(ii)

Management Holdco would acquire 10% of the equity of

I-Mab

Hangzhou from

I-Mab

Hong Kong with no consideration. The

% equity is represented by

I-Mab

Hangzhou’s registered capital of US$3 million, and that after acquiring such equity, Management Holdco will pay US$3 million to

I-Mab

Hangzhou to fulfil its capital contribution obligations in a period of four years starting from the Closing Date;

(iii)

ESOP Holdco would acquire 5% of the equity of

I-Mab

Hangzhou from

I-Mab

Hong Kong with no consideration. The

equity is represented by

I-Mab

Hangzhou’s registered capital of US$1.5 million. All of such equity will be used to implement

I-Mab

Hangzhou’s equity incentive plan.

(iv)

Domestic Investors would acquire a total of 40% of the equity of

I-Mab

Hangzhou from

I-Mab

Hong Kong with no consideration. The

% equity is represented

I-Mab

Hangzhou’s registered capital of US$12 million, and after acquiring such equity of

I-Mab

Hangzhou, Domestic Investors would pay US$120 million collectively to

I-Mab

Hangzhou to fulfil its capital contribution obligations.

After completion of the equity transfer, the registered capital of

I-Mab

Hangzhou remained to be US$30 million. The equity interest in

I-Mab

Hangzhou held by

I-Mab

Hong Kong, Domestic Investors, Management Holdco and ESOP Holdco are 45%, 40%, 10% and 5% respectively.

On the same day,

I-Mab

Hong Kong also entered into a shareholders agreement with the aforementioned investors (the “SHA”). According to the SHA and

I-Mab

Hangzhou’s articles of association, the board of directors of

I-Mab

Hangzhou shall be composed of seven directors. The directors shall be elected in the following ways:

I-Mab

Hong Kong is entitled to appoint three directors, including the chairman of the board of directors, as well as nominate one independent director; the Management Holdco is entitled to appoint one director; two

non-related

entities of the Domestic Investors are entitled to appoint one director respectively (“Investors Directors”). Each director of the board of directors shall have one vote.

I-Mab

Hong Kong, Management Holdco and ESOP Holdco agree to act in concert, as long as each of Management Holdco and ESOP Holdco respectively holds equity in

I-Mab

Hangzhou, when exercising the rights as a shareholder.

As a result of the above transactions,

I-Mab

Hangzhou became an affiliate of the Group on the Closing Date in accordance with ASC 810 since

I-Mab

Hangzhou meets the definition of a business under ASC 805. In accordance with ASC 810-10, I-Mab Hangzhou is a variable interest entity, and no shareholder shall consolidate I-Mab Hangzhou under variable interest entity model as neither party have the power to direct all the activities that most significantly impact the economic performance of I-Mab Hangzhou. Therefore, the Group deconsolidated

I-Mab

Hangzhou and retained 45% equity interest in

I-Mab

Hangzhou. The investment was accounted for using the equity method. The retained investment in the common stock of

I-Mab

Hangzhou was initially measured at fair value in accordance with ASC

810-10-40.

The Group determined the fair value of its retained equity interest with the assistance of an independent third-party valuation firm. The Group used equity allocation model to estimate the fair value of the investment. The fair value as of the Closing Date was US$112,039 (equivalent to approximately RMB764,352) which reflected the fact that the shares subscribed by Management Holdco and ESOP Holdco were not issued and outstanding as of the Closing Date. The carrying value of the Group’s long-term investment measured under equity method was RMB762,997 as of September 30, 2020.

A gain of RMB407,598 was recognized as a result of the deconsolidation. The gain represented the difference between:

The fair value of the retained noncontrolling investment in

I-Mab

Hangzhou at the Closing Date; and

ii)

The aggregate of all of the following:

the carrying amount of transferred intellectual property related to TJ102 at the Closing Date (Note 5);

the fair value of the put right liabilities written by

I-Mab

Hong Kong to Domestic Investors;

the carrying amount of

I-Mab

Hangzhou’s net assets at the Closing Date.

(b) Put right liabilities

Pursuant to the SHA, if

I-Mab

Hangzhou fails to close a public offering of

I-Mab

Hangzhou’s shares on the China Stock Exchange’s Science and Technology Innovation Board, Main Board, Small and

Medium-Sized

Enterprise Board, Growth Enterprise Board, or Hong Kong Stock Exchange, U.S. Stock Exchange, or other stock exchanges approved by the shareholders of

I-Mab

Hangzhou in accordance with provisions of the SHA within 4 years after September 15, 2020,

I-Mab

Hong Kong has agreed to repurchase the equity held by Domestic Investors by cash or

I-Mab’s

stock (subject to the approval procedures of

I-Mab)

within 3 years after the expiration of the

4-year

period after September 15, 2020.

The put right written by

I-Mab

Hong Kong to Domestic Investors is a freestanding equity-linked instrument, which is classified as a put right liability and recorded at fair value with changes in fair value recorded in the income statement.

The Group determined the fair value of the put right with the assistance of an independent third-party valuation firm. The Group used the option pricing model (finnerty model) to estimate the fair value of the put right using the following assumptions:


	As of September 15, and September 30,
	2020
Expected terms (Year)		4
Estimated volatility		55.2	%
Spot price	US$	143,401
Probability of triggering event for redemption option		65	%

The model requires the input of highly subjective assumptions including the expected terms, estimated volatility, spot price and probability of triggering event for redemption option. Expected terms is estimated based on the timing of a hypothetical redemption event which is assumed to be the earlier of expected redemption date or expected public offering date. Expected volatility is estimated based on daily stock prices of the comparable company for a period with length commensurate to the expected terms of redemption event. The spot price was determined with assistance from an independent third-party valuation firm. The Group’s management is ultimately responsible for the determination of the spot price and probability of triggering event for redemption option.

Significant decreases in interval between valuation date and maturity date, estimated volatility, spot price and probability of triggering event for redemption option would result in a significantly lower fair value measurement.