in making a determination under this Agreement of the Indemnitee’s entitlement to indemnification.  Any reasonable costs or expenses (including reasonable attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom to the extent as aforesaid.  “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(b)  If the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as provided in this Section C.8(b).  The Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors shall select), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected.  In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section C.8(d) of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit.  If the determination of entitlement to indemnification is to be made by Independent Counsel, but within 20 days after submission by Indemnitee of a written request for indemnification, no Independent Counsel shall have been selected and not objected to, then the Board of Directors by a majority vote shall select the Independent Counsel.  The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting under this Agreement, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section C.8(b), regardless of the manner in which such Independent Counsel was selected or appointed.

 

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(c)  In making a determination with respect to entitlement to indemnification hereunder, the Reviewing Party shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.  The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement (with or without court approval), conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.  For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Company and any other corporation, partnership, joint venture or other entity of which Indemnitee is or was serving at the written request of the Company as a director, officer, employee, agent or fiduciary, including financial statements, or on information supplied to Indemnitee by the officers and directors of the Company or such other corporation, partnership, joint venture or other entity in the course of their duties, or on the advice of legal counsel for the Company or such other corporation, partnership, joint venture or other entity or on information or records given or reports made to the Company or such other corporation, partnership, joint venture or other entity by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or such other corporation, partnership, joint venture or other entity.  In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company or such other corporation, partnership, joint venture or other entity shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.  The provisions of this Section C.8(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

 

(d)  “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees of the Independent Counsel referred to above.

 

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D.                                    DIRECTOR AND OFFICER LIABILITY INSURANCE

 

1.                                      Good Faith Determination.  The Company shall from time to time make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses incurred in connection with their services to the Company or to ensure the Company’s performance of its indemnification obligations under this Agreement.

 

2.                                      Coverage of Indemnitee.  To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any of the Company’s directors or officers.

 

3.                                      No Obligation.  Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain any director and officer insurance policy if the Company determines in good faith that such insurance is not reasonably available in the case that (i) premium costs for such insurance are disproportionate to the amount of coverage provided, (ii) the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or (iii) Indemnitee is covered by similar insurance maintained by a parent, subsidiary of the Company.

 

E.                                     NON-EXCLUSIVITY; FEDERAL PREEMPTION; TERM

 

1.                                      Non-Exclusivity.  The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Articles of Association, applicable law or any written agreement between Indemnitee and the Company (including its subsidiaries).  The indemnification provided under this Agreement shall continue to be available to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he/she may have ceased to serve in any such capacity at the time of any Proceeding.

 

2.                                      Federal Preemption.  Notwithstanding the foregoing, both the Company and Indemnitee acknowledge that in certain instances, U.S. federal law or public policy may override applicable law and prohibit the Company from indemnifying its directors and officers  under this Agreement or otherwise.  Indemnitee acknowledges that the U.S. Securities and Exchange Commission (the “SEC”) believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

 

3.                                      Duration of Agreement.  All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer and/or a director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding by reason of his former or current capacity at the Company or any other enterprise at the Company’s request, whether or not he/she is acting or serving in any such capacity at the time any Expense is incurred for which indemnification can be provided under this Agreement.  This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer and/or a director of the Company or any other enterprise at the Company’s request.

 

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F.                                      MISCELLANEOUS

 

1.                                      Amendment of this Agreement.  No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by the parties hereto.  No waiver of any of the provisions of this Agreement shall operate as a waiver of any other provisions (whether or not similar), nor shall such waiver constitute a continuing waiver.  Except as specifically provided in this Agreement, no failure to exercise or any delay in exercising any right or remedy shall constitute a waiver.

 

2.                                      Subrogation.  In the event of payment to Indemnitee by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents as necessary to enable the Company to bring suit to enforce such rights.

 

3.                                      Assignment; Binding Effect.  Neither this Agreement nor any of the rights or obligations hereunder may be assigned by either party hereto without the prior written consent of the other party; except that the Company may, without such consent, assign all such rights and obligations to a successor in interest to the Company which assumes all obligations of the Company under this Agreement.  Notwithstanding the foregoing, this Agreement shall be binding upon and inure to the benefit of and be enforceable by and against the parties hereto and the Company’s successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company) and assigns, as well as Indemnitee’s spouses, heirs, and personal and legal representatives.

 

4.                                      Severability and Construction.  Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law.  The Company’s inability, pursuant to a court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.  In addition, if any portion of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by applicable law.  The parties hereto acknowledge that they each have opportunities to have their respective counsel review this Agreement.  Accordingly, this Agreement shall be deemed to be the product of both of the parties hereto, and no ambiguity shall be construed in favor of or against either of the parties hereto.

 

5.                                      Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

 

6.                                      Governing Law.  This agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto hereunder shall be governed, construed and interpreted in accordance with the laws of the State of New York, U.S.A., without giving effect to conflicts of law provisions thereof.

 

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7.                                      Notices.  All notices, demands, and other communications required or permitted under this Agreement shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and addressed to the Company at:

 

Aesthetic Medical International Holdings Group Limited

Nanshan Road 1122

Nanshan District

Shenzhen, China

Attn:  Pengwu Zhou

Phone: #####

Email: zhoupengwu@pengai.com.cn

 

and to Indemnitee at:

 

[•]
[address]

Attn:  [•]

Phone: [•]

Fax: [•]

Email: [•]

 

8.                                      Entire Agreement.  This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.

 

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first written above.

 

COMPANY

 

Aesthetic Medical International Holdings Group Limited

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

INDEMNITEE

 

 

 

 

 

Name:

 

 

[Signature Page to Indemnification Agreement]

 




Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of                 , 2019 by and between Aesthetic Medical International Holdings Group Limited, an exempted company incorporated and existing under the laws of the Cayman Islands (the “Company”) and                      , an individual with                 [passport/ID number]                            (the “Executive”).

 

RECITALS

 

WHEREAS, the Company desires to employ the Executive and to assure itself of the services of the Executive during the term of Employment (as defined below) and under the terms and conditions of the Agreement;

 

WHEREAS, the Executive desires to be employed by the Company during the term of Employment and under the terms and conditions of the Agreement;

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Executive agree as follows:

 

1.      EMPLOYMENT

 

The Company hereby agrees to employ the Executive and the Executive hereby accepts such employment, on the terms and conditions hereinafter set forth (the “Employment”).

 

2.      TERM

 

Subject to the terms and conditions of the Agreement, the initial term of the Employment shall be                 years, commencing on                , 2019 (the “Effective Date”) and ending on                , 2019 (the “Initial Term”), unless terminated earlier pursuant to the terms of the Agreement. Upon expiration of the Initial Term of the Employment, the Employment shall be automatically extended for successive periods of 12 months each (each, an “Extension Period”) unless either party shall have given 60 days advance written notice to the other party, in the manner set forth in Section 19 below, prior to the end of the Extension Period in question, that the term of this Agreement that is in effect at the time such written notice is given is not to be extended or further extended, as the case may be (the period during which this Agreement is effective being referred to hereafter as the “Term”).

 

3.      POSITION AND DUTIES

 

(a)      During the Term, the Executive shall serve as                 of the Company or in such other position or positions with a level of duties and responsibilities consistent with the foregoing with the Company and/or its subsidiaries and affiliated entities as the board of directors of the Company (the “Board”) may specify from time to time and shall have the duties, responsibilities and obligations customarily assigned to individuals serving in the position or positions in which the Executive serves hereunder and as assigned by the Board, or with the Board’s authorization, by the Company’s Chief Executive Officer.

 

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(b)     The Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of the Company or any subsidiaries or affiliated entities of the Company (collectively, the “Group”) and as a member of any committees of the board of directors of any such entity, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently provided to any other director of any member of the Group.

 

(c)     The Executive agrees to devote all of his/her working time and efforts to the performance of his/her duties for the Company and to faithfully and diligently serve the Company in accordance with the Agreement and the guidelines, policies and procedures of the Company approved from time to time by the Board.

 

4.      NO BREACH OF CONTRACT

 

The Executive hereby represents to the Company that: (i) the execution and delivery of the Agreement by the Executive and the performance by the Executive of the Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or by which the Executive is otherwise bound, except that the Executive does not make any representation with respect to agreements required to be entered into by and between the Executive and any member of the Group pursuant to the applicable law of the jurisdiction in which the Executive is based, if any; (ii) that the Executive is not in possession of any information (including, without limitation, confidential information and trade secrets) the knowledge of which would prevent the Executive from freely entering into the Agreement and carrying out his/her duties hereunder; and (iii) that the Executive is not bound by any confidentiality, trade secret or similar agreement with any person or entity other than any member of the Group.

 

5.      LOCATION

 

The Executive will be based in                 or any other location as requested by the Company during the Term.

 

6.      COMPENSATION AND BENEFITS

 

Cash Compensation. As compensation for the performance by the Executive of his/her obligations hereunder, during the Term, the Company shall pay the Executive cash compensation (inclusive of the statutory benefit contributions that the Company is required to set aside for the Executive under applicable law), subject to annual review and adjustment by the Board or any committee designated by the Board.

 

7.      TERMINATION OF THE AGREEMENT

 

The Employment may be terminated as follows:

 

(a)     Death. The Employment shall terminate upon the Executive’s death.

 

(b)     Disability. The Employment shall terminate if the Executive has a disability, including any physical or mental impairment which, as reasonably determined by the Board, renders the Executive unable to perform the essential functions of his/her position at the Company, even with reasonable accommodation that does not impose an undue burden on the Company, for more than 180 days in any 12-month period, unless a longer period is required by applicable law, in which case that longer period shall apply.

 

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(c)     Cause. The Company may terminate the Executive’s employment hereunder for Cause. The occurrence of any of the following, as reasonably determined by the Company, shall be a reason for Cause, provided that, if the Company determines that the circumstances constituting Cause are curable, then such circumstances shall not constitute Cause unless and until the Executive has been informed by the Company of the existence of Cause and given an opportunity of ten business days to cure, and such Cause remains uncured at the end of such ten-day period:

 

(1)         continued failure by the Executive to satisfactorily perform his/her duties;

 

(2)   willful misconduct or gross negligence by the Executive in the performance of his/her duties hereunder, including insubordination;

 

(3)   the Executive’s conviction or entry of a guilty or nolo contendere plea of any felony or any misdemeanor involving moral turpitude;

 

(4)   the Executive’s commission of any act involving dishonesty that results in material financial, reputational or other harm, monetary or otherwise, to any member of the Group, including but not limited to an act constituting misappropriation or embezzlement of the property of any member of the Group as determined in good faith by the Board; or

 

(5)   any material breach by the Executive of this Agreement.

 

(d)     Good Reason. The Executive may terminate his/her employment hereunder for “Good Reason” upon the occurrence, without the written consent of the Executive, of an event constituting a material breach of this Agreement by the Company that has not been fully cured within ten business days after written notice thereof has been given by the Executive to the Company setting forth in sufficient detail the conduct or activities the Executive believes constitute grounds for Good Reason, including but not limited to: the failure by the Company to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within twenty business days of the date such compensation is due.

 

(e)     Without Cause by the Company; Without Good Reason by the Executive. The Company may terminate the Executive’s employment hereunder at any time without Cause upon 60-day prior written notice to the Executive. The Executive may terminate the Executive’s employment voluntarily for any reason or no reason at any time by giving 60-day prior written notice to the Company.

 

(f)     Notice of Termination. Any termination of the Executive’s employment under the Agreement shall be communicated by written notice of termination (“Notice of Termination”) from the terminating party to the other party. The notice of termination shall indicate the specific provision(s) of the Agreement relied upon in effecting the termination.

 

(g)     Date of Termination. The “Date of Termination” shall mean (i) the date specified in the Notice of Termination, or (ii) if the Executive’s employment is terminated by the Executive’s death, the date of his/her death.

 

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(h)     Compensation upon Termination.

 

(1)   Death. If the Executive’s employment is terminated by reason of the Executive’s death, the Company shall have no further obligations to the Executive under this Agreement and the Executive’s benefits shall be determined under the Company’s retirement, insurance and other benefit and compensation plans or programs then in effect in accordance with the terms of such plans and programs.

 

(2)   By Company without Cause or by the Executive for Good Reason. If the Executive’s employment is terminated by the Company other than for Cause or by the Executive for Good Reason, the Company shall (i) continue to pay and otherwise provide to the Executive, during any notice period, all compensation, base salary and previously earned but unpaid incentive compensation, if any, and shall continue to allow the Executive to participate in any benefit plans in accordance with the terms of such plans during such notice period; and (ii) pay to the Executive, in lieu of benefits under any severance plan or policy of the Company, any such amount as may be agreed between the Company and the Executive.

 

(3)   By Company for Cause or by the Executive other than for Good Reason. If the Executive’s employment shall be terminated by the Company for Cause or by the Executive other than for Good Reason, the Company shall pay the Executive his/her base salary at the rate in effect at the time Notice of Termination is given through the Date of Termination, and the Company shall have no additional obligations to the Executive under this Agreement.

 

(i)      Return of Company Property. The Executive agrees that following the termination of the Executive’s employment for any reason, or at any time prior to the Executive’s termination upon the request of the Company, he/she shall return all property of the Group that is then in or thereafter comes into his/her possession, including, but not limited to, any Confidential Information (as defined below) or Intellectual Property (as defined below), or any other documents, contracts, agreements, plans, photographs, projections, books, notes, records, electronically stored data and all copies, excerpts or summaries of the foregoing, as well as any automobile or other materials or equipment supplied by the Group to the Executive, if any.

 

(j)      Requirement for a Release. Notwithstanding the foregoing, the Company’s obligations to pay or provide any benefits shall (1) cease as of the date the Executive breaches any of the provisions of Sections 8, 9 and 11 hereof, and (2) be conditioned on the Executive signing the Company’s customary release of claims in favor of the Group and the expiration of any revocation period provided for in such release.

 

8.      CONFIDENTIALITY AND NONDISCLOSURE

 

(a)     Confidentiality and Non-Disclosure.

 

(1)   The Executive acknowledges and agrees that: (A) the Executive holds a position of trust and confidence with the Company and that his/her employment by the Company will require that the Executive have access to and knowledge of valuable and sensitive information, material, and devices relating to the Company and/or its business, activities, products, services, customers and vendors, including, but not limited to, the following, regardless of the form in which the same is accessed, maintained or stored: the identity of the Company’s actual and prospective customers and, as applicable, their representatives; prior, current or future research or development activities of the Company; the products and services provided or offered by the Company to customers or potential customers and the manner in which such services are performed or to be performed; the product and/or service needs of actual or prospective customers; pricing and cost information; information concerning the development, engineering, design, specifications, acquisition or disposition of products and/or services of the Company; user base personal data, programs, software and source codes, licensing information, personnel information, advertising client information, vendor information, marketing plans and techniques, forecasts, and other trade secrets (“Confidential Information”); and (B) the direct and indirect disclosure of any such Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, to the Company’s business.

 

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(2)   During the Term and at all times thereafter, the Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, consultant, principal or agent of any business, or in any other capacity, publish or make known, disclose, furnish, reproduce, make available, or utilize any of the Confidential Information without the prior express written approval of the Company, other than in the proper performance of the duties contemplated herein, unless and until such Confidential Information is or shall become general public knowledge through no fault of the Executive.

 

(3)   In the event that the Executive is required by law to disclose any Confidential Information, the Executive agrees to give the Company prompt advance written notice thereof and to provide the Company with reasonable assistance in obtaining an order to protect the Confidential Information from public disclosure.

 

(4)   The failure to mark any Confidential Information as confidential shall not affect its status as Confidential Information under this Agreement.

 

(b)     Third Party Information in the Executive’s Possession. The Executive agrees that he/she shall not, during the Term, (i) improperly use or disclose any proprietary information or trade secrets of any former employer or other person or entity with which the Executive has an agreement or duty to keep in confidence information acquired by Executive, if any, or (ii) bring into the premises of Company any document or confidential or proprietary information belonging to such former employer, person or entity unless consented to in writing by such former employer, person or entity. The Executive will indemnify the Company and hold it harmless from and against all claims, liabilities, damages and expenses, including reasonable attorneys’ fees and costs of litigation, arising out of or in connection with any violation of the foregoing.

 

(c)     Third Party Information in the Company’s Possession. The Executive recognizes that the Company may have received, and in the future may receive, from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Executive agrees that the Executive owes the Company and such third parties, during the Term and thereafter, a duty to hold all such confidential or proprietary information in strict confidence and not to disclose such information to any person or firm, or otherwise use such information, in a manner inconsistent with the limited purposes permitted by the Company’s agreement with such third party.

 

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This Section 8 shall survive the termination of the Agreement for any reason. In the event the Executive breaches this Section 8, the Company shall have right to seek remedies permissible under applicable law.

 

9.      INTELLECTUAL PROPERTY

 

(a)     Assignment of Intellectual Property. The Executive hereby assigns to the Company or its designees, without further consideration and free and clear of any lien or encumbrance, the Executive’s entire right, title and interest (within the United States and all foreign jurisdictions) to any and all inventions, discoveries, improvements, developments, works of authorship, concepts, ideas, plans, specifications, software, formulas, databases, designees, processes and contributions to Confidential Information created, conceived, developed or reduced to practice by the Executive (alone or with others) during the Term which (i) are related to the Company’s current or anticipated business, activities, products, or services, (ii) result from any work performed by Executive for the Company, or (iii) are created, conceived, developed or reduced to practice with the use of Company property, including any and all Intellectual Property Rights (as defined below) therein (“Work Product”). Any Work Product which falls within the definition of “work made for hire”, as such term is defined in the U.S. Copyright Act, shall be considered a “work made for hire”, the copyright in which vests initially and exclusively in the Company. The Executive waives any rights to be attributed as the author of any Work Product and any “droit morale” (moral rights) in Work Product. The Executive agrees to immediately disclose to the Company all Work Product. For purposes of this Agreement, “Intellectual Property” shall mean any patent, copyright, trademark or service mark, trade secret, or any other proprietary rights protection legally available.

 

(b)     Patent and Copyright Registration. The Executive agrees to execute and deliver any instruments or documents and to do all other things reasonably requested by the Company in order to more fully vest the Company with all ownership rights in the Work Product. If any Work Product is deemed by the Company to be patentable or otherwise registrable, the Executive shall assist the Company (at the Company’s expense) in obtaining letters of patent or other applicable registration therein and shall execute all documents and do all things, including testifying (at the Company’s expense) as necessary or appropriate to apply for, prosecute, obtain, or enforce any Intellectual Property right relating to any Work Product. Should the Company be unable to secure the Executive’s signature on any document deemed necessary to accomplish the foregoing, whether due to the Executive’s disability or other reason, the Executive hereby irrevocably designates and appoints the Company and each of its duly authorized officers and agents as the Executive’s agent and attorney-in-fact to act for and on the Executive’s behalf and stead to take any of the actions required of Executive under the previous sentence, with the same effect as if executed and delivered by the Executive, such appointment being coupled with an interest.

 

 

This Section 9 shall survive the termination of the Agreement for any reason. In the event the Executive breaches this Section 9, the Company shall have right to seek remedies permissible under applicable law.

 

10.    CONFLICTING EMPLOYMENT.

 

The Executive hereby agrees that, during the Term, he/she will not engage in any other employment, occupation, consulting or other business activity related to the business in which the Company is now involved or becomes involved during the Term, nor will the Executive engage in any other activities that conflict with his/her obligations to the Company without the prior written consent of the Company.

 

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11.    NON-COMPETITION AND NON-SOLICITATION

 

(a)     Non-Competition. In consideration of the compensation provided to the Executive by the Company hereunder, the adequacy of which is hereby acknowledged by the parties hereto, the Executive agree that during the Term and for a period of one year following the termination of the Employment for whatever reason, the Executive shall not engage in Competition (as defined below) with the Group. For purposes of this Agreement, “Competition” by the Executive shall mean the Executive’s engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting the Executive’s name to be used in connection with the activities of, any other business or organization which competes, directly or indirectly, with the Group in the Business; providedhowever, it shall not be a violation of this Section 11(a) for the Executive to become the registered or beneficial owner of up to five percent (5%) of any class of the capital stock of a publicly traded corporation in Competition with the Group, provided that the Executive does not otherwise participate in the business of such corporation.

 

For purposes of this Agreement, “Business” means aesthetic medical services, and any other business which the Group engages in, or is preparing to become engaged in, during the Term.

 

(b)     Non-Solicitation; Non-Interference. During the Term and for a period of one year following the termination of the Executive’s employment for any reason, the Executive agrees that he/she will not, directly or indirectly, for the Executive’s benefit or for the benefit of any other person or entity, do any of the following:

 

(1)   approach the suppliers, clients, direct or end customers or contacts or other persons or entities introduced to the Executive in his/her capacity as a representative of the Group for the purpose of doing business of the same or of a similar nature to the Business or doing business that will harm the business relationships of the Group with the foregoing persons or entities;

 

(2)   assume employment with or provide services to any competitors of the Group, or engage, whether as principal, partner, licensor or otherwise, any of the Group’s competitors, without the Group’s express consent; or

 

(3)   seek, directly or indirectly, to solicit the services of, or hire or engage, any person who is known to be employed or engaged by the Group; or

 

(4)   otherwise interfere with the business or accounts of the Group.

 

(c)     Injunctive Relief; Indemnity of Company. The Executive agrees that any breach or threatened breach of subsections (a) and (b) of this Section 11 would result in irreparable injury and damage to the Company for which an award of money to the Company would not be an adequate remedy. The Executive therefore also agrees that in the event of said breach or any reasonable threat of breach, the Company shall be entitled to seek an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, but not limited to, remedies available under this Agreement and the recovery of damages. The Executive and the Company further agree that the provisions of this Section 11 are reasonable. The Executive agrees to indemnify and hold harmless the Company from and against all reasonable expenses (including reasonable fees and disbursements of counsel) which may be incurred by the Company in connection with, or arising out of, any violation of this Agreement by the Executive. This Section 11 shall survive the termination of the Agreement for any reason.

 

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12.    WITHHOLDING TAXES

 

Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to the Agreement such national, state, provincial, local or any other income, employment, or other taxes as may be required to be withheld pursuant to any applicable law or regulation.

 

13.    ASSIGNMENT

 

The Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer the Agreement or any rights or obligations hereunder; provided, however, that the Company may assign or transfer the Agreement or any rights or obligations hereunder to any member of the Group without such consent. If the Executive should die while any amounts would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate. The Company will require any and all successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Company had terminated the Executive’s employment other than for Cause, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Section, “Company” shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

 

14.    SEVERABILITY

 

If any provision of the Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of the Agreement are declared to be severable.

 

15.    ENTIRE AGREEMENT

 

The Agreement constitutes the entire agreement and understanding between the Executive and the Company regarding the terms of the Employment and supersedes all prior or contemporaneous oral or written agreements concerning such subject matter. The Executive acknowledges that he/she has not entered into the Agreement in reliance upon any representation, warranty or undertaking which is not set forth in the Agreement.

 

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16.    GOVERNING LAW

 

The Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of New York, U.S.A., without giving effect to conflicts of law provisions thereof.

 

17.    AMENDMENT

 

The Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to the Agreement, which agreement is executed by both of the parties hereto.

 

18.    WAIVER

 

Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under the Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

 

19.    NOTICES

 

All notices, requests, demands and other communications required or permitted under the Agreement shall be in writing and shall be deemed to have been duly given and made if (i) delivered by hand, (ii) otherwise delivered against receipt therefor, (iii) sent by a recognized courier with next-day or second-day delivery to the last known address of the other party; or (iv) sent by e-mail with confirmation of receipt.

 

20.    COUNTERPARTS

 

The Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. The Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

 

21.    NO INTERPRETATION AGAINST DRAFTER

 

Each party recognizes that the Agreement is a legally binding contract and acknowledges that such party has had the opportunity to consult with legal counsel of choice. In any construction of the terms of the Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such terms.

 

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first written above.

 

 

 

COMPANY:

Aesthetic Medical International Holdings Group Limited

 

 

 

a Cayman Islands exempted company

 

 

 

By:

 

 

Name:

 

Title:

 

 

EXECUTIVE:

 

 

 

 

Name:

 

[Signature Page to Employment Agreement]

 




Exhibit 10.3

 

Supplemental Agreement to Lease Agreement

 

Lessor (Party A): Lessor’s Name

Address: Lessor’s Address

Postal code:   518000 (notice delivery address)

Contact telephone:  #########

 

Lessee (Party B): Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd. (collectively, the “Pengai Aesthetic Medical Hospital”)

Address: 1122 Nanshan Boulevard, Nanshan District, Shenzhen

Postal code:    518008 (notice delivery address)

Legal represent:    Zhou Pengwu

Contact telephone:  ########

 

Whereas:

 

1.              Party A and Party B entered into the lease agreement on 28 March 2015, pursuant to which Party B leased 1122 Nanshan Boulevard, Nanshan District, Shenzhen (which is recorded in the real estate title certificate as Floor 1(48), 2,3,4, Block7, South Oil Fourth Industry Park  owned by Party A.

 

2.              The term of the aforesaid lease agreement will expire on May 9, 2017.

 

3.              The term of use recorded in the real estate title certificate will expire in 2018, and Party A shall complete relevant procedures to extend the term of use of the property before October 10, 2017.

 

For the matters during the period from the expiry date of leasing term to the date of application to extend the term of use of the property by Party A, Party A and Party B reach the following supplementary agreements upon full negotiation:

 

I.                      Party B agrees to continue to lease the above property during the period from the expiry date (i.e. May 9 2017) of leasing term to the date of application to extend the term of use of the property by Party A. Party A agrees to rent out the property in accordance with this supplementary agreement.

 

II.                 Both parties confirm that Party A plans to file an application for completing the procedures to extend the term of use of this property tentatively in October 2017.

 

III.            Both parties agree that the rental is RMB 516,803.27 per month for the period from May 9, 2017 to the date of application to extend the term of use of the property by Party A (tentatively in October 2017).

 

IV.             In the principal of payment of rent before use of the leased property, Party B shall pay the rental once every two months, Party B shall pay the rental of RMB1,033,606.54 in total for May and June before May 9, 2017, and subsequent rental shall be paid so forth.

 


 

Party A shall issue tax invoices of the rental to Party B. Party B shall bear the taxes and fees arising thereof in an amount equals to 6% of the rental. Party B shall pay rental and relevant taxes fees to Party A within three working days from the date on which Party A issue a tax invoice (company checks will not be accepted).

 

V.                  Rental deposit paid by Party B, i.e. RMB937,551.6 (Nine Hundred and Thirty-seven Thousand Five Hundred and Fifty-one Yuan and Six Jiao in capital letters) will continue to be deemed as the deposit of the supplementary agreement.

 

VI.       Other Fees

 

1.              During the lease term, Party A shall bear and be responsible for paying the land use tax in connection with the Leased Property.

 

2.              During the lease term, Party B shall bear and be responsible for paying any taxes other than the land use tax, including other related fees incurred as a result of using the Leased Property such as body maintenance funds, lease house (building) management fee, lease tax of the Leased Property (6% of the total amount), the water and electricity charges, cleaning fee, property management fee and elevator maintenance fee.

 

3.              During the lease term, Party B shall be responsible for paying the elevator use fee of RMB1,000 per month, which shall be paid together with the rental.

 

VII.  Specific Clause

 

Both parties confirm that Party A plans to file an application for completing the procedures to extend the term of use of this property tentatively in October 2017 and comply with the government requirements, including site inspection, plotting, or partial site rectification and suspension.

 

Party B undertakes that Party B will unconditionally suspend the operation of business and move all items out from the Leased Property within 60 days from the date on which Party A issue a written notice in the event that the application filed by Party A is not approved by the government within 60 days from the date on which Party A files the application documents.

 

Party B shall pay liquidated damages of RMB50,000 per day for overdue period if Party B fails to not move out as scheduled. If Party B’s failure to move out result in Party A’s failure to extend the term of use of the property, Party B shall compensate all loss to Party A at twice of the then current transaction price of the property which is not less than RMB500 million.

 

VIII.  any content not specified in this supplementary agreement shall be performed in accordance with the original lease agreement.

 


 

IX.      This supplementary agreement is made in quadruplicate, and each of Party A and Party B shall have two copies respectively, each with same legal effect. This supplementary agreement shall take effect upon signing by both parties.

 

 

Signed and sealed by Party A:

Signed and sealed by Party B:

/s/ Lessor’s Name

 

[Seal of Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd.]

 

/s/ Zhou Pengwu

 

/s/ Hu Qing

 

Signing Date: May 9, 2017

 

Signing Location: Shenzhen, China

 




Exhibit 10.4

 

Real Estate Lease Agreement

 

Lessor (Party A): Lessor’s name

 

House information coding card: ########

 

Correspondence address: Lessor's address

 

Postal code: 518008  Contact telephone: ########

 

No. of organization code certificate or valid identification: ########

 

Authorized agent: Agent’s name

 

Correspondence address: Agent’s address

 

Postal code: 518008  Contact telephone: ########

 

No. of organization code certificate or valid identification no.: #######

 

Lessee (Party B): Shenzhen Pengcheng Hospital Co., Ltd.

 

Correspondence address: B/F, Changhong Building, 3013 Sungang Road East, Luohu District

 

Postal code: 518001  Contact telephone: ########

 

No. of organization code certificate or valid identification: 91440300745164966Y

 

Authorized agent: Fan Shengqi

 

Correspondence address: Agent’s address

 

Postal code: 518001  Contact telephone: ########

 

No. of organization code certificate or valid identification no.: ########

 

Party A and Party B hereby enter into this contract by mutual agreement pursuant to the “Contract Law of the People’s Republic of China”, the “Law of the People’s Republic of China on Urban Real Estate Administration”, the “Regulations of Shenzhen Special Economic Zone on Lease of Houses” and its rules for implementation, and the “Decisions of the Standing Committee of Shenzhen Municipal People’s Congress on Strengthening Safety Liabilities of House Leasing”.

 

Article 1 Party A will lease the real property (hereinafter referred to as the “Leased Property”) located in 1/F, Changhong Building, Sungang Road Baoan Road (West), Luohu District for use by Party B.

 

The Leased Property has an aggregate gross floor area of 2135.86 square meters.

 

1


 

The title owner or legitimate user of the Leased Property is Lessor’s name. The name and number of the real estate title certificate or other valid certificates evidencing its property right (use right): ######

 

Article 2 The unit rental of the Leased Property shall be calculated based on RMB N/A (In capital letters: N/A) per month per square meter of the area of the real estate. The total monthly rental is RMB230672.88 (In capital letters: Two Hundred and Thirty Thousand Six Hundred and Seventy-two Yuan and Eighty-eight Fen).

 

Article 3 Party B shall pay the first installment of the rental before March 1, 2017 with the amount of RMB230672.88 (In capital letters: Two Hundred and Thirty Thousand Six Hundred and Seventy-two Yuan and Eighty-eight Fen).

 

Article 4 Party B shall pay rental to Party A before:

 

                 the 1st day of each month;

 

o            the N/A day of the N/A month on a quarterly basis;

 

o            the N/A day of the N/A month on a six-month basis;

 

o            the N/A day of the N/A month on an annual basis;

 

Party A shall issue a taxation invoice to Party B when receiving the rental.

 

(The parties shall jointly choose one of the above four items and put a “√” in the box chosen.)

 

Article 5 The lease term of the Leased Property by Party B shall be effective from March 1, 2017 until February 28, 2025.

 

The term as stipulated in the above paragraph shall not exceed the approved land use term and shall not exceed 20 years, and the exceeded portion shall be invalid.

 

Article 6 Use of the Leased Property: Commercial.

 

Party B shall not use the Leased Property for other purposes without obtaining written consent from Party A.

 

Article 7 Party A shall deliver the Leased Property to Party B for use before March 1, 2017 and complete the relevant delivery formality.

 

In the event that Party A delivers the Leased Property after the time specified in the above paragraph, Party B may request to extend the effective term of this contract. Both parties shall make confirmation by signature and file the record with the contract registration (record filing) authority.

 

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Article 8 When delivering the Leased Property, the parties shall make confirmation in respect of the current condition of the Leased Property and its ancillary facilities and the relevant situation of the ancillary property and give details on the supplementary sheet.

 

Article 9 Party A shall be entitled to receive a rental deposit equivalent to rentals for N/A months (no more than three months) from Party B when delivering the Leased Property, i.e. RMB230672.88 (In capital letters: Two Hundred and Thirty Thousand Six Hundred and Seventy -two Yuan and Eighty-eight Fen).

 

Party A shall issue a receipt to Party B for the rental deposit it receives.

 

Conditions for the refund of the rental deposit from Party A to Party B:

 

1. The lease term expires

 

2. The deposit refund procedure is completed

 

3. N/A

 

o Only one of the conditions is satisfied.

 

o All conditions are satisfied.

 

(The parties shall jointly choose one of the above two items and put a “√” in the box chosen.)

 

The way and time for refund of lease deposit: Settle all expenses and move out.

 

Party A will not refund the deposit under the following circumstances:

 

1. Party B violates the contract

 

2. N/A

 

3. N/A

 

Article 10 During the lease term, Party A shall be responsible for paying the land use fee in respect of the Leased Property and the tax arising from the leasing of the property, and N/A fee; Party B shall be responsible for paying the water and electricity charges, cleaning fee, house (building) property management fee, and related fees incurred as a result of using the Leased Property.

 

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Article 11 Party A shall ensure the safety of the Leased Property and its ancillary facilities in compliance with the relevant laws, regulations or rules.

 

Article 12 Party B shall make reasonable use of the Leased Property and its ancillary facilities and shall not use the Leased Property to conduct illegal activities. Party A shall not intervene in or hinder the normal, reasonable use of the Leased Property by Party B.

 

Article 13 During the course of using the Leased Property by Party B, if any damage or breakdown not due to mistakes of Party B happens or occurs in the Leased Property or its ancillary facilities which affects the safe and normal use, Party B shall notify Party A in a timely manner and take possible effective measures to prevent the defect from further worsening. Party A shall proceed with the maintenance within ___ days after receiving the notice from Party B or simply entrust Party B to proceed with the maintenance on Party A’s behalf. In the event that Party B is unable to notify Party A or Party A does not perform its maintenance obligations within the time as stipulated above, Party B can proceed with maintenance on Party A’s behalf.

 

In the event that prompt maintenance is required under special urgent circumstances, Party B shall first proceed with the maintenance on Party A’s behalf and notify Party A about the relevant situation in a timely manner.

 

The maintenance expenses incurred under the circumstances as mentioned in the above two paragraphs (including the reasonable expenses incurred by Party B in proceeding with maintenance on Party A’s behalf and preventing the defect from worsening) shall be borne by Party A. In the event that greater losses are incurred due to Party B’s failure in performing obligations as provided in the above two paragraphs or in making timely notification or taking possible effective measures, the maintenance expenses for such (worsened) portion shall be borne by Party B itself.

 

Article 14 In the event that any safety problem, damage or breakdown happens or occurs in the Leased Property or its ancillary facilities due to misuse or unreasonable use by Party B, Party B shall notify Party A in a timely manner and shall be responsible for maintenance or indemnification.

 

4


 

If Party B changes the internal structure and renovation of the property or sets plans that has an impact on the equipment, scale of design, scope, process and materials thereof, written consent of Party A shall be sought in advance before commencement of construction. Upon expiration of the lease or where the lease withdrawal is due to the responsibility of Party B, unless the parties otherwise agree, Party A is entitled to choose one of the following rights:

 

o            The decoration attached to the property belongs to Party A.

 

o            Party B is requested to reinstate the property.

 

o            Party B is charged the actual expenses incurred for reinstatement works.

 

(The parties shall jointly choose one of the above three items and put a “√” in the box chosen.)

 

Article 15

 

o            During the lease term, Party B shall be entitled to lease all or part of the Leased Property to other parties and complete the registration (record filing) procedure with the competent authorities for the leasing of properties. However, the sublease term shall not exceed the lease term as stipulated in this contract;

 

                 During the lease term and with the written consent of Party A, Party B may complete the registration (record filing) procedure with the competent authorities for the leasing of properties by producing the written proof evidencing such consent to sublease but the sublease term shall not exceed the lease term as stipulated in this contract;

 

o            During the lease term, Party B shall not lease all or part of the Leased Property to other parties.

 

(The parties shall jointly choose one of the above three items and put a “√” in the box chosen.)

 

Article 16 During the term of this contract, if Party A intends to transfer part or all of the property right of the Leased Property, it shall notify Party B in writing one month prior to the transfer. Party B shall give Party A reply within 3 working days upon receipt of written notice from Party A, and Party B shall have the right of first refusal under equivalent conditions.

 

In the event that the Leased Property is transferred to other parties, Party A shall have the responsibility of notifying the transferee to continue to perform this contract when executing the transfer contract.

 

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Article 17 During the term of this contract, this contract can be terminated or changed under one of the following circumstances:

 

(1)         This contract cannot be performed due to the occurrence of force majeure;

 

(2)         The requisition, resumption or dismantlement of the Leased Property by the government;

 

(3)         Party A and Party B reach agreement by negotiation.

 

Article 18 Under one of the following circumstances, Party A shall be entitled to:

 

o            1. request Party B to reinstate the property;

 

o            2. claim damages from Party B;

 

o            3. not refund the rental deposit;

 

o            4. request payment of a default fine by Party B in the amount of RMB235000 (In capital letters: Two Hundred and Thirty-five Thousand Yuan).

 

(The above four items shall be chosen by the parties through negotiation, provided that Item 3 and Item 4 shall not be chosen at the same time, and a “√” shall be put in the box as appropriate.)

 

(1)         Party B defaults payment of the rental for more than 5 days (N/A month);

 

(2)         Expenses for losses which might be incurred by Party A due to default by Party B exceed RMB5,000;

 

(3)         Party B uses the Leased Property to conduct illegal activities, damaging public interest or the interest of other parties;

 

(4)         Party B changes the structure or use of the Leased Property without authorization;

 

(5)         Party B violates Article 14 of this contract by not undertaking maintenance responsibility or paying the maintenance fee, resulting in severe damages of the Leased Property or facilities;

 

(6)         Without the consent of Party A and the approval of the relevant authorities, Party B proceeds with renovation of the Leased Property without authorization;

 

(7)         Party B subleases the Leased Property to a third party without authorization.

 

In addition to affixing Party B’s damage or default responsibilities, Party A shall be entitled to terminate the contract or propose to Party B to change the provisions of the contract in accordance with the above circumstances. Once the notice of termination of contract is served, Party A is entitled to apply for unilateral termination of contract registration (record filing).

 

6


 

Article 19 Under one of the following circumstances, Party B shall be entitled to:

 

o            1. claim damages from Party A;

 

o            2. request Party A to refund the rental deposit in a double amount;

 

o            3. request payment of a default fine by Party A in the amount of RMB N/A (In capital letters N/A Yuan) for losses caused as a result.

 

(The above three items shall be chosen by the parties through negotiation, provided that Item 2 and Item 3 shall not be chosen at the same time, and a “√” shall be put in the box as appropriate.)

 

(1)         Party A delays the delivery of the Leased Property by more than N/A days (N/A month(s));

 

(2)         Party A violates Article 11 of this contract such that the safety of the Lease Property is not incompliance with the provisions of law, regulation or rules;

 

(3)         Party A violates Article 13 of this contract by not undertaking maintenance responsibility or paying the maintenance fee;

 

(4)         Without the consent of Party B or the approval of the relevant authorities, Party A reconstructs, expands or renovates the Leased Property.

 

(5)         Party A unilaterally requests early rescission (termination) of contract without proper reasons

 

Apart from affixing Party A’s damage or default responsibilities, Party B shall be entitled to make suggestions to Party A to change the terms of the contract or terminate the contract in accordance with the above circumstances. Once the notice of termination of contract is served, Party B is entitled to apply for unilateral termination of contract registration (record filing).

 

Article 20 Upon termination of this contract, Party B shall move out of and return the Leased Property within the same day and ensure the integrity of the Leased Property and ancillary facilities (other than normal wear and tear). Meanwhile, it shall settle all expenses which shall be borne by Party B and complete the relevant delivery procedure.

 

If Party B fails to move out of or return the Leased Property within the time limit, Party A is entitled to take back the Leased Property in accordance with law or the stipulations in the contract, and charge double rental from Party B for the portion where the time limit is exceeded as indemnification.

 

7


 

Article 21 If Party B intends to continue to lease the Leased Property upon expiry of the lease term specified in this contract, it shall make requests to Party A for renewal 3 months before the expiry of the lease term. Under equivalent conditions, Party B shall have the priority to lease the Leased Property.

 

If Party A and Party B manage to reach an agreement on renewal, they shall enter into a new contract and proceed with a new registration (record filing) with the competent authorities for the leasing of properties.

 

Article 22 Both Party A and Party B shall sign the “Responsibility Letter for Shenzhen Housing Lease Safety Management”. The Leased Property provided by Party A shall conform to the standards and conditions for safe use and there shall be no potential safety hazards. The construction, fire-fighting equipment, gas facilities, electric power facilities, entrances and exits, etc. of the Leased Property shall comply with the regulations or standards for safe production, fire-fighting, public security, environmental protection and sanitation prescribed by the municipal government. Party B shall use the Leased Property strictly in accordance with the regulations and standards for safety, fire-fighting, public security, environmental protection and sanitation prescribed by government functional departments, and shall be obliged to ensure that there are no potential safety hazards in the use of the Leased Property. Both Party A and Party B shall perform the contract consciously. In the event that one party breaches the contract, it shall take the corresponding responsibility for breaching the contract in accordance with the stipulations in the contract.

 

Article 23 Party A and Party B can agree on other terms in the supplementary sheet for matters not dealt with in this contract. The content of the supplementary sheet is an integral part of this contract and has the same effect with this contract after being signed and sealed by the parties.

 

If Party A and Party B reach an agreement on changing the content of this contract during the lease term, they shall register (file records) with the original competent authorities for the leasing of properties within ten days upon reaching an agreement on the change.

 

Article 24 If there is any dispute between Party A and Party B in respect of this contract, they shall settle the dispute through negotiation. If the dispute is not settled through negotiation, they shall refer the dispute to the competent authorities for the leasing of properties for mediation, or they shall:

 

8


 

o            apply to Shenzhen Arbitration Committee for arbitration;

 

o            apply to Shenzhen Court of International Arbitration for arbitration;

 

o            initiate legal actions at the people’s court where the Leased Property is located.

 

(One of the above items for the settlement of disputes shall be chosen by the parties through negotiation and a “√” shall be put in the box as appropriate.)

 

Article 25 Party A and Party B agree that the following correspondence addresses shall be the addresses for serving the notices or documents of both parties:

 

Party A’s address for service: Address for service

 

Party B’s address for service: 3/F, Changhong Building, Sungang Road, Luohu District

 

If the above addresses are not agreed upon, the correspondence addresses in the contract signed by both parties shall be used as the addresses for service.

 

The addresses for service shall remain valid without written notice of change. Notices or documents sent by one party to the other party by post at the address for service are deemed to have been served. If a document sent by post to the abovementioned address is returned by the postal department, the date of return shall be deemed to be the date of service.

 

Article 26 This contract shall take effect upon execution.

 

Party A and Party B shall proceed with registration or record filing with the competent authorities for the leasing of properties within 10 days from the execution date of this contract.

 

Article 27 The original of this contract is in Chinese.

 

Article 28 This contract is made in triplicate with Party A holding one copy, Party B holding one copy, the contract registration authority holding one copy, and the relevant authority holding N/A copy.

 

9


 

Signed and sealed by Party A:

 

Legal representative:

Contact telephone: ######

Bank account number:

 

 

Signed and sealed by the authorized agent:

/s/ Agent’s name

 

Date: February 28, 2017

 

 

 

Signed and sealed by Party B (stamp):

 

 

[affixed the official seal of Shenzhen Pengcheng Hospital Co., Ltd.]

 

 

 

 

Legal representative:

 

 

Contact telephone: ######

 

 

Bank account number:

 

 

Signed and sealed by the authorized agent:

/s/ Fan Shengqi

 

Date: February 28, 2017

 

 

 

 

10


 

(Supplementary Sheet)

 

Attachment:

 

The rents for 1/F of Changhong Building are collected as per the table below

 

 

 

Amount of Monthly Rent (Currency: Renminbi)

Lease Term

 

In Alphabetical
Number

 

In Capital Letters

March 1, 2017 to February 28, 2019

 

230672.88

 

Two Hundred and Thirty Thousand Six Hundred and Seventy-two Yuan and Eighty-eight Fen

March 1, 2019 to February 29, 2020

 

239899.79

 

Two Hundred and Thirty-nine Thousand Eight Hundred and Ninety-nine Yuan and Seventy-nine Fen

March 1, 2020 to February 28, 2021

 

249495.78

 

Two Hundred and Forty-nine Thousand Four Hundred and Ninety-five Yuan and Seventy-eight Fen

March 1, 2021 to February 28, 2022

 

259475.61

 

Two Hundred and Fifty-nine Thousand Four Hundred and Seventy-five Yuan and Sixty-one Fen

March 1, 2022 to February 28, 2023

 

272449.39

 

Two Hundred and Seventy-two Thousand Four Hundred and Forty-nine Yuan and Thirty-nine Fen

March 1, 2023 to February 29, 2024

 

286071.85

 

Two Hundred and Eighty-six Thousand Seventy-one Yuan and Eighty-five Fen

March 1, 2024 to February 28, 2025

 

300375.44

 

Three Hundred Thousand Three Hundred and Seventy-five Yuan and Forty-four Fen

 

Party A:

/s/ Agent’s name

 

Party B:

/s/ Fan Shengqi

 

 

 

 

[affixed the official seal of Shenzhen Pengcheng Hospital Co., Ltd.]

 

 

11




Exhibit 10.5

 

Real Estate Lease Agreement

 

Lessor (Party A): Lessor’s name

 

House information coding card: ########

 

Correspondence address: Lessor’s address

 

Postal code: 518008  Contact telephone: ########

 

No. of organization code certificate or valid identification: ########

 

Authorized agent: Agent’s name

 

Correspondence address: Agent’s address

 

Postal code: 518008  Contact telephone: ########

 

No. of organization code certificate or valid identification no.: ########

 

Lessee (Party B): Shenzhen Pengcheng Hospital Co., Ltd.

 

Correspondence address: B/F, Changhong Building, 3013 Sungang Road East, Luohu District

 

Postal code: 518001  Contact telephone: ########

 

No. of organization code certificate or valid identification: 91440300745164966Y

 

Authorized agent:  Fan Shengqi

 

Correspondence address: Agent’s address

 

Postal code: 518001  Contact telephone: ########

 

No. of organization code certificate or valid identification no.: ########

 

Party A and Party B hereby enter into this contract by mutual agreement pursuant to the “Contract Law of the People’s Republic of China”, the “Law of the People’s Republic of China on Urban Real Estate Administration”, the “Regulations of Shenzhen Special Economic Zone on Lease of Houses” and its rules for implementation, and the “Decisions of the Standing Committee of Shenzhen Municipal People’s Congress on Strengthening Safety Liabilities of House Leasing”.

 

Article 1 Party A will lease the real property (hereinafter referred to as the “Leased Property”) located in 2/F, Changhong Building, Sungang Road, Luohu District for use by Party B.

 

The Leased Property has an aggregate gross floor area of 2385.72 square meters.

 

1


 

The title owner or legitimate user of the Leased Property is Lessor’s name. The name and number of the real estate title certificate or other valid certificates evidencing its property right (use right): ####.

 

Article 2 The unit rental of the Leased Property shall be calculated based on RMB N/A (In capital letters: N/A) per month per square meter of the area of the real estate. The total monthly rental is RMB150300.36 (In capital letters: One Hundred and Fifty Thousand Three Hundred Yuan and Thirty-six Fen).

 

Article 3 Party B shall pay the first installment of the rental before March 1, 2017 with the amount of RMB150300.36 (In capital letters: One Hundred and Fifty Thousand Three Hundred Yuan and Thirty-six Fen).

 

Article 4 Party B shall pay rental to Party A before:

 

                 the 1st day of each month;

 

o            the N/A day of the N/A month on a quarterly basis;

 

o            the N/A day of the N/A month on a six-month basis;

 

o            the N/A day of the N/A month on an annual basis;

 

Party A shall issue a taxation invoice to Party B when receiving the rental.

 

(The parties shall jointly choose one of the above four items and put a “√” in the box chosen.)

 

Article 5 The lease term of the Leased Property by Party B shall be effective from March 1, 2017 until February 28, 2025.

 

The term as stipulated in the above paragraph shall not exceed the approved land use term and shall not exceed 20 years, and the exceeded portion shall be invalid.

 

Article 6 Use of the Leased Property: Commercial.

 

Party B shall not use the Leased Property for other purposes without obtaining written consent from Party A.

 

Article 7 Party A shall deliver the Leased Property to Party B for use before March 1, 2017 and complete the relevant delivery formality.

 

In the event that Party A delivers the Leased Property after the time specified in the above paragraph, Party B may request to extend the effective term of this contract. Both parties shall make confirmation by signature and file the record with the contract registration (record filing) authority.

 

2


 

Article 8 When delivering the Leased Property, the parties shall make confirmation in respect of the current condition of the Leased Property and its ancillary facilities and the relevant situation of the ancillary property and give details on the supplementary sheet.

 

Article 9 Party A shall be entitled to receive a rental deposit equivalent to rentals for N/A months (no more than three months) from Party B when delivering the Leased Property, i.e. RMB150300.36 (In capital letters: One Hundred and Fifty Thousand Three Hundred Yuan and Thirty-six Fen).

 

Party A shall issue a receipt to Party B for the rental deposit it receives.

 

Conditions for the refund of the rental deposit from Party A to Party B:

 

1. The lease term expires

 

2. The deposit refund procedure is completed

 

3. N/A

 

o Only one of the conditions is satisfied.

 

√ All conditions are satisfied.

 

(The parties shall jointly choose one of the above two items and put a “√” in the box chosen.)

 

The way and time for refund of lease deposit: Settle all expenses and move out.

 

Party A will not refund the deposit under the following circumstances:

 

1. Party B violates the contract

 

2. N/A

 

3. N/A

 

Article 10 During the lease term, Party A shall be responsible for paying the land use fee in respect of the Leased Property and the tax arising from the leasing of the property, and N/A fee; Party B shall be responsible for paying the water and electricity charges, cleaning fee, house (building) property management fee, and related fees incurred as a result of using the Leased Property.

 

3


 

Article 11 Party A shall ensure the safety of the Leased Property and its ancillary facilities in compliance with the relevant laws, regulations or rules.

 

Article 12 Party B shall make reasonable use of the Leased Property and its ancillary facilities and shall not use the Leased Property to conduct illegal activities. Party A shall not intervene in or hinder the normal, reasonable use of the Leased Property by Party B.

 

Article 13 During the course of using the Leased Property by Party B, if any damage or breakdown not due to mistakes of Party B happens or occurs in the Leased Property or its ancillary facilities which affects the safe and normal use, Party B shall notify Party A in a timely manner and take possible effective measures to prevent the defect from further worsening. Party A shall proceed with the maintenance within ___ days after receiving the notice from Party B or simply entrust Party B to proceed with the maintenance on Party A’s behalf. In the event that Party B is unable to notify Party A or Party A does not perform its maintenance obligations within the time as stipulated above, Party B can proceed with maintenance on Party A’s behalf.

 

In the event that prompt maintenance is required under special urgent circumstances, Party B shall first proceed with the maintenance on Party A’s behalf and notify Party A about the relevant situation in a timely manner.

 

The maintenance expenses incurred under the circumstances as mentioned in the above two paragraphs (including the reasonable expenses incurred by Party B in proceeding with maintenance on Party A’s behalf and preventing the defect from worsening) shall be borne by Party A. In the event that greater losses are incurred due to Party B’s failure in performing obligations as provided in the above two paragraphs or in making timely notification or taking possible effective measures, the maintenance expenses for such (worsened) portion shall be borne by Party B itself.

 

Article 14 In the event that any safety problem, damage or breakdown happens or occurs in the Leased Property or its ancillary facilities due to misuse or unreasonable use by Party B, Party B shall notify Party A in a timely manner and shall be responsible for maintenance or indemnification.

 

4


 

If Party B changes the internal structure and renovation of the property or sets plans that has an impact on the equipment, scale of design, scope, process and materials thereof, written consent of Party A shall be sought in advance before commencement of construction. Upon expiration of the lease or where the lease withdrawal is due to the responsibility of Party B, unless the parties otherwise agree, Party A is entitled to choose one of the following rights:

 

o            The decoration attached to the property belongs to Party A.

 

o            Party B is requested to reinstate the property.

 

o            Party B is charged the actual expenses incurred for reinstatement works.

 

(The parties shall jointly choose one of the above three items and put a “√” in the box chosen.)

 

Article 15

 

o            During the lease term, Party B shall be entitled to lease all or part of the Leased Property to other parties and complete the registration (record filing) procedure with the competent authorities for the leasing of properties. However, the sublease term shall not exceed the lease term as stipulated in this contract;

 

                 During the lease term and with the written consent of Party A, Party B may complete the registration (record filing) procedure with the competent authorities for the leasing of properties by producing the written proof evidencing such consent to sublease but the sublease term shall not exceed the lease term as stipulated in this contract;

 

o            During the lease term, Party B shall not lease all or part of the Leased Property to other parties.

 

(The parties shall jointly choose one of the above three items and put a “√” in the box chosen.)

 

Article 16 During the term of this contract, if Party A intends to transfer part or all of the property right of the Leased Property, it shall notify Party B in writing one month prior to the transfer. Party B shall give Party A reply within 3 working days upon receipt of written notice from Party A, and Party B shall have the right of first refusal under equivalent conditions.

 

In the event that the Leased Property is transferred to other parties, Party A shall have the responsibility of notifying the transferee to continue to perform this contract when executing the transfer contract.

 

5


 

Article 17 During the term of this contract, this contract can be terminated or changed under one of the following circumstances:

 

(1)         This contract cannot be performed due to the occurrence of force majeure;

 

(2)         The requisition, resumption or dismantlement of the Leased Property by the government;

 

(3)         Party A and Party B reach agreement by negotiation.

 

Article 18 Under one of the following circumstances, Party A shall be entitled to:

 

o            1. request Party B to reinstate the property;

 

o            2. claim damages from Party B;

 

o            3. not refund the rental deposit;

 

o            4. request payment of a default fine by Party B in the amount of RMB150300.36 (In capital letters: One Hundred and Fifty Thousand Three Hundred Yuan and Thirty-six Fen).

 

(The above four items shall be chosen by the parties through negotiation, provided that Item 3 and Item 4 shall not be chosen at the same time, and a “√” shall be put in the box as appropriate.)

 

(1)         Party B defaults payment of the rental for more than 5 days (N/A month);

 

(2)         Expenses for losses which might be incurred by Party A due to default by Party B exceed RMB5,000;

 

(3)         Party B uses the Leased Property to conduct illegal activities, damaging public interest or the interest of other parties;

 

(4)         Party B changes the structure or use of the Leased Property without authorization;

 

(5)         Party B violates Article 14 of this contract by not undertaking maintenance responsibility or paying the maintenance fee, resulting in severe damages of the Leased Property or facilities;

 

(6)         Without the consent of Party A and the approval of the relevant authorities, Party B proceeds with renovation of the Leased Property without authorization;

 

(7)         Party B subleases the Leased Property to a third party without authorization.

 

In addition to affixing Party B’s damage or default responsibilities, Party A shall be entitled to terminate the contract or propose to Party B to change the provisions of the contract in accordance with the above circumstances. Once the notice of termination of contract is served, Party A is entitled to apply for unilateral termination of contract registration (record filing).

 

6


 

Article 19 Under one of the following circumstances, Party B shall be entitled to:

 

o            1. claim damages from Party A;

 

o            2. request Party A to refund the rental deposit in a double amount;

 

o            3. request payment of a default fine by Party A in the amount of RMB N/A (In capital letters N/A Yuan) for losses caused as a result.

 

(The above three items shall be chosen by the parties through negotiation, provided that Item 2 and Item 3 shall not be chosen at the same time, and a “√” shall be put in the box as appropriate.)

 

(1)         Party A delays the delivery of the Leased Property by more than N/A days (N/A month(s));

 

(2)         Party A violates Article 11 of this contract such that the safety of the Lease Property is not incompliance with the provisions of law, regulation or rules;

 

(3)         Party A violates Article 13 of this contract by not undertaking maintenance responsibility or paying the maintenance fee;

 

(4)         Without the consent of Party B or the approval of the relevant authorities, Party A reconstructs, expands or renovates the Leased Property.

 

(5)         Party A unilaterally requests early rescission (termination) of contract without proper reasons

 

Apart from affixing Party A’s damage or default responsibilities, Party B shall be entitled to make suggestions to Party A to change the terms of the contract or terminate the contract in accordance with the above circumstances. Once the notice of termination of contract is served, Party B is entitled to apply for unilateral termination of contract registration (record filing).

 

Article 20 Upon termination of this contract, Party B shall move out of and return the Leased Property within the same day and ensure the integrity of the Leased Property and ancillary facilities (other than normal wear and tear). Meanwhile, it shall settle all expenses which shall be borne by Party B and complete the relevant delivery procedure.

 

If Party B fails to move out of or return the Leased Property within the time limit, Party A is entitled to take back the Leased Property in accordance with law or the stipulations in the contract, and charge double rental from Party B for the portion where the time limit is exceeded as indemnification.

 

7


 

Article 21 If Party B intends to continue to lease the Leased Property upon expiry of the lease term specified in this contract, it shall make requests to Party A for renewal 3 months before the expiry of the lease term. Under equivalent conditions, Party B shall have the priority to lease the Leased Property.

 

If Party A and Party B manage to reach an agreement on renewal, they shall enter into a new contract and proceed with a new registration (record filing) with the competent authorities for the leasing of properties.

 

Article 22 Both Party A and Party B shall sign the “Responsibility Letter for Shenzhen Housing Lease Safety Management”. The Leased Property provided by Party A shall conform to the standards and conditions for safe use and there shall be no potential safety hazards. The construction, fire-fighting equipment, gas facilities, electric power facilities, entrances and exits, etc. of the Leased Property shall comply with the regulations or standards for safe production, fire-fighting, public security, environmental protection and sanitation prescribed by the municipal government. Party B shall use the Leased Property strictly in accordance with the regulations and standards for safety, fire-fighting, public security, environmental protection and sanitation prescribed by government functional departments, and shall be obliged to ensure that there are no potential safety hazards in the use of the Leased Property. Both Party A and Party B shall perform the contract consciously. In the event that one party breaches the contract, it shall take the corresponding responsibility for breaching the contract in accordance with the stipulations in the contract.

 

Article 23 Party A and Party B can agree on other terms in the supplementary sheet for matters not dealt with in this contract. The content of the supplementary sheet is an integral part of this contract and has the same effect with this contract after being signed and sealed by the parties.

 

If Party A and Party B reach an agreement on changing the content of this contract during the lease term, they shall register (file records) with the original competent authorities for the leasing of properties within ten days upon reaching an agreement on the change.

 

Article 24 If there is any dispute between Party A and Party B in respect of this contract, they shall settle the dispute through negotiation. If the dispute is not settled through negotiation, they shall refer the dispute to the competent authorities for the leasing of properties for mediation, or they shall:

 

8


 

o            apply to Shenzhen Arbitration Committee for arbitration;

 

o            apply to Shenzhen Court of International Arbitration for arbitration;

 

o            initiate legal actions at the people’s court where the Leased Property is located.

 

(One of the above items for the settlement of disputes shall be chosen by the parties through negotiation and a “√” shall be put in the box as appropriate.)

 

Article 25 Party A and Party B agree that the following correspondence addresses shall be the addresses for serving the notices or documents of both parties:

 

Party A’s address for service: Address for service

 

Party B’s address for service: 3/F, Changhong Building, Sungang Road, Luohu District

 

If the above addresses are not agreed upon, the correspondence addresses in the contract signed by both parties shall be used as the addresses for service.

 

The addresses for service shall remain valid without written notice of change. Notices or documents sent by one party to the other party by post at the address for service are deemed to have been served. If a document sent by post to the abovementioned address is returned by the postal department, the date of return shall be deemed to be the date of service.

 

Article 26 This contract shall take effect upon execution.

 

Party A and Party B shall proceed with registration or record filing with the competent authorities for the leasing of properties within 10 days from the execution date of this contract.

 

Article 27 The original of this contract is in Chinese.

 

Article 28 This contract is made in triplicate with Party A holding one copy, Party B holding one copy, the contract registration authority holding one copy, and the relevant authority holding N/A copy.

 

9


 

Signed and sealed by Party A:

 

Legal representative:

Contact telephone: 82116121

Bank account number:

 

 

Signed and sealed by the authorized agent:

/s/ Agent’s name

 

Date: February 28, 2017

 

 

 

Signed and sealed by Party B (stamp):

[affix the official seal of Shenzhen Pengcheng Hospital Co., Ltd.]

 

Legal representative:

Contact telephone:

Bank account number:

 

 

Signed and sealed by the authorized agent:

/s/ Fan Shengqi

 

Date: February 28, 2017

 

 

 

10


 

(Supplementary Sheet)

 

Attachment:

 

The rents for 2/F of Changhong Building are collected as per the table below

 

 

 

Amount of Monthly Rent (Currency: Renminbi)

Lease Term

 

In Alphabetical
Number

 

In Capital Letters

March 1, 2017 to February 28, 2019

 

150300.36

 

One Hundred and Fifty Thousand Three Hundred Yuan and Thirty-six Fen

March 1, 2019 to February 29, 2020

 

156312.37

 

One Hundred and Fifty-six Thousand Three Hundred and Twelve Yuan and Thirty-seven Fen

March 1, 2020 to February 28, 2021

 

162564.86

 

One Hundred and Sixty-two Thousand Five Hundred and Sixty-four Yuan and Eighty-six Fen

March 1, 2021 to February 28, 2022

 

169067.45

 

One Hundred and Sixty-nine Thousand and Sixty-seven Yuan and Forty-five Fen

March 1, 2022 to February 28, 2023

 

177520.82

 

One Hundred and Seventy-seven Thousand Five Hundred and Twenty Yuan and Eighty-two Fen

March 1, 2023 to February 29, 2024

 

186396.86

 

One Hundred and Eighty-six Thousand Three Hundred and Ninety-six Yuan and Eighty-six Fen

March 1, 2024 to February 28, 2025

 

195716.70

 

One Hundred and Ninety-five Thousand Seven Hundred and Sixteen Yuan and Seventy Fen

 

Party A:

/s/ Agent’s name

 

Party B:

/s/ Fan Shengqi

 

 

 

 

[affixed the official seal of Shenzhen Pengcheng Hospital Co., Ltd.]

 

11




Exhibit 10.6

 

Real Estate Lease Agreement

 

Shenzhen, China

March 2015

 

1


 

Lease Agreement

 

Lessor (Party A): Lessor’s name

Address: Lessor’s address

Postal code:   518000 (notice delivery address)

Contact telephone:  ########

 

Lessee (Party B): Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd. (the “Pengai Aesthetic Medical Hospital”)

Address: 1122 Nanshan Boulevard, Nanshan District, Shenzhen

Postal code:    518008 (notice delivery address)

Legal representative:    Zhou Pengwu

Contact telephone:  ########

 

Whereas the lease agreement entered into by both parties dated May 10, 2005 will expire on May 10, 2015, both parties, after full and friendly negotiation, enter into this agreement in relation to the renewal of the aforesaid agreement.

 

Article 1 Leased Premises

 

Party A rents the real estate at the address of 1122 Nanshan Boulevard, Nanshan District, Shenzhen (which is recorded in the real estate title certificate as Floor 1(48), 2,3,4, Block 7, South Oil Fourth Industry Park (hereinafter referred to as the “Leased Property”)) for use by Party B.

 

The title owner of the Leased Property is Lessor’s name. The name and number of the real estate title certificate or other valid certificates evidencing the property right: ######.

 

The building of the Leased Property has 8 floors in total. Both parties confirm that the leased area of each floor are as follow:

 

2


 

No.

 

Floors

 

Leased area confirmed by
both parties (sq.m.)

 

1

 

1

 

837.79

 

2

 

2

 

1,601.67

 

3

 

3

 

1,601.67

 

4

 

4

 

1,608.87

 

Total

 

 

 

5,650

 

 

Both parties confirm that the above gross floor area is not consistent with the gross floor area recorded in the real estate title certificates. Both parties acknowledge that the rental and management fee shall be calculated based on the gross floor area as confirmed by both parties.

 

Article 2 Lease Term

 

The lease term shall be 2 years, effective from May 10, 2015 to May 9, 2017.

 

The term of use recorded in the real estate title certificate will be expire in 2018. During the lease term of the agreement, Party B shall unconditionally assist Party A to complete the relevant procedures to extend the term of use off the Leased Property. The lease term in this agreement will be extended for an additional 4 years (i.e. until May 9, 2021), provided that, before May 9, 2017, the Leased Property is approved to extend its term of use for an additional 4 years.

 

Article 3 Rental and Payment

 

During the lease term, both parties confirm that the rental shall be as follow:

 

1.              Rental for the first year (May 10, 2015 to May 9, 2016)

 

Floors

 

Area

 

Monthly Unit
Rental (RMB/sqm)

 

Sub-total rental (RMB)

 

1

 

837.79

 

100

 

83,779

 

2

 

1,601.67

 

80

 

128,133.60

 

3

 

1,601.67

 

80

 

128,133.60

 

4

 

1,608.87

 

80

 

128,709.60

 

Total monthly rental (RMB)

 

 

 

468,755.80

 

 

3


 

2.              Rental for the second year (May 10, 2016 to May 9, 2017), increased by 5% based on the rental of previous year

 

Floors

 

Area

 

Monthly Unit
Rental (RMB/sqm)

 

Sub-total rental (RMB)

 

1

 

837.79

 

105

 

87,967.95

 

2

 

1,601.67

 

84

 

134,540.28

 

3

 

1,601.67

 

84

 

134,540.28

 

4

 

1,608.87

 

84

 

135,145.08

 

Total monthly rental (RMB)

 

 

 

492,193.59

 

 

3.              If the term of use of the Leased Property is successfully extended for an additional 4 years or more, the rental of the extended lease term (May 10, 2017 to May 9, 2021) will increase by 5% every year based on the rental of previous year.

 

4.              Party B shall pay the rental every two months, for example, Party B shall pay the rental for May and June 2015 before May 8, 2015, and pay the rental for July and August 2015 before July 8, 2015, and subsequent rentals shall be paid accordingly.

 

5.              Party A shall issue tax invoices of the rental to Party B. Party B shall bear the taxes and fees incurred thereof in an amount equals to 6% of the rental. Party B shall pay rentals and taxes and fees to Party A within three working days from the date on which Party A issue a tax invoice. (company checks will not be accepted)

 

Article 4 Rental Deposit

 

1.              Party B shall pay a rental deposit equivalent to rentals for 2 months to Party A within three working days from the execution date of this agreement, i.e. RMB937,551.6 (Nine Hundred and Thirty-seven Thousand Five Hundred and Fifty-one Yuan and Six Jiao in capital letters). In the last leasing agreement, Party B had paid a rental deposit of RMB271,200 (Two Hundred and Seventy-One Thousand and Two Hundred in capital letters), and Party B shall only be required to make up the difference of RMB666,351.60 (Six Hundred and Sixty-six Thousand Three Hundred and Fifty-one Yuan and Six Jiao in capital letters).

 

4


 

2.              After Party A receives the rental deposit, Party B shall return to Party A previous receipt for the rental deposit, and Party A shall issue a new receipt to Party B for the rental deposit it receives.

 

3.              Upon expiration of the lease term, Party A shall refund the rental deposit without accrued interest to Party B within three working days, in the event that the following conditions are satisfied:

 

(1)         There has not been any breach of contract by Party B during the lease term;

 

(2)         Party B has settled all rental, property management fee and other fees which Party B shall bear;

 

(3)         Party B has returned the Leased Property to Party A in good condition as agreed.

 

Article 5 Other Fees

 

1.              During the lease term, Party A shall bear and be responsible for paying the land use tax in connection with the Leased Property.

 

2.              During the lease term, Party B shall bear and be responsible for paying any taxes other than the land use tax, including other related fees incurred as a result of using the Leased Property such as body maintenance funds, lease house (building) management fee, lease tax of the Leased Property (6% of the total amount), the water and electricity charges, cleaning fee, property management fee and elevator maintenance fee.

 

3.              During the lease term, Party B shall be responsible for paying the elevator use fee of RMB10,000 per year (paid once every two years), which shall be paid together with the first installment of the rental for every year.

 

Article 6 Property Safety

 

1.              Party B has previously used the Leased Property for ten years, and Party B is well aware of the current status of the Leased Property and agrees to lease and use it in current status.

 

2.              The legal use of the Leased Property is plant and Party B lease the Leased Property for commercial medical purpose. Party B shall make sure that the Leased Property complies with the relevant requirements of laws and regulation in relation to the commercial medical purpose.

 

3.              When Party B intends to change the function of the Leased Property, Party B shall entrust a property identification and inspection authority to prepare relevant report and submit the report to relevant authorities and Party A.

 

5


 

Article 7 Reasonable Use of the Leased Property

 

Party B shall use the Leased Property and its ancillary facilities in a reasonable way, and shall not use the Leased Property to conduct illegal activities. Party A shall not intervene in or hinder the normal, reasonable use of the Leased Property by Party B.

 

Article 8 Building Maintenance Clause

 

1.                      During the lease term, if any damage or breakdown happens or occurs in the main structure of the Leased Property, Party B shall notify Party A in a timely manner and take possibly effective measures to prevent the defects from turning worse. Party A shall proceed with maintenance within 3 days after receiving the notice from Party B or entrust Party B to proceed with maintenance on Party A’s behalf.

 

2.                      During the lease term, Party B shall be responsible for the maintenance other than the main structure of the Leased Property and the maintenance and repair of ancillary facilities.

 

3.                      Party B shall engage specialists to inspect the elevator and fire-fighting devices in accordance with relevant requirements every year, to ensure that the operation status of the above devices complies with the national standards. Party B shall compensate the Party A’s losses incurred due to Party B’s failure to perform its obligations.

 

4.                      In the event that any safety problem, damage or breakdown happens or occurs in the Leased Property or its ancillary facilities due to misuse or unreasonable use on the part of Party B, Party B shall notify Party A in a timely manner and shall be responsible for maintenance or damages. If Party B refuses to repair or compensate for damages, Party A will proceed with maintenance on its behalf and the relevant maintenance fee shall be borne by Party B.

 

Article 9 Reconstruction, Extension and Renovation

 

During the effective term of this agreement, if Party B intends to reconstruct, expand or renovate the Leased Property, it shall deliver a written application to Party A in advance. Upon receiving written consent from Party A, Party B may reconstruct, expand or renovate the Leased Property, but Party B shall not change the main structure of the building and shall comply with relevant safety regulations.

 

6


 

Article 10 Limit on Sublease

 

During the lease term, Party B shall not sublease all or part of the Leased Property to a third party. Party B may only proceed with sublease due to internal work requirement with written consent from Party A.

 

Article 11 Right of First Refusal

 

During the effective term of this agreement, if Party A intends to transfer part or all of the property right of the Leased Property, it shall notify Party B in writing one month in advance, and Party B shall have a right of first refusal with same conditions.

 

Article 12 Termination and Change of the Agreement

 

During the effective term of this agreement, this agreement can be terminated or changed under one of the following circumstances:

 

(1)         This agreement cannot be performed due to the occurrence of force majeure;

 

(2)         The government requisition, acquisition, resumption or dismantlement of the Leased Property;

 

(3)         Party A and Party B reach an agreement by negotiation.

 

Article 13 Delivery of Leased Property

 

Upon termination of this agreement, Party B shall move out of and return the Leased Property within 10 days and ensure good condition of the Leased Property and ancillary facilities (other than normal wear and tear). Meanwhile, Party shall settle all expenses which shall be borne by it and complete the relevant delivery procedure.

 

If Party B fails to move out of the Leased Property within the time limit, Party B shall pay the occupation fee to Party A in an amount equals to twice of the rental pursuant to this agreement. If the overdue period exceeds 30 days, Party B shall be deemed to renounce the ownership of the relevant items in the Leased Property, and Party A is entitled to take any measures as Party A thinks fit to enter the Leased Property and dispose the items in the Leased Property.

 

7


 

Article 14 Renewal Clause

 

If Party B intends to continue to lease the Leased Property upon expiry of the lease term specified in this agreement, it shall make renewal requests to Party A three months prior to the expiry of the lease term. Under same conditions, Party B shall have the pre-emptive right to lease the Leased Property.

 

Party A and Party B shall re-enter into an agreement after reaching agreement for the renewal.

 

Article 15 General Default Clause

 

Under one of the following circumstances, Party B shall be entitled to request Party A to compensate the losses incurred in connection therewith:

 

(1)         Party A is in breach of this agreement, not undertaking maintenance responsibility or not paying the maintenance fee;

 

(2)         Without Party B’s consent or the approval of the relevant authorities, Party A reconstructs, expands or renovates the Leased Property.

 

Under one of the following circumstances, Party A shall be entitled to request Party B to compensate the losses incurred in connection therewith:

 

(1)         Party B defaults in payment of the rental for less than 15 days, daily penalty equals to 5‰ of the defaulted amount;

 

(2)         Party B uses the Leased Property for illegal purposes, damaging public interest or the interest of other parties;

 

(3)         Party B is in breach of this agreement, not undertaking maintenance responsibility or not paying the maintenance fee which result in severe damage of the Leased Property or facilities;

 

Article 16 Fundamental Default Responsibility Clause

 

Party A and Party B shall perform all articles under this agreement consciously. If any party’s action constitutes the following fundamental breach, he shall assume the corresponding liabilities for breach of contract as follows:

 

Breach of contract by Party A may include but is not limited to:

 

(1)         unilaterally terminates the agreement without legal and proper reasons and without the written consent of Party B, in which circumstance Party A shall pay liquidated damages of RMB2.0 million to Party B in the event that Party A.

 

8


 

(2)         Party A enters into any other agreements with respect to the Leased Property agreement with a third party during the effective term of this agreement and as a result that the third party initiates legal actions (or arbitration or compliant) against Party A or Party B, or Party A and Party B, as defendant(s), alleging this agreement and other possible agreements are void, and Party A and Party B are the losing party, in which circumstance Party A shall pay liquidated damages of RMB2.0 million to Party B.

 

Breach of contract by Party B may include but is not limited to:

 

(1)         unilaterally transfers part or all of the Leased Property to a third party without the written consent of Party A, in which circumstance Party B shall pay liquidated damages of RMB2.0 million to Party A in the event that Party B.

 

(2)         unilaterally terminates the agreement without legal and proper reasons and without the written consent of Party A, in which circumstance Party B shall pay liquidated damage of RMB200 million to Party A.

 

(3)         Party B is late in payment of the rental for more than 15 days, in which circumstance Party A will have the right to terminate this agreement and forfeit the deposit paid by Party B.

 

If any party is in breach of the above agreements, the non-breaching party may unilaterally terminate this agreement immediately, and the breaching party shall pay liquidated damages to the non-breaching party as agreed in the above articles. If the liquidated damages is not sufficient for making up the losses incurred by the non-breaching party, the breaching party shall still be entitle to compensation for relevant losses.

 

Article 17 Specific Clause

 

1.              During the lease term, if the Leased Property is relocated, Party A shall have the right to the compensation for relocation of the Leased Property while Party B shall have the right to compensation for operating loss.

 

2.              The contents of this agreement shall prevail over the documents signed by both parties for completing the filing procedures of lease of real estate.

 

3.              During the lease term, Party B undertakes and warrants that Party B will unconditionally comply with the requirements of the relevant government department, including site inspection, plotting, or partial site rectification and suspension, in connection with completing the procedures for extension of the term of use of the Leased Property by Party A.

 

9


 

Article 18 Supplementary Agreement

 

Party A and Party B can agree on other terms in a supplementary agreement for matters not specified in this agreement. The content of the supplementary agreement will become an integral part of this agreement and has the same effect as this agreement after being signed and sealed by the parties. Article 19 of this agreement shall also apply to the supplemental agreement.

 

Article 19 Arbitration Clause

 

Any dispute between Party A and Party B arising from or in respect of this agreement, or resulting from relevant agreements to be executed in the future, shall be submitted to Shenzhen Arbitration Committee for arbitration in accordance with the arbitral rules of the committee. The arbitration decision is final and binding to both parties.

 

Article 20 Party B understands that the legal use of the Leased Property is plant and Party A understands that Party B leases the Leased Property for commercial medical purpose.

 

Article 21 Agreement Effective Date

 

This agreement shall take effect upon signing y both parties.

 

Article 22 Agreement Counterparts

 

This agreement is made in quadruplicate, and Party A and Party B shall have two copies respectively, each with the same legal effect.

 

 

Signed and sealed by Party A:

Signed and sealed by Party B:

/s/ Lessor’s name

 

[Seal of Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd.]

 

/s/ Zhou Pengwu

 

 

Signing Date: March 28, 2015

 

Signing Location: Shenzhen, China

 

10




Exhibit 21.1

 

LIST OF SUBSIDIARIES OF THE REGISTRANT

 

Subsidiaries

 

Place of Incorporation

Dragon Jade Holdings Limited

 

BVI

Stargaze Wealth Limited

 

BVI

Peng Oi Investment (Hong Kong) Holdings Limited

 

Hong Kong

Newa Medical Aesthetics Limited

 

Hong Kong

Shengli Aesthetic Technology Investment (Hong Kong) Company Limited

 

Hong Kong

Aesthetic Medical International Holdings (Singapore) Pte. Ltd.

 

Singapore

Mendis Singapore Pte. Ltd.

 

Singapore

Chongqing Pengai Aesthetic Medical Hospital Co., Ltd.

 

PRC

Changsha Pengai Aesthetic Medical Hospital Co., Ltd.

 

PRC

Chengdu Pengai Yueji Aesthetic Medical Clinic Co., Ltd.

 

PRC

Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd.

 

PRC

Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd.

 

PRC

Haikou Pengai Aesthetic Medical Hospital Co., Ltd.

 

PRC

Huizhou Pengai Aesthetic Medical Hospital Co., Ltd.

 

PRC

Jinan Pengai Cosmetic Surgery Hospital Co., Ltd.

 

PRC

Nanchang Pengai Aesthetic Medical Clinic Co., Ltd.

 

PRC

Ninghai Pengai Aesthetic Medical Clinic Co., Ltd.

 

PRC

Peng Yida Business Consulting (Shenzhen) Co., Ltd.

 

PRC

Shenzhen Pengai Hospital Investment Management Co., Ltd.

 

PRC

Shenzhen Pengai Aesthetic Medical Hospital

 

PRC

Shenzhen Pengcheng Hospital

 

PRC

Shenzhen City Pengai Beauty Promise Cosmetic Co., Ltd.

 

PRC

Shenzhen Pengai Culture Broadcast Co., Ltd.

 

PRC

Shanghai Pengai Medical Technology Co., Ltd.

 

PRC

Shanghai Pengai Aesthetic Medical Clinic Co., Ltd.

 

PRC

Shenzhen Pengai Xiuqi Aesthetic Medical Hospital

 

PRC

Shenzhen Pengai Yueji Aesthetic Medical Hospital

 

PRC

Shenzhen Yueji Aesthetic Clinic Co., Ltd.

 

PRC

Shenzhen Pengai Yuexin Aesthetic Medical Hospital

 

PRC

Yantai Pengai Jiayan Cosmetic Surgery Hospital Co., Ltd.

 

PRC

Yinchuan Pengai Yueji Aesthetic Medical Clinic Co., Ltd.

 

PRC

Aih Investment Management Corp.

 

U.S.A.

 




Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the use in this Registration Statement on Form F-1 of Aesthetic Medical International Holdings Group Limited of our report dated July 1, 2019 relating to the financial statements of Aesthetic Medical International Holdings Group Limited, which appears in this Registration Statement.  We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

/s/ PricewaterhouseCoopers Zhong Tian LLP

 

Shenzhen, the People’s Republic of China

September 30, 2019

 




Exhibit 23.5

 

Aesthetic Medical International Holdings Group Limited

1122 Nanshan Boulevard

Nanshan District, Shenzhen

Guangdong Province, China

 

Re: Aesthetic Medical International Holdings Group Limited

 

Ladies and Gentlemen,

 

We understand that Aesthetic Medical International Holdings Group Limited (the “Company”) plans to file a registration statement on Form F-1 (the “Registration Statement”) with the United States Securities and Exchange Commission (the “SEC”) in connection with its proposed public offering (the “Proposed Offering”).

 

We hereby consent to the references to our name and the inclusion of information, data and statements from our research reports and amendments thereto (collectively, the “Reports”), and any subsequent amendments to the Reports, as well as the citation of our research reports and amendments thereto, in the Registration Statement and any amendments thereto, in any other future filings with the SEC by the Company, including, without limitation, filings on Form 20-F or Form 6-K or other SEC filings (collectively, the “SEC Filings”), on the websites of the Company and its subsidiaries and affiliates, in institutional and retail road shows and other activities in connection with the Proposed Offering, and in other publicity materials in connection with the Proposed Offering.

 

We further hereby consent to the filing of this letter as an exhibit to the Registration Statement and any amendments thereto and as an exhibit to any other SEC Filings.

 

Yours faithfully,

 

For and on behalf of

Frost & Sullivan (Beijing) Inc., Shanghai Branch Co.

 

/s/ Yves Wang

 

Name: Yves Wang

 

Title: Managing Director, China

 

 

 

Date: September 30, 2019

 

 




Exhibit 23.6

 

The board of Directors

Aesthetic Medical International Holdings Group Limited

1122 Nanshan Boulevard

Nanshan District, Shenzhen

Guangdong Province, China 518052

 

Date: September 30, 2019

 

Dear Sirs,

 

CONSENT TO ACT AS INDEPENDENT NON-EXECUTIVE DIRECTOR

 

I, the undersigned, hereby consent to act as an independent non-executive director of the Company, effective upon the completion of the Company’s initial public offering.

 

I hereby authorize you to enter my particulars in the Register of Directors and Officers of the Company as set out below.

 

Particulars:

 

Name in full: Xue Hongwei

 

Address: Blk 842 Tampines Street 82#07-161, Singapore 520842

 

/s/ Xue Hongwei

 

Xue Hongwei

 

 




Exhibit 23.7

 

The board of Directors

Aesthetic Medical International Holdings Group Limited

1122 Nanshan Boulevard

Nanshan District, Shenzhen

Guangdong Province, China 518052

 

Date: September 30, 2019

 

Dear Sirs,

 

CONSENT TO ACT AS INDEPENDENT NON-EXECUTIVE DIRECTOR

 

I, the undersigned, hereby consent to act as an independent non-executive director of the Company, effective upon the completion of the Company’s initial public offering.

 

I hereby authorize you to enter my particulars in the Register of Directors and Officers of the Company as set out below.

 

Particulars:

 

Name in full: Lu Feng

 

Address: 7th floor, Plastic Surgery Institute, No. 1838, Nanfang Hospital Clinic

 

/s/ Lu Feng

 

Lu Feng

 

 




Exhibit 23.8

 

The board of Directors

Aesthetic Medical International Holdings Group Limited

1122 Nanshan Boulevard

Nanshan District, Shenzhen

Guangdong Province, China 518052

 

Date: September 30, 2019

 

Dear Sirs,

 

CONSENT TO ACT AS INDEPENDENT NON-EXECUTIVE DIRECTOR

 

I, the undersigned, hereby consent to act as an independent non-executive director of the Company, effective upon the completion of the Company’s initial public offering.

 

I hereby authorize you to enter my particulars in the Register of Directors and Officers of the Company as set out below.

 

Particulars:

 

Name in full: Tsang Eric Chi Wai

 

Address: Address information omitted

 

/s/ Tsang Eric Chi Wai

 

Tsang Eric Chi Wai

 

 




Exhibit 99.1

 

CODE OF BUSINESS CONDUCT AND ETHICS

 

I.             PURPOSE

 

This Code of Business Conduct and Ethics (the “Code”) contains general guidelines for conducting the business of Aesthetic Medical International Holdings Group Limited, a Cayman Islands company, and its subsidiaries and consolidated affiliated entity (collectively, the “Company”) consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. To the extent this Code requires a higher standard than required by commercial practice or applicable laws, rules or regulations, we adhere to these higher standards.

 

This Code is designed to deter wrongdoing and to promote:

 

·                                honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

·                                full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the U.S. Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company;

 

·                                compliance with applicable laws, rules and regulations;

 

·                                prompt internal reporting of violations of the Code; and

 

·                                accountability for adherence to the Code.

 

II.            APPLICABILITY

 

This Code applies to all directors, officers and employees of the Company, whether they work for the Company on a full-time, part-time, consultative or temporary basis (each, an “employee” and collectively, the “employees”). Certain provisions of the Code apply specifically to our chief executive officer, chief financial officer, other chief senior officers, senior finance officer, controller, vice presidents and any other persons who perform similar functions for the Company (each, a “senior officer,” and collectively, the “senior officers”).

 

The Board of Directors of the Company (the “Board”) has appointed the Company’s Chief Financial Officer, as the Compliance Officer for the Company (the “Compliance Officer”). If you have any questions regarding the Code or would like to report any violation of the Code, please contact the Compliance Officer.

 

III.          CONFLICTS OF INTEREST

 

Identifying Conflicts of Interest

 

A conflict of interest occurs when an employee’s private interest interferes, or appears to interfere, in any way with the interests of the Company as a whole. An employee should actively avoid any private interest that may impact such employee’s ability to act in the interests of the Company or that may make it difficult to perform the employee’s work objectively and effectively. In general, the following should be considered conflicts of interest:

 


 

·  Competing Business. No employee may be employed by a business that competes with the Company or deprives it of any business.

 

·  Corporate Opportunity. No employee should use corporate property, information or his or her position with the Company to secure a business opportunity that would otherwise be available to the Company. If an employee discovers a business opportunity that is in the Company’s line of business through the use of the Company’s property, information or position, the employee must first present the business opportunity to the Company before pursuing the opportunity in his or her individual capacity.

 

·  Financial Interests.

 

(i)     No employee may have any financial interest (ownership or otherwise), either directly or indirectly through a spouse or other family member, in any other business or entity if such interest adversely affects the employee’s performance of duties or responsibilities to the Company, or requires the employee to devote time to it during such employee’s working hours at the Company;

 

(ii)    No employee may hold any ownership interest in a privately held company that is in competition with the Company;

 

(iii)   An employee may hold up to 5% ownership interest in a publicly traded company that is in competition with the Company; provided that if the employee’s ownership interest in such publicly traded company increases to more than 5%, the employee must immediately report such ownership to the Compliance Officer;

 

(iv)  No employee may hold any ownership interest in a company that has a business relationship with the Company if such employee’s duties at the Company include managing or supervising the Company’s business relations with that company; and

 

(v)   Notwithstanding the other provisions of this Code,

 

(a) a director or any family member of such director (collectively, “Director Affiliates”) or a senior officer or any family member of such senior officer (collectively, “Officer Affiliates”) may continue to hold his or her investment or other financial interest in a business or entity (an “Interested Business”) that:

 

(1) was made or obtained either (x) before the Company invested in or otherwise became interested in such business or entity; or (y) before the director or senior officer joined the Company (for the avoidance of doubt, regardless of whether the Company had or had not already invested in or otherwise become interested in such business or entity at the time the director or senior officer joined the Company); or

 

(2) may in the future be made or obtained by the director or senior officer, provided that at the time such investment or other financial interest is made or obtained, the Company has not yet invested in or otherwise become interested in such business or entity;

 

provided that such director or senior officer shall disclose such investment or other financial interest to the Board;

 

(b) an interested director or senior officer shall refrain from participating in any discussion among senior officers of the Company relating to an Interested Business and shall not be involved in any proposed transaction between the Company and an Interested Business; and

 


 

(c) before any Director Affiliate or Officer Affiliate (i) invests, or otherwise acquires any equity or other financial interest, in a business or entity that is in competition with the Company; or (ii) enters into any transaction with the Company, the related director or senior officer shall obtain prior approval from the Audit Committee of the Board.

 

For purposes of this Code, a company or entity is deemed to be “in competition with the Company” if it competes with the Company’s business of providing car rentals or car services and/or any other business in which the Company is engaged.

 

·  Loans or Other Financial Transactions. No employee may obtain loans or guarantees of personal obligations from, or enter into any other personal financial transaction with, any company that is a material customer, supplier or competitor of the Company. This guideline does not prohibit arms-length transactions with recognized banks or other financial institutions.

 

·  Service on Boards and Committees. No employee shall serve on a board of directors or trustees or on a committee of any entity (whether profit or not-for-profit) whose interests could reasonably be expected to conflict with those of the Company. Employees must obtain prior approval from the Board before accepting any such board or committee position. The Company may revisit its approval of any such position at any time to determine whether an employee’s service in such position is still appropriate.

 

The above is in no way a complete list of situations where conflicts of interest may arise. The following questions might serve as a useful guide in assessing a potential conflict of interest situation not specifically addressed above:

 

·                                Is the action to be taken legal?

 

·                                Is it honest and fair?

 

·                                Is it in the best interests of the Company?

 

Disclosure of Conflicts of Interest

 

The Company requires that employees fully disclose any situations that could reasonably be expected to give rise to a conflict of interest. If an employee suspects that he or she has a conflict of interest, or a situation that others could reasonably perceive as a conflict of interest, the employee must report it immediately to the Compliance Officer. Conflicts of interest may only be waived by the Board, or the appropriate committee of the Board, and will be promptly disclosed to the public to the extent required by law and applicable rules of the New York Stock Exchange.

 

Family Members and Work

 

The actions of family members outside the workplace may also give rise to conflicts of interest because they may influence an employee’s objectivity in making decisions on behalf of the Company. If a member of an employee’s family is interested in doing business with the Company, the criteria as to whether to enter into or continue the business relationship and the terms and conditions of the relationship must be no less favorable to the Company compared with those that would apply to an unrelated party seeking to do business with the Company under similar circumstances.

 


 

Employees should report any situation involving family members that could reasonably be expected to give rise to a conflict of interest to their supervisor or the Compliance Officer. For purposes of this Code, “family members” or “members of employee’s family” include an employee’s spouse, siblings, parents, in-laws and children.

 

IV.          GIFTS AND ENTERTAINMENT

 

The giving and receiving of appropriate gifts may be considered common business practice. Appropriate business gifts and entertainment are welcome courtesies designed to build relationships and understanding among business partners. However, gifts and entertainment should never compromise, or appear to compromise, an employee’s ability to make objective and fair business decisions.

 

It is the responsibility of employees to use good judgment in this area. As a general rule, employees may give or receive gifts or entertainment to or from customers or suppliers only if the gift or entertainment is in compliance with applicable law, insignificant in amount and not given in consideration or expectation of any action by the recipient. All gifts and entertainment expenses made on behalf of the Company must be properly accounted for on expense reports.

 

We encourage employees to submit gifts received to the Company. While it is not mandatory to submit small gifts, gifts of over US$100 must be submitted immediately to the administration department of the Company.

 

Bribes and kickbacks are criminal acts, strictly prohibited by law. An employee must not offer, give, solicit or receive any form of bribe or kickback anywhere in the world.

 

V.            FCPA COMPLIANCE

 

The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. A violation of FCPA does not only violate the Company’s policy but also constitute a civil or criminal offense under FCPA which the Company is subject to after the Effective Time. No employee shall give or authorize directly or indirectly any illegal payments to government officials of any country. While the FCPA does, in certain limited circumstances, allow nominal “facilitating payments” to be made, any such payment must be discussed with and approved by an employee’s supervisor (in the case of the chief executive officers, by the board of directors) in advance before it can be made.

 

VI.          PROTECTION AND USE OF COMPANY ASSETS

 

Employees should protect the Company’s assets and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Company’s profitability. Any use of the funds or assets of the Company, whether for personal gain or not, for any unlawful or improper purpose is strictly prohibited.

 

To ensure the protection and proper use of the Company’s assets, each employee should:

 

·                                Exercise reasonable care to prevent theft, damage or misuse of Company property;

 

·                                Promptly report any actual or suspected theft, damage or misuse of Company property;

 

·                                Safeguard all electronic programs, data, communications and written materials from unauthorized access; and

 


 

·                                Use Company property only for legitimate business purposes.

 

Except as approved in advance by the Chief Executive Officer or Chief Financial Officer of the Company, the Company prohibits political contributions (directly or through trade associations) by any employee on behalf of the Company. Prohibited political contributions include:

 

·                                any contributions of the Company’s funds or other assets for political purposes;

 

·                                encouraging individual employees to make any such contribution; and

 

·                                reimbursing an employee for any political contribution.

 

VII.         INTELLECTUAL PROPERTY AND CONFIDENTIALITY

 

Employees should abide by the Company’s rules and policies in protecting the intellectual property and confidential information, including the following:

 

·                  All inventions, creative works, computer software, and technical or trade secrets developed by an employee in the course of performing the employee’s duties or primarily through the use of the Company’s assets or resources while working at the Company shall be the property of the Company.

 

·                  Employees should maintain the confidentiality of information entrusted to them by the Company or the entities with which the Company has business relationships, except when disclosure is authorized or legally mandated. Confidential information includes all non-public information that might be of use to competitors, or harmful to the company or its business associates, if disclosed.

 

·                  The Company maintains a strict confidentiality policy. During an employee’s term of employment with the Company, the employee shall comply with any and all written or unwritten rules and policies concerning confidentiality and shall fulfill the duties and responsibilities concerning confidentiality applicable to the employee.

 

·                  In addition to fulfilling the responsibilities associated with his or her position in the Company, an employee shall not, without obtaining prior approval from the Company, disclose, announce or publish trade secrets or other confidential business information of the Company, nor shall an employee use such confidential information outside the course of his or her duties to the Company.

 

·                  Even outside the work environment, an employee must maintain vigilance and refrain from disclosing important information regarding the Company or its business, business associates or employees.

 

·                  An employee’s duty of confidentiality with respect to the confidential information of the Company survives the termination of such employee’s employment with the Company for any reason until such time as the Company discloses such information publicly or the information otherwise becomes available in the public sphere through no fault of the employee.

 


 

·                  Upon termination of employment, or at such time as the Company requests, an employee must return to the Company all of its property without exception, including all forms of medium containing confidential information, and may not retain duplicate materials.

 

VIII.       ACCURACY OF FINANCIAL REPORTS AND OTHER PUBLIC COMMUNICATIONS

 

Upon the completion of the Company’s initial public offering, the Company will be required to report its financial results and other material information about its business to the public and the SEC. It is the Company’s policy to promptly disclose accurate and complete information regarding its business, financial condition and results of operations. Employees must strictly comply with all applicable standards, laws, regulations and policies for accounting and financial reporting of transactions, estimates and forecasts. Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage the Company and result in legal liability.

 

Employees should be on guard for, and promptly report, any possibility of inaccurate or incomplete financial reporting. Particular attention should be paid to:

 

·                                Financial results that seem inconsistent with the performance of the underlying business;

 

·                                Transactions that do not seem to have an obvious business purpose; and

 

·                                Requests to circumvent ordinary review and approval procedures.

 

The Company’s senior financial officers and other employees working in the finance department have a special responsibility to ensure that all of the Company’s financial disclosures are full, fair, accurate, timely and understandable. Any practice or situation that might undermine this objective should be reported to the Compliance Officer.

 

Employees are prohibited from directly or indirectly taking any action to coerce, manipulate, mislead or fraudulently influence the Company’s independent auditors for the purpose of rendering the financial statements of the Company materially misleading. Prohibited actions include but are not limited to:

 

·                                issuing or reissuing a report on the Company’s financial statements that is not warranted in the circumstances (due to material violations of U.S. GAAP, generally accepted auditing standards or other professional or regulatory standards);

 

·                                not performing audit, review or other procedures required by generally accepted auditing standards or other professional standards;

 

·                                not withdrawing an issued report when withdrawal is warranted under the circumstances; or

 

·                                not communicating matters required to be communicated to the Company’s Audit Committee.

 

IX.          COMPANY RECORDS

 

Accurate and reliable records are crucial to the Company’s business and form the basis of its earnings statements, financial reports and other disclosures to the public. The Company’s records are a source of essential data that guides business decision-making and strategic planning. Company records include, but are not limited to, booking information, payroll, timecards, travel and expense reports, e-mails, accounting and financial data, measurement and performance records, electronic data files and all other records maintained in the ordinary course of business.

 


 

All Company records must be complete, accurate and reliable in all material respects. There is never an acceptable reason to make false or misleading entries. Undisclosed or unrecorded funds, payments or receipts are strictly prohibited. An employee is responsible for understanding and complying with the Company’s record keeping policy. An employee should contact the Compliance Officer if he or she has any questions regarding the record keeping policy.

 

X.            COMPLIANCE WITH LAWS AND REGULATIONS

 

Each employee has an obligation to comply with the laws of the cities, provinces, regions and countries in which the Company operates. This includes, without limitation, laws covering commercial bribery and kickbacks, patents, copyrights, trademarks and trade secrets, information privacy, insider trading, offering or receiving gratuities, employment harassment, environmental protection, occupational health and safety, false or misleading financial information, misuse of corporate assets and foreign currency exchange activities. Employees are expected to understand and comply with all laws, rules and regulations that apply to their positions at the Company. If any doubt exists about whether a course of action is lawful, the employee should seek advice immediately from the Compliance Officer.

 

XI.          DISCRIMINATION AND HARASSMENT

 

The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment based on race, ethnicity, religion, gender, age, national origin or any other protected class. For further information, employees should consult the Compliance Officer.

 

XII.        FAIR DEALING

 

Each employee should endeavor to deal fairly with the Company’s customers, suppliers, competitors and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice.

 

XIII.                    HEALTH AND SAFETY

 

The Company strives to provide employees with a safe and healthy work environment. Each employee has responsibility for maintaining a safe and healthy workplace for other employees by following environmental, safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Violence or threats of violence are not permitted.

 

Each employee is expected to perform his or her duty to the Company in a safe manner, not under the influence of alcohol, illegal drugs or other controlled substances. The use of illegal drugs or other controlled substances in the workplace is prohibited.

 

XIV.                     VIOLATIONS OF THE CODE

 

All employees have a duty to report any known or suspected violation of this Code, including any violation of laws, rules, regulations or policies that apply to the Company. Reporting a known or suspected violation of this Code by others will not be considered an act of disloyalty, but an action to safeguard the reputation and integrity of the Company and its employees.

 


 

If an employee knows of or suspects a violation of this Code, it is such employee’s responsibility to immediately report the violation to the Compliance Officer, who will work with the employee to investigate his or her concern. All questions and reports of known or suspected violations of this Code will be treated with sensitivity and discretion. The Compliance Officer and the Company will protect the employee’s confidentiality to the extent possible, consistent with the law and the Company’s need to investigate the employee’s concern.

 

It is the Company’s policy that any employee who violates this Code will be subject to appropriate discipline, including termination of employment, based upon the facts and circumstances of each particular situation. An employee’s conduct, if it does not comply with the law or with this Code, can result in serious consequences for both the employee and the Company.

 

The Company strictly prohibits retaliation against an employee who, in good faith, seeks help or reports known or suspected violations. An employee inflicting reprisal or retaliation against another employee for reporting a known or suspected violation will be subject to disciplinary action, including termination of employment.

 

XV.         WAIVERS OF THE CODE

 

Waivers of this Code will be granted on a case-by-case basis and only in extraordinary circumstances. Waivers of this Code may be made only by the Board, or the appropriate committee of the Board, and may be promptly disclosed to the public if so required by applicable laws and regulations and rules of the New York Stock Exchange.

 

XVI.                     CONCLUSION

 

This Code contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If employees have any questions about these guidelines, they should contact the Compliance Officer. We expect all employees to adhere to these standards. Each employee is separately responsible for his or her actions. Conduct that violates the law or this Code cannot be justified by claiming that it was ordered by a supervisor or someone in higher management positions. If an employee engages in conduct prohibited by the law or this Code, such employee will be deemed to have acted outside the scope of his or her employment. Such conduct will subject the employee to disciplinary action, including termination of employment.

 




Exhibit 99.2

 

HAN KUN LAW OFFICES

 

9/F, Office Tower C1, Oriental Plaza, 1 East Chang An Avenue, Beijing 100738, P. R. China

TEL: (86 10) 8525 5500; FAX: (86 10) 8525 5511 / 8525 5522

Beijing · Shanghai · Shenzhen · Hong Kong

www.hankunlaw.com

 

September 27, 2019

 

To:

Aesthetic Medical International Holdings Group Limited (the “Company”)

 

1122 Nanshan Boulevard

Nanshan District, Shenzhen, Guangdong Province

The People’s Republic of China

 

Re: Legal Opinion on Certain PRC Legal Matters

 

Dear Sirs or Madams:

 

We are lawyers qualified in the People’s Republic of China (the “PRC” or “China”, which, for purposes of this opinion only, does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan) and as such are qualified to issue this opinion on the laws and regulations of the PRC effective as of the date hereof.

 

We are acting as PRC counsel to the Company, a company incorporated under the laws of the Cayman Islands, in connection with (i) the proposed initial public offering (the “Offering”) of a certain number of American Depositary Shares (the “ADSs”), each representing a certain number of ordinary shares of the Company, as set forth in the Company’s registration statement on Form F-1, including all amendments or supplements thereto (the “Registration Statement”), filed by the Company with the Securities and Exchange Commission under the U.S. Securities Act of 1933 (as amended) in relation to the Offering, and (ii) the Company’s proposed listing of the ADSs on the NASDAQ Global Market.

 

A.                Documents and Assumptions

 

In rendering this opinion, we have carried out due diligence, reviewed and examined copies of the Registration Statement, and other documents as we have considered necessary or advisable for the purpose of rendering this opinion, including but not limited to originals or copies of the due diligence documents provided to us by the Company and the PRC Companies (as defined below) and such other documents, corporate records and certificates issued by the Governmental Agencies (collectively, the “Documents”).  Where certain facts were not independently established and verified by us, we have relied upon certificates or statements issued or made by competent Governmental Agencies (as defined below) or appropriate representatives of the Company or the PRC Companies.

 


 

In rendering this opinion, we have made the following assumptions (the “Assumptions”):

 

(1)                                 all signatures, seals and chops are genuine, each signature on behalf of a party thereto is that of a person duly authorized by such party to execute the same, all Documents submitted to us as originals are authentic, and all Documents submitted to us as certified or photostatic copies conform to the originals;

 

(2)                                 each of the parties to the Documents, other than the PRC Companies, (a) if a legal person or other entity, is duly organized and validly existing in good standing under the laws of its jurisdiction of organization and/or incorporation; or (b) if an individual, has full capacity for civil conduct; each of them, other than the PRC Companies, has full power and authority to execute, deliver and perform its, her or his obligations under the Documents to which it, she or he is a party, and, if a legal person or other entity, in accordance with the laws of its jurisdiction of organization and/or incorporation or the laws that it is subject to;

 

(3)                                 unless otherwise indicated in the Documents, the Documents that were presented to us remain in full force and effect on the date of this opinion and have not been revoked, amended or supplemented, and no amendments, revisions, supplements, modifications or other changes have been made, and no revocation or termination has occurred, with respect to any of the Documents after they were submitted to us for the purposes of this opinion;

 

(4)                                 the laws of jurisdictions other than the PRC which may be applicable to the execution, delivery, performance or enforcement of the Documents are complied with;

 

(5)                                 all requested Documents have been provided to us and all factual statements made to us by the Company and the PRC Companies in connection with this opinion are true, correct and complete; and

 

(6)                                 all the explanations and interpretations provided by the officers of Governmental Agencies duly reflect the official position of the Governmental Agencies, and all the factual statements provided by the Company and PRC Companies, including but not limited to the statements set forth in the Documents, are complete, true and correct.

 

(7)                                 all Governmental Authorizations (as defined below) and other official statements and documentation obtained by the Company or any PRC Company from any Governmental Agency have been obtained by lawful means in due course, and the Documents provided to us conform with those documents submitted to Governmental Agencies for such purposes.

 

B.                Definitions

 

In addition to the terms defined in the context of this opinion, the following capitalized terms used in this opinion shall have the meanings ascribed to them as follows.

 

2


 

Changsha Pengai

 

means Changsha Pengai Aesthetic Medical Hospital Co., Ltd. (长沙鹏爱医疗美容医院有限公司).

 

 

 

Chongqing Pengai

 

means Chongqing Pengai Aesthetic Medical Hospital Co., Ltd. (重庆鹏爱医疗美容医院有限公司).

 

 

 

Contractual Arrangements” / “Agreements under the Contractual Arrangements

 

means the documents as set forth in Schedule B hereto, and each, an “Agreement under the Contractual Arrangements”.

 

 

 

Governmental Agency

 

means any national, provincial or local governmental, regulatory or administrative authority, agency or commission in the PRC, or any court, tribunal or any other judicial or arbitral body in the PRC, or any body exercising, or entitled to exercise, any administrative, judicial, legislative, law enforcement, regulatory, or taxing authority or power of similar nature in the PRC.

 

 

 

Governmental Authorization

 

means any license, approval, consent, waiver, order, sanction, certificate, authorization, filing, declaration, disclosure, registration, exemption, permission, endorsement, annual inspection, clearance, qualification, permit or license by, from or with any Governmental Agency pursuant to any PRC Laws.

 

 

 

Guangzhou Pengai

 

means Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. (广州鹏爱医疗美容医院有限公司).

 

 

 

Hangzhou Pengai

 

means Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd. (杭州鹏爱医疗美容门诊部有限公司).

 

 

 

Jinan Pengai

 

means Jinan Pengai Cosmetic Surgery Hospital Co., Ltd.(济南鹏爱美容整形医院有限公司).

 

 

 

New M&A Rules

 

means the Provisions on Merging and Acquiring Domestic Enterprises by Foreign Investors, which was promulgated by six Governmental Agencies, namely, the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (the “CSRC”), and the SAFE, on August 8, 2006 and became effective on September 8, 2006, as amended by the Ministry of Commerce on June 22, 2009.

 

3


 

Peng Yida

 

means Peng Yida Business Consulting (Shenzhen) Co., Ltd. (鹏意达商务咨询(深圳)有限公司).

 

 

 

“Pengai Investment”

 

means Shenzhen Pengai Hospital Investment Management Co., Ltd. (深圳鹏爱医院投资管理有限公司), formerly known as Shenzhen Pengcheng Hospital Investment Management Co., Ltd. (深圳鹏程医院投资管理有限公司).

 

 

 

Pengai Jiayan

 

means Yantai Pengai Jiayan Cosmetic Surgery Hospital Co., Ltd. (烟台鹏爱佳妍美容整形医院有限公司).

 

 

 

Pengai Xiuqi

 

means Shenzhen Pengai Xiuqi Aesthetic Medical Hospital (深圳鹏爱秀琪医疗美容医院).

 

 

 

PRC Companies

 

means, collectively, all entities listed in Schedule A hereof, and each, a “PRC Company”.

 

 

 

PRC Laws

 

means all applicable national, provincial and local laws, regulations, rules, notices, orders, decrees and judicial interpretations of the PRC currently in effect and publicly available on the date of this opinion.

 

 

 

“Relevant Subsidiaries”

 

means Pengai Jiayan, Hangzhou Pengai, Chongqing Pengai, Changsha Pengai, Shanghai Pengai, Pengai Xiuqi, Guangzhou Pengai and Jinan Pengai, and each, a “Relevant Subsidiary”.

 

 

 

Shanghai Pengai

 

means Shanghai Pengai Aesthetic Medical Clinic Co., Ltd. (上海鹏爱医疗美容门诊部有限公司).

 

C.                Opinions

 

Based on our review of the Documents and subject to the Assumptions and the Qualifications (as defined below), we are of the opinion that:

 

(i)                                                         Contractual Arrangements.  The ownership structure of the PRC Companies as set forth in the Registration Statement, do not and will not, immediately after giving effect to the Offering, result in any violation of applicable PRC Laws.  Each of Relevant Subsidiaries, and, to the best of our knowledge after due inquiry, each of Zhou Pengwu (周鹏武) and Ding Wenting (丁文婷), has the power, authority and legal right to enter into, execute, deliver and perform its, his or her respective obligations under each Agreement under the Contractual Arrangements to which it, he or she is a party.  Except as disclosed in the Registration Statement, each Agreement under the Contractual Arrangements constitutes valid, legal and binding obligations enforceable against each of Relevant Subsidiaries and Zhou Pengwu (周鹏武) and Ding Wenting (丁文婷) to which it, he or she is a party in accordance with its terms and applicable PRC Laws currently in effect, and will not, immediately after giving effect to the Offering, contravene applicable PRC Laws currently in effect.  To the best of our knowledge after due inquiry, none of Relevant Subsidiaries, Zhou Pengwu (周鹏武) and Ding Wenting (丁文婷) is in material breach or default in the performance or observance of any of the terms or provisions of the Contractual Arrangements to which it, he or she is a party.

 

4


 

Except as disclosed in the Registration Statement, the due execution, delivery and performance of each Agreement under the Contractual Arrangements by the parties thereto and the consummation of the transactions contemplated thereunder do not, as to each of the PRC Companies that is a party to such Agreement under the Contractual Arrangements: (a) result in any violation of the business license, articles of association, approval certificate or other constitutional documents (if any) of such Relevant Subsidiary; or (b) result in any violation of applicable PRC Laws.  No Governmental Authorizations are required under PRC Laws in connection with the due execution, delivery or performance of each of the Contractual Arrangements other than those already obtained; provided, however, any exercise by Pengai Investment of its rights under the relevant exclusive option agreements will be subject to: (a) the Governmental Authorizations for the resulting equity transfer; (b) the exercise price for equity transfer under the Contractual Arrangements in accordance with PRC Laws; and (c) completion of tax filing under applicable PRC Laws.

 

There are, however, substantial uncertainties regarding the interpretation and application of PRC Laws and future PRC laws and regulations, and there can be no assurance that the Governmental Agencies will take a view that is not contrary to or otherwise different from our opinion stated above.

 

(ii)                                                      Taxation.  The statements made in the Registration Statement under the caption “Taxation — People’s Republic of China taxation,” with respect to the PRC tax laws and regulations or interpretations, constitute true and accurate descriptions of the matters described therein in all material respects and such statements constitute our opinion.

 

(iii)                                                   New M&A Rules.  Based on our understanding of the explicit provisions under the PRC Laws, we are of the opinion that the CSRC’s approval is not required to be obtained for the Offering or the listing, because (i) the CSRC has not issued any definitive rule or interpretation concerning whether the Offering is subject to the New M&A Rules as of the date hereof ; (ii) Peng Yida is a wholly foreign-owned enterprise which was initially established by means of direct investment and not through mergers or acquisitions of the equity or assets of a “PRC domestic company” as such term is defined under the New M&A Rules; and (iii) no explicit provision in the New M&A Rules classifies the contractual arrangements under the Contractual Arrangements as a type of acquisition transaction falling under the New M&A Rules.

 

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

 

5


 

(v)                                                     PRC Laws.  All statements set forth in the Registration Statement under the captions “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Dividend Policy,” “Enforceability of Civil Liabilities,” “Our History and Corporate Structure,” “Business,” “Regulation,” “Related Party Transactions,” and “Taxation—People’s Republic of China taxation,” in each case insofar as such statements describe or summarize PRC legal or regulatory matters, are true and accurate in all material respects, and are fairly disclosed and correctly set forth therein, and nothing has been omitted from such statements which would make the same misleading in any material respect.

 

D.                Qualifications

 

Our opinion expressed above is subject to the following qualifications (the “Qualifications”):

 

i.                                          Our opinion is limited to PRC Laws of general application on the date hereof. We have made no investigation of, and do not express or imply any views on, the laws of any jurisdiction other than the PRC, and we have assumed that no such other laws would affect our opinions expressed above.

 

ii.                                       There is no guarantee that any of the PRC Laws referred to herein, or the interpretation or enforcement thereof, will not be changed, amended or revoked in the future with or without retrospective effect.

 

iii.                                    Our opinion is subject to (a) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws in the PRC affecting creditors’ rights generally, and (b) possible judicial or administrative actions or any PRC Laws affecting creditors’ rights.

 

iv.                                   Our opinion is subject to the effects of (a) certain legal or statutory principles affecting the enforceability of contractual rights generally under the concepts of public interests, social ethics, national security, good faith, fair dealing, and applicable statutes of limitation; (b) any circumstance in connection with the formulation, execution or performance of any legal documents that would be deemed materially mistaken, clearly unconscionable, fraudulent, coercionary or concealing illegal intentions with a lawful form; (c) judicial discretion with respect to the availability of specific performance, injunctive relief, remedies or defenses, or the calculation of damages; and (d) the discretion of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC.

 

v.                                      This opinion is issued based on our understanding of PRC Laws. For matters not explicitly provided under PRC Laws, the interpretation, implementation and application of the specific requirements under PRC Laws, as well as their application to and effect on the legality, binding effect and enforceability of certain contracts, are subject to the final discretion of competent PRC legislative, administrative and judicial authorities. Under PRC Laws, foreign investment is restricted in certain industries. The interpretation and implementation of these laws and regulations, and their application to and effect on the legality, binding effect and enforceability of contracts such as the Contractual Arrangements  and transactions contemplated by the Contractual Arrangements, are subject to the discretion of the competent Governmental Agency.

 

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vi.                                   The term “enforceable” or “enforceability” as used in this opinion means that the obligations assumed by the relevant obligors under the relevant Documents are of a type which the courts of the PRC may enforce. It does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their respective terms and/or additional terms that may be imposed by the courts. As used in this opinion, the expression “to the best of our knowledge after due inquiry” or similar language with reference to matters of fact refers to the current, actual knowledge of the attorneys of this firm who have worked on matters for the Company and the PRC Companies in connection with the Offering and the transactions contemplated thereby.

 

vii.                                We may rely, as to matters of fact (but not as to legal conclusions), to the extent we deem proper, on representations made by officers and employees of the Company, the PRC Companies and Governmental Agencies.

 

viii.                             We have not undertaken any independent investigation, search or other verification action to determine the existence or absence of any fact or to render this opinion, and no inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of the Company or the PRC Companies or the rendering of this opinion.

 

ix.                                   This opinion is intended to be used in the context which is specifically referred to herein; each paragraph shall be construed as a whole and no part shall be extracted and referred to independently.

 

x.                                      This opinion is strictly limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated herein. The opinion expressed herein is rendered only as of the date hereof, and we assume no responsibility to advise you of facts, circumstances, events or developments that hereafter may be brought to our attention and that may alter, affect or modify the opinion expressed herein.

 

This opinion is delivered solely for the purpose of and in connection with the Registration Statement publicly filed with the U.S. Securities and Exchange Commission on the date of this opinion and may not be used for any other purpose without our prior written consent.

 

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We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Registration Statement, and to the use of our firm’s name under the captions “Risk Factors,” “Our History and Corporate Structure,” “Enforceability of Civil Liabilities,” “Regulations,” “Taxation — People’s Republic of China taxation,” and “Legal Matters” in the Registration Statement.  In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the regulations promulgated thereunder.

 

Yours faithfully,

 

 

 

/s/ HAN KUN LAW OFFICES

 

HAN KUN LAW OFFICES

 

 

8


 

Schedule A

 

List of the PRC Companies

 

1.              Peng Yida Business Consulting (Shenzhen) Co., Ltd. (鹏意达商务咨询(深圳)有限公司);

 

2.              Shenzhen Pengai Hospital Investment Management Co., Ltd. (深圳鹏爱医院投资管理有限公司);

 

3.              Shenzhen Pengcheng General Hospital (深圳鹏程医院);

 

4.              Shenzhen Pengai Aesthetic Medical Hospital Co., Ltd. (深圳鹏爱医疗美容医院);

 

5.              Shenzhen Pengai Xiuqi Aesthetic Medical Hospital (深圳鹏爱秀琪医疗美容医院);

 

6.              Shenzhen Pengai Culture Broadcast Co., Ltd. (深圳鹏爱文化传播有限公司);

 

7.              Shenzhen City Pengai Beauty Promise Cosmetic Co., Ltd. (深圳市鹏爱美丽约定美容有限公司);

 

8.              Changsha Pengai Aesthetic Medical Hospital Co., Ltd. (长沙鹏爱医疗美容医院有限公司);

 

9.              Chengdu Pengai Yueji Aesthetic Medical Clinic Co., Ltd. (成都鹏爱悦己医疗美容门诊部有限公司);

 

10.       Chongqing Pengai Aesthetic Medical Hospital Co., Ltd. (重庆鹏爱医疗美容医院有限公司);

 

11.       Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. (广州鹏爱医疗美容医院有限公司);

 

12.       Haikou Pengai Aesthetic Medical Hospital Co., Ltd. (海口鹏爱医疗美容医院有限公司);

 

13.       Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd. (杭州鹏爱医疗美容门诊部有限公司);

 

14.       Huizhou Pengai Aesthetic Medical Hospital Co., Ltd. (惠州鹏爱医疗美容医院有限公司);

 

15.       Nanchang Pengai Aesthetic Medical Clinic Co., Ltd. (南昌鹏爱医疗美容门诊部有限公司);

 

16.       Shanghai Pengai Aesthetic Medical Clinic Co., Ltd. (上海鹏爱医疗美容门诊部有限公司);

 

17.       Shanghai Pengai Medical Technology Co., Ltd. (上海鹏爱医疗科技有限公司);

 

18.       Yinchuan Pengai Yueji Aesthetic Medical Clinic Co., Ltd. (银川市鹏爱悦己医疗美容门诊部有限公司);

 

19.       Yantai Pengai Jiayan Cosmetic Surgery Hospital Co., Ltd. (烟台鹏爱佳妍美容整形医院有限公司);

 

20.       Ninghai Pengai Aesthetic Medical Clinic Co., Ltd.(宁海鹏爱医疗美容门诊部有限公司);

 

21.       Jinan Pengai Cosmetic Surgery Hospital Co., Ltd.(济南鹏爱美容整形医院有限公司);

 

22.       Shenzhen Pengai Yueji Aesthetic Medical Hospital (深圳鹏爱悦己医疗美容医院);

 

23.       Shenzhen Pengai Yuexin Aesthetic Medical Hospital (深圳鹏爱悦心医疗美容医院); and

 

24.       Shenzhen Yueji Aesthetic Medical Clinic Co., Ltd. (深圳悦己医疗美容门诊部有限公司).

 


 

Schedule B

 

List of the Contractual Arrangements

 

Pengai Jiayan

 

1.              Loan Agreement (借款协议) dated as of November 5, 2018 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of November 5, 2018 among Pengai Investment, Zhou Pengwu (周鹏武) and Pengai Jiayan;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of November 5, 2018 among Pengai Investment, Pengai Jiayan and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of November 5, 2018 among Pengai Investment, Pengai Jiayan and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of November 5, 2018 issued by Zhou Pengwu (周鹏武);

 

6.              Consent Letter (同意函) dated as of November 5, 2018 issued by Ding Wenting (丁文婷).

 

Hangzhou Pengai

 

1.              Loan Agreement (借款协议) dated as of August 30, 2018 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of August 30, 2018 among Pengai Investment, Zhou Pengwu (周鹏武) and Hangzhou Pengai;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of August 30, 2018 among Pengai Investment, Hangzhou Pengai and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of August 30, 2018 among Pengai Investment, Hangzhou Pengai and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of August 30, 2018 issued by Zhou Pengwu (周鹏武);

 

6.              Consent Letter (同意函) dated as of August 30, 2018 issued by Ding Wenting (丁文婷);

 

7.              Amended and Restated Loan Agreement (经修订与重述的借款协议) dated as of April 1, 2019 between Pengai Investment and Zhou Pengwu (周鹏武);

 

8.              Amended and Restated Economic Interest Transfer Agreement (经修订与重述的股权收益权转让协议) dated as of April 1, 2019 among Pengai Investment, Zhou Pengwu (周鹏武) and Hangzhou Pengai;

 

9.              Amended and Restated Exclusive Option Agreement (经修订与重述的独家购买权协议) dated as of April 1, 2019 among Pengai Investment, Hangzhou Pengai and Zhou Pengwu (周鹏武);

 

10.       Amended and Restated Equity Interest Pledge Agreement (经修订与重述的股权质押协议) dated as of April 1, 2019 among Pengai Investment, Hangzhou Pengai and Zhou Pengwu (周鹏武);

 

11.       Amended and Restated Power of Attorney (经修订与重述的授权委托书) dated as of April 1, 2019 issued by Zhou Pengwu (周鹏武);

 


 

12.       Amended and Restated Consent Letter (经修订与重述的同意函) dated as of April 1, 2019 issued by Ding Wenting (丁文婷).

 

Chongqing Pengai

 

1.              Loan Agreement (借款协议) dated as of July 6, 2018 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of July 6, 2018 among Pengai Investment, Zhou Pengwu (周鹏武) and Chongqing Pengai;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of July 6, 2018 among Pengai Investment, Chongqing Pengai and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of July 6, 2018 among Pengai Investment, Chongqing Pengai and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of July 6, 2018 issued by Zhou Pengwu (周鹏武);

 

6.              Consent Letter (同意函) dated as of July 6, 2018 issued by Ding Wenting (丁文婷);

 

7.              Amended and Restated Loan Agreement (经修订与重述的借款协议) dated as of January 1, 2019 between Pengai Investment and Zhou Pengwu (周鹏武);

 

8.              Amended and Restated Economic Interest Transfer Agreement (经修订与重述的股权收益权转让协议) dated as of January 1, 2019 among Pengai Investment, Zhou Pengwu (周鹏武) and Chongqing Pengai;

 

9.              Amended and Restated Exclusive Option Agreement (经修订与重述的独家购买权协议) dated as of January 1, 2019 among Pengai Investment, Chongqing Pengai and Zhou Pengwu (周鹏武);

 

10.       Amended and Restated Equity Interest Pledge Agreement (经修订与重述的股权质押协议) dated as of January 1, 2019 among Pengai Investment, Chongqing Pengai and Zhou Pengwu (周鹏武);

 

11.       Amended and Restated Power of Attorney (经修订与重述的授权委托书) dated as of January 1, 2019 issued by Zhou Pengwu (周鹏武);

 

12.       Amended and Restated Consent Letter (经修订与重述的同意函) dated as of January 1, 2019 issued by Ding Wenting (丁文婷).

 

Changsha Pengai

 

1.              Loan Agreement (借款协议) dated as of October 29, 2018 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of October 29, 2018 among Pengai Investment, Zhou Pengwu (周鹏武) and Changsha Pengai;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of October 29, 2018 among Pengai Investment, Changsha Pengai and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of October 29, 2018 among Pengai Investment, Changsha Pengai and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of October 29, 2018 issued by Zhou Pengwu (周鹏武);

 


 

6.              Consent Letter (同意函) dated as of October 29, 2018 issued by Ding Wenting (丁文婷).

 

Shanghai Pengai

 

1.              Loan Agreement (借款协议) dated as of September 29, 2018 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of September 29, 2018 among Pengai Investment, Zhou Pengwu (周鹏武) and Shanghai Pengai;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of September 29, 2018 among Pengai Investment, Shanghai Pengai and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of September 29, 2018 among Pengai Investment, Shanghai Pengai and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of September 29, 2018 issued by Zhou Pengwu (周鹏武);

 

6.              Consent Letter (同意函) dated as of September 29, 2018 issued by Ding Wenting (丁文婷).

 

Pengai Xiuqi

 

1.              Loan Agreement (借款协议) dated as of August 10, 2018 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of August 10, 2018 among Pengai Investment, Zhou Pengwu (周鹏武) and Pengai Xiuqi;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of August 10, 2018 among Pengai Investment, Pengai Xiuqi and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of August 10, 2018 among Pengai Investment, Pengai Xiuqi and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of August 10, 2018 issued by Zhou Pengwu (周鹏武);

 

6.              Consent Letter (同意函) dated as of August 10, 2018 issued by Ding Wenting (丁文婷).

 

Guangzhou Pengai

 

1.              Loan Agreement (借款协议) dated as of April 27, 2018 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of April 27, 2018 among Pengai Investment, Zhou Pengwu (周鹏武) and Guangzhou Pengai;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of April 27, 2018 among Pengai Investment, Guangzhou Pengai and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of April 27, 2018 among Pengai Investment, Guangzhou Pengai and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of April 27, 2018 issued by Zhou Pengwu (周鹏武);

 


 

6.              Consent Letter (同意函) dated as of April 27, 2018 issued by Ding Wenting (丁文婷);

 

7.              Amended and Restated Loan Agreement (经修订与重述的借款协议) dated as of March 1, 2019 between Pengai Investment and Zhou Pengwu (周鹏武);

 

8.              Amended and Restated Economic Interest Transfer Agreement (经修订与重述的股权收益权转让协议) dated as of March 1, 2019 among Pengai Investment, Zhou Pengwu (周鹏武) and Guangzhou Pengai;

 

9.              Amended and Restated Exclusive Option Agreement (经修订与重述的独家购买权协议) dated as of March 1, 2019 among Pengai Investment, Guangzhou Pengai and Zhou Pengwu (周鹏武);

 

10.       Amended and Restated Equity Interest Pledge Agreement (经修订与重述的股权质押协议) dated as of March 1, 2019 among Pengai Investment, Guangzhou Pengai and Zhou Pengwu (周鹏武);

 

11.       Amended and Restated Power of Attorney (经修订与重述的授权委托书) dated as of March 1, 2019 issued by Zhou Pengwu (周鹏武);

 

12.       Amended and Restated Consent Letter (经修订与重述的同意函) dated as of March 1, 2019 issued by Ding Wenting (丁文婷).

 

Jinan Pengai

 

1.              Loan Agreement (借款协议) dated as of January 1, 2019 between Pengai Investment and Zhou Pengwu (周鹏武);

 

2.              Economic Interest Transfer Agreement (股权收益权转让协议) dated as of January 1, 2019 among Pengai Investment, Zhou Pengwu (周鹏武) and Jinan Pengai;

 

3.              Exclusive Option Agreement (独家购买权协议) dated as of January 1, 2019 among Pengai Investment, Jinan Pengai and Zhou Pengwu (周鹏武);

 

4.              Equity Interest Pledge Agreement (股权质押协议) dated as of January 1, 2019 among Pengai Investment, Jinan Pengai and Zhou Pengwu (周鹏武);

 

5.              Power of Attorney (授权委托书) dated as of January 1, 2019 issued by Zhou Pengwu (周鹏武);

 

6.              Consent Letter (同意函) dated as of January 1, 2019 issued by Ding Wenting (丁文婷).