Sohu.com
Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F (Mark One)☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIESEXCHANGE ACT OF 1934OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2018OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934OR ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934Commission file number: 001-38511 SOHU.COM LIMITED(Exact name of Registrant as specified in its charter) N/A(Translation of Registrant’s name into English)Cayman Islands(Jurisdiction of incorporation or organization)Level 18, Sohu.com Media PlazaBlock 3, No. 2 Kexueyuan South Road, Haidian DistrictBeijing 100190People’s Republic of China(Address of principal executive offices)Joanna LvChief Financial OfficerLevel 18, Sohu.com Media PlazaBlock 3, No. 2 Kexueyuan South Road, Haidian DistrictBeijing 100190Telephone: (011) 8610-6272 6666Email: IR@sohu-inc.com(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act: (Title of each class) (Name of each exchange on which registered)American Depositary Shares, each representing one ordinaryshare, par value US$0.001 per share The Nasdaq Global Select MarketSecurities registered or to be registered pursuant to Section 12(g) of the Act:NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annualreport: 39,228,538 ordinary shares, par value $0.001 per share, as of December 31, 2018.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. Yes ☐ No ☒Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934 from their obligations under those Section.Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant haselected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant toSection 13(a) of the Exchange Act. ☐† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012.Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing. U.S. GAAP ☒ International Financial Reporting Standards as issuedby the International Accounting Standards Board ☐ Other ☐If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. Item 17 ☐ Item 18 ☐If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct. Yes ☐ No ☒(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐ Table of ContentsTABLE OF CONTENTS INTRODUCTION PART I Item 1. Identity of Directors, Senior Management and Advisers 3 Item 2. Offer Statistics and Expected Timetable 3 Item 3. Key Information 3 Item 4. Information on the Company 59 Item 4A. Unresolved Staff Comments 105 Item 5. Operating and Financial Review and Prospects 105 Item 6. Directors, Executive Officers and Corporate Governance 139 Item 7. Major Shareholders and Related Party Transactions 146 Item 8. Financial Information 151 Item 9. The Offer and Listing 152 Item 10. Additional Information 152 Item 11. Quantitative and Qualitative Disclosures About Market Risk 161 Item 12. Description of Securities Other than Equity Securities 162 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies 163 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 163 Item 15. Controls and Procedures 163 Item 16A. Audit Committee Financial Expert 164 Item 16B. Code of Ethics 164 Item 16C. Principal Accountant Fees and Services 164 Item 16D. Exemptions from the Listing Standards for Audit Committees 165 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 165 Item 16F. Change in Registrants’ Certifying Accountants 165 Item 16G. Corporate Governance 165 Item 16H. Mine Safety Disclosure 165 PART III Item 17. Financial Statements 165 Item 18. Financial Statements 165 Item 19. Exhibits 166 Table of ContentsIntroductionIn this annual report, except where the context otherwise requires and for purposes of this annual report only: • “we,” “us,” “our,” “our company,” “our Group,” the “Sohu Group,” the “Group,” and “Sohu” refer to Sohu.com Limited (or our predecessorSohu.com Inc., as applicable), and unless the context requires otherwise, include its subsidiaries and variable interest entities. Sohu.comInc., a Delaware corporation, was dissolved on May 31, 2018 and Sohu.com Limited, which before then was a direct wholly-ownedsubsidiary of Sohu.com Inc., replaced Sohu.com Inc. as the top-tier, publicly-traded holding company of the Sohu Group. See “Informationon the Company—History and Development of the Company” in Item 4 of this annual report. • “ADSs” refers to our American depositary shares, each of which represents one ordinary share, par value $0.001 per share; • “Changyou” refers to Changyou.com Limited, a Cayman Islands company, and unless the context requires otherwise, includes itssubsidiaries and variable interest entities, or VIEs; • “China” or “PRC” refers to the People’s Republic of China, and for the purpose of this annual report, excludes Hong Kong, Macau andTaiwan; • “DAU,” for active users quoted from iResearch, for any given month, refers to the average number of active users per day during that month.A user who uses the applicable product more than once in any such day is counted as one active user for that day. Each distinguishabledevice or application is treated as a separate user for purposes of calculating such DAU; • “HNTE” refers to high and new technology enterprises; • “IVAS” refers to our Internet value-added services; • “IPO” refers to an initial public offering; • “KNSE” refers to key national software enterprises: • “Legacy TLBB Mobile” refers to a mobile game that Changyou developed based on the title and characters of Tian Long Ba Bu, which isoperated by Tencent under license from Changyou and was launched in May 2017; • “MAU,” for active users quoted from iResearch, for any given month, refers to the number of active users during that month. A user whouses the applicable product more than once in any such month is counted as one active user for that month. Each distinguishable device orapplication is treated as a separate user for purposes of calculating such MAU; • “Memorandum and Articles of Association” refers to our Amended and Restated Memorandum of Association and our Amended andRestated Articles of Association; • “MMORPGs” refers to massively multiplayer online role-playing games; • “Offshore” refers to nations and territories outside of Mainland China, and for this purpose includes Hong Kong, Macau, and Taiwan; • “Paid clicks” refers to the number of paid clicks, including clicks by users on advertisers promotional links displayed on Sogou’s searchresult pages and other Internet properties and third parties’ Internet properties; • “PC games” refers to interactive online games that may be accessed and played simultaneously by hundreds of thousands of game playersthrough personal computers with local game client-end access software installation requirements. In previous annual reports, we havesometimes used the terms “MMOGs” and “MMORPGs” when referring to these client-end installed games played through personalcomputers; • “PRC GAAP” refers to generally accepted accounting principles of the PRC; • “RMB” refers to the Renminbi, which is the legal currency of China; • “Sogou” refers to Sogou Inc., a Cayman Islands company, and unless the context requires otherwise, includes its subsidiaries and variableinterest entities, or VIEs; • “Sogou Pre-IPO Class A Ordinary Shares” refers to the Sogou Class A ordinary shares that were authorized and outstanding prior to thecompletion of Sogou’s IPO; • “Sogou Pre-IPO Class B Ordinary Shares” refers to the Sogou Class B ordinary shares that were authorized and outstanding prior to thecompletion of Sogou’s IPO; • “Sogou Pre-IPO Ordinary Shares” refers to the Sogou Pre-IPO Class A Ordinary Shares and the Sogou Pre-IPO Class B Ordinary Shares; 1Table of Contents • “Sogou Pre-IPO Series A Preferred Shares” refers to the Sogou Series A Preferred Shares that were authorized and outstanding prior to thecompletion of Sogou’s IPO; • “Sogou Pre-IPO Series B Preferred Shares” refer to the Sogou Series B preferred shares that were authorized and outstanding prior to thecompletion of Sogou’s IPO; • “Sogou Pre-IPO Preferred Shares” refers to the Sogou Pre-IPO Series A Preferred Shares and the Sogou Pre-IPO Series B Preferred Shares,collectively; • “Sogou Class A Ordinary Shares” refers to the Sogou Class A Ordinary Shares, which carry one vote per share; • “Sogou Class B Ordinary Shares” refers to the Sogou Class B Ordinary Shares which carry ten votes per share; • “Tencent” refers to Tencent Holdings Limited and its subsidiaries under International Financial Reporting Standards; • “Tian Long Ba Bu,” refers to the popular novel of that name by the famous Chinese writer Louis Cha, from whom Changyou has obtainedan exclusive license to develop and operate PC games and mobile games based on the title and characters of that novel; • “TLBB” refers to the PC game developed based on the title and characters of Tian Long Ba Bu; • “TLBB 3D” refers to a mobile game that were developed based on the title and characters of Tian Long Ba Bu; • “U.S. GAAP” refers to generally accepted accounting principles in the United States; • “U.S. TCJA” refers to the U.S. Tax Cuts and Jobs Act signed into law on December 22, 2017; and • “VIE” refers to an entity that is a variable interest entity under U.S. GAAP, including a subsidiary of an entity that is a variable interestentity under U.S. GAAP.This annual report on Form 20-F includes our audited consolidated statements of comprehensive income for the years ended December 31, 2016,2017 and 2018 and audited consolidated balance sheets as of December 31, 2017, and 2018.Our predecessor Sohu.com Inc. completed an IPO of shares of its common stock on NASDAQ on July 17, 2000. Following the dissolution ofSohu.com Inc. on May 31, 2018, our ADSs began trading on NASDAQ in place of the shares of common stock of Sohu.com Inc. under the same“SOHU” symbol under which Sohu.com Inc.’s shares had previously traded. Sogou completed its IPO on the New York Stock Exchange (the “NYSE”)in November 2017, trading under the symbol “SOGO.” Changyou completed its IPO on NASDAQ in April 2009, trading under the symbol “CYOU.”FORWARD-LOOKING INFORMATIONThis annual report on Form 20-F contains “forward looking statements.” These statements are made under the “safe harbor” provisions of the U.S.Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terms such as “may,” “will,” “expects,”“anticipates,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” and similar expressions. These statements involve known andunknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from thoseexpressed or implied by the forward-looking statements. The forward-looking statements made in this annual report relate only to events as of the dateon which the statements are made. We undertake no obligation, beyond any that is required by law, to update any forward-looking statement to reflectevents or circumstances after the date on which the statement is made, even though our situation will change in the future.These forward-looking statements include, but are not limited to, the following: • our ability to maintain and strengthen our position as a leading Chinese online media, search and game service group in China; • our expected development, launch and market acceptance of our products and services; • our various initiatives to implement our business strategies to expand our business; • our future business development, results of operations and financial condition; • the expected growth of and change in the online media, search and game industries in China; and • the PRC government policies relating to the Internet and Internet content providers, including online media, search and game developersand operators.We operate in an emerging and evolving environment. New risk factors emerge from time to time and it is impossible for our management topredict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may causeactual results to differ materially from those contained in any forward-looking statement.We would like to caution you not to place undue reliance on forward-looking statements and you should read these statements in conjunctionwith all other parts of this annual report, including the risk factors set forth in Item 3. See “Key Information—Risk Factors” 2Table of ContentsPART I ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot Applicable. ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot Applicable. ITEM 3.KEY INFORMATIONSelected Consolidated Financial DataThe following tables present the selected consolidated financial information for our company. The selected consolidated statements ofcomprehensive income data for the years ended December 31, 2016, 2017, and 2018 and the consolidated balance sheets data as of December 31, 2017and 2018 have been derived from our audited consolidated financial statements included in this annual report beginning on page F-1. The selectedconsolidated statements of comprehensive income data for the years ended December 31, 2014 and 2015 and our consolidated balance sheets data asof December 31, 2014, 2015, and 2016 have been derived from audited consolidated financial statements that are not included in this annual report.Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. The selected consolidated financial data should beread in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5.Operating and Financial Review and Prospects” below. Our historical results do not indicate the results that may be expected for any future periods.Selected Consolidated Statement of Comprehensive Income /(Loss) Data Year Ended December 31, 2014 2015 2016 2017 2018 (In thousands, except per ADS data) Statements of Comprehensive Income Data: Revenues: Online advertising: Brand advertising $541,158 $577,114 $447,956 $314,066 $231,945 Search and search-related advertising 357,839 539,521 597,133 801,199 1,022,456 Subtotal of online advertising revenues 898,997 1,116,635 1,045,089 1,115,265 1,254,401 Online games 652,008 636,846 395,709 449,533 389,788 Others 122,072 183,610 209,633 296,164 238,840 Total revenues 1,673,077 1,937,091 1,650,431 1,860,962 1,883,029 Cost of revenues(1): Online advertising: Brand advertising 307,708 383,187 371,085 363,592 184,474 Search and search-related advertising 163,918 238,944 290,158 412,904 664,164 Subtotal of cost of online advertising revenues 471,626 622,131 661,243 776,496 848,638 Online games 142,552 156,315 96,168 62,775 60,981 Others 71,456 80,618 102,389 195,895 162,102 Total cost of revenues 685,634 859,064 859,800 1,035,166 1,071,721 Gross profit 987,443 1,078,027 790,631 825,796 811,308 Operating expenses: Product development(1) 409,285 398,143 353,144 412,173 441,161 Sales and marketing(1) 526,514 383,931 434,780 413,045 400,579 General and administrative(1) 204,325 173,160 119,841 122,874 113,724 Goodwill impairment and impairment of intangible assets acquired as part of businessacquisitions 52,282 40,324 — 86,882 16,369 Total operating expenses 1,192,406 995,558 907,765 1,034,974 971,833 Operating profit /(loss) (204,963) 82,469 (117,134) (209,178) (160,525) Other income /(expense), net 9,959 74,526 (10,713) 6,658 64,167 Interest income 37,560 30,643 22,499 24,138 24,079 Interest expense (6,583) (7,184) (1,356) (4,088) (17,538) Exchange difference (1,142) 5,337 12,803 (14,385) 9,026 Income /(loss) before income tax expense /(benefit) (165,169) 185,791 (93,901) (196,855) (80,791) Income tax expense /(benefit) 6,050 76,936 21,072 273,148 (13,432) Net income /(loss) (171,219) 108,855 (114,973) (470,003) (67,359) Less: Net income /(loss) attributable to the noncontrolling interest shareholders (32,309) 146,542 109,048 84,523 92,723 Dividend or deemed dividend to noncontrolling Sogou Pre-IPO Series A Preferredshareholders 27,747 11,911 — — — Net loss attributable to Sohu.com Limited. $(166,657) $(49,598) $(224,021) $(554,526) $(160,082) Net income /(loss) $(171,219) $108,855 $(114,973) $(470,003) $(67,359) Other comprehensive income /(loss) (8,390) (87,655) (77,155) 68,429 (37,339) Comprehensive income /(loss) (179,609) 21,200 (192,128) (401,574) (104,698) Less: Comprehensive income /(loss) attributable to noncontrolling interest shareholders (33,797) 118,138 78,824 117,960 61,376 Dividend or deemed dividend to noncontrolling Sogou Pre-IPO Series A Preferredshareholders 27,747 11,911 0 0 — Comprehensive loss attributable to Sohu.com Limited. (173,559) (108,849) (270,952) (519,534) (166,074) Basic net loss per ADS $(4.33) $(1.28) $(5.79) $(14.27) $(4.11) Shares used in computing basic net loss per ADS 38,468 38,598 38,706 38,858 38,959 Diluted net loss per ADS $(4.43) $(1.32) $(5.83) $(14.30) $(4.13) Shares used in computing diluted net loss per ADS 38,468 38,598 38,706 38,858 38,959 3Table of Contents(1)Share-based compensation expenses are included in the following financial statements line items: Year Ended December 31, 2014 2015 2016 2017 2018 (In thousands) Cost of revenues $1,973 $1,748 $366 $198 $(69) Product development expenses 24,982 19,344 9,184 23,547 6,131 Sales and marketing expenses 5,645 3,054 2,394 5,915 405 General and administrative expenses 41,843 29,297 7,176 15,817 (4,372) The negative amounts in the table above resulted from re-measured compensation expense based on the then-current fair value of the awards on thereporting date.Selected Consolidated Balance Sheet Data As of December 31, 2014 2015 2016 2017 2018 (In thousands) Balance Sheets Data: Cash and cash equivalents $876,340 $1,245,205 $1,050,957 $1,364,096 $819,713 Restricted cash 0 0 0 3,928 5,974 Restricted time deposits 426,748 227,285 269 271 244,179 Working capital 902,923 814,933 918,520 1,474,699 1,133,680 Total assets 2,867,009 3,042,194 2,563,690 3,389,239 3,389,239 Short-term bank loans 25,500 344,500 0 61,216 129,677 Long-term bank loans 344,500 0 0 122,433 302,323 Total liabilities 1,178,103 1,311,442 1,005,895 1,572,002 1,745,558 Ordinary Shares: $0.001 par value per share (75,400 shares authorized;38,507 shares, 38,653 shares, 38,742 shares, 38,898 shares, and 39,229shares, respectively, issued and outstanding as of December 31, 2014,2015, 2016, 2017 and 2018) 44 45 45 45 39 Total Sohu.com Limited shareholders’ equity 1,201,661 1,241,022 993,580 750,634 588,840 Noncontrolling interest 487,245 489,730 564,215 1,066,603 964,111 Total shareholders’ equity 1,688,906 1,730,752 1,557,795 1,817,237 1,552,951 4Table of ContentsRisk FactorsRisks Related to Our BusinessWe are subject to the risks associated with operating in an evolving market.As a company operating in the rapidly evolving PRC Internet market, we face numerous risks and uncertainties. Some of these risks relate to our abilityto: • continue to attract users to remain with us and use our products and services as the primary means of surfing the Internet switches fromtraditional PCs to mobile phones and other portable devices; • continue to attract a large audience to our matrices of Chinese language content and services by expanding the type and technicalsophistication of the content and services we offer; • maintain and develop a sufficiently large advertiser base for our brand advertising and search and search-related advertising businesses; • maintain and attract online game users by periodically updating our existing online games and developing and launching new onlinegames; • increase the revenues derived from our fee-based services and products we offer online; • build our businesses such as Sohu Media Portal, Sohu Video, Focus, search and search-related, online game and other businessessuccessfully; • attract and retain qualified personnel; and • effectively control our increased costs and expenses as we expand our business.Our operating results are likely to fluctuate significantly and may differ from market expectations.Our annual and quarterly operating results have varied significantly in the past, and may vary significantly in the future, due to a number of factorswhich could have an adverse impact on our business. Our online advertising revenue often fluctuates as our advertisers adjust their online marketingspending as their industries go through business and economic cycles. We rely on third-party providers for high-quality news, video, audio and textcontent in order to make our Internet platforms, which include our Websites and our applications optimized for mobile devices, or Mobile Apps, moreattractive to users and advertisers. In recent years, video content costs escalated sharply and adversely affected our operating results. Sogou incurredsubstantial traffic acquisition costs to expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’Internet properties, and we expect such increases to continue. A significant portion of our online game revenue is attributable to Changyou’s PC gameTLBB. However, the popularity of PC games continues to decline as game players have switched to mobile devices to access online games. DespiteChangyou’s efforts to improve TLBB, our game players have nevertheless lost interest in it over time and TLBB’s popularity, revenues andprofitability have continued to decline. If Changyou fails to improve and update TLBB on a timely basis, or if Changyou’s competitors introduce morepopular games, including mobile games, catering to Changyou’s game-player base, the decline in TLBB’s popularity can be expected to accelerate,which could cause a significant decrease in our revenues. Changyou made significantly increased expenditures for sales and marketing during 2013and 2014, mainly for the promotion of its platform channel business. However, Changyou determined that its efforts were not successful, and it isunlikely that Changyou will be able to recoup those expenses.We depend on revenues from Sogou’s search and search-related advertising services and from Changyou’s PC game TLBB and mobile gameLegacy TLBB Mobile for a significant portion of our revenues, net income, and operating cash flow.For the year ended December 31, 2018, 54% of our total revenues were derived from Sogou’s search and search-related advertising services, and 16% ofour total revenues and 78% of our online game revenues were derived from TLBB and Legacy TLBB Mobile. If Sogou’s search and search-relatedadvertising revenues do not continue to grow or if they decrease, if Changyou’s revenues from TLBB and Legacy TLBB Mobile continue to decline, orif Changyou’s online game revenues from games other than TLBB and Legacy TLBB Mobile do not grow or if they decrease, our revenues, netincome, and cash flows will be adversely affected. Furthermore, any interruptions in Sogou’s search and search-related advertising services or inTLBB’s and Legacy TLBB Mobile’s operations could cause significant decreases in our revenues, net income, and cash flow. For example, Sogoususpended part of its advertising services for 10 days in July 2018 in order to implement remedial measures to ensure compliance with governmentregulations following a government investigation into certain non-compliant advertisements created by a third party unrelated to Sogou and displayedon Sogou’s platform. See “Risks Related to Sogou Inc.—Sogou Risks Related to China’s Regulatory and Economic Environment—Sogou may besubject to regulatory investigations and sanctions for inappropriate or illegal content that is accessed through its search results.” 5Table of ContentsWe face intense competition, which could reduce our market share and adversely affect our financial performance.There are many companies that distribute online content and services targeting Chinese Internet users. We compete with distributors of content andservices over the Internet, including content sites, Web directories, search engines, online games, Internet service providers and sites maintained bygovernment, educational institutions and other institutions. These sites compete with us for user traffic, advertising dollars, online game players,potential partners and mobile services. The Internet market in China is rapidly evolving. Competition is intense and can be expected to increasesignificantly in the future, because there are no substantial barriers to entry in our market.We have many competitors in the PRC Internet market, including among others Alibaba, Baidu, and Tencent, which are the three dominant Internetcompanies in China, as well as Autohome, BitAuto, Century Cruises (formerly known as Giant Interactive Group Inc.), Da Xing (formerly known asPerfect World Co., Ltd.), Google, IGG Inc., iQIYI, Kalends Inc., Kingsoft, Leju, Microsoft, NetDragon, NetEase, Ourpalm Corporate limited, Phoenix,Qihoo, Qutoutiao, Shulong Technologies (formerly known as Shanda Games Limited), Sina, SouFun, TouTiao, UCWeb, Youku Tudou, and YY. Wecompete with our peers and competitors in China primarily on the following basis: • access to financial resources; • gateway to a host of Internet user activities; • technological advancements; • attractiveness of products; • brand recognition; • volume of traffic and users; • quality of Internet platforms and content; • strategic relationships; • quality of services; • effectiveness of sales and marketing efforts; • talent of staff; and • pricing;Our competitors may have certain competitive advantages over us including: • greater brand recognition among Internet users and clients; • better products and services; • larger user and advertiser bases; • more extensive and well developed marketing and sales networks; and • substantially greater financial and technical resources.Our existing competitors may in the future achieve greater market acceptance and gain a greater market share through launching of new products,introducing new technologies, or forming alliances among themselves, or may enhance their ability to compete with us through mergers andacquisitions or financing activities. For example, during the past few years, many of our competitors have successfully raised significant amounts ofcapital through IPOs, follow-on public equity offerings, and convertible bond offerings. Several of our competitors have also conducted privateplacements of equity or debt that included alliances with larger partners who are able to bring them strategic advantages in addition to financing. Byenhancing their capital bases and forming strategic alliances, our competitors have strengthened their competitiveness and gained greater brandrecognition. Recently some of our major competitors have engaged in or initiated transactions that could make it more difficult for us to competeagainst them effectively. For example, Tencent’s investment in Qutoutiao in March 2018 provided Qutoutiao with considerably greater strategicbenefits than were previously available to it for developing and expanding its mobile content business, which benefits we are unlikely to be able tomatch. 6Table of ContentsIn addition, in recent years the Internet industry in China has been increasingly dominated by Alibaba, Baidu and Tencent. Alibaba and Tencent, inparticular, have been able to expand their reach in the industry through acquisitions and by developing close ties with other Internet companiesthrough equity investments and cooperative strategic relationships. These dominant companies may be able to further strengthen their influence in theindustry by encouraging cooperation among the companies in which they invest or with which they establish strategic relationships. We may not beable to compete successfully and avoid marginalization in the industry if we are unable to develop our own comparable business ecosystem, whichmay be difficult for us to do in view of our relatively limited resources in comparison to these dominant companies.Further, new competitors may emerge and acquire significant market share. For example, high-quality smaller Internet companies have emerged in theInternet industry recently with competitive advantages over us, including that many are led by young entrepreneurs who have a particularunderstanding of the needs and interests of younger users and that, in view of their relatively small size, they are able to adapt more easily than we areto rapid changes in the industry by adjusting their product strategies, market focus, and profit models. Such smaller competitors compete with us insuch areas as vertical content production, video playback, and live broadcast.As a result, we are likely to need additional financial and additional strategic resources in order to compete effectively in the primary markets in whichwe operate. If our competitors are more successful than we are in developing products or in attracting and retaining users and advertisers, our revenuesand growth rates could decline.If we fail to successfully develop and introduce new products, features and services, our ability to attract and retain users and generate revenuescould be harmed.We are continually developing new products, features and services for our users. The planned timing or introduction of new products, features andservices is subject to risks and uncertainties. Actual timing may differ materially from original plans. Unexpected technical, operational, distribution orother problems could delay or prevent the introduction of one or more of our new products or services. Emerging start-ups may be able to innovate andprovide new products, features and services faster than we can. Moreover, we cannot be sure that any of our new products, features and services willachieve widespread market acceptance or generate incremental revenue.In addition, we may experience difficulties in promoting our new products, features and services as a result of the significant market power of ourcompetitors or any anti-competitive practices they might engage in. As a result, despite considerable efforts in this regard, we may fail to attract andretain users.As our products and services are currently accessed primarily through mobile phones, tablets and other internet-enabled mobile devices, webelieve that we must develop products and applications for such devices if we are to maintain or increase our market share and revenues, and wemay not be successful in doing so.Devices other than personal computers, such as mobile phones, tablets, wearable devices and other internet-enabled mobile devices, are usedincreasingly in China and in overseas markets, and have surpassed personal computers as the primary means to access the Internet in the key Chinesemarkets in which we operate. We believe that, for our business to be successful when our content and services are delivered over mobile devices, weneed to design, develop, promote and operate products and applications that are attractive to users of such devices, as well as enhance targeted deliveryof our content and advertising services to our users and advertising customers. The design and development of new products and applications, and ourefforts to enhance the effectiveness of such targeted delivery, may not be successful. We may encounter difficulties with the installation of such newproducts and applications for mobile devices, such products and applications may not function smoothly, and algorithms we develop for targeteddelivery may not be effective in identifying the interests and needs of our users and advertising customers. As new devices are released or updated, wemay encounter problems in developing and upgrading our products or applications for use on mobile devices and we may need to devote significantresources to the creation, support, and maintenance of such products or applications for mobile devices.Our business depends on a strong brand; thus we will not be able to attract users, customers and clients of our products and offerings if we do notmaintain and develop our brands.It is critical for us to maintain and develop our brands so as to effectively expand our user base and our revenues. We believe that the importance ofbrand recognition will increase as the number of Internet users in China grows. In order to attract and retain Internet users, brand advertising, search,online game and mobile customers, we may need to substantially increase our expenditures for creating and maintaining brand loyalty. Our success inpromoting and enhancing our brands, as well as our ability to remain competitive, will also depend on our success in offering high quality content,features and functionality. If we fail to promote our brands successfully or if our users or advertisers do not perceive our content and services to be ofhigh quality, we may not be able to continue growing our business and attracting users, advertisers, online game players and mobile users. 7Table of ContentsOur failure to keep up with rapid technology changes may severely affect our future success.The Internet industry is undergoing rapid technological changes. Our future success will depend on our ability to respond to rapidly evolvingtechnologies, adapt our services to changing industry standards and improve the performance and reliability of our services. If we fail to adapt to suchchanges, our business may be adversely affected. For example, with the emergence of cloud computing technology, the primary Internet technologyplatform has been transformed from a traditional platform to a cloud computing platform. If we fail to adapt to the transformation, our products andservices upgrade process will fall behind our competitors, and accordingly weaken our capacity to adapt our technology to the market. Furthermore,cloud computing itself is a significant business opportunity. If we fail to seize the opportunity, we will lose our ability to capture a share of that market.In addition, as mobile devices other than personal computers are increasingly used to access the Internet, we must develop products and services forsuch devices. To meet advertisers’ needs in targeting potential advertisers accurately, we need to develop and operate a more effective system for ouradvertising delivery, tracking and recording. Otherwise, we will not be able to maintain or increase our revenues and market share. In the meantime, theMinistry of Industry and Information Technology (the “MIIT”) and other PRC governmental authorities can be expected to regularly promulgatestandards and other regulations regarding Internet software and other Internet-based technologies. Adapting to any such standards and regulationscould require us to make significant expenditures in the future.Our strategy of acquiring complementary assets, technologies and businesses may fail and result in impairment losses.As a component of our growth strategy, we have acquired and intend to actively identify and acquire assets, technologies and businesses that arecomplementary to our existing businesses. Our acquisitions could result in the use of substantial amounts of cash, issuance of potentially dilutiveequity securities, significant impairment losses related to goodwill or amortization expenses related to intangible assets and exposure to undisclosed orpotential liabilities of acquired companies. In 2014 Changyou recognized a $33.8 million impairment loss for goodwill and a $15.3 millionimpairment loss for acquired intangible assets related to RaidCall; in 2015 Changyou sold Doyo and recognized a $1.9 million impairment loss forgoodwill; in 2015 Changyou recognized a $29.6 million impairment loss for goodwill and an $8.9 million impairment loss for acquired intangibleassets relating to the MoboTap business; and in 2017 Changyou recognized an $83.5 million impairment loss for goodwill and a $3.4 millionimpairment loss for intangible assets relating to the MoboTap business, mainly due to reinforced restrictions that Chinese regulatory authoritiesimposed on online card and board games, which had an adverse impact on MoboTap’s performance, and also increased the uncertainty for its futureoperations and cash flow. In the fourth quarter of 2018, Changyou recognized a $16.4 million impairment loss for goodwill relating to the 17173.comWebsite, as Changyou’s management had concluded that the business performance of 17173.com Website was below expectations and that previouslyexpected synergies with Changyou’s platform channel business would not materialize.We may be required to record a significant charge to earnings if we are required to reassess our goodwill or other amortizable intangible assets.We are required under U.S. GAAP to test for goodwill impairment annually or more frequently if facts and circumstances warrant a review. Currentlyour brand advertising business is losing money, and goodwill will be impaired if the losses continue. We are also required to review our amortizableintangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may beconsidered a change in circumstances indicating that the carrying value of our amortizable intangible assets may not be recoverable include a declinein stock price and market capitalization and slower or declining growth rates in our industry. We may be required to record a significant charge toearnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined. Forexample, in 2018 we recognized an impairment loss of $10.4 million with respect to Sohu Video’s purchased video content.Any changes in accounting rules for share-based compensation may adversely affect our operating results, our stock price and our competitivenessin the employee marketplace.Our performance is largely dependent on talented and highly skilled individuals. Our future success depends on our continuing ability to identify,develop, motivate and retain highly skilled personnel for all areas of our organization. We have a history of using employee share options andrestricted stock units to align employees’ interest with the interests of our shareholders and encourage quality employees to join us and retain ourquality employees by providing competitive compensation packages. We have adopted guidance on accounting for share-based compensation thatrequires the measurement and recognition of compensation expense for all share-based compensation based on estimated fair values. As a result, ouroperating results contain a charge for share-based compensation expense related to employee share options and restricted stock units. The recognitionof share-based compensation in our statement of comprehensive income has had and will have a negative effect on our reported results and earnings pershare, which can in turn negatively affect our ADS price. On the other hand, if we alter our employee share incentive plans to minimize the share-basedcompensation expense, it may limit our ability to continue to use share-based awards as a tool to attract and retain our employees, which may adverselyaffect our operations. It is possible that there will be changes in the accounting rules for share-based compensation in the future that could have anadverse effect on our ADS price and our competitiveness in the employee marketplace. 8Table of ContentsAny changes in accounting rules may adversely affect our financial position, results of operations and cash flowU.S. GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that arerelevant to our business, including revenue recognition, recognition and measurement of financial instruments, impairment of goodwill and otherintangible assets, and lease obligations are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rulesor their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our reported or expected financialperformance or financial condition and may have an adverse effect on our financial condition and results of operations. For example, commencing fromJanuary 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers,” ASU 2016-01 “FinancialInstruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” and ASU 2016-19 “Statement of Cash Flows:Restricted Cash.” These new accounting standards amended various aspects of the recognition, measurement, presentation, and disclosure of thesetopics. Some of these changes are fundamental and could increase the volatility of our reported financial position, results of operations, and cash flow.New accounting guidance also may require system and other changes that could increase our operating costs. For example, implementation of complexaccounting guidance related to revenue, leases, and other areas may require us to make significant changes to our business management system or otheraccounting systems.Our failure to manage growth and adapt to evolving industry trends and business models could harm us.The growth of personnel requires significant time and resource commitments from us and our senior management. If we are unable to effectivelymanage a large and geographically dispersed group of employees or anticipate our future growth, our business could be adversely affected. As we haveapproximately 8,500 employees, it can be difficult for us to fully monitor each employee’s behavior. In addition, as we have several branch offices inChina, it is harder for us to monitor and regulate the overall behavior of our branch offices or of individual employees at such branch offices, toeffectively implement our strategy to local offices and to manage the growth of these local operations. We cannot assure you that we will be able tomaintain policies and procedures that are rigorous enough or that we will be able to cause all of our employees or all of our branch offices to behave inconformity with those policies and procedures, or to ensure that our employees will not engage in conduct that could expose us to third-party liabilityor governmental sanctions, which may limit our future growth and hamper our business strategy. Additionally, our business relies on our financialreporting and data systems (including our systems for billing users of our fee-based services), which have grown increasingly complex in recent years,due to acquisitions and the diversification and complexity of our business. Our ability to operate our business efficiently depends on these systems,and if we are unable to adapt to these changes, our business could be adversely affected.Moreover, to keep pace with the rapidly developing and evolving Internet industry, we must explore new products, services or revenue models for ourbusiness. For example, in addition to using traditional advertising forms, we have begun to embed product placements in our self-developed content.Since we have limited experience in these business areas, we may fail to manage growth and adapt to industry trends and business models.In addition, as the Internet industry has seen a significant shift from traditional personal computers to mobile devices, we must develop products andservices that are adaptable to mobile devices so as to attract users and cause our existing users and advertisers to remain with us. See “—As ourproducts and services are currently accessed primarily through mobile phones, tablets and other internet-enabled mobile devices, we believe that wemust develop products and applications for such devices if we are to maintain or increase our market share and revenues, and we may not be successfulin doing so.”If we fail to establish and maintain relationships with content, technology and infrastructure providers, we may not be able to attract and retainusers.We rely on third party providers for high-quality news, video, audio and text content in order to make our Internet platforms more attractive to usersand advertisers. Most of our content providers have increased the fees they charge us for their content. This trend has increased our costs and operatingexpenses and has affected our ability to obtain content at an economically acceptable cost. Video content costs have escalated sharply in recent years.If we are not able to purchase as much video content as we did before, the size of our video library will be reduced and our attractiveness to users willbe severely impaired and advertisers may choose not to advertise through our Internet platforms, including our Internet platforms for video. Except forexclusive content that we obtain from certain of our video content providers, much of the third party content provided to our Internet platforms is alsoavailable from other sources or may be provided to other Internet companies. If other Internet companies present the same or similar content in asuperior manner, it would adversely affect our user traffic.We have made efforts to create a culture for user-generated content (“UGC”) and professional generated content (“PGC”), a sub-category of UGC wherethe content is created by a large group of professional or semi-professional content studios), that will allow and encourage Internet users to play anactive role in the process of collecting, reporting, analyzing and disseminating content, and to encourage our users and other content providers toestablish and disseminate their content through our Internet platforms. As the number of UGC and PGC providers on our Internet platforms continues togrow, we increasingly rely on high-quality news, video, audio and text content provided by UGC and PGC providers to generate user traffic, retain ourexisting users and attract new users. If we are not able to continue to attract users or other content providers to establish quality content on our Internetplatforms, or if the UGC and PGC providers on our Internet platform are not able to provide quality content that is appealing to Internet users ingeneral, the volume of our user traffic may decrease and our business and prospects may be adversely affected. Also see “We may be subject tointellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely to us, materially disruptour business.” 9Table of ContentsOur business also depends significantly on relationships with leading technology and infrastructure providers and the licenses that the technologyproviders have granted to us. Our competitors may establish the same relationships as we have, which may adversely affect us. We may not be able tomaintain these relationships or replace them on commercially attractive terms.We depend on key personnel and our business may be severely disrupted if we lose the services of our key executives and employees.Our future success is heavily dependent upon the services of our key executives, particularly Dr. Charles Zhang, who is the founder, Chief ExecutiveOfficer, Chairman of the Board, and a major shareholder of our company. We rely on his expertise in our business operations. For Sogou, we relyheavily on the services of Xiaochuan Wang, Sogou’s Chief Executive Officer. For Changyou, we rely heavily on the services of Dewen Chen,Changyou’s Chief Executive Officer. If one or more of our key executives and employees are unable or unwilling to continue in their present positions,we may not be able to replace them easily and our business may be severely disrupted. In addition, if any of our key executives or employees joins acompetitor or forms a competing company, we may lose know-how, key professionals and staff members as well as customers, suppliers and incuradditional expenses to recruit and train personnel. Each of our executive officers has entered into an employment agreement and a confidentiality,non-competition and non-solicitation agreement with us. However, the degree of protection afforded to an employer pursuant to confidentiality andnon-competition undertakings governed by PRC law may be more limited when compared to the degree of protection afforded under the laws of otherjurisdictions.We also rely on a number of key technology staff for our business. Given the competitive nature of the industry, and in particular our competitors’increasingly aggressive efforts to provide competitive compensation packages to attract talent in the key Chinese markets where we operate, the risk ofkey technology staff leaving Sohu is high and could have a disruptive impact on our operations.Our growth may cause significant pressures upon our financial, operational, and administrative resources.Our financial, operational, and administrative resources may be inadequate to sustain the growth we want to achieve. As the demands of our users andthe needs of our customers change, the number of our users and volume of online advertising increase, requirements for maintaining sufficient serversto provide high-definition online video and to provide game players smooth online game experiences increase, requirements for search traffic andusers’ requirements as to the quality of search services increase, and mobile activities increase, we will need to increase our investment in our networkinfrastructure, facilities and other areas of operations. If we are unable to manage our growth and expansion effectively, the quality of our servicescould deteriorate and our business may suffer. Our future success will depend on, among other things, our ability to: • access financial resources; • adapt our services and maintain and improve the quality of our services; • protect our Internet platforms from hackers and unauthorized access; • continue training, motivating and retaining our existing employees and attract and integrate new employees; and • maintain and improve our operational, financial, accounting and other internal systems and controls.Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, mayadversely affect our business.We regard our copyrights, trademarks, trade secrets and other intellectual property as critical to our success. Unauthorized use of our intellectualproperty by third parties may adversely affect our business and reputation. For example, a third-party Internet platform operator might provide its usersaccess to video content on our Internet platforms while blocking Internet advertisements embedded in our video content, which could adversely affectour online advertising revenues and our reputation with our current and potential advertising clients. We rely on trademark and copyright law, tradesecret protection and confidentiality agreements with our employees, customers, business partners and others to protect our intellectual property rights.Despite our precautions, it may be possible for third parties to obtain and use our intellectual property without authorization. For example, some of ourself-developed Web series video productions were disseminated by third parties without our authorization. Furthermore, under the Patent Law, theState Council’s Patent Administration Department may grant a compulsory license to individuals or entities to use one or more of our patents if ourexploitation of the patents has been determined to violate the antitrust laws. Furthermore, the validity, enforceability and scope of protection ofintellectual property in Internet-related industries are uncertain and still evolving. In particular, the laws of the PRC and certain other countries areuncertain or do not protect intellectual property rights to the same extent as do the laws of the United States. Moreover, litigation may be necessary inthe future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights ofothers. Future litigation could result in substantial costs and diversion of resources. We cannot be certain that judgments from the lawsuits will beissued in our favor, or that any resulting damages will cover our business losses and litigation expenses. If our campaigns and lawsuits against piracydo not achieve their intended effect, our business and operation may be adversely affected. 10Table of ContentsWe may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adverselyto us, materially disrupt our business.We cannot be certain that the products, services and intellectual property used in our normal course of business do not or will not infringe validpatents, copyrights or other intellectual property rights held by third parties. We have in the past been, and may in the future be, subject to claims andlegal proceedings relating to the intellectual property of others in the ordinary course of our business and have in the past been, and may in the futurebe, required to pay damages or to agree to restrict our activities. In particular, if we are found to have violated the intellectual property rights of others,we may be enjoined from using such intellectual property, may be ordered to pay damages or fines, and may incur licensing fees or be forced todevelop alternatives. We may incur substantial expense in defending against third party infringement claims, regardless of their merit. Successfulinfringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business by restricting orprohibiting our use of the intellectual property in question. In March 2008, we were sued by four major record companies, Sony BMG, Warner,Universal and Gold Label, which alleged that we had provided music search links and download services that violated copyrights they owned.Although the lawsuits were settled in 2013 without any payment of damages by us, we may be subject to similar lawsuits in the future. In addition, it ispossible that content on our Websites and Sohu News App, which not only includes content developed by us but also provides a platform for asignificant amount of content generated by others, may violate the intellectual property rights of third parties. As we produce more self-developedcontent for our Internet platforms as part of our new content strategy, we, as the primary provider of such content, may incur relatively higher monetaryliability if such content is found to have infringed the intellectual property rights of third parties. Also, as we increasingly rely on content provided bythird-party UGC and PGC providers on our Internet platforms, either developed by the outlets themselves or adapted from content of parties separatefrom such outlets, it will become increasingly difficult for us to fully monitor such content, which could make us more vulnerable to potentialinfringement claims. Furthermore, PRC governmental authorities have recently been drawing attention to issues regarding the infringement of onlineintellectual property rights. For example, the Jian Wang 2018 Campaign, which targets copyright infringement related to re-transmission of Internetcontent and dissemination of short videos and comic videos over the Internet, was launched on July 16, 2018.We may be subject to, and may expend significant resources in defending against, claims based on the content and services we provide over ourInternet platforms.As our services may be used to download and distribute information to others, there is a risk that claims may be made against us for defamation,negligence, copyright or trademark infringement or based on the nature and content of such information. Furthermore, we could be subject to claims forthe online activities of our users and incur significant costs in our defense. In the past, claims based on the nature and content of information that wasposted online by users have been made in the United States against companies that provide online services. We do not carry any liability insuranceagainst such risks.We could be exposed to liability for the selection of listings that may be accessible through our Internet platforms or through content and materialsthat our users may post in classifieds, message boards, and other interactive services. If any information provided through our services contains errors,third parties may make claims against us for losses incurred in reliance on the information. We also offer Web-based e-mail and subscription services,which expose us to potential liabilities or claims resulting from: • unsolicited e-mail; • lost or misdirected messages; • illegal or fraudulent use of e-mail; or • interruptions or delays in e-mail service.Investigating and defending any such claims may be expensive, even if they do not result in liability.We may not have exclusive rights to trademarks, designs and technologies that are crucial to our business.We have applied for initial registrations in the PRC and overseas, and/or changes in registrations relating to transfers of our key trademarks in the PRC,including Sohu.com logos, Sohu Fox logos, www.focus.com.cn, GoodFeel logos, Go2Map, Sogou’s name, trademarks relating to Sogou products suchas Sogou Input Method, Sogou logos, Sohu Focus, ChangYou.com, cyou.com, TLBB, TL logos, New Blade Online, 17173 , TLBB 3D and thecorresponding Chinese versions of the marks, so as to establish and protect our exclusive rights to these trademarks. We have also applied for patentsrelating to our business. While we have succeeded in registering the trademarks for most of these marks in the PRC under certain classes, theapplications for initial registration, and/or changes in registrations relating to transfers, of some marks and/or of some of marks under other classes arestill under examination by the Trademark Office of the State Administration of Market Regulation (the “SAMR”) and relevant authorities overseas.While we have succeeded in obtaining some patents, some of our patent applications are still under examination by the State Intellectual PropertyOffice of the PRC. Approvals of our initial trademark registration applications, and/or of changes in registrations relating to such transfers, or of ourpatent applications, are subject to determinations by the Trademark Office of the SAMR, the State Intellectual Property Office of the PRC and relevantauthorities overseas that there are no prior rights in the applicable territory. We cannot assure that these applications will be approved. Any rejection ofthese applications could adversely affect our rights to the affected marks, designs and technologies. In addition, even if these applications areapproved, we cannot assure you that any registered trademark or issued patent will be sufficient in scope to provide adequate protection of our rights. 11Table of ContentsWe may be subject to claims for invasion of personal privacy, which may force us to incur legal expenses and, if determined adversely to us, disruptour business.We allow users to upload written materials, images, pictures and other content on our platform and download, share, link to audio, video and othercontent either on our platform or from other Websites through our platform. Procedures that we have designed to reduce the likelihood that content willbe used without proper licenses or third-party consents may not be effective in preventing the unauthorized posting or sharing of content. We cannotbe certain that content uploaded or shared by our users is legal and will not violate the privacy of others, and we may be unable to anticipate theexistence of such content on our platform or to implement adequate preventative measures. We are also subject to various regulatory requirementsrelating to the protection of personal privacy. See “Government Regulation and Legal Uncertainties—Miscellaneous—Laws and Regulations Relatedto Consumer Protection and Privacy Protection—Privacy Protection.” Complying with such requirements could cause us to incur substantial expensesor necessitate that we alter or change our practices in a manner that could harm our business.Information security breaches relating to our platforms could damage our reputation and expose us to penalties and legal liability.We collect, process, and store on our servers significant amounts of data concerning our users. Although we have taken steps to protect our user data,our security measures could be compromised, because techniques used to sabotage or obtain unauthorized access to systems change frequently andgenerally are not recognized until they are launched against a target, and we may be unable to anticipate these techniques or to implement adequatepreventative measures. In addition, we are subject to various regulatory requirements relating to the security and privacy of such data, includingrestrictions on the collection and use of personal information of users and steps we must take to prevent personal data from being divulged, stolen, ortampered with. Regulatory requirements regarding the protection of such data are constantly evolving and can be subject to significant change,making the extent of our responsibility in that regard uncertain. For example, the Internet Security Law became effective in June 2017, but thecircumstances and standards for application of the law and what might be found to constitute a violation are unclear. See “Government Regulation andLegal Uncertainties—Miscellaneous—Laws and Regulations Related to Security and Censorship.” It is possible that our data protection practices areat present or will in the future be inconsistent with regulatory requirements.We face risks related to health epidemics and other outbreaks.Our business could be adversely affected by the effects of H1N1 influenza, H7N9 influenza, avian influenza, SARS or other epidemics or outbreaks.China reported a number of cases of SARS in April 2003. In recent years, there have been reports of occurrences of H1N1 influenza, H7N9 influenzaand of avian influenza in various parts of China, including a few confirmed human cases and deaths. Any prolonged recurrence of H1N1 influenza,H7N9 influenza, avian influenza, SARS or other adverse public health developments in China may have a material adverse effect on our businessoperations. These could include illness and loss of our management and key employees, as well as temporary closure of our offices and related businessoperations, such as server operations, upon which we rely. Such loss of management and key employees or closures would severely disrupt our businessoperations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat anyfuture outbreak of H1N1 influenza, H7N9 influenza, avian influenza, SARS or any other epidemic. In addition, other major natural disasters may alsoadversely affect our business by, for example, causing disruptions of the Internet network or otherwise affecting access to our portals and our games.We do not have business insurance coverage.The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, oroffer them at a high price. As a result, we do not have any business liability, loss of data or disruption insurance coverage for our operations in China.Any business disruption, litigation or natural disaster might result in our incurring substantial costs and the diversion of our resources.We depend on brand advertising for a significant portion of our revenues, but the brand advertisement market includes many uncertainties, whichcould cause our brand advertising revenues to decline.We derive a significant portion of our revenues, and expect to derive a significant portion of our revenues for the foreseeable future, from the sale ofadvertising for posting on our Internet platforms. Brand advertising revenues represented approximately 12% and 17% of our total revenues for theyears ended December 31, 2018 and 2017, respectively. For the years ended December 31, 2018 and 2017, sales to our five largest advertising agenciesand advertisers accounted for approximately 22% and 23%, respectively, of our total brand advertising revenues. The growth of our brand advertisingrevenues relies on increased revenue from the sale of advertising for posting our Internet platforms, which may be affected by many of the followingrisk factors: • The brand advertising market is still evolving in China. Our current and potential advertising clients may not devote a significant portionof their advertising budgets to Internet-based advertising in general, or to us in particular; • Changes in government policy could restrict or curtail our brand advertising services. For example, during the last several years, the PRCgovernment enacted a series of regulations, administrative instructions and policies to restrict online medical advertising. As a result ofthese regulations, we may lose some of our existing medical advertising clients. For another example, see “Government Regulation andLegal Uncertainties—Specific Statutes and Regulations—Regulation of Other Services—Real Estate Services” for a description of theBeijing Measures and other regulations affecting Focus’s business; 12Table of Contents • Advertising clients may adopt new methods and strategies other than brand advertising to promote their brand and therefore ouradvertising revenue would be negatively affected; • The acceptance of the Internet as a medium for advertising depends on the development of standards for measuring the effectiveness ofadvertisements disseminated over the Internet, and no standards have been widely accepted for the measurement of the effectiveness ofbrand advertising over the Internet. Industry-wide standards may not develop that are sufficient to support the Internet as an effectiveadvertising medium. If these standards do not develop, advertisers may choose not to advertise on the Internet in general or through ourportals or search engines; • We may not have systems that are sufficiently well-developed to support our brand advertising business, and as a result, we may suffersystem bugs that cause bad user experiences errors or omission in publishing our client’s advertisements, which could have a negativeimpact on our brand advertising business.In addition, our ability to generate and maintain significant brand advertising revenues will also depend upon: • the development of a large base of users possessing demographic characteristics attractive to advertising clients; • the acceptance of brand advertisement as an effective way for business marketing by advertising clients; • the effectiveness of our advertising delivery, tracking and reporting systems; • the resistance pressure on brand advertising prices and limitations on inventory; and • the establishment of a successful business model to make our new products adaptable to portable devices, which has required, and willcontinue to require us, to make significant expenditures for research, development, promotion and operations.Many advertisers have shifted their PC online advertising budgets to advertising on mobile devices. Hence we must successfully optimize, adapt andmake attractive our various product and service offerings for access on mobile devices and must effectively deliver advertising content in a manner thatattracts and retains users’ interest and attention or our online advertising business will suffer.Our costs for our brand advertising business have increased significantly as a result of our investment in online video services. If we are unable tomanage the growth of our online video business successfully and control its operating costs effectively, our business may be adversely affected.The operation of our online video services requires continuous, substantial investment in content, technology, infrastructure and brand promotion forboth PCs and mobile devices. Although we have attempted to control our costs relating to content, bandwidth, marketing, and other items for onlinevideo services and the rate of growth of our costs has declined somewhat, our operating expenses are still large, as in recent years the acquisition costsfor quality video content, which accounts for a large portion of our costs and requires continuous investment, have increased dramatically. We havehad to invest increasingly significant financial, operational, strategic, technological, personnel and other resources in order to compete with verticalonline video sites, such as those operated by Tencent, Alibaba’s online video subsidiary Youku Tudou, and iQiyi, that have substantially greaterfinancial resources or have raised significant capital through financing activities, which may significantly strain our resources and negatively affect ouroperating results. If we are unable to continue to acquire and provide on our video platforms quality video content, we may not be able to grow ormaintain the level of our user traffic, which could make our video platforms less attractive to advertisers and have a negative impact on our ability togenerate advertising revenues from our video platforms.We are increasingly required to pay license fees upfront for video content prior to its production. There often are delays of several months, orsometimes up to two or three years, between our payment of such up-front fees and the time when we are able to offer fully-developed content onlineand begin to receive advertising dollars. These delays have often placed, and can be expected to continue to place, significant strains on our cash flow.Our up-front payments also subject us to a certain level of credit risk, as content producers to which we make such payments may fall into financialdifficulties and be unable to deliver the content we have purchased. We are also subjected to the risk that the quality of content will not be up to ourexpectations. In addition, when we purchase rights to the online versions of TV series, we generally rely on the expectation that the series will bebroadcast on nationwide TV channels according to a specified schedule. If there are delays in such TV broadcasts, we will have to delay, perhapsindefinitely, our presentation of the online version of the series. We are also subject to the risk that TV content we purchase will be broadcast on lesspopular TV channels than expected, which will cause our online viewership to be correspondingly lower than we expected.We have spent, and expect to continue to spend, significant resources to develop our self-developed video content. We have also invested, and mayinvest in the future, in the production of movies by selected independent third-party movie studios, where we have exclusive rights to distribute theonline versions of such movies on our Internet platforms for video. If our self-developed video content, or movies in which we invest, are not wellreceived by viewers and/or fail to attract sufficient advertising placements from advertisers, or if the development of such video content or movies isnot completed as a result of financial, regulatory or other restraints, we may not be able to recoup our production costs or investments in movieproduction. For cost-saving purposes, we are making a strategic shift to reduce our purchasing of licensed video content. Instead, we are focusing, andexpect to continue to focus, on self-developed video content, which costs less. However, if developing in-house content becomes widespread in theonline video business in China, the cost of obtaining quality and popular intellectual property can be expected to increase, and we may face fiercecompetition from other online video sites with respect to the acquisition of such intellectual property. 13Table of ContentsWe may not be able to maintain or increase the revenues from our online video business. If we fail to do so, Sohu Video may not be able to becomeprofitable, in which case we would be unable to recoup our substantial expenditures for the development of our online video business.Although China’s online video industry has experienced substantial growth in recent years in terms of both users and content, we cannot assure youthat the online video industry will continue to grow as rapidly as it has in the past, if at all. With the development of technology, new forms of mediamay emerge and render online video Websites or Mobile Apps less attractive to users. Growth of the online video industry is affected by numerousfactors, such as users’ general online video experience, technological innovations, development of Internet and Internet-based services, regulatorychanges in general, and regulations affecting copyright in particular, and the macroeconomic environment. If the online video industry in China doesnot grow as quickly as expected or if we fail to benefit from such growth by successfully implementing our business strategies, our user traffic maydecrease and our business and prospects may be adversely affected. For Sohu Video to become profitable, it will be necessary for us to both maintain orincrease our revenues from Sohu Video and control or reduce our expenditures for video content and other costs. If Sohu Video fails to becomeprofitable, we will be unable to recoup our substantial expenditures for the development of our online video business.We rely on advertising agencies to sell our brand advertising services. As the brand advertising market in China is effectively controlled by a smallnumber of large advertising agencies, such advertising agencies may be in a position to demand higher sales rebates or to delay payments to us,which would adversely affect our gross margin.Most of our brand advertising services are distributed by advertising agencies. In 2018, for example, approximately 77% of our brand advertisingrevenues were derived from advertising agencies. In consideration for these agencies’ services, we are required to pay certain percentages of revenues assales rebates. As the brand advertising market is effectively controlled by a small number of large advertising agencies, such advertising agencies maybe in a position to demand higher sales rebates based on increased bargaining power, or to delay in payments to us, which could negatively affect ourbrand advertising growth and the timing of our collection of payments. During 2018 the biggest five advertising agencies in China contributedapproximately 22% of our brand advertising revenues.The expansion of Internet advertisement blocking measures may result in a decrease in our advertising revenues.The development of Web software that blocks Internet advertisements before they appear on a user’s screen may hinder the growth of onlineadvertising. For example, some Rich Site Summary, or RSS, Internet platforms allow their users to access video content from our Internet platforms,while completely blocking our advertisements from being viewed by their users. Since our advertising revenues are generally based on user views, theexpansion of advertisement blocking on the Internet may decrease our advertising revenues because, when an advertisement is blocked, it is notdownloaded from the server, which means such advertisements will not be tracked as a delivered advertisement. In addition, advertisers may choose notto advertise on the Internet or on our Internet platforms because of the use by third parties of Internet advertisement blocking measures. In addition,increasing numbers of browsers include technical barriers designed to prevent Internet information service providers such as us to trail the browsinghistory of the Internet users, which is also like to adversely affect the growth of online advertising.If our video content fails to attract and retain users and advertisers, we may not be able to generate sufficient user traffic to allow us to maintainor increase our video revenues.Our online video business largely depends on our ability to generate sufficient user traffic, through provision of attractive products, to in turn attractadvertisers to place advertisements on our Internet platforms for video. In order to attract and retain users, we have needed, and will continue to need, toexpend resources to develop our own or acquire from third parties’ high-quality video content. In 2015 and 2016, we purchased significant amounts ofexclusive video content, through which we generated user traffic and revenues by bartering for other video content from other parties or distributing toother third parties. As users might access pirated versions of such films and TV dramas during any such delay, and become less likely to view them onour Internet platforms when they become available, which would significantly affect the ability of our exclusive video content to attract and retainusers, and cause our online traffic and advertising revenues to be lower than we expected. In recent years, our strategy has gradually shifted frompurchasing expensive head content to self-producing content. We cannot assure you that we will continue to be able to acquire exclusive contentrights or develop premium content in the future and our user traffic and revenues generated from such exclusive content rights and self-developedcontent could be reduced. Moreover, if we fail to produce by ourselves or acquire from third parties high-quality video content, or if video content wedevelop by ourselves or acquire proves to be less attractive to users than we anticipated, our user traffic and our market share could be adverselyeffected, which could result in our being unable to maintain or increase our video revenues. 14Table of ContentsVideos and other types of content and materials displayed on our Internet platforms may be found objectionable by PRC regulatory authorities,may subject us to penalties and other administrative actions, and may be subject us to liabilities for infringement of third-party intellectualproperty rights or other allegations.The PRC government has adopted regulations governing Internet access and the distribution of videos over the Internet. In addition to professionallyproduced content, we allow our users to upload videos to our Internet platforms. Our users can upload all types of content, including user-created andprofessionally produced content, and can upload graphic files for limited purposes, such as updating user biographies. Although we have adoptedinternal procedures to monitor the content displayed on our Internet platforms, due to the significant amount of content uploaded by our users, we maynot be able to identify all videos or other content that may violate relevant laws and regulations, and the risk may be greater as we increasingly rely oncontent provided by UGC and PGC providers through our Internet platforms, as we do not have an opportunity to fully review such content prior to itspublication. Failure to identify and prevent illegal or inappropriate content, such as content that is defamatory, is racially or religiously discriminatory,compromises national security, or infringes the intellectual property rights of third parties, from being displayed on our Internet platforms may subjectus to liability.To the extent that PRC regulatory authorities find any content displayed on our Internet platforms objectionable, they may require us to limit oreliminate the dissemination of such content on our Internet platforms, with take-down orders or otherwise. The State Administration of Press,Publication, Radio, Film and Television (the “SAPPRFT”), which in March 2018 was reorganized into three separate governmental authorities—theNational Radio and Television Administration, the National Film Administration, and the State Press Publication Administration, prior to March 31,2018 published, and one or more of those successor entities have published or can be expected to publish, from time to time lists of content that theyconsider objectionable, and we must dedicate teams of employees to continually monitor user-uploaded content and remove content that is deemedobjectionable. In addition, regulatory authorities may impose penalties on us based on content displayed on or linked to our Internet platforms in casesof significant violations, including a revocation of our operating licenses or a suspension or shutdown of our online operations. In the event that PRCregulatory authorities find the video content on our Internet platforms objectionable and impose penalties on us or take other administrative actionsagainst us in the future, our business and reputation may be adversely affected. Moreover, the costs of compliance with these regulations may continueto increase as more content is uploaded by our users.In addition, under PRC laws and regulations governing online advertising, online publishers, such as us, are required to monitor advertising contentdisplayed on their Internet platforms for accuracy, and for compliance with PRC law governing the dissemination of content over the Internet that isdeemed to be unlawful or inappropriate. If we were found to have failed to fulfill our obligation to monitor the advertisements of an advertisingcustomer, we could be subject to various penalties, including being prohibited from providing advertising services for advertisers in the entire industryof the customer. For example, PRC governmental authorities required that we suspend our News Apps from the Apple App Store for two weeks during2018, based on a claim that our News Apps had been displaying unlawful and inappropriate advertising content.We have been involved in litigation based on allegations of infringement of third-party copyright and other rights, such as privacy and image rights,due to the videos displayed on our Internet platforms. See “Risks Related to Our Business—We may be subject to intellectual property infringementclaims, which may force us to incur substantial legal expenses and, if determined adversely against us, materially disrupt our business.” While we haveimplemented internal procedures to review videos uploaded by our users and remove promptly from our Internet platforms any infringing videos afterwe receive infringement notifications from rights owners, due to the significant number of videos uploaded by users, we may not be able to identify allcontent that may infringe on third-party rights. Moreover, some rights owners may not send us a notice before bringing a lawsuit against us. Thus, ourfailure to identify unauthorized videos posted on our Internet platforms has subjected us to, and may in the future subject us to, claims of infringementof third-party intellectual property rights or other rights. In addition, we may be subject to administrative actions brought by the National CopyrightAdministration (the “NCA”) or its local branches for alleged copyright infringement.We may also face litigation or administrative actions for defamation, negligence, or other purported injuries resulting from videos and advertisementsthat we display on our Internet platforms. Such litigation and administrative actions, with or without merit, may be expensive and time-consuming andmay result in significant diversion of resources and management attention from our business operations. Furthermore, such litigation or administrativeactions may adversely affect our brand image and reputation.Risks Related to China’s Telecommunications InfrastructureThe telecommunications infrastructure in China, which is not as well developed as in the United States, may limit our growth.The telecommunications infrastructure in China is not as well developed as it is in the United States. Our growth will depend on the PRC governmentand state-owned enterprises establishing and maintaining a reliable Internet and telecommunications infrastructure to reach a broader base of Internetusers in China. The Internet infrastructure, standards, protocols and complementary products, services and facilities necessary to support the demandsassociated with continued growth may not be developed on a timely basis or at all by the PRC government and state-owned enterprises. 15Table of ContentsWe depend on China Mobile, China Unicom, and China Telecom for telecommunications services, and any interruption in these services may resultin severe disruptions to our business.Although private Internet service providers exist in China, almost all access to the Internet is maintained through China Mobile, China Unicom andChina Telecom under the administrative control and regulatory supervision of the MIIT. We rely on this infrastructure and China Mobile, ChinaUnicom, and China Telecom to provide data communications capacity primarily through local telecommunications lines. Although the governmenthas announced aggressive plans to develop the national information infrastructure, this infrastructure may not be developed and the Internetinfrastructure in China may not be able to support the continued growth of Internet usage. In addition, we will have no access to alternative networksand services, on a timely basis if at all, in the event of any infrastructure disruption or failure.We have signed Bandwidth Provision and Server Hosting Agreements with China Mobile, China Unicom, and China Telecom. Under theseagreements, we maintained servers in China to support most of our core services. However, as there are limited telecommunication infrastructure serviceproviders, we may not be able to lease additional bandwidth on acceptable terms, on a timely basis, or at all. If we are not able to lease additionalbandwidth, the development of our business can be affected.To the extent we are unable to scale our systems to meet the increasing PRC Internet population, we will be unable to expand our user base andincrease our attractiveness to advertisers and merchants.As Internet volume and traffic increase in China, we may not be able to scale our systems proportionately. To the extent we do not successfully addressour capacity constraints, our operations may be severely disrupted, and we may not be able to expand our user base and increase our attractiveness toadvertisers and merchants. Even if we scale our systems proportionately, any unforeseen increase in traffic may disrupt our operations and make itdifficult for our users to visit our Internet platforms, or even cause users to be unable to access our Internet platforms at all, which could result in a lossof users.Unexpected network interruptions caused by system failures may result in reduced user traffic, reduced revenue and harm to our reputation.Our Internet platforms operations are dependent upon Web browsers, Internet service providers, content providers and other Internet platformsoperators in China, which have experienced significant system failures and system outages in the past. Our users have in the past experienceddifficulties due to system failures unrelated to our systems and services. Any system failure or inadequacy that causes interruptions in the availabilityof our services, or increases the response time of our services, as a result of increased traffic or otherwise, could reduce our user satisfaction, future trafficand our attractiveness to users and advertisers.Our operations are vulnerable to natural disasters and other events, as we only have limited backup systems and do not maintain any backupservers outside of China.We have limited backup systems and have experienced system failures and electrical outages from time to time in the past, which have disrupted ouroperations. Most of our servers and routers are currently hosted in a single location within the premises of Alibaba, Baidu and Tencent. Our disasterrecovery plan cannot fully ensure safety in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures,break-ins and similar events. If any of the foregoing occurs, we may experience a complete system shutdown. We do not carry any business interruptioninsurance. To improve the performance and to prevent disruption of our services, we may have to make substantial investments to deploy additionalservers or one or more copies of our Internet platforms to mirror our online resources.Although we carry property insurance with low coverage limits, our coverage may not be adequate to compensate us for all losses, particularly withrespect to loss of business and reputation that may occur.Our network operations may be vulnerable to hacking, viruses and other disruptions, which may make our products and services less attractive andreliable, and third-party online payment platforms that we partner with may be susceptible to security breaches, which may damage our reputationand adversely affect our business.Internet use can decline if any well-publicized compromise of security occurs. “Hacking” involves efforts to gain unauthorized access to information orsystems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Hackers, if successful, couldmisappropriate proprietary information or cause disruptions in our service. We may be required to expend capital and other resources to protect ourInternet platforms against hackers, and measures we may take may not be effective. In addition, the inadvertent transmission of computer viruses couldexpose us to a risk of loss or litigation and possible liability, as well as damage our reputation and decrease our user traffic.Furthermore, we could be liable for security breaches of our users’ confidential information, such as credit card numbers and expiration dates, personalinformation and billing addresses, stored by the third-party online payment platforms that we partner with. Since our revenues are derived in part fromsuch payment platforms, any security breach resulting from Internet payment transactions could damage our reputation and deter current and potentialusers from using our online services. 16Table of ContentsRisks Related to Our Corporate StructureAlthough the Sohu Group holds substantial amounts of cash and cash equivalents, a significant portion of such cash and cash equivalents is heldby Changyou and Sogou, and it can be difficult for Sohu to have access to the portion held by Sogou and Changyou.Sohu has made significant expenditures in recent years, and expects to continue to do so through the current fiscal year. Although we hold a significantamount of cash and cash equivalents in the Sohu Group, the amount of cash directly available to Sohu, without including cash and cash equivalents ofour subsidiaries Changyou and Sogou, is limited. Of approximately $819.7 million in cash and cash equivalents that we held in the Sohu Group on aconsolidated basis as of December 31, 2018, approximately $180.0 million was held by Sohu, approximately $185.2 million was held by Sogou, andapproximately $454.5 million was held by Changyou.Sohu can obtain access, for use in its business, to cash held or generated by Sogou and Changyou only through dividends paid by Sogou or Changyou,as applicable, to shareholders, or through loans made by Sogou or Changyou to Sohu. Payment of dividends by Sogou or Changyou is subject toapproval of the board of directors of Sogou or Changyou, as applicable. In addition, cash held by Mainland China-based subsidiaries and VIEs ofSogou and Changyou can only be available for distribution by Sogou or Changyou as dividends to shareholders after compliance with restrictions andrequirements imposed by PRC law, including PRC profit appropriation and PRC withholding tax, that will reduce the amount available for suchsubsidiaries and VIEs to distribute to Sogou Inc. and Changyou.com Limited for payment of dividends to their shareholders. Further, payments of suchdividends by Sogou or Changyou would reduce the cash and cash equivalents of the Sohu Group as a whole, as non-controlling shareholders of each ofthose entities would be entitled to a pro rata share of such dividends. See “Risks Related to China’s Regulatory Environment—Our Offshore entitiesmay need to rely on dividends and other distributions on equity paid by our Mainland China-based subsidiaries, including the Mainland China-basedsubsidiaries of Sogou and Changyou, to fund any cash requirements those Offshore entities may have. Our Offshore entities may not be able to obtaincash from distributions because our subsidiaries and VIEs in Mainland China are subject to restrictions imposed by PRC law on paying such dividendsor making other payments,” and “—Dividends we receive from our operating subsidiaries located in the PRC are subject to PRC profit appropriationand PRC withholding tax.”Sohu’s ability to obtain loans from Changyou or Sogou for use by Sohu in its business is subject to determination by the respective boards of directorsof Changyou or Sogou that making any such loans is in the best interests of Changyou or Sogou, as applicable, separate from Sohu.Moreover, it could be difficult for Sohu to have sufficient cash available to fund its future expenditures without obtaining debt or equity financingfrom sources other than within the Sohu Group, which might not be available on acceptable terms, if at all.Our interests in our two primary controlled subsidiaries could be significantly diluted.Our percentage and economic interests in our two primary controlled subsidiaries, Sogou and Changyou, could be diluted by the implementation andoperation of existing or future equity incentive plans, any equity issued by them as consideration for acquisitions, or their issuance of securities to raisefunds for their operations. For example, in November 2017 Sogou completed an IPO, which reduced our percentage interest in Sogou, and also adopteda new share incentive plan that reserves Sogou Class A Ordinary Shares for issuance. The issuance of these reserved shares or the occurrence of any ofsuch other dilutive events with respect to Sogou or Changyou in the future would cause our share of the revenues and earnings of the affectedsubsidiary to be reduced.In order to comply with PRC regulatory requirements, we operate our main businesses through companies with which we have contractualrelationships but in which we do not have an actual ownership interest. If our current ownership structure is found to be in violation of current orfuture PRC laws, rules or regulations regarding the legality of foreign investment in the PRC Internet sector, we could be subject to severepenalties.Various regulations in the PRC restrict or prohibit WFOEs from operating in specified industries such as Internet information, online game, mobile,Internet access, and certain other industries. We are a Cayman Islands company and, in order to comply with PRC regulatory requirements, we conductour Internet and value-added telecommunication operations in the PRC through our VIEs, which are incorporated in the PRC and owned by Dr. CharlesZhang and/or certain of our other employees. Through a series of contractual arrangements, our VIEs, for which Sohu is the primary beneficiary, areeffectively controlled by our indirect PRC subsidiaries.The MIIT issued a circular in 2006 that emphasizes restrictions on foreign investment in value-added telecommunications businesses. In addition, anotice issued in 2009 by the SAPPRFT, the NCA, and the National Office of Combating Pornography and Illegal Publications states that foreigninvestors are not permitted to invest in online game operating businesses in China or to exercise control over or participate in the operation of suchbusinesses through indirect means. While we are not aware of any internet company which uses the same or similar contractual arrangements as we dohaving been penalized or ordered to terminate operations by PRC authorities claiming that the arrangements constituted foreign investment in value-added telecommunication services or a kind of control over or participation in the operation of online game operating businesses through indirectmeans, it is unclear whether and how the various regulations of the PRC authorities might be interpreted or implemented in the future. For a detaileddiscussion of PRC regulations, notices and circulars with respect to such restrictions, see “Government Regulation and Legal Uncertainties—SpecificStatues and Regulations—Regulation of Foreign Direct Investment in Value-Added Telecommunications Companies” and “Government Regulationand Legal Uncertainties—Specific Statues and Regulations—Regulation of the Online Game Services—Online Games and Cultural Products.”. 17Table of ContentsIn addition, pursuant to Circular 6 and the Ministry of Commerce (the “MOFCOM”) Security Review Rules, a security review is required for mergersand acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors mayacquire “de facto control” of domestic enterprises with “national security” concerns and prohibit foreign investors from bypassing the security reviewrequirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements orOffshore transactions. These national security review-related regulations are relatively new and there is a lack of clear statutory interpretation regardingthe implementation of the rules, and PRC authorities may interpret these regulations to mean that the transactions implementing our VIE structuresshould have been submitted for review. For a discussion of these PRC national security review requirements, see “Government Regulation and LegalUncertainties—Specific Statues and Regulations—Miscellaneous—Regulation of M&A and Overseas Listings”If we were found to be in violation of any existing or future PRC law or regulations relating to foreign ownership of value-added telecommunicationsbusinesses and security reviews of foreign investments in such businesses, including online games businesses, regulatory authorities with jurisdictionover the operation of our business would have broad discretion in dealing with such a violation, including levying fines, confiscating our income,revoking the business or operating licenses of PRC subsidiaries and/or VIEs, requiring us to restructure our ownership structure or operations, requiringus to discontinue or divest ourselves of all or any portion of our operations or assets, restricting our right to collect revenues, blocking our Internetplatforms, or imposing additional conditions or requirements with which we may not be able to comply. Any of these actions could cause significantdisruption to our business operations and have an adverse impact on our business, financial condition and results of operations. Further, if changeswere required to be made to our ownership structure, our ability to consolidate our VIEs could be adversely affected.We may be unable to collect long-term loans to officers and employees or exercise management influence associated with High Century, Heng DaYi Tong, Tianjin Jinhu, Sogou Information, Gamease and Guanyou Gamespace.As of December 31, 2018, Sohu had outstanding long-term loans of $7.7 million to Dr. Charles Zhang and to certain PRC entities owned by Dr. Zhangand/or certain other employees. These long-term loans were used to finance investments in our VIEs Beijing Century High-Tech Investment Co., Ltd.(“High Century”), Beijing Heng Da Yi Tong Information Technology Co., Ltd. (“Heng Da Yi Tong”), Tianjin Jinhu Culture Development Co., Ltd.(“Tianjin Jinhu”), Beijing Sogou Information Service Co., Ltd. (“Sogou Information”), Beijing Gamease Age Digital Technology Co., Ltd.(“Gamease”), and Beijing Guanyou Gamespace Digital Technology Co., Ltd. (“Guanyou Gamespace”), which are used to facilitate our participation intelecommunications, Internet content, online games and certain other businesses in China where foreign ownership is either prohibited or restricted.The loan agreements contain provisions that, subject to PRC laws, (i) the loans can only be repaid to us by transferring the shares of High Century,Heng Da Yi Tong, Tianjin Jinhu, Sogou Information, Gamease and Guanyou Gamespace to us; (ii) the shares of High Century, Heng Da Yi Tong,Tianjin Jinhu, Sogou Information, Gamease and Guanyou Gamespace cannot be transferred by the borrowers without our approval; and (iii) we havethe right to appoint all directors and senior management personnel of High Century, Heng Da Yi Tong, Tianjin Jinhu, Sogou Information, Gamease andGuanyou Gamespace. Under the loan agreements the borrowers have pledged all of their shares in High Century, Heng Da Yi Tong, Tianjin Jinhu,Sogou Information, Gamease and Guanyou Gamespace collateral for the loans, and the loans bear no interest and are due on the earlier of a demand orsuch time as Dr. Charles Zhang or one of the other employee borrowers, as the case may be, is not an employee of Sohu. Sohu does not intend to requestrepayment of the loans as long as PRC regulations prohibit it from directly investing in businesses engaged in by the VIEs.Because these loans can only be repaid by the borrowers’ transferring the shares of the various entities, our ability to ultimately realize the effectivereturn of the amounts advanced under these loans will depend on the profitability of High Century, Heng Da Yi Tong, Tianjin Jinhu, SogouInformation, Gamease and Guanyou Gamespace and is therefore uncertain.Furthermore, because of uncertainties associated with PRC law, ultimate enforcement of the loan agreements is uncertain. Accordingly, we may neverbe able to collect these loans and we may not be able to continue to exercise influence over High Century, Heng Da Yi Tong, Tianjin Jinhu, SogouInformation, Gamease and Guanyou Gamespace.We depend upon contractual arrangements with our VIEs for the success of our business and these arrangements may not be as effective inproviding operational control as direct ownership of these businesses and may be difficult to enforce.Because we conduct our Internet operations mainly in the PRC, and are restricted or prohibited by the PRC government from owning Internet content,telecommunication, online games operations and certain other operations in the PRC, we are dependent on our VIEs in which we have no directownership interest, to provide those services through contractual agreements among the parties and to hold some of our assets, including some of thedomain names and trademarks relating to our business. These arrangements may not be as effective in providing control over our Internet content,telecommunications operations, online games operations and certain other as direct ownership of these businesses. For example, if we had directownership of our VIEs, we would be able to exercise our rights as a shareholder to effect changes in their boards of directors, which in turn could effectchanges at the management level. Due to our VIE structure, we have to rely on contractual rights to effect control and management of our VIEs, whichexposes us to the risk of potential breach of contract by the VIEs or their shareholders, such as their failing to use the domain names and trademarksheld by them, or failing to maintain our Internet platforms, in an acceptable manner or taking other actions that are detrimental to our interests. Inaddition, as each of our VIEs is jointly owned by its shareholders, it may be difficult for us to change our corporate structure if such shareholders refuseto cooperate with us. In addition, some of our subsidiaries and VIEs could fail to take actions required for our business, such as entering into contentdevelopment contracts with potential content suppliers or failing to maintain the necessary permits for the content servers. Furthermore, if theshareholders of any of our VIEs were involved in proceedings that had an adverse impact on their shareholder interests in such VIE or on our ability toenforce relevant contracts related to the VIE structure, our business would be adversely affected. 18Table of ContentsThe shareholders of the VIEs may breach, or cause the VIEs to breach, the VIE contracts for a number of reasons. For example, their interests asshareholders of the VIEs and the interests of our subsidiaries may conflict and we may fail to resolve such conflicts; the shareholders may believe thatbreaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing wereto happen, we might have to rely on legal or arbitral proceedings to enforce our contractual rights. In addition, disputes may arise among theshareholders of any of our VIEs with respect to their ownership of such VIE, which could lead them to breach their agreements with us. Such arbitraland legal proceedings and disputes may cost us substantial financial and other resources, and result in disruption of our business, and the outcomemight not be in our favor. For example, a PRC court or arbitration panel could conclude that our VIE contracts violate PRC law or are otherwiseunenforceable. If the contractual arrangements with any of our VIEs were found by PRC authorities with appropriate jurisdiction to be unenforceable,we could lose control over the assets owned by such VIE and lose our ability to consolidate such VIE’s results of operations, assets and liabilities in ourconsolidated financial statements and/or to transfer the revenues of such VIE to our corresponding PRC subsidiary.A failure by our VIEs or their shareholders to perform their obligations under our contractual arrangements with them could have an adverseeffect on our business and financial condition.As all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation inthe PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Wewould have to rely for enforcement on legal remedies under PRC law, including specific performance, injunctive relief or damages, which might not beeffective. For example, if we sought to enforce the equity interest purchase right agreements for the transfer of equity interests in any of our VIEs, if thetransferee was a foreign company the transfer would be subject to approval by PRC governmental authorities such as the MIIT and the MOFCOM, andthe transferee would be required to comply with various requirements, including qualification and maximum foreign shareholding percentagerequirements. As these PRC governmental authorities have wide discretion in granting such approvals, we could fail to obtain such approval. Inaddition, our VIE contracts might not be enforceable in China if PRC governmental authorities, courts or arbitral tribunals took the view that suchcontracts contravened PRC law or were otherwise not enforceable for public policy reasons.Furthermore, the legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in thePRC legal system could further limit our ability to enforce these contractual arrangements. In the event we were unable to enforce these contractualarrangements, we would not be able to exert effective control over our VIEs, and our ability to conduct our business, and our financial condition andresults of operations, would be severely adversely affected.The contractual arrangements between our subsidiaries and our VIEs may result in adverse tax consequences.PRC laws and regulations emphasize the requirement of an arm’s length basis for transfer pricing arrangements between related parties. The laws andregulations also require enterprises with related party transactions to prepare transfer pricing documentation to demonstrate the basis for determiningpricing, the computation methodology and detailed explanations. Related party arrangements and transactions may be subject to challenge or taxinspection by PRC tax authorities.Under a tax inspection, if our transfer pricing arrangements between the China-Based Subsidiaries and VIEs are judged as tax avoidance, or relateddocumentation does not meet the requirements, our China-based subsidiaries and VIEs may be subject to material adverse tax consequences, such astransfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purposes, of adjustments recorded by VIEs, whichcould adversely affect us by (i) increasing VIE’s tax liabilities without reducing our subsidiaries’ tax liabilities, which could further result in interestand penalties being levied on us for unpaid taxes; or (ii) limiting the ability of our PRC companies to maintain preferential tax treatment and otherfinancial incentives. In addition, if for any reason we needed to cause the transfer of any of the shareholders’ equity interest in any of our VIEs to adifferent nominee shareholder (such as if, for example, one of such shareholders was no longer employed by us), we might be required to pay individualincome tax, on behalf of the transferring shareholder, on any gain deemed to have been realized by such shareholder on such transfer.We may lose the ability to use and enjoy assets held by any of our VIEs that are important to the operation of our business if such VIE declaresbankruptcy or becomes subject to a dissolution or liquidation proceeding.Each of our VIEs holds assets, such as our core intellectual property, licenses and permits, that are critical to our business operations. Although theequity interest purchase right agreements among our WFOEs, our VIEs and the shareholders of our VIEs contain terms that specifically obligate theshareholders of our VIEs to ensure the valid existence of our VIEs, in the event the shareholders breached these obligations and voluntarily liquidatedour VIEs, or if any of our VIEs declared bankruptcy and all or part of its assets became subject to liens or rights of third-party creditors, we might beunable to continue some or all of our business operations. Furthermore, if any of our VIEs were to undergo a voluntary or involuntary liquidationproceeding, its shareholders or unrelated third-party creditors might claim rights to some or all of such VIE’s assets and their rights could be senior toour rights under the VIE contracts, thereby hindering our ability to operate our business. 19Table of ContentsFrequent press reports in the United States questioning the VIE structure used by us and other Chinese companies publicly-traded in the UnitedStates appear to have created concern among investors, and may cause such an effect in the future.In recent years various prominent Western news outlets have questioned the use by Chinese companies that are publicly-traded in the United States ofVIE structures as a means of complying with Chinese laws prohibiting or restricting foreign ownership of certain businesses in China, includingbusinesses we are engaged in such as Internet information and content, online advertising, online game, sponsored search, and value-addedtelecommunication services. Some of such news reports have also sought to draw a connection between recent widely reported accounting issues atcertain Chinese companies and the use of VIE structures. Such news reports appear to have had the effect of causing concern among investors in severalChinese companies, including us, that are publicly-traded in the United States. While we are not aware of any causal connection between the recentlyreported accounting scandals and the use of VIE structures, it is possible that investors in our common stock will believe that such a connection exists.Any of such circumstances could lead to further loss of investor confidence in Chinese companies such as ours and cause fluctuations in the marketprices of our common stock and, if such prices were to drop sharply, could subject us to shareholder litigation, which could cause the price for ourshares to drop further.Risks Related to China’s Regulatory EnvironmentPolitical, economic and social policies of the PRC government could affect our business.Substantially all of our business, operating assets, fixed assets and operations are located in China, and substantially all of our revenues are derivedfrom our operations in China. Accordingly, our business may be adversely affected by changes in political, economic or social conditions in China,adjustments in PRC government policies or changes in laws and regulations.The economy of China differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development in anumber of respects, including: • structure; • level of government involvement; • level of development; • level of capital reinvestment; • growth rate; • control of foreign exchange; and • methods of allocating resources.Since 1949, China has been primarily a planned economy subject to a system of macroeconomic management. Although the PRC government stillowns a significant portion of the productive assets in China, economic reform policies since the late 1970s have emphasized decentralization,autonomous enterprises and the utilization of market mechanisms. We cannot predict the future effects of the economic reform and macroeconomicmeasures adopted by the PRC government on our business or results of operations. Furthermore, the PRC government began to focus more attention onsocial issues in recent years and has promulgated or may promulgate additional laws or regulations in this area, which could affect our business inChina.While the Chinese economy has grown significantly over the past 30 years, the growth has been uneven geographically among various sectors of theeconomy, and during different periods. The Chinese economy may not continue to grow, and if there is growth, such growth may not be steady anduniform; if there is a slowdown, such a slowdown may have a negative effect on our business. The Chinese economy experienced high inflation in2010 and 2011, and to curb the accelerating inflation the PBOC, China’s central bank, raised benchmark interest rates three times in 2011. The level ofexports from the PRC also declined significantly recently. According to the National Bureau of Statistics of China, the growth rate of China’s grossdomestic product, compared to that of the same period in the previous year, slowed from 7.4% in 2014, to 6.9% in 2015, to 6.7% in 2016, to 6.9% in2017 and to 6.6% in 2018. Various macroeconomic measures and monetary policies adopted by the PRC government to guide economic growth andmanage inflation and the allocation of resources may not be effective in sustaining the growth rate of the Chinese economy. In addition, such measures,even if they benefit the overall Chinese economy in the long run, may have an adverse effect on us if they reduce the amount of money that ourexisting or future advertisers devote to online advertising.The PRC legal system embodies uncertainties which could limit the legal protections available to us and you, or could lead to penalties on us. 20Table of ContentsThe PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have littleprecedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters ingeneral. Our PRC operating subsidiaries Beijing Sohu New Momentum Information Technology Co., Ltd. (“Sohu New Momentum”), Beijing SohuNew Era Information Technology Co., Ltd., (“Sohu Era”), Beijing Sohu New Media Information Technology Co., Ltd. (“Sohu Media”), FoxInformation Technology (Tianjin) Limited (“Video Tianjin”), Beijing Sogou Technology Development Co., Ltd. (“Sogou Technology”), BeijingSogou Network Technology Co., Ltd. (“Sogou Network”), Beijing AmazGame Age Internet Technology Co., Ltd. (“AmazGame”), Beijing ChangyouGamespace Software Technology Co., Ltd. (“Gamespace”), and Shenzhen Brilliant Imagination Technologies Co., Ltd. (“Brilliant Imagination”) areWFOEs, which are enterprises incorporated in China and wholly-owned by our indirect off-shore subsidiaries. Those WFOEs are subject to laws andregulations applicable to foreign investment in China. In addition, all of our subsidiaries and VIEs are incorporated in China and subject to allapplicable Chinese laws and regulations. Because of the relatively short period for enacting such a comprehensive legal system, it is possible that thelaws, regulations and legal requirements are relatively recent, and their interpretation and enforcement involve uncertainties. These uncertainties couldlimit the legal protections available to us and other foreign investors, including you. Such uncertainties may also make it easier for others to infringeour intellectual property without significant cost, and new entrants to the market may tend to use gray areas to compete with us. In addition,uncertainties in the PRC legal system may lead to penalties imposed on us because of a difference in interpretation of the applicable law between therelevant governmental authority and us. For example, under current tax laws and regulations, in order to be entitled to the preferential tax treatmentafforded to “Software Enterprises” or “KNSEs”, we are responsible for conducting a self-assessment and filing required supporting documentation withtax authorities. However, since there is no clear guidance as to the applicability of certain areas of preferential tax treatment, we may be found to be inviolation of the tax laws and regulations based on the interpretation of local tax authorities with regard to the applicable tax rates, and therefore mightbe subject to penalties, including monetary penalties. In addition, we cannot predict the effect of future developments in the PRC legal system,particularly with regard to the Internet, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof,or the preemption of local regulations by national laws.The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and results ofoperations.In 2008, the Standing Committee of the National People’s Congress enacted the Labor Contract Law, which was amended on December 28, 2012. TheLabor Contract Law introduced specific provisions related to fixed-term employment contracts, part-time employment, probationary periods,consultation with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collectivebargaining to enhance previous PRC labor laws. Under the Labor Contract Law, an employer is obligated to sign an unlimited-term labor contract withany employee who has worked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term laborcontract that has already been entered into twice consecutively, the resulting contract, with certain exceptions, must have an unlimited term. Withcertain exceptions, an employer must pay severance to an employee where a labor contract is terminated or expires. In addition, PRC governmentalauthorities have continued to introduce various new labor-related regulations since the effectiveness of the Labor Contract Law. For example, there areregulations which require that annual leave ranging from five to 15 days be made available to employees and that employees be compensated for anyunused annual leave days at a rate of three times their daily salary, subject to certain exceptions.Under the PRC Social Insurance Law and the Administrative Measures on Housing Fund, employees are required to participate in pension insurance,work-related injury insurance, medical insurance, unemployment insurance, maternity insurance and housing funds and employers are required,together with their employees or separately, to pay the social insurance premiums and housing funds for their employees.These laws designed to enhance labor protection tend to increase our labor costs. In addition, as the interpretation and implementation of theseregulations are still evolving, our employment practices may not be at all times be deemed in compliance with the regulations. As a result, we could besubject to penalties or incur significant liabilities in connection with labor disputes or investigations.If we are found to be in violation of current or future PRC laws, rules or regulations regarding Internet-related services and telecom-relatedactivities, we could be subject to severe penalties.The PRC has enacted regulations that apply to Internet-related services and telecom-related activities. While many aspects of these regulations remainunclear, they purport to limit and require licensing of various aspects of the provision of Internet information and content, online advertising, onlinegame, and mobile services.The Catalogue of Classification of Internet Audio-Video Program Services (Trial) issued by the SAPPRFT on April 1, 2010 and amended on March 10,2017, classifies the business of providing public program searching and watching services through the Internet to the public as an Internet audio-videoprogram service for which a Permit for the Network Transmission of Audiovisual Programs is required. Sohu Internet received a renewal of a Permit forthe Network Transmission of Audiovisual Programs from the SAPPRFT on June 20, 2017. However, Sogou Information has not yet been granted such alicense. If Sogou’s provision of video search services is later challenged by the SAPPRFT, we may be subject to severe penalties, including fines, or thesuspension of our video search services or even our operations. In addition, Sohu’s online video businesses are operated under various Internetplatforms, such as sohu.com, Focus.cn and sogou.com, but current PRC laws and regulations are lack of clear provisions indicating whether it ispermissible to provide video services over several Internet platforms that are owned by a single company under one permit and the SAPPRFT mightclaim that such operation under one permit is not allowed under the SAPPRFT Measures. If the SAPPRFT were to make such a claim, we could facepenalties from the SAPPRFT, such as fines, cancellation of our existing permit, or the forced discontinuation or restriction on our video services oreven our operations. If we are ordered to suspend our services, our user traffic will be reduced and therefore our revenues will be negatively affected. 21Table of ContentsCurrent PRC laws and regulations require us to obtain an Internet publishing license for our online game services, Sogou’s online literature services,and Sogou Ask. An Internet publishing license may also be required for image search services, as these services may be considered to be “onlinepublication services,” which require an Internet publishing license under current PRC laws and regulations. Sohu Internet has been granted such alicense. However, none of Sogou’s VIEs currently holds such a license. In addition, an internet news information services permit is required undercurrent PRC laws and regulations for news dissemination, search, and newsfeed services. Although Sohu Internet holds such a permit, none of Sogou’sVIEs currently holds such a license.The Cyberspace Administration of China (the “CAOC”) issued a series of regulations and administrative measures regulating Internet users’ socialaccounts accessible by the public, group information platforms, BBS communities, and news information platforms, which require Internet platformoperators to establish specific management rules for their platforms, and subject them to various specific obligations. See “Government Regulation andLegal Uncertainties—Specific Statutes and Regulations—Regulation of the Provision of Internet Content—Internet Information Services” and“Government Regulation and Legal Uncertainties—Specific Statutes and Regulations—Regulation of the Provision of Internet Content—Online NewsDissemination and Online News Search Services” for further descriptions of the Internet platform operators’ obligations as required by severaladministrative measures issued by the CAOC. Complying with such requirements could cause us to incur substantial expense or necessitate that wealter or change our existing practices in a manner that could harm our business.PRC laws, rules, and regulations governing the online microcredit industry are developing and evolving rapidly. Sogou has initiated a pilot onlinelending and microcredit program using its credit risk management. Although Sogou is implementing measures to comply with applicable PRC lawsand regulations governing its pilot online lending and microcredit program, PRC governmental authorities may promulgate new rules and regulationsregulating the online microcredit industry. Moreover, developments in the online microcredit industry may lead to changes in PRC laws, rules, andregulations or in the interpretation and application of existing laws, rules, and regulations that may limit or restrict online microcredit industry.Therefore, it is possible that Sogou’s practices would be deemed by PRC governmental authorities or PRC courts to violate existing or any future PRClaws, rules, and regulations. Failure to comply with such laws and regulations could result in Sogou’s being subject to, among other things, regulatorywarnings, fines, or criminal penalties, and Sogou could also be prohibited from conducting an online microcredit business in the future.We cannot assure you that we have fully complied with or will in the future always comply with PRC rules and regulations regarding Internet-relatedservices and telecom-related activities. In addition, the PRC government may promulgate new laws, rules or regulations at any time. If current or futurelaws, rules or regulations regarding Internet-related activities are interpreted to be inconsistent with our ownership structure and/or our businessoperations, our business could be severely impaired and we could be subject to severe penalties.PRC laws and regulations mandate complex procedures for some acquisitions of Chinese companies by foreign investors, which could make itmore difficult for us to make acquisitions in China.PRC laws and regulations, such as the M&A Rules, which were jointly issued by six PRC regulatory agencies on August 8, 2006 and were amended onJune 22, 2009, the Anti-Monopoly Law, Circular 6 and the MOFCOM Security Review Rules, established additional procedures and requirements thatare expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements insome instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRCdomestic enterprise, or that the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRCenterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to besubject to a merger control security review. The MOFCOM Security Review Rules, effective from September 1, 2011, further provide that, whendeciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to a security review by the MOFCOM, theprinciple of substance over form should be applied and foreign investors are prohibited from bypassing the security review requirement by structuringtransactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements of Offshore transaction. Factors thatthe MOFCOM considers in its review are whether (i) an important industry is involved, (ii) such transaction involves factors that have had or may havean impact on national economic security and (iii) such transaction will lead to a change in control of a domestic enterprise that holds a well-knownPRC trademark or a time-honored PRC brand. If a business of any target company that we plan to acquire falls into the ambit of security review, we maynot be able to successfully acquire such company. Complying with the requirements of the relevant regulation to complete any such transaction couldbe time-consuming, and any required approval process, including approval from the MOFCOM, may delay or inhibit our ability to complete suchtransactions, which could affect our ability to expand our business.Even if we are in compliance with PRC governmental regulations relating to licensing and foreign investment prohibitions, the PRC governmentmay prevent us from distributing, and we may be subject to liability for, content that it believes is inappropriate.The PRC has enacted regulations governing Internet access and the distribution of news and other information. In the past, the PRC government hasstopped the distribution of information over the Internet that it believes to violate PRC law, including content that is obscene, incites violence,endangers national security, is contrary to the national interest or is defamatory. In addition, we may not publish certain news items, such as newsrelating to national security, without permission from the PRC government. Furthermore, the Ministry of Public Security (the “MPS”) has the authorityto make any local Internet service provider block any Website maintained outside the PRC at its sole discretion. Even if we comply with PRCgovernmental regulations relating to licensing and foreign investment prohibitions, if the PRC government were to take any action to limit or prohibitthe distribution of information through our network or to limit or regulate any current or future content or services available to users on our network,our business would be harmed. 22Table of ContentsWe are also subject to potential liabilities for content on our Internet platforms that is deemed inappropriate and for any unlawful actions of oursubscribers and other users of our systems under regulations promulgated by the MIIT, such potential liabilities including the imposition of fines oreven the shutting down of the Internet platforms.Furthermore, we are required to delete content that clearly violates the laws of the PRC and report content that we suspect may violate PRC law. Wemay have difficulty determining the type of content that may result in liability for us and, if we are wrong, we may be prevented from operating ourInternet platforms.Dividends we receive from our operating subsidiaries located in the PRC are subject to PRC profit appropriation and PRC withholding tax.PRC legal restrictions permit payment of dividends by our China-based WFOEs only out of their accumulated profits, if any, determined in accordancewith PRC accounting standards and regulations. Under PRC law, our China-based WFOEs are also required to set aside 10% of their net income eachyear to fund certain reserve funds until these reserves equal 50% of the amount of registered capital. These reserves are not distributable as cashdividends.Furthermore, the PRC Corporate Income Tax Law (the “CIT Law”) provides that a withholding tax at a rate of up to 20% may be applicable todividends payable to non-PRC investors that are “non-resident enterprises,” to the extent that such dividends are derived from sources within the PRC.Under the Arrangement Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention ofFiscal Evasion with Respect to Taxes on Income (the “China-HK Tax Arrangement”), which became effective on January 1, 2007, the dividendwithholding tax rate may be reduced to 5% if a Hong Kong resident enterprise is considered a non-PRC resident enterprise and holds at least 25% ofthe equity interests in the PRC enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kongresident enterprise is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividends may remainsubject to withholding tax at a rate of 10%. The State Administration of Taxation (the “SAT”) issued an Announcement on Issues in Tax TreatiesRelating to “Beneficial Owner” (“Announcement 9”), effective April 1, 2018, which provides guidance on determining whether an enterprise is a“beneficial owner” of dividends under China’s tax treaties and tax arrangements. Announcement 9 provides that, in order to be a beneficial owner, anentity generally must be a direct owner of, and have the right to control, the income of the enterprise that is paying the dividends or must be a directowner of, and have the right to control, the tangible or intangible assets generating such income, and also specifies that a company that is notorganized for the purpose of engaging in substantive business activities may not be regarded as a beneficial owner. If any of our Hong Kongsubsidiaries is, in the light of Announcement 9, determined by the SAT to not be a beneficial owner for purposes of the China-HK Tax Arrangement,any dividends paid to it by any of our PRC subsidiaries would not qualify for the preferential dividend withholding tax rate of 5%, but rather would besubject to the regular withholding tax rate of 10% under the CIT Law.Furthermore, to the extent that the VIEs have undistributed after-tax profits, we must pay tax on behalf of our employees who hold interests in the VIEswhen the VIEs distribute dividends in the future. The current individual income tax rate is 20%.Our Offshore entities may need to rely on dividends and other distributions on equity paid by our Mainland China-based subsidiaries, includingthe Mainland China-based subsidiaries of our subsidiaries Sogou and Changyou, to fund any cash requirements those Offshore entities may have.Our Offshore entities may not be able to obtain cash from distributions because our subsidiaries and VIEs in Mainland China are subject torestrictions imposed by PRC law on paying such dividends and making other payments.Sohu.com Limited is a holding company with no operating assets other than investments in Chinese operating entities through our intermediateOffshore holding companies. Our Offshore entities may need to rely on dividends and other distributions on equity paid by Mainland China-basedsubsidiaries for the cash requirements in excess of any cash raised from investors and retained by Sohu.com Limited or our other Offshore entities. Inaddition, for subsidiaries engaging in Sohu’s business in Mainland China to be able to use the proceeds of cash dividends from Sogou or Changyou,the dividends would have to be paid through the Sohu Cayman Islands entities (Sohu.com (Search) Limited (“Sohu Search”) and Sohu.com (Game)Limited (“Sohu Game”)) that hold Sohu’s shares in Sogou and Changyou. The primary source of any dividend payments to our Offshore entities wouldneed to be our subsidiaries in Mainland China after they receive payments from our VIEs under various service agreements and other arrangements. It ispossible that our Mainland China-based subsidiaries will not continue to receive payments in accordance with our contracts with our VIEs or that suchpayments will become subject to restrictions imposed PRC law. If our subsidiaries and VIEs incur debt on their own behalf in the future, theinstruments governing the debt may restrict their ability to pay dividends or make other distributions to us through the intermediate companies. Inaddition, amounts available for dividends are further reduced because transfers of funds out of Mainland China generally are subject to a withholdingtax of 5%, if transfers are made to Hong Kong and subject to the China-HK Tax Arrangement, and of 10% in other cases.The PRC government also imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currenciesout of Mainland China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currencies. Ifwe or any of our subsidiaries are unable to receive the revenues from our operations through these service agreements and other arrangements, we maybe unable to effectively fund any cash requirements we may have. 23Table of ContentsActivities of Internet content providers are or will be subject to additional PRC regulations, which have not yet been put into effect. Ouroperations may not be consistent with these new regulations when put into effect, and, as a result, we could be subject to severe penalties.The MIIT has stated that the activities of Internet content providers are subject to regulation by various PRC government authorities, depending on thespecific activities conducted by the Internet content provider. Various government authorities have stated publicly that they are in the process ofpreparing new laws and regulations that will govern these activities. The areas of regulation currently include online advertising, online newsreporting, online publishing, provision of online or mobile music, online securities trading, the provision of industry-specific (for example, drug-related) information over the Internet and foreign investment in value-added telecommunication services. Other aspects of our online operations maybe subject to additional regulations in the future. For example, our online interactive broadcasting video platform enables users to perform real timemusical acts, exchange information, interact with others and engage in various other online activities. Although we have obtained a permit to engagein the online interactive broadcasting video platform services, we cannot assure you that the PRC regulatory authorities will not issue new laws orregulations specifically regulating the operation of an online interactive broadcasting video platform. Our operations might not be consistent withcurrent laws and regulations or any such new regulations and, as a result, we could be subject to penalties.Regulation and censorship of information distribution in China may adversely affect our business.China has enacted regulations governing Internet access and the distribution of news and other information. Furthermore, the Propaganda Departmentof the Chinese Communist Party takes the responsibility to censor news published in China to ensure, supervise and control a particular politicalideology. In addition, the MIIT has published implementing regulations that subject online information providers to potential liability for contentsincluded in their portals and the actions of subscribers and others using their systems, including liability for violation of PRC laws prohibiting thedistribution of content deemed to be socially destabilizing. Furthermore, because many PRC laws, regulations and legal requirements with regard tothe Internet are relatively new and untested, their interpretation and enforcement may involve significant uncertainty. In addition, the PRC legalsystem is a civil law system in which decided legal cases have limited binding force as legal precedents. As a result, in many cases an Internet platformoperator may have difficulties determining the type of content that may subject it to liability.Periodically, the MPS has stopped the distribution over the Internet of information which it believes to be socially destabilizing. Meanwhile, the MPSalso has the authority to require any local Internet service provider to block any Website maintained outside China at its sole discretion. If the PRCgovernment were to take action or exercise its authority to limit or eliminate the distribution of information through our portal or to limit or regulatecurrent or future applications available to users of our portal, our business would be adversely affected.The State Secrecy Bureau, which is directly responsible for the protection of state secrets of all PRC government and Chinese Communist Partyorganizations, is authorized to block any Website it deems to be leaking state secrets or failing to meet the relevant regulations relating to theprotection of state secrets in the distribution of online information. Under the applicable regulations, we may be held liable for any content transmittedon our portal. Furthermore, where the transmitted content clearly violates the laws of the PRC, we will be required to delete it. Moreover, if we considertransmitted content suspicious, we are required to report such content. We must also undergo computer security inspections, and if we fail to implementthe relevant safeguards against security breaches, we may be shut down. In addition, the State Secrecy Bureau has adopted regulations stipulating thatInternet companies, such as us, that provide bulletin board systems, chat rooms or similar services must apply for the approval of the State SecrecyBureau. As the implementing rules of these new regulations have not been issued, we do not know how or when we will be expected to comply, or howour business will be affected by the application of these regulations.We may be subject to the PRC government’s ongoing crackdown on Internet pornographic content.The Chinese government has stringent prohibitions on online pornographic information and has launched several crackdowns on Internet pornographyrecently. On December 4, 2009, the MIIT and other three PRC government authorities jointly issued the Incentives Measures for Report ofPornographic, Obscene and Vulgar Messages on Internet and Mobile Media (the “Anti-Pornography Notice”) to further crackdown on onlinepornography. Pursuant to this Anti-Pornography Notice, rewards of up to RMB10,000 will be provided to Internet users who report Websites thatfeature pornography, and a committee has been established to review such reports to determine an appropriate award. On April 13, 2014, the NationalWorking Group on Anti-Pornography and three other PRC government authorities jointly issued the Anti-Pornography Proclamation, under whichInternet service providers must immediately remove texts, images, video, advertisements and other information that contain pornographic content. Therelevant government authority may order enterprises or individuals who flagrantly produce or disseminate pornographic content to stop conductingbusiness, and may revoke relevant administrative permits. Although we require all users upon account registration to agree to our terms of service,which specify the types of content that are prohibited on our platform, and we have deleted from our relevant channels and communities all Web pageswith material that we believe could reasonably be considered to be vulgar and have strengthened our internal censorship and supervision of links andcontent uploaded by users, it is possible that our users may engage in obscene conversations or activities on our platform that may be deemed illegalunder PRC laws and regulations. For example, we provide an online interactive broadcasting video platform for users, and because the video and audiocommunication on this platform is conducted in real time, we are unable to examine the content generated by our hosts and users on air before thecontent is streamed on the platform. There is no assurance that content considered vulgar by PRC government agencies will not appear in the future.We may be subject to fines or other disciplinary actions, including in serious cases suspension or revocation of the licenses necessary to operate ourplatform, if we are deemed to have facilitated the appearance of inappropriate content placed by third parties on our platform under PRC laws andregulations. In addition, if we are accused by the government of hosting vulgar content, our reputation could be adversely affected. 24Table of ContentsRegulations relating to the online transmission of foreign films and TV dramas may adversely affect our online video business.On September 2, 2014, the SAPPRFT issued a Notice on Further Strengthening the Administration of Online Foreign Audiovisual Content (the“September 2014 SAPPRFT Notice”), which requires that operators of audiovisual Websites obtain from the SAPPRFT a Film Public Screening Permit,TV Drama Distribution Permit, or TV Animation Distribution Permit for all foreign films and TV dramas before they are transmitted via the Internet inChina. The September 2014 SAPPRFT Notice further stipulates that before any foreign films or TV dramas for transmission exclusively via the Internetare purchased after the promulgation of the September 2014 SAPPRFT Notice, operators of audiovisual Websites must declare their annual purchasingplans with the SAPPRFT before the end of the year preceding the year of the intended broadcast and obtain the SAPPRFT’s approval. The September2014 SAPPRFT Notice also states that the number of foreign films and TV dramas to be purchased by an operator and transmitted via its Website in asingle year may not exceed 30% of the total amount of the Chinese films and TV dramas purchased and transmitted by the same Website in theprevious year.The promulgation of the September 2014 SAPPRFT Notice could have an adverse impact on our online video business. If we are not able to obtain therequired SAPPRFT approval in time, there will be a delay in our ability to broadcast such foreign films and TV dramas on our Internet platforms and inour generation of advertising revenues from such films and TV dramas. We are also subject to the risk that users might access pirated versions of suchfilms and TV dramas during any such delay, and become less likely to view them on our Internet platforms when they become available, which wouldcause our online traffic and advertising revenues to be lower than we expected. If we fail to obtain the required approval by the SAPPRFT, we may notbe able to recoup the costs we spent in acquiring the broadcasting rights of, and marketing, those films and TV dramas. In addition, it could benecessary for us to recognize impairment charges related to foreign films and TV dramas we have purchased. The requirement of a minimum ratio ofdomestic video content to foreign-sourced content in the September 2014 SAPPRFT Notice may require us to purchase more domestic video content inorder for us to be permitted to maintain a sufficient portfolio of online foreign films and TV dramas. If, on the other hand, we respond to the minimumratio requirement of the September 2014 SAPPRFT Notice by reducing our purchases of foreign films and TV dramas, our attraction to users, traffic oradvertisers on our online video Internet platforms could be reduced, resulting in a decrease in our advertising revenues.Regulation and censorship of online interactive broadcasting services in China may adversely affect our business.As online interactive broadcasting has surged in popularity in China, PRC governmental authorities have increased their efforts to regulate it. TheMinistry of Culture and Tourism of the People’s Republic of China (the “MCT”) issued an Online Performance Notice on July 1, 2016 and issuedOnline Performance Measures on December 2, 2016, both effective January 1, 2017; the CAOC issued Live Social Video Provisions on November 4,2016; and the MIIT and several other PRC governmental authorities issued a Notice on Strengthening the Administration of Live Online Social VideoServices on August 1, 2018, providing for the administration and censorship of online interactive broadcasting. The Live Social Video Provisionsrequire us to implement procedures to detect and block illegal, fraudulent, politically-sensitive and inappropriate content and activities conductedthrough our online interactive broadcasting platform. Although we have implemented procedures for our online interactive broadcasting platformdesigned to detect and prevent material and activity that we believe could reasonably be considered to be prohibited, it is possible that hosts and usersof our platform may distribute content and engage in activities that may be deemed illegal, but that we do not detect and identify as such. Furthermore,we may not be able to immediately block all such content uploads or activities generated by our hosts and users, because there is often a lag betweenthe time our hosts and users upload and stream content on our platform and the time we are able to examine such content. If PRC authorities believethat illegal or inappropriate activities haven been conducted through our online interactive broadcasting platform, or if there is negative mediacoverage concerning our platform, PRC government authorities may hold us liable for non-compliance and subject us to administrative penalties orother sanctions, which could cause our business to suffer or have an adverse effect on our user base. See “Government Regulation and LegalUncertainties—Specific Statutes and Regulations—Regulation of the Provision of Internet Content—Online Cultural Products.”Regulations relating to Offshore investment activities by PRC residents may limit our ability to acquire PRC companies and could adversely affectour business.In July 2014, the State Administration of Foreign Exchange (the “SAFE”) promulgated Circular 37, which replaced Circular 75, promulgated by theSAFE in October 2005. Circular 37 requires PRC residents, including PRC institutions and individuals, to register with the local SAFE branch inconnection with their direct establishment or indirect control of an Offshore entity, referred to in Circular 37 as a “special purpose vehicle,” for thepurpose of holding domestic or Offshore assets or interests. PRC residents must also file amendments to their registrations in the event of anysignificant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer orexchange, merger, division or other material event. In February 2015, the SAFE promulgated the Circular for Further Simplifying and ImprovingPolicies of Foreign Exchange Administration Applicable to Direct Investment, which provides that effective June 2015 designated local banks aredelegated authority under Circular 37 to review and process PRC residents’ applications for their initial foreign exchange registrations or amendmentsto their registrations in connection with their overseas direct investments. Under these regulations, PRC residents’ failure to comply with specifiedregistration procedures may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the paymentof dividends and other distributions to its Offshore parent, as well as restrictions on capital inflows from the Offshore entity to the PRC entity,including restrictions on the ability to contribute additional capital to the PRC entity. 25Table of ContentsIt is possible that some or all of our shareholders who are PRC residents will not comply with all the requirements required by Circular 37 or relatedrules. Any future failure by any of our shareholders who is a PRC resident, or controlled by a PRC resident, to comply with relevant requirements underthese regulations could subject us to fines or legal sanctions imposed by the PRC government, including restrictions on our subsidiaries’ ability to paydividends or make distributions to us and our ability to increase our investment in these subsidiaries and restrict our cross-border investment activities,which could in turn limit our ability to distribute dividends to holders of our ordinary shares and ADSs.Regulations relating to tax self-examinations by entertainment companies may adversely affect our business and increase our operating costs.Beginning October 10, 2018, tax authorities notified film and television production companies, entertainment brokerage companies, entertainmentcompanies, and high-income participants in the film and television industries that they must conduct self-examinations and self-corrections of their taxreturns beginning in 2016, and specified that enterprises and their employees who conscientiously examine and correct their tax returns andvoluntarily pay taxes before the end of December 2018 will be exempted from administrative penalties. If tax authorities believe that the self-examination and self-correction conducted by Tian Jinhu, our video content production company, is inappropriate, or if we do not pay tax in theamounts that tax authorities believe we should, tax authorities may subject us to administrative penalties or other sanctions, which could cause ourbusiness to suffer or result in an increase in our operating costs.We may be subject to fines and legal sanctions if we or our employees who are PRC citizens fail to comply with PRC regulations relating toemployee share options.Under the Administration Measures on Individual Foreign Exchange Control issued by the People’s Bank of China (the “PBOC”) and the relatedImplementation Rules issued by the SAFE, all foreign exchange transactions involving an employee share incentive plan, share option plan or similarplan participated in by PRC citizens may be conducted only with the approval of the SAFE. Under the Notice of Issues Related to the ForeignExchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company (“Offshore Share IncentivesRule”), issued by the SAFE on February 15, 2012, PRC citizens who are granted share options, restricted share units or restricted shares by an overseaspublicly listed company are required to register with the SAFE or its authorized branch and comply with a series of other requirements. The OffshoreShare Incentives Rule also provides procedures for registration of incentive plans, the opening and use of special accounts for the purpose ofparticipation in incentive plans, and the remittance of funds for exercising options and gains realized from such exercises and sales of such options orthe underlying shares, both outside and inside the PRC. We, and any of our PRC employees or members of our board of directors who have beengranted share options, restricted share units or restricted shares, are subject to the Administration Measures on Individual Foreign Exchange Control,the related Implementation Rules, and the Offshore Share Incentives Rule. Circular 37 was the first regulation to regulate the foreign exchangeregistration of a non-listed special purpose vehicle’s equity incentives granted to PRC residents, there remains uncertainty with respect to itsimplementation. If we, or any of our PRC employees or members of our board of directors who receive or hold options, restricted share units orrestricted shares in us or any of our subsidiaries, fail to comply with these registration and other procedural requirements, we may be subject to finesand other legal or administrative sanctions.If the status of certain of our PRC subsidiaries and VIEs as “High and New Technology Enterprises,” “Key National Software Enterprises” or“Software Enterprises” is revoked or expires, we may have to pay additional taxes or make up any previously unpaid tax and may be subject to ahigher tax rate, which would adversely affect our results of operations.The CIT Law generally imposes a uniform income tax rate of 25% on all enterprises, but grants preferential treatment to HNTEs, pursuant to whichHNTEs are instead subject to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. During thisthree-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria, and will be subject to the regular25% income tax rate for any year in which it does not meet the criteria. The CIT Law and its implementing regulations provide that a “SoftwareEnterprise” can enjoy an income tax exemption for two years beginning with its first profitable year and a 50% reduction to a rate of 12.5% for thesubsequent three years. An entity that qualifies as a KNSE can enjoy a further reduced preferential income tax rate of 10%. Enterprises wishing to enjoythe status of Software Enterprises or KNSEs must perform a self-assessment each year to ensure they meet the relevant criteria for qualification. If at anytime during the preferential tax treatment years an enterprise uses the preferential CIT rates but the relevant authorities determine that it failed to meetapplicable criteria for qualification, the authorities may revoke the enterprise’s Software Enterprise or KNSE status, as applicable.There are uncertainties regarding future interpretation and implementation of the CIT Law and its implementing regulations. It is possible that theHNTE, Software Enterprise, and KNSE qualifications of our operating entities currently qualified as such, or their entitlement to an income taxexemption or refund of their VAT, will be challenged by higher level tax authorities and be repealed, or that there will be future implementingregulations that are inconsistent with current interpretation of the CIT Law. For example, in 2016 the SAT issued a circular with new criteria forcertifying a Software Enterprise. Therefore, it is possible that the qualification of one or more of our PRC Subsidiaries or VIEs as a Software Enterprisewill be challenged in the future or that such companies will not be able to take any further actions, such as re-application for Software Enterprisequalification, to enjoy such preferential tax treatment. If those operating entities cannot qualify for such preferential income tax status, our effectiveincome tax rate will be increased significantly and we may have to pay additional income tax to make up the previously unpaid tax, which wouldreduce our net income. 26Table of ContentsWe may be deemed a PRC resident enterprise under the CIT Law and be subject to PRC taxation on our worldwide income.The CIT Law provides that enterprises established outside of China whose “de facto management bodies” are located within China are considered“resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate on their worldwide income (including dividend incomereceived from subsidiaries). Under the Implementing Regulations for the Corporate Income Tax Law, “de facto management body” is defined as a bodythat has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances andtreasury, and acquisition and disposition of properties and other assets of an enterprise. Since substantially all of our operational management iscurrently based in the PRC, it is unclear whether PRC tax authorities would require (or permit) us to be treated as a PRC-resident enterprise. If we aretreated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which couldhave an impact on our effective tax rate and an adverse effect on our net income and the results of operations, although dividends distributed from ourPRC Subsidiaries to us could be exempted from Chinese dividend withholding tax, since such income is exempted under the CIT Law for PRC-residentrecipients.Dividends payable by us to our foreign investors and profits on the sale of our shares may be subject to tax under PRC tax laws.Under the Implementing Regulations for the Corporate Income Tax Law, PRC income tax at the rate of 10% is applicable to dividends payable toinvestors that are “non-resident enterprises,” not having an establishment or place of business in the PRC, or which do have such establishment orplace of business but the relevant income is not effectively connected with the establishment or place of business, to the extent that such dividendshave their sources within the PRC. Similarly, any profits realized through the transfer of shares by such investors are also subject to 10% PRC incometax if such profits are regarded as income derived from sources within the PRC. It is unclear whether dividends we pay with respect to our share, or theprofits you may realize from the transfer of our shares, would be treated as income derived from sources within the PRC and be subject to PRC tax. If weare required under the Implementing Regulations for the Corporate Income Tax Law to withhold PRC income tax on dividends payable to ournon-PRC investors that are “non-resident enterprises,” or if you are required to pay PRC income tax on the transfer of our shares, the value of yourinvestment in our shares may be materially and adversely affected.Restrictions on currency exchange may limit our ability to use our revenues effectively.Substantially all of our revenues and operating expenses are denominated in RMB. The RMB is not freely tradable in “capital account” transactions,which include foreign direct investment. Foreign exchange transactions classified as capital account transactions are subject to limitations and requireapproval from the SAFE. This could affect our China-Based Subsidiaries’ ability to obtain foreign exchange through debt or equity financing,including by means of loans or capital contributions from us.Further, although the RMB is at present freely convertible in “current account” transactions, which include dividends, and trade and service-relatedforeign exchange transactions, and our China-Based Subsidiaries may purchase and retain foreign exchange for settlement of such transactions,including payment of dividends, without the approval of the SAFE, the relevant PRC governmental authorities may limit or eliminate our ability topurchase and retain foreign currencies in the future.Since a significant amount of our future revenues are likely to be in the form of RMB, these existing restrictions, and any future restrictions, oncurrency exchange may limit our ability to use revenues generated in RMB to fund our business activities outside of China, or to make expendituresdenominated in foreign currencies.We may suffer currency exchange losses if the RMB depreciates relative to the U.S. dollar.Our reporting currency is the U.S. dollar. However, substantially all of our revenues are denominated in RMB. In July 2005, China reformed itsexchange rate regime by establishing a managed floating exchange rate regime based on market supply and demand with reference to a basket ofcurrencies. The RMB is no longer pegged to the U.S. dollar and the exchange rate will have some flexibility. Hence, considering the floating exchangerate regime, if the RMB depreciates relative to the U.S. dollar, our revenues as expressed in our U.S. dollar financial statements will decline in value.Also, we currently have outstanding loans from overseas banks that are denominated in U.S. dollars. To repay these loans, we will need to first convertour cash denominated in RMB into U.S. dollars. If the RMB depreciates relative to the U.S. dollar, we will have to use a larger amount of cash in RMBfor any such loan repayment. 27Table of ContentsOn May 19, 2007, the PBOC announced a policy to expand the maximum daily floating range of RMB trading prices against the U.S. dollar in theinter-bank spot foreign exchange market from 0.3% to 0.5%. While the international reactions to the RMB revaluation and widening of the RMB’sdaily trading band have generally been positive, with the increased floating range of the RMB’s value against foreign currencies, the RMB mayappreciate or depreciate significantly in value against the U.S. dollar or other foreign currencies in the long term, depending on the fluctuation of thebasket of currencies against which it is currently valued. On June 19, 2010, the PBOC announced that it has decided to proceed further with the reformof the RMB exchange rate regime to enhance the flexibility of the RMB exchange rate and that emphasis would be placed on reflecting market supplyand demand with reference to a basket of currencies. While so indicating its intention to make the RMB’s exchange rate more flexible, the PBOC ruledout any sharp fluctuations in the currency or a one-off adjustment. On April 16, 2012, the PBOC enlarged the floating band of RMB’s trading pricesagainst the U.S. dollar in the inter-bank spot foreign exchange market from 0.5% to 1% around the middle rate released by the China Foreign ExchangeTrade System each day. In February 2014, the center point of the currency’s official trading band hit 6.1146, representing appreciation of more than11.7% since June 19, 2010. On March 17, 2014, the PBOC announced a policy to further expand the maximum daily floating range of RMB tradingprices against the U.S. dollar in the inter-bank spot foreign exchange market to 2%. Through 2016 the RMB continued its significant depreciation. Thecenter point of the currency’s official trading band was 6.5486 in January 2016, and was 6.9189 in December 2016, which contributed to a decline inour revenues reported in U.S. dollars. Also in 2018, the RMB exchange rate against the U.S. dollar depreciated significantly, mainly due to changes inpolitical and economic conditions, including trade friction between China and the U.S. The center-point of the currency’s official trading band was6.4395 in January 2018, and was 6.8844 in December 2018, which lead to a decline in our revenues reported in U.S. dollars and an increase in theamount of cash in RMB necessary to meet our repayment obligations for U.S. dollar-denominated Offshore loans. In addition, there are very limitedhedging transactions available in China to reduce our exposure to exchange rate fluctuations. While we may decide to enter into hedging transactionsin the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure, if at all. Inaddition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into U.S.dollars.Risks Related to Our Ordinary Shares and ADSsWe are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands lawthan that under U.S. law, our shareholders may have less protection for their shareholder rights than they would under U.S. law.Our corporate affairs are governed by our Memorandum and Articles of Association, the Companies Law of the Cayman Islands and the common law ofthe Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders, and the fiduciary responsibilitiesof our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of theCayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which haspersuasive, and in some cases binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities ofour directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in theUnited States, such as the State of Delaware, where many United States-based corporations are organized. In particular, the Cayman Islands has a lessdeveloped body of securities laws as compared to the United States, and provides significantly less protection to investors. In addition, shareholders inCayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts. As a result, our public shareholdersmay have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than wouldshareholders of a corporation incorporated in a jurisdiction in the United States such as Delaware.It may be difficult to enforce any civil judgments against us or our Board of Directors or officers, because most of our operating and/or fixed assetsare located outside the United States.We are incorporated in the Cayman Islands, all of our assets are located outside the United States, and a substantial portion of our operations areconducted in the PRC. In addition, most of our directors and executive officers are nationals and residents of countries other than the United States(primarily the PRC or Hong Kong) and most, if not all, of the assets of these persons are located outside the United States. As a result, it may be difficultfor holders of our ADSs to effect service of process within the United States upon these persons. It may also be difficult for holders of our ADSs toenforce in Cayman Islands courts or PRC courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securitieslaws or of the securities laws of any state of the United States against us and our officers and directors.The trading prices of our ADSs and of the common stock of our predecessor Sohu.com Inc. have been volatile, and the trading price of our ADSswill likely continue to be volatile. The price of our ADSs may fluctuate significantly, which may make it difficult for shareholders to sell our ADSswhen desired or at attractive prices.Our ADSs, each representing one ordinary share, have traded on the NASDAQ Global Select Market in place of the common stock of Sohu.com Inc.since the dissolution of Sohu.com Inc. on May 31, 2018. During 2016 the trading price of Sohu.com Inc.’s common stock ranged from a low of $32.6per share to a high of $55.21 per share, and during 2017 the trading price of Sohu.com Inc.’s common stock ranged from a low of $34.59 per share to ahigh of $70.86 per share. During 2018, the trading price of per share of Sohu.com Inc.’s common stock, until May 31, 2018, and the trading price of ourADSs, after May 31, 2018, ranged from a low of $15.89 per share to a high of $47.98. On March 15, 2019, the closing price of our ADSs was $19.38.In addition, the NASDAQ Global Select Market and the NYSE have from time to time experienced significant price and volume fluctuations that haveaffected the market prices for the securities of technology companies, and particularly Internet-related companies.The price for our ADSs may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements oftechnological innovations or new products and media properties by us or our competitors, changes in financial estimates and recommendations bysecurities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relatingto trends in our markets or general economic conditions. Additionally, volatility or a lack of positive performance in our ADS price may adverselyaffect our ability to retain key employees, all of whom have been granted share options or other share incentive awards. 28Table of ContentsHolders of our ADSs may be subject to limitations on transfer of their ADSs.Our 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 itdeems it expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers ofADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because ofany requirement of law or of any government or governmental body, or under any provision of the Deposit Agreement governing our ADSs (the“Deposit Agreement”), which was filed as an exhibit to our Registration Statement on Form F-4 (File No. 333-224069) filed with the SEC on April 19,2018 and is filed as an exhibit to this annual report, or for any other reason.Holders of ADSs have limited voting rights and may not receive voting materials in time to be able to exercise their right to vote.Except as described in this annual report and in the Deposit Agreement, holders of our ADSs will not be able to exercise voting rights attaching to theshares represented by our ADSs on an individual basis. Holders of our ADSs may instruct the depositary how to exercise the voting rights attaching tothe shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that direct holdersof ADSs, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.ADS holders’ right to participate in any future rights offerings may be limited, which may cause dilution to their holdings and ADS holders maynot receive cash dividends if it is impractical to make them available to such holders.We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available toADS holders in the United States unless we register the securities to which the rights relate under the Securities Act of 1933 (the “Securities Act”), or anexemption from registration requirements is available. Also, under the Deposit Agreement, the depositary bank will not make rights available to ADSholders unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exemptedfrom registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or toendeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registrationunder the Securities Act. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in theirholdings.In addition, the depositary of our ADSs has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on ourordinary shares or other deposited securities after deducting its fees and expenses. ADS holders will receive these distributions in proportion to thenumber of ordinary shares such holders’ ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical tomake a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain propertythrough the mail, or that the value of certain distributions may be less than the cost of mailing them, or that the distribution requires certaingovernmental approval, such as requirement for registration or approval for currency conversion. In these cases, the depositary may decide not todistribute that property and ADSs holders will not receive that distribution.You will experience dilution as outstanding share options are exercisedYou will experience dilution to the extent that additional ordinary shares are issued upon exercise of outstanding options that we may grant from timeto time. As of December 31, 2018, there were outstanding options for the purchase of 42,250 ordinary shares at a nominal price.We may need additional capital and may sell additional ADSs or other equity securities or incur indebtedness, which could result in additionaldilution to our shareholders or increase our debt service obligations.We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitionswe may decide to pursue. If our cash resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securitiesor obtain a credit facility. The sale of additional equity securities or equity-linked debt securities could result in additional dilution to ourshareholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that wouldrestrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.Substantial future sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the priceof our ADSs to decline.Additional sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the market price of ourADSs to decline. As of December 31, 2018, there were 39,228,538 of our ordinary shares outstanding. As of December 31, 2018, there were outstandingoptions for the purchase of 42,250 ordinary shares at a nominal price. In addition, we may grant or sell additional options, restricted shares or othershare-based awards in the future under our share incentive plan to our management, employees and other persons, the settlement and sale of which mayfurther dilute our shares and drive down the price of our ADSs. 29Table of ContentsWe believe that we may be classified as a passive foreign investment company, or PFIC, for the 2018 taxable year, which would likely result inadverse United States federal income tax consequences to U.S. holders of our ADSs or ordinary shares.We believe that we may have been classified as a PFIC for United States federal income tax purposes for our 2018 taxable year ended November 30,2018. There can be no assurance that we will not continue to be classified as a PFIC in the current taxable year or in any future taxable year. Thedetermination of whether we would continue to be treated as a PFIC is based in significant part on our operations and the composition of our earningsand assets (including goodwill) for a given taxable year, including the valuation of our assets based on the market price of our ADSs.If we are treated as a PFIC for any taxable year during which a U.S. holder (as defined under “Taxation—United States Federal Income Taxation—Passive Foreign Investment Company”) holds an ADS or an ordinary share, certain adverse United States federal income tax consequences likely wouldapply to such U.S. holder. See “Taxation—United States Federal Income Taxation—Passive Foreign Investment Company” in Item 10 of this annualreport.If we are a PFIC, a U.S. holder of our ADSs or ordinary shares could make a variety of elections that might alleviate certain of the tax consequencesreferred to above, and one of these elections may be made retroactively. However, it is expected that the conditions necessary for making certain ofsuch elections will not apply in the case of our ADSs or ordinary shares. See “Taxation—United States Federal Income Taxation—Passive ForeignInvestment Company” in Item 10 of this annual report.U.S. holders and prospective holders of our ADSs are urged to consult their own tax advisors regarding the application of the PFIC rules to aninvestment in our ADSs or ordinary shares.Press reports in 2011 concerning possible increased scrutiny by Chinese authorities of the VIE structure used by us and various other Chinesecompanies publicly-traded in the United States appear to have created concern at the time among investors and to have caused the price of theADSs of various Chinese companies, including us, that are publicly traded in the United States to drop, and similar reports in the future couldhave a similar adverse effect on the price of our ADSsIn 2011 various prominent western news outlets reported that the MOFCOM and the China Securities Regulatory Commission (the “CSRC”), amongother Chinese regulatory authorities, might be considering increased scrutiny or enhanced regulation of Chinese companies that use VIE structures,such as we do, as a means of complying with Chinese laws restricting foreign ownership of certain businesses in China, including online gamebusinesses such as ours. Some of such news reports also sought to draw a connection between accounting issues at certain Chinese companies, whichwere widely reported at the time, and the use of VIE structures. Such news reports appear to have had the effect of causing significant drops at the timein the market prices of the shares of many Chinese companies, including us. It is possible that in the future there will be increased scrutiny or enhancedregulation by Chinese regulatory authorities of Chinese companies, including us, that use VIE structures. See “If the PRC government determines thatthe VIE structure for operating our business does not comply with applicable PRC government restrictions on foreign investment intelecommunication industry, we could face severe penalties.” In addition, while we are not aware of any causal connection between the reportedaccounting scandals and the use of VIE structures, it is possible that holders or potential purchasers of our ADSs will believe that such a connectionexists. Any of such circumstances could lead to further loss of investor confidence in Chinese companies and cause fluctuations in the market prices ofour ADSs and, if such prices were to drop sharply, could subject us to shareholder litigation, which could cause the price for our shares to drop further.A small group of our existing shareholders, whose interests may differ from other shareholders, hold a significant percentage of our outstandingshares.Dr. Charles Zhang, our Chairman and Chief Executive Officer, beneficially owns approximately 24% of our outstanding ordinary shares and is ourlargest shareholder. Our executive officers and members of our Board of Directors as a group, including Dr. Zhang, beneficially own approximately25% of our outstanding ordinary shares. Accordingly these shareholders will have significant influence in determining the outcome of any corporatetransaction or other matters submitted to the shareholders for approval, including mergers, consolidations, the sale of all or substantially all of ourassets, election of directors and other significant corporate actions. They will also have significant influence in preventing or causing a change incontrol. In addition, without the consent of these shareholders, we may be prevented from entering into transactions that could be beneficial to us. Theinterests of these shareholders may differ from the interests of the other shareholders.Certain provisions of our Memorandum and Articles of Association, Cayman Islands law regarding mergers and similar arrangements, and ourShareholders’ Rights Agreement could delay or deter a change in control.Some provisions of our Memorandum and Articles of Association may make it more difficult to acquire our company or effect a change in control ofour company, even if an acquisition or change in control would be in the interest of our shareholders or if an acquisition or change in control wouldprovide our shareholders or holders of our ADSs with a premium for their shares over then current market prices. For example, our Memorandum andArticles of Association provides for the division of our Board of Directors into two classes with staggered two-year terms and provides that shareholdershave no right to take action by written consent and may not call extraordinary general meeting of shareholders. In addition under Cayman Islands law,a merger of our company with another company would require approval of the holder of not less than two-thirds of our outstanding ordinary shares.Each of these provisions may make it more difficult for a third party to gain control of our board in connection with, or obtain any necessaryshareholder approval for, a proposed acquisition or change in control. 30Table of ContentsIn addition, in January 2019 we entered into a Shareholders’ Rights Agreement with The Bank of New York Mellon, as Rights Agent, pursuant towhich if a person or group acquires more than 15% or more of our outstanding ordinary shares (including ordinary shares represented by our ADSs),except as specifically permitted under the agreement, all our other shareholders and holders of our ADSs would have the right to purchase securitiesfrom us at a substantial discount to those securities’ fair market value, thus causing substantial dilution to the holdings of the person or group whichacquires more than 15%. The Shareholders’ Rights Agreement may inhibit a change in control and, therefore, could adversely affect our shareholders’ability to realize a premium over the then-prevailing market price for our ADSs in connection with such a transaction.The power of our Board of Directors to designate and issue preferred shares could have an adverse effect on holders of our ordinary shares andADSs.Our Memorandum and Articles of Association authorizes our Board of Directors to designate and issue one or more series of preferred shares, havingrights and preferences as the board may determine, and any such designations and issuances could have an adverse effect on the rights of holders of ourordinary shares and our ADSs.Proceedings instituted by the Securities and Exchange Commission (the “SEC”) against PRC affiliates of the “big four” accounting firms,including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliancewith the requirements of the Securities Exchange Act of 1934 (the “Exchange Act”).Starting in 2011, the PRC affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were affected by aconflict between U.S. and PRC law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the U.S.Public Company Accounting Oversight Board (the “PCAOB”) sought to obtain from the PRC big four affiliate firms access to their audit work papersand related documents. The firms were, however, advised and directed that under PRC law they could not respond directly to the U.S. regulators onthose requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC. On December 7, 2018,the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by these U.S. regulators in their oversight of financialstatement audits of U.S.-listed companies with significant operations in China. However, it remains unclear what further actions the SEC and thePCAOB will take to address the problem.In late 2012, the impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and under the Sarbanes-OxleyAct of 2002 against the PRC big four affiliate accounting firms, including our independent registered public accounting firm. A first instance trial ofthe proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judgeproposed penalties on the firms, including a temporary suspension of their right to practice before the SEC, although that proposed penalty did nottake effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioners had taken place, the firmsreached a settlement with the SEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents wouldnormally be made to the CSRC. The firms were to receive matching requests, and were required to abide by a detailed set of procedures with respect tosuch requests, which in substance required them to facilitate production via the CSRC. If they failed to meet specified criteria during a period of fouryears starting from the settlement date, the SEC retained authority to impose a variety of additional remedial measures on the firms depending on thenature of the failure. Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissedwith 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 furtherchallenge the four China-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if theresults of such a challenge would result in the SEC imposing penalties such as suspensions. If additional remedial measures are imposed on the Chineseaffiliates of the “big four” accounting firms, including our independent registered public accounting firm, we could be unable to timely file futurefinancial statements in compliance with the requirements of the Exchange Act.In the event that the Chinese affiliates of the “big four” become subject to additional legal challenges by the SEC or the PCAOB, depending upon thefinal outcome, listed companies in the United States with major PRC operations could find it difficult or impossible to retain auditors in respect of theiroperations in China. If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and wewere unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statementscould be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting ofour ADSs and ordinary shares from the Nasdaq Global Select Market or termination of the registration of our ADSs and ordinary shares under theExchange Act, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.Risks Related to Our Financing ActivitiesSogou’s and Changyou’s statuses as publicly-traded companies that are controlled, but less than wholly-owned, by us could have an adverse effecton Sohu.Sogou’s American depositary shares (“Sogou ADSs”) are listed and traded on the New York Stock Exchange and Changyou’s American depositaryshares (“Changyou ADSs”) are listed and traded on the NASDAQ Global Select Market. Given that Sogou and Changyou are not wholly-ownedsubsidiaries of Sohu, it is possible that Sohu’s, Sogou’s, and Changyou’s interests could diverge in the future, as we may need to consider the interestsof shareholders of Sogou or Changyou other than Sohu. If Sogou’s or Changyou’s interests differ from, or are contrary to, our interests, our businessoperations may be adversely affected, and Sohu may have disagreements with Sogou or Changyou on certain matters that could also have an adverseeffect on our business. 31Table of ContentsIf we default on loans that we have taken out to fund the operations of our Sohu businesses, we could lose valuable assets that we have pledged tosecure the loans, which include two buildings in Beijing, Sohu’s accounts receivable, and our shares in Changyou, as well as other valuableassets.In order to fund the cash needs of our Sohu businesses, we have entered into loan arrangements with Industrial and Commercial Bank of China Limited(“ICBC”), China Merchants Bank (“CMB”), the Hong Kong and Shanghai Banking Corporation (“HSBC”), and Changyou. Under these loanarrangements, Sohu pledged one of its Beijing buildings to secure advances from ICBC, another of its Beijing buildings to secure advances from CMB,certain of its accounts receivable to secure advances from HSBC, and 21,847,751 of its Class B Ordinary Shares in Changyou to secure advances fromChangyou. If Sohu were to default under any of these loan arrangements, the affected lender or lenders would be entitled, among other remedies, toseize the corresponding pledged assets, all of which have significant value, and could potentially also seize other valuable assets of Sohu, to cover anyshortfalls in amounts due under the loans. See Note 10: “Fair Value Measurements—Other Financial Instruments—Short Term Bank Loans” and “—Long Term Payables” and Note 9: “Intra-Group Loan and Share Pledge Arrangement” to our audited consolidated financial statements, which begin onpage F-1 of this report.Risks Related to Sogou Inc.Risks Related to Sogou’s BusinessThe online search industry in China is extremely competitive, and if Sogou is unable to compete successfully, it will be difficult for Sogou tomaintain or increase Sogou’s revenues and profitability.Sogou operates its business in an extremely competitive industry. Sogou faces intense competition in every aspect of its business, includingcompetition for users, advertisers, technology, and talent. Sogou faces competition for its search and search-related services in China primarily fromBaidu Inc., or Baidu, and ShenMa, operated by UCWeb Inc., or UCWeb, which is a subsidiary of Alibaba Group Holding Limited, or Alibaba. BothBaidu and Alibaba have considerably greater financial and technical resources available to them than Sogou does. Sogou also faces competition forboth users and advertisers from websites and mobile applications that provide specialized search services in China, including travel services andinformation platforms such as Ctrip and Qunar; group-buy platforms such as Meituan Dianping; online classified advertisement platforms such as58.com; and newsfeeds such as Toutiao. Sogou competes for advertisers not only with Internet companies, but also with other types of advertisingmedia such as newspapers and magazines, billboards and bus advertisements, television, and radio. It is also possible that multinational businesseswith considerably greater financial and other resources than Sogou’s could expand their offerings in China, making it harder for Sogou to gain marketshare.Sogou’s existing and potential competitors compete with it for users and advertisers on the basis of the quality and quantity of search results; thefeatures, availability, and ease of use of products and services; and the number and quality of advertising distribution channels. They also competewith Sogou for talent with technological expertise, which is critical to the sustained development of Sogou’s products and services. If Sogou is unableto differentiate itself from its competitors in each of these areas, Sogou may not be able to maintain or increase its user and advertiser base, whichwould have an adverse impact on its business, results of operations, and growth potential. In addition, Sogou may have difficulty in successfullypromoting and differentiating its new products, services, and features as a result of the market power of its competitors.Sogou must expand its user base to grow its business, and Sogou must continually innovate and adapt its business in an evolving online searchindustry in order to do so. If Sogou fails to continue to innovate and introduce products and services to enhance user experience, Sogou may notbe able to generate sufficient user traffic to remain competitive.The Internet industry in general and the online search industry in particular have been undergoing rapid changes in technology and in user preferences.Sogou’s future success in expanding its user base will depend on its ability to respond to, as well as anticipate and apply, rapidly evolvingtechnologies. Sogou must adapt its existing products and services and develop new products and product areas that will meet the evolving demands ofusers, deliver attractive experiences for its users that enhance user engagement, and cause its users to return to its services and increase the frequency oftheir searches on Sogou’s platforms. Sogou’s development and introduction of new products, features, and services are subject to additional risks anduncertainties. Unexpected technical, operational, distribution, or other problems could delay or prevent the development and introduction of one ormore of Sogou’s currently planned and any future new products and services. There are constant innovations in the market regarding search services,search and search-related advertising, and providing information to users. If Sogou is unable to predict user preferences or industry changes, or if Sogouis unable to modify its products and services on a timely basis, Sogou may lose users. Sogou’s operating results will also suffer if its innovations are notresponsive to the needs of its users, are not appropriately timed with market opportunity, or are not effectively brought to market. As search technologycontinues to develop, there may be offered in the China market products and services that are, or that are perceived to be, substantially similar to orbetter than those generated by Sogou’s search services. As worldwide focus on the development of AI technologies has intensified, it has becomeincreasingly important to apply AI technologies to online search products and features in order to attract and retain users, and we cannot be sure thatSogou will be able to apply such technologies successfully. 32Table of ContentsSogou’s competitors may develop and offer new products, services, and features that are similar to Sogou’s and may introduce them to the marketbefore Sogou can, and such new offerings from its competitors may be found by users to be more attractive than Sogou’s. Moreover, we cannot be surethat any of Sogou’s new products, services, and features will attract additional users and lead to the generation of incremental revenue.As users increasingly use mobile devices to access search services and other Internet services in China, Sogou will need to continue to design, develop,promote, and operate new products and services tailored for mobile devices. Sogou’s design and development of new products and services that areoptimized for mobile devices may not be successful. Sogou may encounter difficulties with the installation and delivery of such new products andservices, and they may not function smoothly. As new mobile devices are released or updated, Sogou may encounter problems in developing andupgrading its products and services for the new releases and updates, and Sogou may need to devote significant resources to such development andupgrades. If Sogou is not successful in adapting its offerings for mobile devices as described above, maintenance and growth of its business willbe impeded.If Sogou’s collaboration with Tencent is terminated or curtailed, Sogou’s business and prospects for growth will be adversely affected.Sogou has extensive collaboration with Tencent, one of its largest shareholders. Sogou Search is the default general search engine in various Tencentproducts that provide general search offerings, such as Mobile QQ Browser, qq.com, and the PC Web directories daohang.qq.com and hao.qq.com.Approximately 36% of Sogou’s total search traffic, measured by page views, was contributed by Tencent’s Internet properties in December 2018.Sogou Weixin Search is currently the sole general search engine with access to all content published on Weixin Official Accounts, but it is possiblethat Tencent will grant such access to other general search engines. We cannot assure you that Sogou will be able to maintain the current level ofcooperation with Tencent in the future. If Sogou’s collaborative relationship with Tencent is terminated or curtailed due to Tencent’s initiating its owngeneral search service or partnering with other search engine companies, or if any of the commercial terms were to be revised or made less favorable toSogou, or if Tencent does not continue to deliver to Sogou an adequate level of access to its platforms or adequately promote Sogou’s products andservices, Sogou’s business and prospects will be adversely affected.Sogou’s efforts to expand its collaboration with Tencent may not be successful.In September 2018, Sogou and Tencent agreed to extend until September 2023 the period during which Sogou Search will be the default generalsearch engine for Tencent’s products that provide general search offerings in accordance with Sogou’s existing business collaboration arrangementswith Tencent. In addition, Sogou and Tencent have agreed to continue from September 2018 until September 2019 Sogou’s initiative for theintegration into the existing Weixin/WeChat search service of a search function powered by Sogou Search that allows Weixin/WeChat users to accessInternet information outside Weixin/WeChat and have agreed that Sogou Search will be the preferred third-party search function to power such aWeixin/WeChat search function for that period provided Sogou Search meets “Tencent’s requirements for user experience,” and that the arrangementmay be extended for additional successive one-year periods through September 2023 if offering Sogou Search will not “harm the user experience.” It isdifficult for us to predict the potential impact of the integration of Sogou Search to power such a Weixin/WeChat search function measured under thestandards of “Tencent’s requirements for user experience” and/or “harm the user experience.” The potential for growth of Sogou’s business throughsuch integration will be limited if Tencent does not make Sogou Search the preferred search function or decides not to extend the arrangement for suchintegration and a Tencent search function or a search function of one of Sogou’s competitors is given priority over Sogou’s in Weixin/WeChat.Sogou’s existing business and its expansion strategy depend on certain additional key collaborative arrangements, and any inability to maintainor develop such relationships could have an adverse effect on Sogou’s business and prospects for growth.Sogou’s existing business, and its strategy for developing its business, involve maintaining and developing various types of collaborations with thirdparties, which provide it with access to additional user traffic, search services, products, and technology. For example, Sogou’s Wise Doctor delivershealthcare information, and receives healthcare data, through partnerships that provide Sogou with access to articles written by physicians and to aPRC-government sponsored healthcare encyclopedia; Sogou’s partnership with Zhihu Technology Limited, a company that engages primarily in thebusiness of operating an online question and answer-based knowledge and information sharing platform (“Zhihu”), provides Sogou with access to aknowledge-sharing platform; Sogou’s partnership with Microsoft’s Bing provides Sogou with the technology to provide its users with English contenton the Internet that Sogou translates to Chinese in connection with its cross-language search service; and Sogou’s partnership with China LiteratureLimited, an online literature platform, enables its users to access literature from a large online collection. In addition, Sogou’s various partnerships withthird-party Internet properties provide its advertisers significant exposure to users beyond its core search user base. We consider these collaborations tobe important to Sogou’s ability to deliver attractive service, product, and content offerings to its users, in order to maintain and expand its user andadvertiser bases, and we believe that it will continue to be important for Sogou to develop similar partnerships in the future. Sogou’s inability tomaintain and grow such relationships could have an adverse impact on its existing business and its growth prospects.Sogou also has existing, and hopes to develop additional, relationships with mobile device manufacturers for pre-installation of its search, inputmethod, and related applications. If Sogou is unable to maintain and expand such relationships, the quality and reach of delivery of its services will beadversely affected, and it may also be difficult for Sogou to maintain and expand its user base and enhance awareness of its brand. In addition, Sogou’scompetitors may establish the same relationships as those Sogou has, which would tend to diminish any advantage Sogou might otherwise gain fromthese relationships. 33Table of ContentsIf Sogou fails to maintain and expand its collaborations with third-party operators of Internet properties, its revenues and growth may beadversely affected.Sogou places certain of its advertisers’ promotional links on the Internet properties of third parties, thereby expanding the base of users accessing theadvertisements beyond Sogou’s own user base, and increasing Sogou’s pay-for-click revenues. If these third parties decide to use a competitor’s or theirown online search services, or do not prominently display Sogou’s advertisements in comparison to those of other advertisers on their properties, or ifSogou fails to attract additional third-party operators of Internet properties, Sogou’s advertising revenues and growth may be adversely affected.Sogou may not be able to sustain its historical growth or successfully manage any future growth.Sogou has grown significantly over a relatively short period. Sogou’s total Web search page views grew by 22.3%, and its mobile Web search pageviews grew by 47.0%, on an annualized basis for the two-year period from December 2015 to December 2017, but that growth slowed to 13.6% for totalWeb search page views and to 22.6% for mobile Web search page views on an annualized basis for the two-year period from December 2016 toDecember 2018. Sogou’s revenues grew from $660.4 million for the year ended December 31, 2016, to $908.4 million for the year ended December 31,2017, and to $1.12 billion for the year ended December 31, 2018. Sogou’s 2016 revenues were affected by tightened PRC regulation of the onlineadvertising industry during 2016, which had an adverse impact on the search and search-related advertising market in China in general. The growth inSogou’s revenues during 2018 was affected by slower growth in the mobile search market in China in 2018, coupled with unfavorable macroeconomicconditions that impacted the online advertising industry in general, and regulatory headwinds in certain sectors such as online games. In addition, astraffic acquisition costs continue to trend higher due to increasingly intensifying competition for channel partnerships, it could be difficult for Sogouto sustain expenditures for traffic acquisition at the same level as Sogou’s competitors, which could result in slower or flat growth, or even a reduction,in Sogou’s user traffic, which would have a negative impact on Sogou’s revenues and revenue growth prospects. Sogou may not be able to sustain arate of growth in future periods similar to that it experienced in the past, and Sogou’s revenues may even decline. Accordingly, you should not rely onthe results of any prior period as an indication of Sogou’s future financial and operating performance.Sogou is exploring and implementing, and expects to continue to explore and implement in the future, new business initiatives, including in industriesin which Sogou has limited or no experience, as well as new business models. Developing new businesses and initiatives requires significantinvestments of time and resources, and may present new and difficult technological, operational, and legal challenges, as well as subject Sogou toadditional regulatory risks. For example, Sogou has initiated a pilot online lending and microcredit program using Sogou’s own credit riskmanagement. The risk of nonpayment of loans is inherent in the finance business, and Sogou is subject to credit risks resulting from defaults byconsumers. Any failure to effectively manage these risks may limit Sogou’s future growth and hamper Sogou’s business strategy.Sogou depends on online advertising for a significant majority of its revenues. If Sogou fails to retain existing advertisers or attract newadvertisers for its online advertising services, its business and growth prospects could be harmed.Sogou earns most of its revenues from its search and search related advertising services. Advertisers will not use Sogou’s services if they do not findthem to be effective in producing a sufficient volume of click-throughs and desired results for advertisers. Sogou’s advertisers are generally able toterminate their relationships with it at any time without penalty if they are not satisfied with its services, choose its competitors for similar services, oradvertise in media channels other than Internet search. Therefore, it could be difficult for Sogou to maintain or increase its advertiser base, and itsrevenues and profits could decline or fail to increase.Sogou relies on third-party advertising agencies for most of its online advertising revenues.Sogou relies heavily on third-party advertising agencies for its sales to its advertisers. It is important that Sogou maintain good relationships with theseagencies. Sogou does not enter into long-term agreements with any of the advertising agencies and we cannot assure you that Sogou will continue tomaintain favorable relationships with them. Further, Sogou provides various types of discounts and rebates to advertising agencies in order toincentivize them to maximize the volume of advertising business that they bring to Sogou. In order to retain or properly incentivize Sogou’sadvertising agencies, it may become necessary in the future for Sogou to increase the levels of such rebates and discounts, which could have an adverseeffect on its results of operations.If Sogou fails to maintain and enhance awareness of and loyalty to its brand, it will be difficult for Sogou to maintain and increase its user andadvertiser bases.It is critical for Sogou to maintain and further enhance its brand if Sogou is to succeed in expanding its user and advertiser bases. Sogou’s success inpromoting and enhancing its brand, and its ability to remain competitive, will depend on its success in delivering superior user experience and on itsmarketing efforts. Enhancing Sogou’s brand awareness may require substantial marketing and promotion expenses. If Sogou is unable to maintain andenhance its brand, or incur significant marketing and promotion expenses that do not achieve anticipated business growth, or is subject to negativepublicity that harms its brand, Sogou’s business and results of operations may be adversely affected. 34Table of ContentsSogou’s success depends on the continuing efforts of its senior management team and key employees, and Sogou’s business may be harmed ifSogou loses their services.Sogou’s business heavily depends upon the services of its key executives, particularly Xiaochuan Wang, its Chief Executive Officer. If any of Sogou’skey executives is unable or unwilling to continue in his or her present position, joins a competitor, or forms a competing company, Sogou’s businessmay be severely disrupted. Although executive officers have entered into employment agreements, confidentiality agreements, and non-competitionagreements with Sogou, the degree of protection afforded to an employer pursuant to confidentiality and non-competition undertakings by personsemployed in the PRC may be more limited when compared to the degree of protection afforded with respect to employees in some other jurisdictions.Sogou does not maintain key-man life insurance for any of its key executives.Sogou also relies on key highly-skilled personnel for its business. Given the competitive nature of the industry, and in particular Sogou’s competitors’increasingly aggressive efforts to provide competitive compensation packages to attract talent in the markets where Sogou operates, it may be difficultfor Sogou to recruit and retain qualified personnel, and the risk of members of Sogou’s key staff leaving it is high. Any such departure could have adisruptive impact on Sogou’s operations, and if Sogou is unable to recruit, retain and motivate key personnel, it may not be able to grow effectively.Sogou’s strategy of investments in and acquiring complementary businesses and assets may fail, which could result in impairment losses.In addition to organic growth, Sogou may take advantage of opportunities to invest in or acquire additional businesses, services, assets ortechnologies. However, Sogou may fail to select appropriate investment or acquisition targets, or Sogou may not be able to negotiate optimalarrangements, including arrangements to finance any acquisitions. Acquisitions and the subsequent integration of new assets and businesses intoSogou could require significant management attention and could result in a diversion of resources away from Sogou’s existing business. Investmentsand acquisitions could result in the use of substantial amounts of cash, increased leverage, potentially dilutive issuances of equity securities, goodwillimpairment charges, amortization expenses for other intangible assets and exposure to potential liabilities of the acquired business, and the invested oracquired assets or businesses may not generate the financial results Sogou expects. Moreover, the costs of identifying and consummating thesetransactions may be significant. In addition to obtaining the necessary corporate governance approvals, Sogou may also need to obtain approvals andlicenses from relevant governmental authorities for the acquisitions to comply with applicable laws and regulations, which could result in increasedcosts and delays.Requirements of U.S. GAAP regarding the recognition of share-based compensation expense may adversely affect Sogou’s results of operationsand its competitiveness in the employee marketplace.Sogou’s performance is largely dependent on talented and highly-skilled individuals. Sogou’s future success depends on its continuing ability toidentify, develop, motivate, and retain highly-skilled personnel. Sogou has a history of using low or nominally-priced employee share options as animportant component of competitive pay packages, in order to align Sogou’s employees’ interests with the interests of Sogou and its shareholders andto encourage quality employees to join and remain with Sogou. Sogou has adopted guidance on accounting for share-based compensation that requiresthe measurement and recognition of compensation expense for all share-based compensation based on estimated fair values. As a result, Sogou’soperating results contain charges for share-based compensation expense related to employee share options. The historical and future recognition ofshare-based compensation in Sogou’s statements of comprehensive income has had and will have an impact on its results of operations. On the otherhand, if Sogou alters its employee share incentive plans to minimize the corresponding share-based compensation expense, it may limit Sogou’s abilityto continue to use share-based awards as a tool to attract and retain its employees, and it may adversely affect Sogou’s operations. In addition, theremay be future changes in the U.S. GAAP requirements for recognition of share-based compensation expense, which could have similar effects onSogou’s results operations and its competitiveness in the market for key employees.Sogou’s user metrics and other estimates are subject to inherent challenges in measuring its operating performance, which may harm itsreputation.Sogou regularly reviews MAU, DAU, number of advertisers, page views, and other operating metrics to evaluate growth trends, measure itsperformance, and make strategic decisions. These metrics are calculated using internal company data, have not been validated by an independent thirdparty, and may not be indicative of Sogou’s future financial results. While these numbers are based on what we believe to be reasonable estimates forthe applicable period of measurement, there are inherent challenges in measuring how Sogou’s platforms are used across a large population in China.For example, Sogou may not be able to distinguish individual users who have multiple accounts.Errors or inaccuracies in Sogou’s metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significantunderstatement or overstatement of active users were to occur, Sogou might expend resources to implement unnecessary business measures or fail totake required actions to remedy an unfavorable trend. If partners or investors do not perceive Sogou’s user, geographic, or other operating metrics toaccurately represent Sogou’s user base, or if Sogou discovers inaccuracies in its user, geographic, or other operating metrics, its reputation maybe harmed. 35Table of ContentsWe have not independently verified the accuracy or completeness of data, estimates, and projections in this annual report that Sogou obtainedfrom third party sources, and such information involves assumptions and limitations.Certain facts, forecasts, and other statistics relating to the industries in which Sogou competes contained in this annual report have been derived fromvarious public data sources and commissioned third-party industry reports. In connection with our preparation of this annual report, Sogoucommissioned CVSC TNS Research (“CTR”) to update market research concerning the online search and AI industries in China, and Sogou alsoreferred to market research reports of iResearch and IDC that Sogou had previously commissioned concerning the same industries in the United States.In deriving the market size of these industries, these industry consultants may have adopted different assumptions and estimates for certain metrics,such as MAU. While we generally believe such reports to be reliable, neither we nor Sogou has independently verified the accuracy or completeness ofsuch information. Such reports may not be prepared on a comparable basis or may not be consistent with other sources.Industry data and projections involve a number of assumptions and limitations. Industry data and market share data should be interpreted in the lightof the defined industries in which Sogou operates. Any discrepancy in the interpretation of such data could lead to different measurements andprojections, and actual results could differ from the projections.Sogou may not be able to prevent others from making unauthorized use of its intellectual property, which could harm Sogou’s business andcompetitive position.We regard Sogou’s patents, copyrights, trademarks, trade secrets, and other intellectual property as critical to its business. Unauthorized use of Sogou’sintellectual property by third parties may adversely affect its business and reputation. Sogou relies on a combination of intellectual property laws andcontractual arrangements to protect its proprietary rights. It is often difficult to register, maintain, and enforce intellectual property rights in the PRC.Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clearguidance on statutory interpretation in the PRC. In addition, contractual agreements may be breached by counterparties, and there may not be adequateremedies available to it for any such breach. Accordingly, Sogou may not be able to effectively protect its intellectual property rights or to enforce itscontractual rights in China. Policing any unauthorized use of Sogou’s intellectual property is difficult and costly and the steps Sogou has taken may beinadequate to prevent the misappropriation of its intellectual property. In the event that Sogou resorts to litigation to enforce its intellectual propertyrights, such litigation could result in substantial costs and a diversion of its managerial and financial resources. We can provide no assurance thatSogou will prevail in such litigation. In addition, Sogou’s trade secrets may be leaked or otherwise become available to, or be independentlydiscovered by, its competitors.Pending or future litigation could have an adverse impact on Sogou’s financial condition and results of operations.From time to time, Sogou has been, and may in the future be, subject to lawsuits brought by its competitors, individuals, or other entities against it.Sogou is currently involved in several lawsuits in PRC courts where its competitors instituted proceedings or asserted counterclaims against it andSogou instituted proceedings or asserted counterclaims against its competitors. For example, there are various legal proceedings currently pendingbetween Sogou and Baidu in which Sogou alleges that Baidu’s input method infringes certain of Sogou’s patents relating to Sogou Input Method andseeks monetary damages, while Baidu has asserted in counterclaims or in legal proceeding that Baidu has initiated against Sogou that Sogou InputMethod infringes certain of Baidu’s patents, and seeks monetary damages. There is also a lawsuit pending against Sogou in which Shanghai CishuPublications Ltd. has alleged that Sogou used vocabulary content without permission and seeks monetary damages. In addition, Sogou is subject toongoing unfair competition claims against it brought by Baidu, UCWeb, and Qihoo 360 Technology Co., Ltd., or Qihoo360, separately, in which theyallege that certain functions of Sogou Input Method unfairly divert users to Sogou, and seek monetary damages and cessation of the alleged unfaircompetitive practices. There are also four putative class action lawsuits that have been filed against Sogou in the United States, three in a State court inthe State of California and one in the United States District Court for the Southern District of New York, that allege violations of U.S. securities laws inconnection with Sogou’s IPO in 2017.Where Sogou can make a reasonable estimate of the liability relating to pending litigation against it and determine that an adverse liability resultingfrom such litigation is probable, Sogou records a related contingent liability. As additional information becomes available, Sogou assesses thepotential liability and revise estimates as appropriate. However, due to the inherent uncertainties relating to litigation, the amount of Sogou’s estimatesmay be inaccurate, in which case Sogou’s financial condition and results of operation may be adversely affected. In addition, the outcomes of actionsSogou institutes may not be successful or favorable to it. Lawsuits against Sogou may also generate negative publicity that significantly harms itsreputation, which may adversely affect its user and advertiser base. In addition to the related cost, managing and defending litigation and relatedindemnity obligations can significantly divert Sogou’s management’s and Board of Directors’ attention from operating its business. Sogou may alsoneed to pay damages or settle lawsuits with a substantial amount of cash. While we do not believe that any currently pending proceedings are likely tohave a material adverse effect on Sogou’s business, financial condition, results of operations, and cash flows, if there were adverse determinations inlegal proceedings against Sogou, Sogou could be required to pay substantial monetary damages or adjust its business practices, which could have anadverse effect on its financial condition and results of operations, and cash flows. 36Table of ContentsSogou is currently subject to, and in the future may from time to time face, intellectual property infringement claims, which could betime-consuming and costly to defend, and could have an adverse impact on its financial position and results of operations, particularly if Sogou isrequired to pay significant damages or cease offering any of its products or curtail any key features of its products.We cannot be certain that the products, services and intellectual property used in Sogou’s normal course of business do not or will not infringe validpatents, copyrights or other intellectual property rights held by third parties. Sogou currently is, and may in the future be, subject to claims and legalproceedings relating to the intellectual property of others in the ordinary course of its business, and may in the future be required to pay damages or toagree to restrict its activities. See “—Pending or future litigation could have an adverse impact on Sogou’s financial condition and results ofoperations.” In particular, if Sogou is found to have violated the intellectual property rights of others, Sogou may be enjoined from using suchintellectual property, may be ordered to pay damages, and may incur licensing fees or be forced to develop alternatives. Sogou may incur substantialexpense in defending against third-party infringement claims, regardless of their merit. Successful infringement claims against Sogou may result insubstantial monetary liability or may materially disrupt the conduct of its business by restricting or prohibiting its use of the intellectual property inquestion.Sogou may not have exclusive rights to technology, trademarks, and designs that are crucial to its business.Sogou has applied for various patents relating to its business. While Sogou has succeeded in obtaining some patents, some of its patent applicationsare still under examination by the State Intellectual Property Office of the PRC. Approvals of its patent applications are subject to determinations bythe State Intellectual Property Office of the PRC and relevant overseas authorities that there are no prior rights in the applicable territory. In addition,Sogou has applied for initial registrations in the PRC and overseas, and/or changes in registrations relating to transfers of its Sogou logos and other ofits key trademarks in the PRC, and the corresponding Chinese versions of the trademarks, so as to establish and protect its exclusive rights to thesetrademarks. While Sogou has succeeded in registering the trademarks for most of these marks in the PRC under certain classes, the applications forinitial registration, and/or changes in registrations relating to transfers, of some marks and/or of some of trademarks under other classes are still underexamination by the Trademark Office of the SAMR, and relevant overseas authorities. Approvals of Sogou’s initial trademark registration applications,and/or of changes in registrations relating to such transfers, are subject to determinations by the Trademark Office of the SAMR and relevant overseasauthorities that there are no prior rights in the applicable territories. We cannot assure you that these patent and trademark applications will beapproved. Any rejection of these applications could adversely affect Sogou’s rights to the affected technology, marks, and designs. In addition, even ifthese applications are approved, we cannot assure you that any issued patents or registered trademarks will be sufficient in scope to provide adequateprotection of Sogou’s rights.If Sogou’s search results contain information that is inaccurate or harmful to its users, its business and reputation may be adversely affected.Sogou could be exposed to liability arising from its search results listings if information accessed through its services contains errors, and third partiesmay make claims against it for losses incurred in reliance on that information. Investigating and defending such claims could be expensive even if theydid not result in liability, and Sogou does not carry any liability insurance against such risks.In addition, if users do not perceive information that they access through Sogou’s search services to be authoritative, useful, and trustworthy, Sogoumay not be able to retain these users or attract additional users, and its reputation, business, and results of operation may be harmed. In addition, if suchcontent contains inaccuracies, it is possible that users will seek to hold Sogou liable for damages, because Sogou provides links to such content, eventhough such content is provided by third parties and any negative publicity regarding the accuracy of such content could harm its reputation, andreduce user traffic. In addition, any negative publicity or incident involving Sogou’s peer companies could have an adverse impact on its industry as awhole, which in turn could harm its reputation and reduce its user traffic. For example, in early 2016 it was widely reported that an unsuccessfulexperimental cancer treatment had been promoted in a sponsored search listing on a third party’s Internet property. Even though Sogou’s search resultslistings were not involved, we believe that the broad negative publicity surrounding the incident adversely affected the reputation of the online searchindustry in China in general with an adverse impact on Sogou’s user traffic and results of operations in 2016. Another example is in 2018, Sogou’ssearch results contained an advertisement from Douyin (a video clip platform from Toutiao.com), which shows disrespect to the heroes. This incidentcaused Sogou temporarily suspend its online advertising service for ten days (July 1st to 10th) and actively cooperate with the investigation.Sogou may be subject to regulatory investigations and sanctions for inappropriate or illegal content that is accessed through its search results.The online search industry in China is subject to extensive regulation. If content accessed through Sogou’s search services includes information thatPRC governmental authorities find illegal or inappropriate, Sogou may be required to curtail or even shut down its search services, and Sogou may besubject to other penalties. Although Sogou seeks to prevent fraudulent or otherwise illegal or inappropriate websites and information from beingincluded in its search results, such measures may not be effective. For example, Sogou suspended part of Sogou’s advertising services for 10 days inJuly 2018 in order to implement remedial measures to ensure compliance with government regulations following a government investigation intocertain non-compliant advertisements created by a third party unrelated to Sogou and displayed on Sogou’s platform in June 2018. See “Risks Relatedto China’s Regulatory Environment—Regulation and censorship of information distribution in China may adversely affect our business”; and “RisksRelated to China’s Regulatory and Economic Environment—Even if we are in compliance with PRC governmental regulations relating to licensingand foreign investment prohibitions, the PRC government may prevent us from distributing, and we may be subject to liability for, content that itbelieves is inappropriate.” 37Table of ContentsSogou may be subject to potential liability for claims that search results violate the intellectual property rights of third parties.It is possible that content that is made available by Sogou through its search results may violate the intellectual property rights of third parties. PRClaws and regulations are evolving, and uncertainties exist with respect to the legal standards for determining the potential liability of online searchservice providers for search results that provide links to content on third-party websites that infringes copyrights of third parties. In December 2012, theSupreme People’s Court of the PRC promulgated a judicial interpretation providing that PRC courts will place the burden on Internet service providersto remove not only links or content that has been specifically-mentioned in notices of infringement from persons and entities claiming copyright insuch content, but also links or content that the providers “should have known” contained infringing content. This interpretation could subject Sogouto significant administrative burdens and might expose it to civil liability and penalties. Further, Sogou relies on content provided by professionalresearchers and writers, either developed by the outlets themselves or adapted from content of parties separate from such outlets, and it is difficult forSogou to fully monitor such content, which could make Sogou more vulnerable to potential infringement claims.Sogou may be subject to legal liability associated with online activities on its platforms.Sogou hosts and provides a wide variety of products and services that enable advertisers to advertise products and services, and users to exchangeinformation and engage in various online activities. Sogou may be subject to claims, investigations, or negative publicity relating to such activities.PRC laws and regulations relating to the liability of providers of online products and services for activities of their users are undeveloped, and theircurrent and future reach are unclear. Also see “—Sogou may be subject to regulatory investigations and sanctions for inappropriate or illegal contentthat is accessed through its search results.” Sogou also places advertisements on third-party Internet properties, and Sogou offers products and servicesdeveloped or created by third parties. Sogou may be subject to claims concerning these products and services based on its involvement in providingaccess to them, even if Sogou does not offer the products and services directly. Sogou could be required to spend considerable financial andmanagerial resources defending any such claims, and they could result in Sogou’s having to pay monetary damages or penalties or ceasing certainaspects of its business, which could have an adverse effect on its business and results of operations.Privacy concerns or security breaches relating to Sogou’s platforms could damage its reputation, deter current and potential users and advertisersfrom using its products and services, and expose Sogou to legal penalties and liability.Sogou collects, processes, and stores on its servers significant amounts of data concerning its users. While Sogou has taken steps to protect its user data,its security measures could be compromised, because techniques used to sabotage or obtain unauthorized access to systems change frequently andgenerally are not recognized until they are launched against a target, and Sogou may be unable to anticipate these techniques or to implementadequate preventative measures. In addition, Sogou is subject to various regulatory requirements relating to the security and privacy of such data,including restrictions on the collection and use of personal information of users and steps Sogou must take to prevent personal data from beingdivulged, stolen, or tampered with. Regulatory requirements regarding the protection of such data are constantly evolving and can be subject tosignificant change, making the extent of Sogou’s responsibility in that regard uncertain. For example, the Internet Security Law became effective inJune 2017, but it is unclear as to the circumstances and standard under which the law would apply and violations would be found, and there are greatuncertainties as to the interpretation and application of the law. It is possible that Sogou’s data protection practice is or will be inconsistent withregulatory requirements. See ‘‘Government Regulation and Legal Uncertainties—Miscellaneous—Laws and Regulations Related to ConsumerProtection and Privacy Protection – Privacy Protection.” and “Government Regulation and Legal Uncertainties—Miscellaneous—Laws andRegulations Related to Security and Censorship.” Complying with such requirements could cause Sogou to incur substantial expenses or to alter orchange its practice in a manner that could harm its business. Any systems failure or compromise of Sogou’s security, including through employee error,that results in the release of its user data could seriously harm its reputation and brand, impair its ability to retain and attract users and advertisers,expose it to liability to users whose data is released, and subject it to sanctions and penalties from governmental authorities. Sogou also could be liablefor any security breaches of its advertisers’ confidential information. Any security breaches exposing such information could damage Sogou’sreputation and deter current and potential users and advertisers from using its services.Sogou’s network operations may be vulnerable to hacking and viruses, which may reduce the use of its products and services and expose itto liability.Sogou’s user traffic may decline if any well-publicized compromise of security occurs. “Hacking” involves efforts to gain unauthorized access toinformation or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware, or other computer equipment. Techniquesused by hackers to obtain unauthorized access or sabotage systems change frequently and often are not recognized until launched against a target,which means that Sogou may be unable to anticipate new hacking methods or implement adequate security measures. Hackers, if successful, couldmisappropriate proprietary information or cause disruptions in Sogou’s service. Sogou may be required to expend capital and other resources to protectits Internet platforms against hackers, and measures Sogou may take may not be effective. In addition, the inadvertent transmission of computer virusescould expose Sogou to a risk of loss or litigation and possible liability, as well as damage its reputation and decrease its user traffic. 38Table of ContentsSogou’s business may be adversely affected by third-party software applications or practices that interfere with its receipt of information from, orprovision of information to, its users, which may impair its users’ experience.Sogou’s business may be adversely affected by third-party software applications, which may be unintentional or malicious, that make changes to itsusers’ PCs or mobile devices and interfere with its products and services. These software applications may change Sogou’s users’ experience byhijacking queries, altering or replacing its search results, or otherwise interfering with its ability to connect with its users. Such interference can occurwithout disclosure to or consent from users, and users may associate any resulting negative experience with Sogou’s products and services. Suchsoftware applications are often designed to be difficult to remove, block, or disable. Further, software loaded on or added to mobile devices on whichSogou’s search or other applications, such as Sogou Input Method, are pre-installed may be incompatible with or interfere with or prevent the operationof such applications, which might deter the owners of such devices from using Sogou’s services.In addition, third-party website owners, content providers, and developers may implement applications and systems that interfere with Sogou’s abilityto crawl and index their webpages and content, which is critical to the operation of its search services. If Sogou is unable to successfully prevent orlimit any such applications or systems that interfere with its products and services, or if a significant number of third-party website owners, contentproviders, and developers prevent Sogou from indexing and including their webpages and content in its search results, Sogou’s ability to deliverhigh-quality search results and a satisfactory user experience will be impeded.Adoption of Internet advertisement blocking technologies may have an adverse impact on Sogou’s business and results of operations.The development of software that blocks Internet advertisements before they appear on a user’s screen may hinder the growth of online advertising.Since Sogou’s advertising revenues are generally based on user click-throughs, the expansion of advertisement-blocking on the Internet may decreaseits advertising revenues, because when advertisements are blocked they are not downloaded from the server, which means such advertisements will notbe tracked as a delivered advertisement. In addition, advertisers may choose not to advertise on the Internet or on or through Sogou’s sites because ofthe use by third parties of Internet advertisement blocking measures. In addition, increasing numbers of browsers include technical barriers designed toprevent Internet information service providers such as Sogou to track the browsing history of their Internet users, which is also likely to adversely affectthe growth of online advertising and hence Sogou’s business and growth prospects.If Sogou fails to detect click-through fraud, it could lose the confidence of its advertisers and its revenues could decline.Sogou’s business is exposed to the risk of click-through fraud on its paid search results. Click-through fraud occurs when a person clicks paid searchresults for a reason other than to view the underlying content of search results. If Sogou fails to detect significant fraudulent clicks or otherwise isunable to prevent significant fraudulent activity, the affected search advertisers may experience a reduced return on their investment in its pay-for-clickservices and lose confidence in the integrity of its pay-for-click service systems, and Sogou may have to issue refunds to its advertisers and may losetheir future business. If this happens, Sogou may be unable to retain existing advertisers and attract new advertisers for its pay-for-click services, and itssearch revenues could decline. In addition, affected advertisers may also file legal actions against it claiming that Sogou has over-charged or failed torefund them. Any such claims or similar claims, regardless of their merit, could be time-consuming and costly for Sogou to defend against and couldalso adversely affect its brand and its search advertisers’ confidence in the integrity of its pay-for-click services and systems.Web spam and content farms, as well as Sogou’s attempts to block them, could decrease the quality of its search results, and could deter its currentand potential users from using its products and services.The proliferation of search engine spam websites, commonly referred to as Web spam, which attempt to manipulate search indexing to cause them toappear higher in search results ranking hierarchies than they would without such manipulation, can have the effect of weakening the integrity ofSogou’s search results and causing users to lose confidence in its search products and services. “Content farm” websites, which commission very largeamounts of content, often of low quality, for the purpose, similar to that of Web spam, of causing such content farms’ links to obtain relatively highranking in Internet providers’ search results, can have similar adverse effects.While Sogou uses, and continually improves, technology designed to detect and block Web spam, the algorithms Sogou applies may neverthelessresult in excessive filtering that blocks desirable websites from its search results. Therefore, both the existence of Web spam and content farms, andSogou’s attempts to block them, could deter its current and potential users from using its products and services. In addition, as some of Sogou’s third-party Internet-property collaborators could include Web spam or content farm websites, its advertising revenues could be reduced by its efforts to filtersuch websites. If Sogou’s efforts to combat these and other types of index spamming are unsuccessful, its reputation for delivering relevant informationcould be diminished. This could result in a decline in user traffic, which would damage Sogou’s business.The successful operation of Sogou’s business depends upon the performance and reliability of the Internet infrastructure in China.Sogou’s growth will depend in part on the PRC government and state-owned telecommunications services providers maintaining and expandingInternet and telecommunications infrastructure, standards, protocols, and complementary products and services to facilitate Sogou’s reaching a broaderbase of Internet users in China. 39Table of ContentsAlmost all access to the Internet in China is maintained through China Mobile, China Unicom and China Telecom under the administrative controland regulatory supervision of the MIIT. Sogou relies on this infrastructure and China Mobile, China Unicom, and China Telecom to provide datacommunications capacity primarily through local telecommunications lines. Although the government has announced aggressive plans to develop thenational information infrastructure, this infrastructure may not be developed and the Internet infrastructure in China may not be able to support thecontinued growth of Internet usage. In addition, Sogou will be unlikely to have access to alternative networks and services on a timely basis, if at all, inthe event of any infrastructure disruption or failure.Interruption or failure of Sogou’s information technology and communications systems may result in reduced user traffic and harm to itsreputation and business.Interruption or failure of any of Sogou’s information technology and communications systems or those of the operators of third-party Internetproperties with which it collaborates could impede or prevent its ability to provide its search and search-related services. In addition, Sogou’soperations are vulnerable to natural disasters and other events. Sogou’s disaster recovery plan for its servers cannot fully ensure safety in the event ofdamage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, hacking, and similar events. If any of the foregoing occurs,Sogou may experience a partial or complete system shutdown. Furthermore, Sogou’s servers, which are hosted at third-party Internet data centers, arealso vulnerable to break-ins, sabotage and vandalism. Some of Sogou’s systems are not fully redundant, and its disaster recovery planning does notaccount for all possible scenarios. The occurrence of a natural disaster or a closure of an Internet data center by a third-party provider without adequatenotice could result in lengthy service interruptions.Any system failure or inadequacy that causes interruptions in the availability of Sogou’s services, or increases the response time of its services, couldhave an adverse impact on its users’ experience and reduce its users’ satisfaction, its attractiveness to users and advertisers, and future user traffic andadvertising on its platform.Furthermore, Sogou does not carry any business interruption insurance. To improve the performance and to prevent disruption of its services, Sogoumay have to make substantial investments to deploy additional servers or one or more copies of its Internet platforms to mirror its online resources.Sogou faces risks related to natural disasters, health epidemics, or terrorist attacks.Sogou’s business could be adversely affected by natural disasters, such as earthquakes, floods, landslides, and tsunamis, outbreaks of health epidemicssuch as an outbreak of avian influenza; severe acute respiratory syndrome, or SARS; Zika virus; or Ebola virus, as well as terrorist attacks, other acts ofviolence or war, or social instability. If any of these occurs, Sogou may be required to temporarily or permanently close and its business operations maybe suspended or terminated.Sogou Risks Related to China’s Regulatory and Economic EnvironmentPRC regulations relating to sponsored search have had, and may continue to have, an adverse effect on Sogou’s results of operations.On April 13, 2016, the SAMR and sixteen other PRC government agencies jointly issued a Notice of Campaign to Crack Down on Illegal InternetFinance Advertisements and Other Financial Activities in the Name of Investment Management, or the Campaign Notice, pursuant to which acampaign was conducted between April 2016 and January 2017 targeting, among other things, online advertisements for Internet finance and otherfinancial activities posted on online search portals such as Sogou’s. The CAOC, issued the Interim Measures for the Administration of Online Search,or the CAOC Interim Measures, which became effective on August 1, 2016 and require that providers of online search services verify the credentials ofpay-for-click advertisers, specify a maximum percentage that pay-for-click search results may represent of results on a search page, and require thatproviders of search services conspicuously identify pay-for-click search results as such. The SAMR issued the Interim Measures for the Administrationof Online Advertising, or the SAMR Interim Measures, which became effective on September 1, 2016 and treat pay-for-click search results asadvertisements subject to PRC laws governing advertisements, require that pay-for-click search results be conspicuously identified on search resultpages as advertisements and subject revenues from such advertisements to a 3% PRC tax that is applied to advertising revenues. In order to complywith these regulations, Sogou has established more stringent standards for selecting advertisers for its pay-for-click services and has turned downcertain existing advertisers, and has lowered the percentage that pay-for-click search results represent of results on its search pages, which had anadverse impact on Sogou’s search and search-related revenues and overall results of operations for 2016 and, along with the tax on advertising, arelikely to continue to have such an impact. We cannot assure you that PRC governmental authorities will not issue new laws or regulations specificallyregulating sponsored search services, which could further impact Sogou’s revenues.Risks Related to Changyou.com LimitedRisks Relating to Changyou’s Business and IndustryOverall RisksThe markets for Changyou’s products and services are evolving rapidly and significantly, which makes evaluating its business and prospectsdifficult. 40Table of ContentsChangyou’s three primary businesses are the online game business; the platform channel business, which consists primarily of online advertising; andthe cinema advertising business. Changyou’s businesses and the industries in which it operates are evolving rapidly. Changyou was incorporated onAugust 6, 2007 in the Cayman Islands and began its online game business as an indirect wholly-owned subsidiary of Sohu.com Inc. In 2007 Sohutransferred all of its PC game business to Changyou. In 2011 Changyou acquired 7Road and began generating Web game revenues. In 2012,Changyou began to develop and operate mobile games, but did not begin to generate any significant revenues from mobile games until late in 2014when Changyou launched TLBB 3D; and in May 2017, Changyou launched another in-house developed mobile game, Legacy TLBB Mobile, whichis operated by Tencent, under license from Changyou. In August 2015, as revenues from Changyou’s Web games Wartune and DDTank had begun todecline, Changyou sold 7Road’s operating entity, and as a result Changyou has no remaining significant Web games in operation or development. In2011, Changyou began to expand into the platform channel business with its acquisition from Sohu of the 17173.com Website, which operatesChangyou’s online advertising business. In December 2013, Changyou acquired RaidCall, which operates free social communication software; and inJuly 2014 Changyou acquired a majority interest in MoboTap Inc., or MoboTap, a Cayman Islands company that operates the Dolphin Browser.However, Changyou’s acquisitions of RaidCall and MoboTap were not successful, as expected synergies did not materialize. In 2011, Changyouacquired the entities that operate its cinema advertising business. Changyou’s cinema advertising business experienced strong growth in 2016 and2017 and has remained a significant part of Changyou’s overall business, but Changyou experienced a significant decline in revenues from its cinemaadvertising business in early 2018, and in the future it may not be able to again generate the same rate of revenue growth in its cinema advertisingbusiness as it experienced in 2016 and 2017, and may also suffer further declines in revenues.Changyou’s past successes in its online games business with PC games may not provide a meaningful basis for you to evaluate its current business andprospects, as a substantial number of game players have migrated from personal computers to mobile devices to access online games and the relativepopularity of PC games continues to decline. In response to such rapid migration, Changyou has devoted and Changyou expects to continue to devotesubstantial resources to the development of its mobile games as a critical component of its business strategy. However, Changyou’s mobile gamesstrategy has not been proven, and presents very different challenges from those presented in the past by its operation of PC games and Web games.Despite the early success of Changyou’s mobile game TLBB 3D after Changyou introduced it in late 2014 and of Changyou’s mobile game LegacyTLBB Mobile after Changyou launched it in May 2017, the popularity of, and the revenues generated from, TLBB 3D and Legacy TLBB Mobilecontinued to decline through 2018. We cannot be certain that Changyou will be successful in its efforts to launch additional mobile games thatgenerate sufficient revenues and income to sustain or grow Changyou’s mobile game business.You should also consider additional risks and uncertainties that may be experienced by companies operating in a rapidly developing and evolvingindustry. Some of these risks and uncertainties relate to Changyou’s ability to: • raise Changyou’s brand recognition and game players’ loyalty; • develop, license or operate new games that are appealing to game players; adapt to new trends and game player tastes; meet Changyou’sexpected timetables for their launch; and, if they are successful, have acceptably long lifespans and result in an acceptable level of profitfor Changyou; • successfully adapt to evolving business models, industry trends and market environments by developing and investing in new businessstrategies, products, services and technologies, including, in particular, virtual reality, or VR, technology, for Changyou’s new games; • arrange for its mobile games to be distributed through popular mobile application stores with commercial terms, including revenue-sharingarrangements, that are favorable enough to Changyou and allow it to achieve an acceptable level of profit from the games; • integrate new technologies, businesses and personnel of acquired entities, and generate sufficient revenues to offset the costs and expensesof such acquisitions; • maintain or expand Changyou’s marketing efforts to attract more game players to its games and to the game information portal of the17173.com Website in a rapidly changing and increasingly competitive business environment, and generate sufficient revenues to offsetthe costs and expenses of such marketing efforts; and reverse the recent decline in Changyou’s revenues from the 17173.com Website,particularly in view of the rapid emergence of mobile games and the decline in the relative popularity of PC games and Web games as usersswitched to mobile devices; and • successfully expand Changyou’s marketing efforts to attract advertisers to place advertisements in pre-film advertising slots that itpurchases from operators of movie theaters, which are critical to Changyou’s ability to recoup its significant upfront payments andcommitted payments under Changyou’s contracts with the operators of movie theaters.If Changyou does not adapt its business to address these risks and uncertainties, its ability to continue its past success or to expand its business in thefuture is likely to be impeded.Changyou’s business may not succeed in a highly competitive market.Competition in the online game market in China is becoming increasingly intense. Changyou competes primarily with other online game developersin China, including Tencent and NetEase, Inc. Many of Changyou’s competitors have, or may over time be able to gain, competitive advantages overChangyou in terms of: 41Table of Contents • greater financial and technical resources; • more aggressive and effective strategies for hiring talent for game development, which may make it difficult for Changyou to retain itsexisting employees and attract new employees, which are necessary for Changyou to be able to grow its business; • substantially greater financial resources and more effective methods for acquiring exclusive license rights to the titles, characters, themesand story lines of popular works in order to adapt online games from such works (which has become increasingly important for new onlinegames to be successful); • more aggressive and effective marketing strategies for promoting their online games and penetrating the mobile game market; and • more capability for developing and releasing new software for mobile devices to attract a growing number of game players that accessInternet products and services through mobile devices.The 17173.com Website derives revenue primarily from providing online advertising services to advertisers that develop, operate and distribute PCgames. As the market demand for PC games continues to decline, the 17173.com Website faces intense competition, particularly from mobileapplication stores and other Internet platforms through which game players access mobile games, for advertising business targeting online players ofmobile games. Changyou competes with other game information portals, such as duowan.com, operated by YY Inc., and game.qq.com, operated byTencent, and other Internet portals which have, or may over time be able to build, competitive advantages over Changyou in terms of: • greater brand recognition among game players and advertising clients; • larger user and customer bases; • more extensive and well developed marketing and sales networks; • more attractive mobile versions of their game information portals and more extensive mobile game-related products and services, such asmobile game discussion forums, in response to the rapid migration of users of Internet services from PCs to mobile devices such as tabletsand mobile phones, and the unique preferences and demands of mobile users and mobile game players; and • substantially greater financial and technical resources.Changyou’s cinema advertising business generates revenues through contracts that Changyou enters into with advertisers to place their advertisementsin pre-film advertising slots that Changyou purchases from operators of movie theaters. Changyou competes with Focus Media Group, Wanda Groupand other companies selling pre-film advertisement slots to advertisers. These competitors in general, and Wanda Group in particular, have, and may beable to build further, competitive advantages over Changyou arising from their having significantly greater financial resources, greater brandrecognition among operators of movie theaters and advertisers and more capable and effective sales and marketing forces and strategies than Changyoudoes. Wanda Group has a particular competitive advantage over Changyou as Wanda Group itself is one of the largest operators of movie theaters inChina. Therefore, it is beneficial for Wanda Group to expand its own cinema advertising business together with the expansion of its self-operatedmovie theaters. In addition, Wanda Group competes with Changyou for advertising slots in other movie theaters that Wanda does not own or operate,which may force Changyou to increase its bidding prices for such advertising slots, which may impair Changyou’s ability to compete effectively inthose markets.In order to compete effectively in the PRC, as well as in the worldwide market, Changyou must continue to invest in research and development, toenhance its technology and its existing games, advertising and other services, and to introduce new game products and services in order for it to adaptto industry trends and shifting demands of game players and advertising clients and to remain competitive. If Changyou’s products and services are notresponsive to the needs of its game players and advertisers, are not appropriately timed with market opportunities, or are not effectively brought tomarket, or if its competitors are more successful than Changyou is in developing compelling products or in attracting and retaining game players andadvertisers, Changyou may not be able to compete effectively.Changyou’s business could suffer if Changyou does not successfully manage any future growth.Changyou experienced a period of rapid growth and expansion through 2013 that placed strain on its management personnel, systems and resources. Inaddition, to accommodate any future growth, Changyou anticipates that it will need to implement a variety of new and upgraded operational andfinancial systems, including procedures and controls, and improvement of its accounting and other internal management systems and security systemsrelated to the foregoing, all of which require substantial management efforts and financial resources. Changyou will also need to continue to train,manage and motivate its workforce, and manage its relationships with its third-party operators, distributors and service providers and its game playerbase. All of these endeavors will require substantial management effort and skills and the incurrence of additional expenditures. Changyou may not beable to efficiently or effectively implement its growth strategies and manage the growth of its operations, and any failure to do so may limit its futuregrowth and hamper its business strategy. 42Table of ContentsChangyou may not be able to avoid slowing growth or declines in its revenues, or future losses.Changyou’s revenues grew significantly in a relatively short period of time prior to 2014, but its revenue growth stalled in 2014 and 2015, and itsrevenues decreased in 2016. Primarily due to the commercial success of TLBB, Changyou’s revenues grew from $623.4 million for the year endedDecember 31, 2012 to $737.9 million for the year ended December 31, 2013. However, Changyou’s revenues increased only slightly to $755.3 millionand to $761.6 million, respectively, for the years ended December 31, 2014 and 2015; and Changyou’s revenues decreased to $525.4 million for theyear ended December 31, 2016. Although Changyou’s revenues increased from 2016 to $580.3 million for the year ended December 31, 2017, largelydue to the early success of its mobile game Legacy TLBB Mobile, they remained below Changyou’s revenues for 2013, 2014, and 2015, and itsrevenues decreased to $485.8 million for the year ended December 31, 2018. Even if Changyou’s revenues increase in future years, Changyou is notlikely to experience rates of revenue growth in the future similar to those that it experienced prior to 2014. Changyou suffered a net loss attributable toChangyou.com Limited of $3.4 million for the year ended December 31, 2014. Changyou’s net income attributable to Changyou.com Limited was$212.8 million for the year ended December 31, 2015, but decreased to $144.9 million for the year ended December 31, 2016, to $108.8 million for theyear ended December 31, 2017 and to $84.3 million for the year ended December 31, 2018. Changyou may experience declines in its revenues or suffernet losses in the future due to a number of factors, including, among other things, expected continued declines in TLBB’s, Legacy TLBB Mobile’s andTLBB 3D’s revenues; the uncertain level of popularity of Changyou’s future games, uncertainty as to Changyou’s ability to develop and launch high-quality mobile games that are commercially successful; the relatively higher game development and distribution costs generally associated withmobile games; the need to expend greater amounts in order to develop or acquire new games, technologies, assets, and businesses; and uncertainty asto Changyou’s ability to integrate such newly acquired games, technologies, assets and businesses. Accordingly, you should not rely on the results ofany prior period as an indication of Changyou’s future financial and operating performance.Changyou’s previous and any future acquisitions and/or strategic alliances may have an adverse effect on its ability to manage its business andmay also result in impairment charges.Changyou has made acquisitions of, and may potentially acquire in the future, technologies, businesses or assets that are complementary to its businessand/or enter into strategic alliances in order to leverage its position in the China market and expand its business domestically and internationally. Suchacquisitions or strategic alliances may expose Changyou to potential risks, including risks associated with the integration of new technologies,businesses and personnel including its continued reliance on the management teams of the acquisition targets to operate the acquired businesses,unforeseen or hidden liabilities, the diversion of management attention and resources from its existing business, and the inability to generate sufficientrevenues to offset the costs and expenses of acquisitions or strategic alliances. Any difficulties encountered in the acquisition and strategic allianceprocess may have an adverse effect on Changyou’s ability to manage its business. In addition, acquired businesses may not perform to Changyou’sexpectations for various reasons, including the loss of key personnel or key clients, and Changyou’s strategic focus may change. As a result, Changyoumay not realize the benefits it anticipated. If Changyou fails to integrate acquired technologies, businesses and assets or realize the expected benefits,Changyou may not receive a return on its investment and its transaction costs for such acquisitions. The benefits of an acquisition or investment mayalso take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits,which could adversely affect its business and operating results. Acquisitions could result in contingent liabilities or amortization expenses related tointangible assets or write-offs of goodwill and/or intangible assets, which could adversely affect Changyou’s results of operations. For example, inNovember 2013, Changyou acquired Beijing Doyo Internet Technology Co., Ltd., or Doyo, with the expectation of generating benefits from synergieswith Changyou’s online advertising business; in December 2013 Changyou acquired RaidCall with the expectation of generating benefits fromsynergies with Changyou’s online game business; and in July 2014 Changyou acquired MoboTap, which operates the Dolphin Browser, with theexpectation of generating benefits from synergies with Changyou’s platform channel business. In 2014 Changyou recognized a $33.8 millionimpairment loss for goodwill and a $15.3 million impairment loss for acquired intangible assets related to RaidCall; in 2015 Changyou sold Doyo andrecognized a $1.9 million impairment loss for goodwill; in 2015 Changyou recognized a $29.6 million impairment loss for goodwill and an$8.9 million impairment loss for acquired intangible assets relating to the MoboTap business; and in 2017 Changyou recognized a further$83.5 million impairment loss for goodwill and a $3.4 million impairment loss for intangible assets relating to the MoboTap business, as a result of itsmanagement’s conclusion that the expected synergies would not materialize; and in 2018 Changyou recognized a $16.4 million impairment loss forgoodwill relating to the 17173.com Website and sold MoboTap.Changyou is dependent upon its management and upon its key development and technical personnel; and Changyou’s business may be disrupted ifit loses the services of any of them.Changyou’s future success depends substantially on the services of the members of its management and its key development and technical personnel,such as Changyou’s Chief Executive Officer Dewen Chen and its key game development personnel. If one or more of the members of Changyou’smanagement or key development or technical personnel were unable or unwilling to continue in their present positions, Changyou might not be ableto replace them easily, or at all. If any of the members of Changyou’s management or its key employees joins a competitor or forms a competingcompany, not only would Changyou lose know-how, key professionals, staff members and suppliers, but such members of Changyou’s managementand key employees could develop and operate games and other services that could compete with and take game players and users away from itsexisting and future business. Although each of these members of Changyou’s management and key personnel has entered into an employmentagreement with non-competition provisions, these non-competition provisions may not be enforceable in China. 43Table of ContentsChangyou’s prospects for growth may be adversely affected if Changyou cannot successfully manage and make timely adjustments to its hiringneeds to support its business strategies.The Internet industry in China is characterized by high demand and intense competition for talent, particularly for game developers and relatedtechnical personnel, and Changyou’s success in the implementation of its growth strategies depends on Changyou’s ability to successfully manage,and make timely adjustments to, its hiring needs. The number of Changyou’s employees decreased by 13.0% in 2016, by 13.0% in 2017, and by 13.7%in 2018, as Changyou emphasized the development of mobile games and laid off a number of employees who had been focused primarily oninternational markets and the platform channel business. These layoffs could have an adverse effect on Changyou’s remaining employees’ morale andtheir loyalty to Changyou, and cause Changyou to lose employees whose talent and experience are important for its business, and could also have anegative impact on its reputation as an employer and its ability to attract qualified employees in the future. Laid-off employees could also make claimsagainst Changyou for additional compensation, causing Changyou to incur additional expense.Changyou may not have exclusive rights to trademarks, designs and technologies that are crucial to its business.Changyou has applied for initial registrations in the PRC and overseas, and/or changes in registrations relating to transfers of its key trademarks in thePRC, including ChangYou.com, cyou.com, TLBB, TLBB logos, New Blade Online, 17173, TLBB 3D and the corresponding Chinese versions of themarks, so as to establish and protect its exclusive rights to these trademarks. Changyou has succeeded in registering the trademarks ChangYou.com,cyou.com, TLBB, TL logos and 17173 in the PRC under certain classes. The applications for initial registration, and/or changes in registrationsrelating to transfers, of other marks and/or of some of these marks under other classes are still under examination by the Trademark Office of the SAMR,and relevant authorities overseas. Moreover, if Changyou is unable to renew the licenses from the estate of Louis Cha for Changyou’s mobile gamesTLBB 3D and Legacy TLBB Mobile and for Changyou’s PC game TLBB, Changyou could lose the right to use the trademarks related to those gamesto the extent that they relate to Louis Cha’s novel Tian Long Ba Bu. Changyou has applied for patents relating to the design of its games and totechnology intended to enhance the functionalities of its games. Changyou has various patent applications under examination by the State IntellectualProperty Office of the PRC. Approvals of Changyou’s initial trademark registration applications, and/or of changes in registrations relating to suchtransfers, or of Changyou’s patent applications are subject to determinations by the Trademark Office of the SAMR, the State Intellectual PropertyOffice of the PRC and relevant authorities overseas that there are no prior rights in the applicable territory. Changyou cannot be certain that theseapplications will be approved. Any rejection of these applications could adversely affect Changyou’s rights to the affected marks, designs andtechnologies. In addition, even if these applications are approved, Changyou cannot assure you that any registered trademark or issued patent will besufficient in scope to provide adequate protection of its rights.Changyou may need to incur significant expenses to enforce its proprietary rights, and if it is unable to protect such rights, its competitive positionand financial performance could be harmed.Changyou regards its intellectual property and proprietary rights as critical to its success. In particular, Changyou has spent a significant amount oftime and resources in developing its current games and possible future games. Changyou’s ability to protect its proprietary rights in connection with itsgames is critical for their success and Changyou’s overall financial performance. While Changyou has registered software in China for copyrightprotection and has taken various measures to protect its source codes, such measures may not be sufficient to protect its proprietary information andintellectual property. Intellectual property rights and confidentiality protection in China may not be as effective as they are in the United States andother developed countries. Policing unauthorized use of proprietary technology is difficult and expensive. In addition, while Changyou has registeredsome trademarks relating to its games in the PRC and other jurisdictions, and has applied for additional registrations of trademarks, in some instancesChangyou may not succeed in obtaining registration of trademarks that it has applied for in different languages, such as English. We cannot assure thatthese pending or future trademark applications will be approved. Any failure to register trademarks in any country or region may limit Changyou’sability to protect its rights in such country or region under relevant trademark laws, and Changyou may need to change the name of the relevanttrademark in certain cases, which may adversely affect Changyou’s branding and marketing efforts.Despite Changyou’s efforts to protect its intellectual property, online game developers may copy Changyou’s ideas and designs, and other third partiesmay infringe Changyou’s intellectual property rights. For example, certain third parties have misappropriated the source codes of previous versions ofTLBB and have set up unauthorized servers in China and elsewhere to operate TLBB to compete with Changyou. The existence of unauthorizedservers may attract game players away from Changyou’s games and may result in decreases in Changyou’s revenues. Any measures Changyou takes inresponse may not be successful in eliminating these unauthorized servers. Litigation relating to intellectual property rights may result in substantialcosts to Changyou and diversion of resources and management attention away from its business, and may not be successful. In addition, Changyou’sideas and certain of its designs, if not fixed in a tangible form of expression or registered with the appropriate PRC authorities, may not be protected bypatents or other intellectual property rights. As a result, Changyou may be limited in its ability to assert intellectual property rights against onlinegame developers who independently develop ideas and designs that compete with Changyou. 44Table of ContentsChangyou may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely to it, could subject it tosignificant liabilities and other costs.Changyou’s success depends largely on its ability to use and develop its technology and know-how without infringing the intellectual property rightsof third parties. We cannot assure you that third parties will not assert intellectual property claims against Changyou. Changyou is subject toadditional risks if entities licensing to it intellectual property, including, for example, game source codes, do not have adequate rights in any suchlicensed materials. The validity and scope of claims relating to the intellectual property of game development and technology involve complexscientific, legal and factual questions and analyses and, therefore, tend to be uncertain. If third parties assert copyright or patent infringement orviolation of other intellectual property rights against it, Changyou will have to defend itself in litigation or administrative proceedings, which can beboth costly and time consuming and may significantly divert the efforts and resources of Changyou’s technical and management personnel. An adversedetermination or settlement in any such litigation or proceedings to which Changyou may become a party could subject it to significant liability tothird parties, or require it to seek licenses from third parties, pay ongoing royalties, or redesign its games or subject it to injunctions prohibiting thedevelopment and operation of its games.Risk Related to Online GamesThere are uncertainties regarding the future growth of the online game industry in China.The online game industry, from which Changyou derives most of its revenues, is a rapidly evolving industry. The growth of the online game industryand the level of demand and market acceptance of Changyou’s games are subject to a high degree of uncertainty. Changyou’s future operating resultswill depend on numerous factors affecting the online game industry, many of which are beyond Changyou’s control, including: • whether the online game industry, particularly in China and the rest of the Asia-Pacific region, continues to grow and the rate of any suchgrowth; • the availability and popularity of other forms of entertainment, particularly games on console systems, which are already popular indeveloped countries and may gain popularity in China; • growth in users of the Internet and broadband and penetration in China and other markets in which Changyou offers its games, and the rateof any such growth; • whether recent declines in the use of personal computers and growth in users of mobile devices such as smart phones and tablets in general,and for purposes of accessing online games in particular, continue or accelerate in China and other markets in which Changyou offers itsgames; • changes in consumer demographics and public tastes and preferences; and • general economic conditions in China, particularly economic conditions adversely affecting discretionary consumer spending, such as theslowdown in China’s economic growth that occurred between the first quarter of 2010 and the third quarter of 2012 and from 2014 through2018.There is no assurance that online games in general will continue to be popular in China or elsewhere. If the current decline in the popularity of PCgames continues or accelerates as users increasingly switch to mobile devices, Changyou’s revenues from its PC games may decrease significantly; andif the PC games that Changyou has launched, or expects to launch in the future, are not successful, Changyou may not be able to recoup theinvestments in its development and marketing of those games.Changyou currently depends on TLBB for a significant portion of its revenues, and continued decrease in the popularity of TLBB or interruptionin its operation will adversely affect Changyou’s results of operations.Changyou currently relies on TLBB for a significant portion of its revenues. Changyou launched TLBB in May 2007 and, despite Changyou’s effortsto improve TLBB, its game players have nevertheless lost interest in it over time as the relative popularity of PC games (which are accessed throughpersonal computers) continues to decline and TLBB’s popularity, revenues and profitability have continued to decline. See “Changyou may not besuccessful in operating and improving its games to satisfy the changing demands of game players.”To prolong TLBB’s lifespan and slow down the pace of its decline, Changyou needs to continually improve and update it on a timely basis with newfeatures, including enhanced social interaction features, that appeal to existing game players, attract new game players (including those who playedearlier versions of TLBB), and improve player stickiness to the game. If Changyou fails to improve and update TLBB on a timely basis, or if itscompetitors introduce more popular games, including mobile games, catering to its game player base, the decline in TLBB’s popularity can beexpected to accelerate, which would cause Changyou’s revenues to decrease at a faster pace. Furthermore, if there are any interruptions in TLBB’soperation due to unexpected server interruptions, network failures or other factors, game players may be prevented or deterred from making purchasesof virtual items, which could also cause significant decreases in Changyou’s revenues. 45Table of ContentsThe market demand for PC games in general, and for the PC games that Changyou operates in particular, can be expected to continue to declineand the number of game players of PC games can be expected to continue to decrease, which will have an adverse effect on Changyou’s onlinegame business and prospects.A significant portion of Changyou’s online game revenues are generated from its PC games, and from TLBB in particular. However, the popularity ofPC games continues to decline and an increasing number of online game developers are delaying or suspending their plans to develop and launch newPC games, as a substantial number of game players have switched to mobile devices to access online games. It has become increasingly difficult for PCgame developers and operators to retain existing players of their games and the number of game players who are willing to spend time and money toplay new PC games continues to decrease. If this downward trend accelerates, it may make it increasingly difficult for Changyou’s existing PC gamesin general, and TLBB in particular, to slow the decline in their popularity and for Changyou’s new PC games to ever become commercially successful;the game player base of Changyou’s PC games in general, and of TLBB in particular, may shrink at a more rapid pace, which would accelerate andincrease Changyou’s costs to acquire and retain players of its PC games and would have a negative impact on its online game revenues. In addition,Changyou’s PC games generally produce relatively higher profit margins for it than do its mobile games, because Changyou must distribute its mobilegames through third-party mobile game distributors or mobile application stores and enter into revenue-sharing arrangements with such distributors ormobile application stores. Accordingly, any decrease in Changyou’s revenues from its PC games may have a relatively larger negative impact on itsoverall profits.As mobile devices such as tablets, mobile phones and other devices other than personal computers are increasingly used to access online games,Changyou must continue to acquire or develop increasing numbers of mobile games that work on such devices.Devices other than personal computers, such as mobile phones and tablets, are used increasingly in China and in overseas markets. We believe that, forits business to be successful, Changyou will need to continue to develop versions of its existing games and any future games that work well with suchdevices. The games that Changyou develops for such devices may not function as smoothly as its existing games, and may not be attractive to gameplayers in other ways. In addition, manufacturers of such devices may establish restrictive conditions for developers of applications to be used on suchdevices, and as a result Changyou’s games may not work well, or at all, on such devices. As new devices are released or updated, Changyou mayencounter problems in developing versions of its games for use on such devices and Changyou may need to devote significant resources to thedevelopment, support, and maintenance of games for such devices. Since 2014 Changyou has been investing, and it expects to continue to invest,significant amounts in the development, promotion and operation of games for mobile devices. If Changyou is unable to successfully expand the typesof devices on which its existing and future games are available, or if mobile versions of games that Changyou develops for such devices do notfunction well or are not attractive to users and game players; if, the popularity and revenues of Changyou’s mobile game Legacy TLBB Mobilecontinue to decline; or if other mobile games that Changyou has launched, or expects to launch in the future, are not successful, Changyou may not beable to maintain or increase its revenues and recoup its investments in the mobile market.Changyou’s mobile game Legacy TLBB Mobile is currently generating a significant portion of its revenues. Changyou increasingly relies ondominant third-party game distributors and operators that obtain licenses from it to market, distribute, and operate its mobile games, includingLegacy TLBB Mobile, which is operated by Tencent under a license from Changyou. If Changyou is not able to establish and maintaincollaborative relationships with Tencent and other dominant third-party game distributors and operators for its existing and future mobile games,it is likely that Changyou will not be able to maintain or expand its mobile game business.Changyou’s mobile game Legacy TLBB Mobile has been generating a significant portion of Changyou’s revenues since Legacy TLBB Mobile’slaunch in May 2017. Changyou increasingly relies on dominant third-party game distributors and operators with large user bases, leading big dataanalytical capabilities, and track records and experience with successful operation of mobile games to operate its mobile games. For example, Tencent,which is an Internet conglomerate with a very large user base and is a dominant game developer and distributor in China, is the exclusive operator anddistributor of Legacy TLBB Mobile under license from Changyou, and shares with Changyou the revenues generated by the game. For the year endedDecember 31, 2018, revenues from Legacy TLBB Mobile were $102.6 million, accounting for approximately 26% of Changyou’s online gamerevenues and approximately 21% of its total revenues. If Tencent terminates the current licensing arrangements with Changyou for Legacy TLBBMobile or curtails Tencent’s marketing efforts to promote Legacy TLBB Mobile, or if Changyou is not able to establish and maintain collaborativerelationships with other dominant game distributors and operators in China for its existing and future mobile games on commercial terms that areacceptable to Changyou, it will be difficult for Changyou to maintain or expand its mobile game business. In addition, Changyou relies on Tencentand other third-party operators to collect payments from game players for their purchases of virtual items in Changyou’s mobile games, and to pay toChangyou the pre-agreed revenue-sharing amounts, and there is usually a delay between the time of a game player’s purchase and the time when theoperator pays Changyou, which has placed, and may continue to place, constraints on Changyou’s cash flow.Changyou’s business will suffer if it is unable to develop successful high-quality games for mobile devices, expand its game portfolio with a varietyof genres that are appealing to game players, monetize mobile games that Changyou develops, or acquire and maintain for a reasonable periodthe popularity and revenue levels of any of Changyou’s mobile games that are successful.Developing high-quality games for mobile devices is an important component of Changyou’s online game strategy. China’s mobile games marketrecently has been dominated by a small number of high quality games, which collectively generate a substantial majority of the total revenues andprofits of all mobile games in the market. Changyou has devoted and Changyou expects to continue to devote substantial resources to thedevelopment of its mobile games, focusing on those that Changyou believes have the potential to become high-quality games. Despite the earlysuccess of Changyou’s mobile game Legacy TLBB Mobile, we cannot guarantee that Changyou will be able to develop additional high-quality gamesthat appeal to players or, even if Changyou is able to develop high-quality games that are successful, that such games will have lifespans that are longenough to generate an acceptable level of revenues, as mobile games tend to have relatively shorter lifespans than PC games. In addition, Changyoumay encounter difficulty in integrating features into games developed for mobile devices that a sufficient number of players will pay for, or inotherwise sufficiently monetizing mobile games. As the mobile-device market in China is saturated or near saturation, mobile-game developers andoperators have increasingly devoted substantial resources to the expansion of their mobile-game portfolios with a variety of genres, such as massivelymultiplayer online role-playing games (“MMORPGs”), multiplayer online battle arena (“MOBA”) games, or first person shooter (“FPS”) games, that areappealing in the mobile game market, in order to acquire and retain game players and maintain or increase revenues from the games. However,Changyou has not been successful in the development of mobile games other than those in the MMORPG genre. If Changyou is unable to developsuccessful high-quality games and expand its game portfolio with games in a variety of genres that are in line with market trends, or implementsuccessful monetization strategies for its mobile games in general, its ability to maintain or grow revenues will be adversely affected. 46Table of ContentsChangyou’s ability to successfully develop and monetize games for mobile devices will depend on its ability to: • expand the portfolio of mobile games, and particularly high quality games, in a variety of genres that Changyou develops in-house andlicenses from third-party developers; • effectively develop new mobile games for multiple mobile operating systems and mobile devices; • anticipate and effectively respond to the growing number of players switching to mobile games, the changing mobile landscape and theinterests of players; • attract, retain and motivate talented game designers, product managers and engineers with experience in developing games for mobiledevices; • minimize launch delays and cost overruns on the development of new games; • effectively monetize mobile games without degrading the social game experience for its players; • develop games that provide for a compelling and optimal user experience through existing and developing third-party technologies,including third-party software and middleware utilized by its players; and • acquire and successfully integrate high- quality mobile game assets, personnel, and companies.Further, even if Changyou develops or acquires license rights to a mobile game that is successful, the game’s lifespan may be short, as even successfulmobile games tend to have less sustained user loyalty than do successful PC games. For example, the revenues generated from Changyou’s mobilegame Legacy TLBB Mobile, which was launched in May 2017, declined sequentially through 2018, which is typical for a mobile game. In addition,although a relatively large number of the mobile games available at any given time may be low-quality games that attract fewer game players than dohigh-quality games, such games may on an aggregate level have the effect of attracting away a significant number of game players who wouldotherwise play high-quality mobile games. In view of the uncertain lifespans of mobile games and the large quantity of mobile games competing forgame players, it is necessary for Changyou to make considerable investments in order to have a number of mobile games, and particularly mobilegames that have the potential to become high-quality hit games, in its pipeline.If Changyou is unable to develop or acquire new mobile games in general, and high quality games in particular, that are successful, or to maintain for areasonable period the popularity and revenue levels of any mobile games that Changyou develops or acquires that are successful, Changyou may notbe able to recoup its development and acquisition costs and its ability to expand its business in the future is likely to be impeded.We believe that the chance of success for online games is improved if they are adapted from the titles, characters, themes, and story lines ofpopular works of Chinese and foreign authors. However, there are many risks and uncertainties related to obtaining the rights to adapt such worksfor online games, and Changyou’s games adapted from such works may not be successful.We believe that, in order for many of the new online games that Changyou develops to be successful in China, it is important for it to obtain licenserights, and preferably exclusive license rights, to adapt the titles, characters, themes and story lines of popular works for use in the games. For example,Changyou developed and it operates its PC game TLBB and its mobile games Legacy TLBB Mobile and TLBB 3D with various features that areincluded in reliance on rights under its existing license agreements with the Chinese martial arts author Louis Cha with respect to his popular novelTian Long Ba Bu. We believe that these features have had a critical role in attracting and retaining many of the players of TLBB, Legacy TLBBMobile, and TLBB 3D. However, Mr. Cha passed away in 2018, and Changyou will need to negotiate with his estate for the right to extend the licenseswhen they expire. If Changyou is unable to agree on extensions of the licenses, Changyou will be unable to develop new expansion packs for theapplicable games if they incorporate Tian Long Ba Bu features, and Changyou may lose the rights to trademarks that Changyou has claimed as tovarious features and character names based on or inspired by Tian Long Ba Bu. In addition, it can be difficult to identify a sufficient number of suchworks that are suitable for adaptation for use in online games, and Changyou faces significant competition for the rights to such works from otheronline game companies that also adapt their online games from popular works. Obtaining license rights, and particularly exclusive license rights, toadapt suitable works for use in online games can involve significant expense, as the license fees, and the percentage of revenues from the gamesadapted from such works, payable to authors have continued to rise as competition for such license rights has intensified. In addition, Changyou haspreviously obtained, and intends to continue to seek to obtain, license rights for works from certain authors in foreign countries, and its ability toobtain such rights has previously been, and may be in the future be, adversely affected by greater scrutiny of such works, and a stricter approval processfor permission to obtain such rights, by relevant Chinese authorities compared to the scrutiny of and approval process applicable to domestic works. 47Table of ContentsEven if Changyou obtains license rights for works, we cannot assure you that games that Changyou adapts from such works will be popular andcommercial successes and that Changyou will be able to recoup the amounts it pays for the license rights. Obtaining such rights and adapting suchworks for mobile games present additional risks, because of the relatively short lifespans of mobile games. Moreover, after the expiration of the terms ofChangyou’s existing license agreements with the estate of Mr. Cha and other holders of copyrights, Changyou may not be able to renew theagreements with commercial terms that are favorable to it, if at all. Changyou’s inability to renew such agreements could force it to discontinue therelated online games or, in the case of games based on Tian Long Ba Bu, to cease issuing any further expansion packs based on Tian Long Ba Bu, andhave a significant adverse impact on its online game operations and revenues.Changyou may not be able to distribute its mobile games through its desired Internet platforms, its profits from any successful mobile games can beexpected to be relatively lower than the profits Changyou has enjoyed historically from PC games and its mobile game revenues are subject toadditional risks as Changyou relies on mobile application stores to collect payments from players of its mobile games.Changyou may not be able to arrange for its mobile games to be distributed through its desired popular third-party mobile application stores withcommercial terms, including revenue-sharing arrangements that are favorable enough to it to allow it to achieve an acceptable level of profit from thegames. Changyou’s profits from mobile games, even if the games are successful, are likely to be relatively lower than the profits it generates from PCgames, because, in order to gain access for its games on mobile application stores, Changyou must enter into revenue-sharing arrangements thatgenerally result in lower profit margins than those generated from its PC games. Due to market competition and pressures, only a handful of third-partymobile application stores and other game distribution channel providers have survived and, of the remaining providers, an even smaller number of keyproviders, including Tencent and Mobile Hardcore Alliance, collectively control a substantial share of the market. As a result, Changyou has reducedleverage and weaker bargaining power in business negotiations with game distribution channel providers, which may lead to Changyou being forcedto agree to receiving relatively low revenue-sharing percentages for many of its mobile games.Changyou relies on mobile application stores to collect payments from game players for their purchases of its virtual items and to pay to Changyoupre-agreed revenue-sharing amounts. If mobile application stores cease to offer Changyou’s games over their platforms, change their user paymentpolicies, such as return policies, or fail to make revenue-sharing payments that are due to Changyou, Changyou’s revenues will be adversely affected.When Changyou distributes its games through smaller, less well-known application stores, Changyou may not receive revenue-sharing payments whenthey are due to it. In addition, the iOS-based mobile application store allows game players to use foreign currency to purchase virtual items or gamepoints in Changyou’s games, and the store pays to Changyou pre-agreed revenue-sharing amounts after converting the foreign-currency denominatedrevenues from such purchases into RMB using an exchange rate effective at the time of the payment. Since there is usually a delay between the time ofa game player’s purchase and the time when the store pays Changyou, if the foreign currency used has depreciated against the RMB during the delayChangyou will receive lower share-sharing amounts at the time of the payment than Changyou would have received if the payment had been made atthe time of the game player’s purchase.Changyou’s new mobile games will be less likely to be successful if Changyou cannot adopt and implement innovative and effective marketingstrategies to attract attention to its games from game players in its targeted demographic groups.A relatively large number of mobile games are typically available at any given time in the markets in which Changyou launches and operates itsmobile games, and such games compete for attention from the same game player population that it targets. Changyou’s ability to successfully promoteand monetize its mobile games will depend on its ability to adopt and effectively implement innovative marketing strategies, and particularlyprecision marketing through new media, such as Weibo, WeChat, bilibili.com Website and other online game forums, targeting potential mobile gameplayers in general, and game players in specific demographic groups for certain games in particular, and Changyou’s ability to cross-market mobilegames to players of its current PC games and mobile games. If Changyou fails to adopt and implement such marketing and cross-marketing strategies,or if the marketing strategies of Changyou’s competitors are more innovative and effective than Changyou’s, its mobile games will be less likely to besuccessful and as a result Changyou may not be able to achieve an acceptable level of revenue from those games.Changyou’s development and operation of mobile games may be adversely affected by the promulgation of new, and the implementation andinterpretation of existing, PRC laws and regulations affecting mobile games.As mobile games are a relatively new type of online game in China, developers and operators of mobile games, including Changyou, have been facingincreasingly intense regulatory scrutiny from PRC regulatory authorities regarding the development and operation of mobile games. Substantialuncertainties exist regarding the timing of the promulgation of, and any changes to, current and future PRC laws and regulations and the effect of theinterpretation and implementation thereof, which may, among other things: 48Table of Contents • have an adverse impact on the way Changyou designs its games and game features, which may make the games less attractive to gameplayers; • have an adverse impact on Changyou’s ability to achieve an acceptable level of revenues and profit from its mobile games; • make it harder to access Changyou’s mobile games and cause a decrease in its player base; • increase the cost of the development and operation of Changyou’s mobile games; and • require substantial management attention and effort in monitoring the development of, and ensuring Changyou’s compliance with,existing and future PRC laws and regulations affecting the mobile games business.For a discussion of the risks associated with PRC laws and regulations affecting online games in general and mobile games in particular, see “RisksRelated to Doing Business in China” in this Item 3 of this annual report.Changyou’s new games may attract game players away from its existing games.With Changyou’s increasingly diversified game portfolio, we cannot assure you that players of Changyou’s existing games will not be attracted to playother newly launched games, including its new mobile games. If this occurs, it will decrease Changyou’s existing games’ player bases, which could inturn make these games less attractive to other game players, resulting in decreased revenues from its existing games. For example, revenues generatedfrom Changyou’s mobile game TLBB 3D decreased significantly in the second quarter of 2017, and we believe that this may have been due in part tothe launch of Changyou’s mobile game Legacy TLBB Mobile in May 2017. Game players who switch from playing Changyou’s existing games to itsnew games may also spend less money to purchase virtual items in its new games than they would have spent if they had continued playingChangyou’s existing games, resulting in an adverse effect on its overall revenues. In addition, game players’ switching from playing Changyou’sexisting PC games to its new mobile games, as well as from its in-house developed games to its licensed games, could cause Changyou’s overall onlinegame profits to be relatively lower, as its profits from mobile games and licensed games tend to be relatively lower as a result of revenue-sharingarrangements.Changyou relies on recorded data for game revenue recognition and tracking of game players’ consumption patterns of virtual items. If its datasystems fail to operate effectively, such failure will affect the completeness and accuracy of its revenue recognition, and also its ability to designand improve virtual items that appeal to game players.Changyou’s game operation revenues are generated through the direct online sale of game points and sale of its prepaid game cards, and its recognitionof those revenues depends on such factors as whether the virtual items purchased by game players are considered consumable or perpetual. Changyou’srevenue recognition policy with respect to perpetual virtual items is based on its best estimate of the lives of the items. Changyou considers theaverage period that paying players typically play its games and other player behavior patterns to arrive at its best estimate of the lives of theseperpetual items. However, given the fast-evolving nature of the game industry and the various types of online games that Changyou offers to playerswith different tastes and preferences, its estimate of the period that players typically play its games may not accurately reflect the actual lives of theseperpetual virtual items. Changyou revises its estimates as it gain operating data, and it attempts to refine its estimation process accordingly. Any futurerevisions to these estimates could adversely affect the time period during which Changyou recognizes revenues from these items. For example, anincrease in the estimated lives of these perpetual virtual items would increase the period over which revenues from these items are recognized.Changyou relies on its data systems to record and monitor the purchase and consumption of virtual items by its game players and the types of virtualitems purchased. If its data systems fail to accurately record the purchase and consumption information of the virtual items, Changyou may not be ableto accurately recognize its revenues. In addition, Changyou relies on its billing systems to capture such historical game player behavior patterns andother information. If such information is not accurately recorded, or if Changyou does not have sufficient information due to the short operating historyof any of its games, Changyou will not be able to accurately estimate the lives of, or the estimated average period the game players play its games withrespect to, the perpetual virtual items, which will also affect its ability to accurately recognize its revenues from such perpetual virtual items. IfChangyou’s data systems were damaged by system failure, network interruption, or virus infection, or attacked by a hacker, the integrity of data wouldbe compromised, which could adversely affect its revenue recognition and the completeness and accuracy of its recognized revenues.In addition, Changyou relies on its data systems to record game player purchase and consumption patterns, based on which Changyou improves itsexisting virtual items and designs new virtual items. For example, Changyou intends to increase development efforts on the number and variety ofvirtual items that its game players like to purchase, and Changyou may also adjust prices accordingly. If its data systems fail to record data accurately,its ability to improve existing virtual items or design new virtual items that are appealing to its game players may be adversely affected, which could inturn adversely affect its revenues. 49Table of ContentsChangyou could be liable for breaches in the security of its online payment platforms and those of third parties with whom Changyou transactsbusiness, and any such breaches could cause its customers to lose confidence in the integrity of the payment systems that Changyou uses.Currently, Changyou sells a substantial portion of its virtual game points and prepaid game cards to its game players through third-party onlinepayment platforms. In these online transactions, secure transmission of confidential information, such as customers’ credit card numbers and expirationdates, personal information and billing addresses, over public networks is essential if Changyou is to maintain its consumers’ confidence in it. Inaddition, Changyou expects that an increasing amount of its sales will be conducted over the Internet as a result of the growing use of online paymentsystems. As a result, the risk of associated online crime will increase. Changyou’s current security measures and those of the third-party online paymentplatforms with whom Changyou transacts business may not be adequate. Changyou must be prepared to increase its security measures and efforts sothat its game players have confidence in the reliability of the online payment systems that it uses, which will require Changyou to incur additionalexpense. Such increased security measures may still not make its online payment systems completely safe. In addition, Changyou does not havecontrol over the security measures of its third-party online payment vendors. Breaches in the security of online payment systems that Changyou usescould expose it to litigation and liability for failing to secure confidential customer information, and could harm its reputation, ability to attractcustomers and ability to encourage customers to purchase virtual items.Any failure of third-party developers of online games that Changyou licenses from or jointly develops with them to fulfill their obligations underChangyou’s license or joint operation agreements with them could have an adverse effect on Changyou’s operation of and revenues from thosegames.Changyou derives a portion of its revenues from PC games and mobile games that Changyou licenses from, or jointly develops with, third-partydevelopers. Under its license and joint development agreements for these games, Changyou relies on the third-party developers to provide gameupdates, enhancements and new versions, provide materials and other assistance in promoting the games and resolving game programming errors andissues with “bots” and other intrusions. Any failure of third-party developers to provide game updates, enhancements and new versions in a timelymanner and that are appealing to game players, provide assistance that enables Changyou to effectively promote the games, or otherwise fulfill theirobligations under Changyou’s license and joint development agreements could adversely affect the game-playing experience of Changyou’s gameplayers, damage its reputation, or shorten the life-spans of those games, any of which could result in the loss of game players, acceleration ofChangyou’s amortization of the license fees it has paid for those games, or a decrease in or elimination of its revenues from those games.Furthermore, for games that Changyou licenses from or jointly develops with third parties, Changyou may not have access to the game source codesduring the initial period of the license, or at all. Without the source codes, Changyou has to rely on the licensors to provide updates and enhancements,giving it less control over the quality and timeliness of updates and enhancements. If Changyou’s game players are not satisfied with the level ofservices they receive, they may choose to not play the games.There are additional risks associated with Changyou’s licensing from overseas developers of online games that are successful only in particularoverseas markets, because such games may not be successful in the China market and other markets if Changyou is not able to successfully customizethe games to adapt to differences in culture and user preferences in the China market and other markets.Changyou receives relatively lower profits from the operation of online games that it licenses from or jointly develops with third-party developers.Changyou’s revenue-sharing arrangements for games that Changyou licenses from or jointly develops with third-party developers provide Changyouwith relatively less profit than games that Changyou develops in-house, and in some cases Changyou may not be able to recoup its investments in suchgames. Moreover, to secure the rights to games from third-party developers, Changyou often must pay up-front fees and also commit to pay additionalfees in the future. Changyou also has invested in mobile game development studios in order to assure access to an extensive pipeline of mobile games.Changyou often must make such commitments and investments without knowing whether the games Changyou is licensing or jointly developing willbe successful and generate sufficient revenues to enable Changyou to recoup its costs or for the games to be profitable.Changyou faces significant risks and incurs substantial costs when it licenses its games to, or jointly operates them with, third-party operators,and Changyou faces additional risks and costs when it directly operates its games or licenses its games to, or jointly operates its games with, third-party operators in overseas markets.Changyou currently, and expects to continue to, exclusively license to, or jointly operate with, third-party operators some of its games, including anincreasing number of its mobile games, in markets that Changyou selects, including overseas markets. Changyou faces significant risks associated withthe licensing or joint operation of Changyou’s games, including: • difficulties in identifying appropriate markets; 50Table of Contents • difficulties in identifying, negotiating and maintaining good relationships with licensees or joint operators who are knowledgeable about,and can effectively operate Changyou’s games in, particular markets; • difficulties in maintaining Changyou’s reputation and the reputation of its games when its games are operated by licensees or jointoperators pursuant to their own standards; and • difficulties in protecting Changyou’s intellectual property.Changyou currently licenses and operates, and expects to continue to expand the licensing and operation of, some of its existing and futuregames, either directly or jointly with third-party operators, in selected overseas markets. Additional risks associated with the licensing or direct or jointoperation of Changyou’s games overseas include: • difficulties and significant costs in protecting Changyou’s intellectual property in overseas markets; • difficulties in retaining and maintaining local management and key development and technical personnel who are experienced andknowledgeable about, and can effectively operate Changyou’s games in, particular markets; • uncertainties relating to Changyou’s ability to develop its games and/or expansion packs catering to particular overseas markets; • uncertainties relating to Changyou’s ability to renew its license and joint operation agreements with licensees and joint operators upontheir expiration; • for Changyou’s direct operation of its games overseas, interruptions in the operation of the games due to cross-border Internet connectionor other system failures; • significant costs for translation of its games into the local languages of, or customization of its games for, the overseas markets in whichChangyou plans to license or jointly operate its games; • limited choices of third-party Internet platforms to distribute Changyou’s mobile games in certain overseas markets; • difficulty for Changyou’s management to exercise timely and effective supervision and administration of local management andemployees in general, and their interactions with local third-party Internet platforms or other service providers in particular, in order toidentify and prevent any sloppy, dishonest or illegal activities, which could harm Changyou’s business and reputation or subjectChangyou to penalties; • significant marketing costs to promote Changyou’s games in certain overseas markets where third-party Internet platforms do not includemarketing services as part of the revenue-sharing arrangements; • different game player preferences in certain overseas markets; • difficulties and significant costs relating to compliance with the different legal requirements and commercial terms, such as game exportregulatory procedures, taxes and other restrictions and expenses, in the overseas markets in which Changyou licenses or directly or jointlyoperates its games; • exposure to different regulatory systems governing the protection of intellectual property and the regulation of online games, the Internetand the export of technology; • costs for compliance with different legal requirements and commercial terms in overseas markets; • difficulties in verifying revenues generated from Changyou’s games by its licensees for purposes of determining royalties payable toChangyou; • difficulties and delays in contract enforcement and collection of receivables through the use of foreign legal systems; • changes in the political, regulatory or economic conditions, or public policy, affecting online games in particular foreign countries orregions; • the risk that regulatory authorities in foreign countries or administrative regions may impose withholding taxes, or place restrictions onrepatriation of Changyou’s profits; and • fluctuations in currency exchange rates.If Changyou is unable to manage these risks and control these costs effectively, its ability to license or operate its games in China or in regions andcountries outside of Mainland China, either directly or jointly with third-party joint operators, may be impaired.Changyou may not be successful in operating and improving its games to satisfy the changing demands of game players.Changyou depends on purchases and continual consumption of virtual items by its game players to generate revenues, which in turn depend on thecontinued attractiveness of its games to the game players and their satisfactory game-playing experience. Various issues could arise that would causeits games to be less attractive to its game players or could limit the continued attractiveness of its games. For example: 51Table of Contents • Changyou may fail to provide game updates, expansion packs and other enhancements in a timely manner due to technological or resource limitations, or otherfactors; • Changyou’s game updates, expansion packs and new versions may contain programming errors, and their installation may create other unforeseen issues thatadversely affect the game-playing experience; • Changyou may fail to timely respond and/or resolve complaints from its game players; • Changyou may fail to eliminate computer “bots” which can disrupt its games’ smooth operation and reduce the attractiveness of its games; and • Changyou’s game updates, expansion packs and other enhancements may change rules or other aspects of its games that its game players do not welcome,resulting in a reduction in the active accounts or active paying accounts of its online games.Changyou’s failure to address these issues could adversely affect the game-playing experience of its game players, damage the reputation of its games, shorten the lifespansof its games, and result in the loss of game players and a decrease in its revenues.Changyou may fail to launch new games according to its timetable, and its new games may not be commercially successful.All online games have limited lifespans. Changyou must launch new games that can generate additional revenue and diversify its revenue sources in order to remaincompetitive. Changyou will not generate any meaningful revenue from a game in development until it is commercially launched after open beta testing, and we cannot assureyou that Changyou will be able to meet its timetable for new game launches or that its new games will be successful. A number of factors, including technical difficulties,lack of sufficient game development capabilities, personnel and other resources, failure to obtain or delays in obtaining relevant governmental authorities’ approvals andadverse developments in Changyou’s relationships with the licensors or third-party operators of its new games could result in delayed launching of its new games or thecancellation of the development of its pipeline games. In addition, we cannot assure you that Changyou’s new games will be as well received in the market as TLBB, LegacyTLBB Mobile, and TLBB 3D have been, and you should not view Changyou’s historical game revenues or the success of TLBB, Legacy TLBB Mobile, and TLBB 3D asindications of the commercial success of any of its new or future games. Changyou may fail to anticipate and adapt to future technical trends, new business models andchanged game player preferences and requirements, fail to effectively plan and organize marketing and promotion activities, or fail to differentiate its new games from itsexisting games. If the new games Changyou introduces are not commercially successful, Changyou may not be able to generate sufficient revenues from new games tosustain or grow its revenues or to recover its product development costs and sales and marketing expenses, which can be significant. If Changyou acquires and pays for alicense giving it the right to adapt an online game from an author’s work, but does not complete the development and introduction into the market of the game, or Changyouintroduces the game but it is not successful, Changyou may not be able to recover the license fees it has paid.Changyou generates all of its game revenues under the item-based revenue model, which presents risks related to consumer preferences and regulatory restrictions.All of Changyou’s games, including PC games and mobile games, are operated under the item-based revenue model. Under this revenue model, Changyou’s game playersare able to play the games for free, but are charged for the purchase of virtual items in the games. The item-based revenue model requires Changyou to design games that notonly attract game players to spend more time playing, but also encourage them to purchase virtual items. The sale of virtual items requires Changyou to track closelyconsumer tastes and preferences, especially as to in-game consumption patterns. If Changyou fails to design and price virtual items so as to incentivize game players topurchase them, Changyou may not be able to effectively translate its game player base and their playing time into revenues. In addition, the item-based revenue model maycause additional concerns with PRC regulators who have been implementing regulations designed to reduce the amount of time that Chinese youths spend on online gamesand intended to limit the total amount of virtual currency issued by online game operators and the amount purchased by individual game players. A revenue model that doesnot charge for time played may be viewed by the PRC regulators as inconsistent with these goals. The item-based revenue model may not continue to be commerciallysuccessful and in the future Changyou may need to change its revenue model to a time-based or other revenue model. Any change in revenue model could result indisruption of Changyou’s game operations, a decrease in the number of its game players and a decline in its revenues.Undetected programming errors or defects in Changyou’s games could harm its reputation and adversely affect its results of operations.Changyou makes frequent improvement and updates to its online games, which may contain bugs or flaws that become apparent only after the updated games are accessedby users, particularly as Changyou launches new updates under tight time constraints. If for any reason programming bugs or flaws are not resolved in a timely fashion,Changyou may lose some of its users, and third-party operators that license or jointly operate its games may seek to recover damages from it, which could have an adverseeffect on Changyou’s results of operations, and could harm its reputation and the market acceptance of its games.Breaches in the security of Changyou’s server network, or cloud-based servers that it leases from third-party operators, could cause disruptions in its service oroperations, facilitate piracy of its intellectual property, or compromise confidential information of its game players and its business.Changyou stores on its servers, including physical servers that Changyou owns or rent and cloud-based servers that Changyou leases from third-party operators, andtransmits over the Internet considerable and continually increasing amounts of data, much of which is essential to the operation of its business and some of which is highlyconfidential information concerning its business and its game players. In addition, the expansion of Changyou’s business to include mobile games and its need to complywith PRC regulations requiring real-name registration of its game players are likely to cause the amount of personal data concerning its game players that is transmitted overits networks to increase over time. Any breaches by hackers of Changyou’s network or of cloud-based servers Changyou leases from third-party operators could causesevere disruptions in its game development and operations and other business activities, allow piracy of the source code used in the operation of its games and allow piratedversions of its games to enter the marketplace, or result in the release of confidential personal or financial information of its game players or confidential informationconcerning Changyou’s business, any of which could have an adverse impact on Changyou’s business, its revenues, and its reputation among game players. In order tominimize the likelihood of such breaches as Changyou’s business expands and the amount of confidential and sensitive data increases, we expect that Changyou will need toexpend considerable resources to maintain and enhance the effectiveness of its security systems. 52Table of ContentsRapid technological changes may increase Changyou’s game development costs.Technological development in online game industry is evolving rapidly, so Changyou needs to anticipate new technologies and evaluate theirpossible market acceptance. For example, the use of VR technology has become prevalent in the industry, and an increasing number of game playershope to have VR included in online games that they access. Changyou has begun investing, and expects to continue to invest in the future, resourcesto develop VR technology and online games using VR technology. However, Changyou is not aware of any proven business or monetization model foronline games using VR technology, and playing online games with VR technology generally requires devices with particularly high-level technicalspecifications, which may limit the number of players. If online games using VR technology that Changyou develops and launches are not wellreceived by game players, Changyou may not be able to recoup its related development costs. In addition, government authorities or industryorganizations may adopt new technical standards that apply to game development. Any new technologies and new standards may require increases inexpenditures for PC game and mobile game development and operations and continuing professional training of Changyou’s development andtechnical personnel, and Changyou will need to adapt its business and prepare its workforce to cope with the changes and support these new services tobe successful. If Changyou falls behind in adopting new technologies or standards, its existing games may lose popularity, and its newly developedgames may not be well received in the marketplace.The proliferation of “cheating” programs and scam offers that seek to exploit Changyou’s games and players harms the game-playing experienceand may lead players to stop playing its games.Third parties have developed, and may continue to develop, “cheating” programs that enable players to exploit Changyou’s games, play the games inan automated way or obtain unfair advantages over other players who play fairly. These programs harm the experience of players who play fairly andmay disrupt the economics of Changyou’s games. In addition, unrelated third parties may attempt to scam Changyou’s players with fake offers forvirtual items. Changyou needs to devote significant resources to discover, disable and prevent such programs and activities, and if Changyou is unableto do so quickly its operations may be disrupted, its reputation may be damaged and players may stop playing its games. This may lead to lost revenueand increased costs for Changyou to develop technological measures to combat such programs and activities.Game players’ spending on Changyou’s games may be adversely affected by slower growth in the Chinese economy and adverse conditions in theglobal economy.Changyou relies for its revenues on the spending of its game players, which in turn depends on the players’ level of disposable income, perceivedfuture earnings capabilities and willingness to spend. The real estate market in the PRC and the level of exports from the PRC have both experiencedsignificant declines recently and, according to the National Bureau of Statistics of China, the growth rate of China’s gross domestic product, comparedto that of the previous year, went from 7.4% in 2014, to 6.9% in 2015, to 6.7% in 2016, to 6.9% in 2017, and to 6.6% in 2018. Such growth may alsoslow in the future, which could in turn result in a reduction in spending by Changyou’s game players.In addition, the global economy has experienced significant instability and there has been volatility in global financial and credit markets in recentyears, recent growth in the United States economy may not be sustainable and some analysts are concerned that the European Community mayexperience a sustained downturn. It is unclear how long such instability and volatility will continue, whether it will increase, whether it will lead to arenewed worldwide economic downturn such as the one that began in 2008, and how much adverse impact such instability and volatility or any suchdownturn might have on the economies of China and other jurisdictions where Changyou operates its games. Any such instability, volatility or adverseimpact in China or in overseas markets could cause Changyou’s game players to reduce their spending on its games in China or overseas and reduce itsrevenues.Risks Related to the Platform Channel BusinessNotwithstanding Changyou’s significant investment in its platform channel business, Changyou was unable to successfully monetize it beyond theoperation of the 17173.com Website, and Changyou was not able to recoup all of its investment. Changyou may have similar adverse experienceswith future investments. 53Table of ContentsDuring 2013 and 2014 Changyou made significant investments in acquiring assets and marketing, including both domestic and overseas marketing,and spent considerable sums to increase its staffing levels, with the goal of expanding and promoting its platform channel business beyond theoperation of the 17173.com Website. However, Changyou did not generate meaningful revenues from such additions to its platform channel businessas its efforts to monetize those products and services were not successful, and Changyou does not expect to be able to make its platform channelbusiness apart from the 17173.com Website profitable or to recoup the investments it made in assets, marketing and staffing for the platform channelbusiness. For example, after Changyou’s acquisition of a majority interest in MoboTap, Changyou’s management concluded that the Dolphin Browseroperated by MoboTap would not be able to provide expected synergies with Changyou’s platform channel business, and Changyou recognizedsubstantial impairment charges as a result and sold MoboTap in 2018. Also see “Changyou’s previous and any future acquisitions and/or strategicalliances may have an adverse effect on its ability to manage its business and may also result in impairment charges.”Online advertising revenues from the 17173.com Website could fail to grow, or could decline further, as a result of the shift from PC games tomobile games in the online games market and uncertainties in the online advertising market.Changyou’s online advertising revenues of $19.7 million for the year ended December 31, 2018, which were mainly derived from the operation of the17173.com Website, represented 4.0% of Changyou’s total revenues for the year, and represented a decline of $5.4 million, or 22%, from its onlineadvertising revenues for the year ended December 31, 2017. Changyou’s ability to avoid further declines in, or grow, its online advertising revenuesmay be adversely affected by any of the following risk factors: • Changes in government policy could restrict or curtail Changyou’s online advertising services; • The decline in the demand for online advertising services from developers and operators of PC games, as the relative popularity of suchgames continues to decline; • Advertising clients may adopt new methods and strategies other than online advertising to promote their brands, which would have anadverse impact on Changyou’s advertising revenues; and • The acceptance of the Internet as a medium for advertising depends on the development of a measurement standard. No standards for themeasurement of the effectiveness of online advertising have been widely accepted. Industry-wide standards may not develop sufficiently tosupport the Internet as an effective advertising medium. If these standards do not develop, advertisers may choose not to advertise on theInternet in general, or through Changyou’s Websites.In addition, Changyou’s ability to generate and maintain significant online advertising revenues will also depend upon: • the development of a large base of users possessing demographic characteristics attractive to advertising clients; • the development of successful mobile versions of the 17173.com Website and the provision of extensive mobile game-related products andservices in response to the rapid migration of users of Internet services from PCs to mobile devices, such as tablets and mobile phones; • the acceptance of online advertisements, either through PCs or mobile devices, as an effective method of business marketing; • the effectiveness of Changyou’s advertising delivery, tracking and reporting systems; • the extent of resistance from existing or potential customers to online advertising prices; and • the development of new formats for online advertising, such as streaming video.The expansion of Internet advertisement blocking software may result in a decrease in advertising revenues.The development of Web software that blocks Internet advertisements before they appear on a user’s screen may hinder the growth of onlineadvertising. The expansion of advertisement blocking on the Internet may decrease Changyou’s revenues from the 17173.com Website because, whenan advertisement is blocked, it is not downloaded from the server, which means that it will not be tracked as a delivered advertisement. In addition,advertisers may choose not to advertise on the Internet or on Changyou’s 17173.com Website because of the use by third parties of Internetadvertisement blocking software.Changyou relies on advertising agencies to sell online advertising services on the 17173.com Website. If current trends of consolidation ofadvertising agencies in the China market continue, the bargaining power of the large advertising agencies resulting from such consolidation maypermit them to require that Changyou pay higher sales rebates, which would adversely affect Changyou’s online advertising revenues.Most of the online advertising services of the 17173.com Website are distributed by, and most of the online advertising revenues of the 17173.comWebsite are derived from, advertising agencies. For example, in 2018 Changyou engaged eight advertising agencies, which contributed approximately99.6% of the online advertising revenues of the 17173.com Website. In consideration for these agencies’ services, Changyou is required to pay certainpercentages of revenues as sales rebates. If the online advertising market is consolidated and effectively controlled by a small number of largeadvertising agencies, such advertising agencies may be in a position to demand higher sales rebates based on increased bargaining power, which couldnegatively affect Changyou’s online advertising growth, as Changyou books its online advertising revenue net of its sales rebates to advertisingagencies. 54Table of ContentsRisks Related to the Cinema Advertising BusinessThere are uncertainties regarding the future growth of the cinema advertising industry in China.Changyou’s cinema adverting business experienced strong growth in 2016 and 2017 and has benefited from robust growth in China’s cinema andmovie industry in recent years, but suffered a significant decline in revenues in 2018 due to Changyou’s having adjusted its strategy in relation to theacquisition and sale of advertising resources. If the recent growth in China’s cinema and movie industry slows or the industry declines in the future,pre-film advertising slots are likely to become less attractive to advertisers, which would have an adverse effect on Changyou’s cinema advertisingbusiness. In addition, advertisers are increasingly turning to new advertising formats, such as video streaming, as Internet technology develops. Ifpre-film advertising becomes less attractive to advertisers than such new formats, Changyou’s cinema business will be adversely affected. Moreover,the rapid growth of Changyou’s cinema advertising business in recent years placed strain on its management personnel, systems and resources.Changyou may not be able to efficiently or effectively implement its growth strategies and manage the growth of its cinema advertising business, andany failure to do so may limit its future growth and hamper its overall business strategy.Changyou may not be able to successfully manage its growth in the highly competitive cinema advertising market.Changyou faces intense competition for the acquisition of the rights to and placement of pre-film advertising slots. See “Changyou’s business may notsucceed in a highly competitive market.” Changyou may not be able to effectively compete with its competitors in developing, maintaining orexpanding the types of cooperative relationships with operators of movie theaters that will permit it to maintain its existing rights or to obtainadditional rights to pre-film advertisement slots at reasonable prices, on the one hand, and in attracting advertisers that will place their advertisementsin the pre-film advertisement slots that it offers, on the other hand, as Changyou’s competitors may have greater financial resources, greater brandrecognition among operators of movie theaters and advertisers and more capable and effective management, sales and marketing forces and strategiesthan it does, which would have an adverse impact on the prospect for growth of its cinema advertising business.Changyou faces risks related to its purchase of pre-film advertising slots.In order for Changyou to compete effectively in its desired markets, Changyou must continue to build and maintain a competitive reserve of pre-filmadvertisement slots in those markets and has incurred, and expects to continue to incur, significant upfront costs to acquire the pre-film advertisingrights for such pre-film advertising slots under long-term contracts, typically with one to three year terms, with operators of various movie theaters,which has placed, and will continue to place, constraints on its cash flow. There is a risk that Changyou will lose those upfront acquisition costs,because Changyou is not able to generate corresponding revenues and begin to recoup the costs until it has both entered into contracts with advertisersfor the pre-film advertising slots that it has acquired and displayed the advertiser’s advertisements in those slots. Such delay in generatingcorresponding revenues may also place constraints on the cash flow available to Changyou for maintaining and expanding its cinema advertisingbusiness. Moreover, Changyou may be forced to make additional payments to operators of popular movie theaters in certain regional markets that areparticularly competitive if the average market prices for pre-film advertisement slots in such markets increase significantly during the contract periodand the operators threaten to terminate their contracts with Changyou in order to enter into more profitable contracts with its competitors.Changyou may not be able to maintain or expand the revenues that it receives from cinema advertising services.Changyou’s cinema advertising business generates revenues through contracts that it enters into with advertisers to place their advertisements in thepre-film advertising slots that Changyou has purchased from operators of movie theaters. Changyou relies on its sales force to identify and sell pre-filmadvertising slots to potential advertisers. If Changyou cannot maintain a stable and capable sales force or if Changyou is unable to sell to advertisers alarge enough portion of the pre-film advertising slots, it may not be able to generate sufficient revenues to recoup its upfront payments and additionalcommitted payments under the contracts with the operators of the movie theaters. Any failure by Changyou to develop, maintain or expandcooperative relationships with advertisers could cause its cinema advertising revenues to decrease.The prospects for growth of Changyou’s cinema adverting business may be adversely affected by the promulgation, implementation, andinterpretation of PRC laws and regulations concerning cinema adverting.Under the Notice on Strengthening the Administration of Cinema Advertising and the Notice on Further Regulating the Administration of the CinemaAdvertising, effective on July 2004 and February 2009, respectively, cinema advertising operators and the content of cinema advertisements mustcomply with the Advertising Law of the People’s Republic of China (the “New Advertising Law”) issued by the Standing Committee of the NationalPeople’s Congress, which became effective on September 1, 2015 and was amended on October 26, 2018, and other relevant laws and regulations. TheStanding Committee of the National People’s Congress promulgated the Film Industry Promotion Law of PRC (the “FIPL”), effective on March 1,2017. Among other things, the FIPL forbids the displaying of advertisements during the presentation of a feature film. If any existing or future PRClaws or regulations, or their implementation or interpretation by the relevant authorities, place burdensome restrictions on cinema advertising,Changyou’s cinema advertising business may be adversely affected. 55Table of ContentsRisks Related to Doing Business in ChinaThe SAPPRFT’s, the MIIT’s, the MCT’s, and other PRC authorities’ regulatory supervision of the online game industry may adversely affectChangyou’s online game operations.The SAPPRFT has issued a series of regulations affecting the online game industry and providing guidance regarding online game operations. TheSAPPRFT issued a notice in September 2009 stating that the SAPPRFT would be the only governmental agency with the authority to review andapprove online games, including reviewing and approving the importation of online games from Offshore copyright owners, and that all online gameoperators must obtain an Internet publishing license in order to operate online games and related services and obtain additional pre-approval from theSAPPRFT to make any changes to, or any new versions or expansion packs of, the originally approved online games. The Measures of InternetPublication Service Administration issued by the SAPPRFT and the MIIT, or the New Internet Publication Measures, which became effective onMarch 10, 2016 and replaced the Temporary Measures for Internet Publication Administration that had become effective in 2002, require that entitiesin the Internet publishing business apply for an online publishing service license, instead of an Internet publishing license, that entities holding anInternet publishing license apply for an online publishing service license within a specified period of time to replace their Internet publishing license,and that all such entities obtain approval from the SAPPRFT prior to the publication of new online games. On May 24, 2016, the SAPPRFT issued aNotice of the SAPPRFT on Administration of Mobile Game Publishing Services, or the Mobile Game Notice, which became effective on July 1, 2016.The Mobile Game Notice provides that the content of mobile games is subject to review, and that mobile game publishers and operators must apply forpublishing and authorization codes for the games. Under the Mobile Game Notice, significant upgrades and expansion packs for mobile games thathave previously been approved for publishing may be regarded as new works, and the operators will be required to obtain approval for such upgradesand expansion packs before they are released. In the event of any failure to meet these license and approval requirements, an operator may face heavypenalties, such as being ordered to stop operation, or having its business license revoked. In addition, the State Press Publication Administration (the“SPPA”), as a successor agency to SAPPRFT, may delay or temporarily suspend its review of, and issuance of publishing and authorization codes for,online games, as was the case between April 2018 and December 2018. Changyou’s online game business may be adversely affected by theseSAPPRFT and MIIT notices and related implementation measures, as the launch of online games, new versions, expansion packs and imported gamesmight be delayed because of the approval required. Such delays may result in higher costs for Changyou’s online game operation and have an adverseeffect on its game revenue.The MCT also has issued regulations affecting the online game industry. For example, on June 3, 2010, the MCT issued the Interim Measures forOnline Games Administration, or the Online Game Measures, which became effective on August 1, 2010 and were amended on December 15, 2017.The Online Game Measures stipulate that the MCT has the power to review the content of all online games except online game publications that havebeen pre-approved by the SAPPRFT or the SPPA. However, the Online Game Measures do not clearly specify what constitutes “online gamepublication.” Furthermore, the Online Game Measures provide that all domestic online games must be filed with the MCT, while all imported onlinegames are subject to a content review prior to their launch. If a substantial change (for example, any significant modification to a game’s storyline,language, tasks, or trading system) is made to an existing imported or domestic online game, it will be subject to a new content review. Changyou’sonline game business may be adversely affected by the Online Game Measures. The Online Game Measures do not set forth any specific procedure forthe required filing and content review procedures for online games and therefore may cause delay when Changyou tries to file or apply for contentreview with the MCT. For Changyou’s imported licensed games, the requirement for pre-approval by the MCT of any substantial change ofChangyou’s games may cause delay in releasing its expansion packs of the games, which may result in higher costs for its online game operations andhave an adverse effect on its game revenues. In addition, the Online Game Measures do not resolve certain inconsistencies and ambiguities resultingfrom pronouncements included in previous notices issued by the SAPPRFT and the MCT.Because there is ambiguity in the scope of the authority and the roles and responsibilities of governmental departments, such as the SPPA, as asuccessor agency to the SAPPRFT, and the MCT, with oversight of the online game industry, Changyou may face stricter scrutiny of the day-to-dayoperations of its online game business. If any of its online game operating entities cannot comply with any of the stipulations of any PRCgovernmental department regarding the online game industry, Changyou may be subject to various penalties and its online game business may beadversely affected.PRC law and regulations governing the online game industry in China are evolving and subject to future changes. Changyou may fail to obtain ormaintain all applicable permits, approvals, registrations and filings.The online game industry in China is highly regulated by the PRC government. Various regulatory authorities of the PRC central government, such asthe State Council, the MIIT, the SPPA, the MCT and the MPS, have the power to issue and implement regulations governing various aspects of theonline game industry.Changyou is required to obtain applicable permits, approvals and registrations from, and make necessary filings with, different regulatory authorities inorder to operate its online games. For example, as an online game operator in China, Changyou must obtain an ICP license from the MIIT, an OnlineCultural Operating Permit from the MCT and an online publishing service license from the SPPA in order to distribute games through the Internet. Anyonline game Changyou operates needs to be approved by the SPPA prior to its launch and filed with the MCT within 30 days after its launch. Once anew online game or any upgrade, expansion pack or new version of any existing game is launched, such new game or such upgrade, expansion pack ornew version must be filed with the MCT and approval must be obtained from the SPPA for online publication. If Changyou fails to maintain any of itspermits, approvals or registrations, to make any necessary filings, or to apply for and obtain any new permits, approvals or registrations or make anynew filings on a timely basis, Changyou may be subject to various penalties, including fines and a requirement that it discontinues or limits itsoperations. 56Table of ContentsAs the online game industry is at an early stage of development in China, new law and regulations may be adopted from time to time to requireadditional licenses and permits other than those Changyou currently has, and address new issues that arise. In addition, substantial uncertainties existregarding the interpretation and implementation of current and any future PRC law and regulations applicable to the online game industry.Furthermore, as mobile games are a relatively new type of online game, there are uncertainties relating to whether a game developer, such as Changyou,which provides mobile games to mobile device users, needs to obtain a separate operating license in addition to the ICP license that it has alreadyobtained. For any mobile games Changyou launches, Changyou may be required to apply for a separate operating license for the mobile applications.Therefore, it may not be able to obtain timely, or at all, required licenses or any other new license required in the future, and it may be found to be inviolation of current or future PRC law and regulations, which could impede its ability to conduct business.Changyou operates some of its existing games, and plans to operate certain of its future games, with Internet authorization codes that it obtainedthrough third-party electronic publishing entities. If the SPPA challenges the commercial operation of any of Changyou’s games that are operatedwith Internet authorization codes obtained through third-party publishing entities, Changyou may be subject to various penalties, includingrestrictions on its operations.Under regulations issued by the SAPPRFT and the MIIT, online game operators are required to have an online publishing service license (or before theNew Internet Publication Measures became effective on March 10, 2016, an Internet publishing license), and an authorization code obtained undersuch a license is required for each game in operation and publicly available in the PRC. Changyou publishes certain of its existing games withauthorization codes obtained under Internet publishing licenses held by third parties. See “Government Regulation and Legal Uncertainties—SpecificStatutes and Regulations—Regulation of Online Games Services—Online Games and Cultural Products.” Current PRC regulations are not clear as tothe consequence of obtaining authorization codes through the licenses of third-party entities. Changyou’s past and expected future practices might bechallenged by the SPPA, as a successor agency to the SAPPRFT, which could subject Changyou to various penalties, including fines, confiscation ofpublishing equipment and the revenues generated from the publishing activities, the revocation of its business license, or the forced discontinuation ofor restrictions on its operations.Restrictions on virtual currency may adversely affect Changyou’s online game revenues.Changyou’s online game revenues are collected through the online sale of game points and sale of its prepaid cards, which are considered to be the“virtual currency” as such term is defined in the Notice on Strengthening the Administration of Online Game Virtual Currency, or the Virtual CurrencyNotice, which was jointly issued by the MCT and the MOFCOM in 2009. PRC laws and regulations, including the Virtual Currency Notice, haveprovided various restrictions on virtual currency and imposed various requirements and obligations on online game operators with respect to thevirtual currency used in their games, including that (i) the total amount of virtual currency issued by online game operators and the amount purchasedby individual users in the PRC is subject to limits, and online game operators are required to report the total amount of their issued virtual currency ona quarterly basis and are prohibited from issuing disproportionate amounts of virtual currency in order to generate revenues; (ii) virtual currency mayonly be provided to users in exchange for payment in RMB and may only be used to pay for virtual goods and services of the issuer of the currency,and online game operators are required to keep transaction data records for no less than 180 days; (iii) online game operators are prohibited fromproviding lucky draws or lotteries that are conducted on the condition that participants contribute cash or virtual currency in exchange for game propsor virtual currencies; (iv) online game operators are prohibited from providing virtual currency trading services to minors; and (v) companies involvedwith virtual currency in the PRC must be either issuers or trading platforms, and may not operate simultaneously as issuers and as trading platforms. OnDecember 1, 2016, the MCT issued Notice of Ministry of Culture on Regulating Online Game Operation Strengthening Interim and Ex-postSupervision, or the Online Game Operation Notice, which became effective on May 1, 2017. The Online Game Operation Notice stipulates that onlinegame operators may not allow online game virtual currency to be exchanged for real currency or physical items, except that, when online gameoperators cease offering their online game products and services to users, the operators may repay the users with real currency or other actual physicalor intangible assets for unused virtual currency. Changyou must tailor its business model carefully, including designing and operating its databases tomaintain users’ information for the minimum required period, in order to comply with the requirements of current PRC laws and regulations, includingthe Virtual Currency Notice and the Online Game Operation Notice, in a manner that in many cases can be expected to result in relatively lower sales ofits game coins and an adverse impact on its online game revenues.Changyou’s business may be adversely affected by public opinion and governmental policies in China as well as in other jurisdictions where itoperates its online games or licenses its online games to third parties.Currently, most of Changyou’s game players in China are young males, many of whom are students. Due to relatively easy access to personalcomputers and Internet cafés, the increasing use and popularity of mobile devices such as smart phones and tablets connected to the Internet, and thelack of other appealing forms of entertainment in China, many teenagers in China frequently play online games. This may result in these teenagersspending less time on or refraining from other activities, including education, vocational training, sports, and resting, which could result in adversepublic reaction and stricter government regulation. For example, the PRC government has promulgated anti-fatigue-related regulations to limit theamount of time minors can play online games. 57Table of ContentsAdverse public opinion could discourage game players from playing Changyou’s games, and could result in government regulations that imposeadditional limitations on the operations of online games as well as game players’ access to online games. For example, under the Monitor SystemCircular online game operators are required to adopt various measures to maintain a system to communicate with the parents of minors playing onlinegames and are required to monitor the activities of minors and suspend the accounts of minors if so requested by their parents. We believe that strictergovernment regulations, such as regulations imposing stricter age and hour limits, limiting the issuance of virtual currency by online game operators orthe amount of virtual currency that can be purchased by an individual game player, and extending anti-fatigue-related regulations to adults, could beimplemented in the future. Any such adverse public opinion or tightened government regulations could adversely affect Changyou’s ability tomaintain or increase its revenues.In addition, the PRC State Administration of Taxation, or the SAT, has announced that it will tax game players on the income derived from the tradingof virtual currencies at the rate of 20%. It is currently unclear how the tax will be collected or if there will be any effect on Changyou’s game players orits business, but collection of such a tax might discourage players who are interested in trading virtual currencies from playing its games, which couldreduce its revenues.Moreover, similar adverse public reaction may arise, and similar government policies may be adopted, in other jurisdictions where Changyou licensesor operates its games, which could similarly adversely affect its revenues.Regulation and censorship of information disseminated over the Internet in China may adversely affect our business, and Changyou may be liablefor information displayed on, retrieved from or linked to its Websites.The PRC government has adopted regulations governing Internet access and the distribution of news and other information over the Internet. Underthese regulations, Internet content providers and Internet publishers are prohibited from posting or displaying over the Internet any content that,among other things, violates PRC law and regulations, impairs the national dignity of China, or is obscene, superstitious, fraudulent or defamatory.When Internet content providers and Internet publishers, including online game operators, find that information falling within the above scope istransmitted on their Websites or is stored in their electronic bulletin service systems, they are required to terminate the transmission of such informationor delete such information immediately, keep records, and report to relevant authorities. Failure to comply with these requirements could result in therevocation of Changyou’s ICP license and other required licenses and the closure of its Websites. Internet content providers may also be held liable forprohibited information displayed on, retrieved from or linked to their Websites.In addition, the MIIT has published regulations that subject Internet content providers to potential liability for the actions of game players and othersusing their Websites, including liability for violations of PRC law prohibiting the dissemination of content deemed to be socially destabilizing. Asthese regulations are subject to interpretation by the relevant authorities, it is not possible for Changyou to determine in all cases the type of contentthat could result in liability for it as a developer and operator of online games, and as an operator of the 17173.com Website. In addition, Changyoumay not be able to control or restrict the content of other Internet content providers linked to or accessible through its Websites, or content generatedor placed on its Websites by its game players, despite its attempt to monitor such content. To the extent that regulatory authorities find any portion ofits content objectionable, they may require Changyou to curtail its games, which may reduce its game player base, the amount of time its games areplayed or the purchases of virtual items.There are currently no laws or regulations in the PRC governing property rights with respect to virtual assets and therefore it is not clear whatliabilities, if any, Changyou may have relating to the loss of virtual assets by its game players.In the course of playing Changyou’s games, game players can acquire and accumulate virtual assets, such as game player experience, skills andweaponry. Such virtual assets can be highly valued by game players and in some cases are traded among game players for real money or assets. Inpractice, virtual assets can be lost for various reasons, such as data loss caused by delay of network service by a network crash, or by hacking activities.There are currently no PRC laws or regulations governing property rights with respect to virtual assets. As a result, it is unclear who the legal owner ofvirtual assets is and whether the ownership of virtual assets is protected by law. In addition, it is unclear under PRC law and regulations whether anoperator of online games such as Changyou would have any liability (whether in contract, tort or otherwise) for loss of such virtual assets by gameplayers. Based on several judgments regarding the liabilities of online game operators for loss of virtual assets by game players, the courts havegenerally required the online game operators to provide well-developed security systems to protect such virtual assets owned by game players. In theevent of a loss of virtual assets, Changyou may be sued by game players and may be held liable for damages.Changyou’s online game operations may be adversely affected by implementation of anti-fatigue-related regulations.The PRC government may decide to adopt more stringent policies to monitor the online game industry as a result of adverse public reaction toperceived addiction to online games, particularly by minors. Eight PRC government authorities, including the SAPPRFT, the Ministry of Educationand the MIIT, jointly issued regulations, or the Anti-Fatigue Notice, requiring all Chinese online game operators to adopt an “anti-fatigue system” inan effort to curb addiction to online games by minors. Under the anti-fatigue system, three hours or less of continuous play is defined to be “healthy,”three to five hours is defined to be “fatiguing,” and five hours or more is defined to be “unhealthy.” Game operators are required to reduce the value ofgame benefits for minor game players by half when those game players reach the “fatiguing” level, and to zero when they reach the “unhealthy” level.In addition, online game players in China are now required to register their identity card numbers before they can play an online game. This systemallows game operators to identify which game players are minors. These restrictions could limit Changyou’s ability to increase its business amongminors. If these restrictions were expanded to apply to adult game players in the future, Changyou’s revenues could be adversely affected. 58Table of ContentsThese eight PRC government authorities subsequently promulgated additional regulations, including a Notice on Initializing the verification of Real-name Registration for Anti-Fatigue System on Internet Games, or the Real-name Registration Notice, to strengthen the implementation of the anti-fatigue system and real-name registration. The Real-name Registration Notice’s main focus is to prevent minors from using an adult’s identity to playInternet games and, accordingly, provides stringent punishment for online game operators for not implementing the anti-fatigue and real nameregistration measures properly and effectively. The most severe punishment contemplated by the Real-name Registration Notice is termination of theoperation of the online game if it is found to be in violation of the Anti-Fatigue Notice, the Real-name Registration Notice or the circular entitledImplementation of Online Game Monitor System of the Guardians of Minors, or the Monitor System Circular. The Real-name Registration Noticeincreases Changyou’s operating risks, as it will be required to spend more resources on the real-name verification and anti-fatigue system, which willlead to an increase in its operating costs. In addition, the amount of time that minors will be able to spend playing online games such as Changyou’swill be further limited, which can be expected to lead to a reduction in its revenues. Furthermore, if it is found to be violating these regulations,Changyou may be required to suspend or discontinue its online game operations.In February 2013, 15 PRC government authorities, including the SAPPRFT, the Ministry of Education, the MCT and the MIIT, jointly issued the WorkPlan for the Integrated Prevention of Minors Online Game Addiction, or the Work Plan, implementing integrated measures by different authorities toprevent minors from being addicted to online games. Under the Work Plan, the current relevant regulations will be further clarified and additionalimplementation rules will be issued by relevant authorities. As a result, Changyou may have to impose more stringent limits for minor game players,which may lead to an increase in its operating expenses and a reduction in its revenues from minor game players.In July 2014, the SAPPRFT issued the Notice on Further Launch Verification of Real-name Registration for Anti-Fatigue System on Internet Games,stating that, in view of some of the hardware and functionality limitations inherent in mobile devices, anti-fatigue system requirements applicable toInternet games do not currently apply to mobile games. If the SPPA, as a successor agency to the SAPPRFT, in the future decides to expand the anti-fatigue system requirements to mobile games, Changyou’s operating expenses would be likely to increase. ITEM 4.INFORMATION ON THE COMPANYHISTORY AND DEVELOPMENT OF THE COMPANYIn August 1996, Sohu.com Inc., our predecessor, was incorporated in Delaware as Internet Technologies China Incorporated, and in January 1997 welaunched our original Website, itc.com.cn. In February 1998, we re-launched our Website under the domain name Sohu.com and, in September 1999,we renamed our company Sohu.com Inc. On July 17, 2000, we completed our IPO on NASDAQ trading under the symbol “SOHU.” In 2003, Sohu.comLimited was incorporated in the Cayman Islands as a direct wholly-owned subsidiary of Sohu.com Inc. On May 31, 2018, pursuant to a proposal (the“Liquidation Proposal”) for the dissolution of Sohu.com Inc. and adoption of a plan of complete liquidation and dissolution of Sohu.com Inc. that wasapproved by the stockholders of Sohu.com Inc. at a special meeting of stockholders held on May 29, 2018, Sohu.com Inc. was dissolved, alloutstanding shares of the common stock of Sohu.com Inc. were delisted and cancelled, and ADSs representing all outstanding ordinary shares ofSohu.com Limited were distributed on a share-for-share basis to the stockholders of Sohu.com Inc. On June 1, 2018 our ADSs began trading on theNASDAQ Global Select Market under the same “SOHU” symbol in place of the common stock of Sohu.com Inc. Sohu.com Limited replaced Sohu.comInc. as the top-tier, publicly-traded holding company of the Sohu Group. The Liquidation Proposal is described in detail in Sohu.com Inc.’s and ourjoint proxy statement/prospectus filed with the SEC on April 23, 2018.In 2006, we undertook a reorganization of our search and search-related businesses. As part of the reorganization, we transferred most of our search andsearch-related businesses to Sogou Inc., a Cayman Islands company that was incorporated in 2005 by us. In 2010, we undertook another reorganizationin preparation for Sogou’s issuance of Sogou Pre-IPO Series A Preferred Shares in a financing transaction, and transferred other businesses andemployees related to the search and search-related businesses to Sogou. On November 13, 2017, Sogou completed its IPO on NYSE, trading under thesymbol “SOGO.”In 2007, we reorganized our online games business. As part of the reorganization, Changyou.com Limited was incorporated in the Cayman Islands onAugust 6, 2007 as our indirect wholly-owned subsidiary to hold the PC games business of the Group. We transferred to Changyou, effectiveDecember 1, 2007, all of the assets and operations relating to the PC games business, and Changyou assumed all the liabilities associated with ourgames business. On April 2, 2009, Changyou completed its IPO on NASDAQ, trading under the symbol “CYOU.”Our principal executive offices are located at Sohu.com Media Plaza, No. 2, Kexueyuan South Road, Haidian District, Beijing, 100190, People’sRepublic of China. Our telephone number at this address is +86 10-6272-6666. Our registered office in the Cayman Islands is located at the offices ofMaples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. 59Table of ContentsBUSINESS OVERVIEWWe are a leading Chinese online media, search and game service group providing comprehensive online products and services on PCs and mobiledevices in China. Our businesses are conducted by the Sohu Group, which consists of Sohu, Sogou and Changyou. Sogou and Changyou are ourindirect controlled subsidiaries. Sohu is a leading Chinese language online media content and services provider, Sogou is an innovator in search and aleader in China’s Internet industry, and Changyou is a leading online game developer and operator in China that engages primarily in thedevelopment, operation, and licensing of online games for PCs and mobile devices. Most of our operations are conducted through our China-basedsubsidiaries and VIEs.Through the operation of Sohu, Sogou and Changyou, we generate online advertising revenues, including brand advertising revenues and search andsearch-related advertising revenues; online games revenues; and other revenues. Online advertising and online games are our core businesses. For theyear ended December 31, 2018, total revenues generated by Sohu, Sogou and Changyou were approximately $1.88 billion, including total brandadvertising revenues of $231.9 million, total search and search-related advertising revenues of $1.02 billion, total online game revenues of$389.8 million, and total other revenues of $238.8 million.Sohu: total revenues generated by Sohu were $274.2 million. • $212.2 million in brand advertising revenues, of which $127.3 million was from Sohu Media Portal, $53.8 million was from Sohu Video,and $31.1 million was from Focus; and • $62.0 million in other revenues, mainly attributable to revenues from paid subscription services, interactive broadcasting services, andcontent provided through the platforms of the three main telecommunications operators in China.Sogou: total revenues generated by Sogou were $1.12 billion. • $1.02 billion in search and search-related advertising revenues; and$100.5 million in other revenues, attributable to Sogou’s offering of IVAS, primarily with respect to the operation of Web games andmobile games developed by third parties and the provision of online reading services, as well as Sogou’s offering of other products andservices, including smart hardware products.Changyou: total revenues generated by Changyou were $485.8 million. • $389.8 million in online game revenues, of which $236.7 million was from PC games, $151.7 million was from mobile games, and$1.3 million was from games other than PC games and mobile games; • $19.7 million in brand advertising revenues, mainly attributable to Changyou’s 17173.com Website; and • $76.3 million in other revenues attributable to Changyou’s cinema advertising business and IVAS business.Sohu’s BusinessBrand Advertising BusinessSohu’s main business is the brand advertising business, which offers to users, over our matrices of Chinese language online media, various content,products and services across multiple Internet-enabled devices, such as PCs, mobile phones and tablets. The majority of our products and services areprovided in China through Sohu Media Portal, Sohu Video and Focus. • Sohu Media Portal. Sohu Media Portal is a leading online news and information provider in China. It provides users with access tocomprehensive content through the mobile phone application Sohu News APP, www.sohu.com for PCs and the mobile portal m.sohu.com; • Sohu Video. Sohu Video is an online video content and service provider in China through tv.sohu.com for PCs and the mobile phoneapplication Sohu Video APP; and • Focus. Focus (www.focus.cn) is an online real estate information and services provider in China. 60Table of ContentsRevenues generated by the brand advertising business are classified as brand advertising revenues in our consolidated statements of comprehensiveincome.Other Sohu BusinessSohu also engages in the other business, which consists primarily of paid subscription services, interactive broadcasting services, and content providedthrough the platforms of the three main telecommunications operators in China. Revenues generated by Sohu from the other business are classified asother revenues in our consolidated statements of comprehensive income.Sogou’s BusinessSearch and Search-related BusinessThe search and search-related business consists primarily of search and search-related advertising services offered by Sogou. Search and search-relatedadvertising services enable advertisers’ promotional links to be displayed on Sogou’s search results pages and other Internet properties and thirdparties’ Internet properties where the links are relevant to the subject and content of searches and such properties. Sogou’s advertising services expanddistribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’ Internet properties, including Web content,software, and mobile applications. Our search and search-related business benefits from Sogou’s collaboration with Tencent, which provides Sogouaccess to traffic and content generated from products and services provided by Tencent.Revenues generated by the search and search-related business are classified as search and search-related advertising revenues in our consolidatedstatements of comprehensive income.Other Sogou BusinessSogou also offers IVAS, primarily with respect to the operation of Web games and mobile games developed by third parties and the provision of onlinereading services, and offers other products and services, including smart hardware products. Revenues generated by Sogou from other business areclassified as other revenues in our consolidated statements of comprehensive income.Initial Public Offering of SogouOn November 13, 2017, Sogou completed its IPO on the NYSE, trading under the symbol “SOGO.”Sogou’s Ordinary Shares are divided into Sogou Class A Ordinary Shares and Sogou Class B Ordinary Shares. Holders of Sogou Class A OrdinaryShares and holders of Sogou Class B Ordinary Shares have identical rights with the exception of voting and conversion rights. Each Sogou Class AOrdinary Share is entitled to one vote per share and is not convertible. Each Sogou Class B Ordinary Share is entitled to ten votes per share and isconvertible into one Sogou Class A Ordinary Share at any time.Sogou issued and sold in its IPO 50,643,856 Sogou Class A Ordinary Shares represented by 50,643,856 ADSs, including 5,643,856 Sogou Class AOrdinary Shares represented by 5,643,856 ADSs sold pursuant to the exercise of the underwriters’ over-allotment option. Proceeds to Sogou from theIPO were approximately $622.1 million, after deducting underwriting discounts and commissions and offering expenses.Following the completion of Sogou’s IPO, pursuant to the Voting Agreement, we have the right to appoint a majority of Sogou’s Board of Directors,and we continue to consolidate Sogou in our financial statements and provide for noncontrolling interests reflecting ordinary shares in Sogou held byshareholders other than us.In the fourth quarter of 2017, we recognized a one-time gain of $278.4 million in shareholders’ equity in our consolidated balance sheets to reflect theincrease in the value of our equity in Sogou that resulted from the completion of Sogou’s IPO.Voting Agreement between Sohu, Tencent and SogouPursuant to the Voting Agreement, Sohu and Tencent agreed that, subject to certain exceptions, (1) within three years following the completion ofSogou’s IPO, Sohu will vote all Sogou Class B Ordinary Shares and any Sogou Class A Ordinary Shares held by it and Tencent will vote 45,578,896 ofits Sogou Class B Ordinary Shares to elect a Board of Directors consisting of seven directors, four of whom will be appointed by Sohu, two of whomwill be appointed by Tencent, and the seventh of whom will be Sogou’s then chief executive officer, and (2) after three years following the completionof Sogou’s IPO, Sohu will be entitled to choose to change the size and composition of Sogou’s Board of Directors, subject to Tencent’s right to appointat least one director. The effect of these provisions is to give Sohu the power to appoint a majority of Sogou’s Board of Directors, and to give Tencentthe power to appoint two directors within three years following the completion of Sogou’s IPO and at least one director after three years after thecompletion of Sogou’s IPO. The Voting Agreement also provides that, subject to certain conditions, for so long as Sohu and Tencent together holdmore than 50% of the total voting power of the Sogou Class A Ordinary Shares and the Sogou Class B Ordinary Shares, Sohu or Tencent may removeand replace any director appointed by it. These provisions of the Voting Agreement are also reflected in Sogou’s Amended and Restated Memorandumof Association and Amended and Restated Articles of Association. 61Table of ContentsDue to the additional voting power of the Sogou Class B Ordinary Shares held by Sohu and Tencent, as of the date of this report Sohu holdsapproximately 33% of the total of Sogou’s outstanding Class A and Class B Ordinary Shares and controls approximately 44% of the total voting powerof the combined total of Sogou’s outstanding Class A and Class B Ordinary Shares; Tencent has an indirect shareholding of approximately 38% of thetotal of Sogou’s outstanding Class A and Class B Ordinary Shares and controls approximately 52% of the total voting power of the combined total ofSogou’s outstanding Class A and Class B Ordinary Shares; and Sohu and Tencent together have the power to decide all matters that may be brought toa vote of Sogou’s shareholders.The Voting Agreement and Sogou’s Amended and Restated Articles of Association also specify that for so long as Sohu or Tencent holds not less than15% of Sogou’s issued shares (calculated on a fully diluted basis), consent from the holder of 15% or more (either or both of Sohu or Tencent, as thecase may be) will be required (1) to amend Sogou’s Amended and Restated Memorandum of Association or Amended and Restated Articles ofAssociation, (2) to make material changes in Sogou’s principal lines of business, (3) to issue any additional Sogou Class B Ordinary Shares, (4) tocreate any new class or series of shares that is pari passu with or senior to the Sogou Class A Ordinary Shares, (5) for Sogou to approve a liquidation,dissolution or winding up of Sogou, or a merger or consolidation resulting in a change in control, or any disposition of all or substantially all ofSogou’s assets, or (6) for Sogou to enter into any transactions with affiliates of Sohu, other than in the ordinary course of business. Of these corporateactions that are subject to consent of Sohu or Tencent (as applicable), shareholder approval is required under the Companies Law of the CaymanIslands for any amendment of Sogou’s Amended and Restated Memorandum of Association or Amended and Restated Articles of Association, anywinding-up of Sogou Inc., or any merger or consolidation with a third-party entity. The Voting Agreement and Sogou’s Amended and Restated Articlesof Association further provide that if Sogou’s shareholders have voted in favor of any of these actions requiring the approval of Sogou’s shareholdersbut consent from Sohu or Tencent (as applicable) has not been obtained, then the holders of all classes of Sogou’s shares who have voted against suchaction will be deemed to have such number of votes as are equal to the aggregate number of votes cast in favor of such actions plus one additionalvote. Under these provisions of the Voting Agreement and Sogou’s Amended and Restated Articles of Association, if an action is proposed for whichthe consent of either Tencent or Sohu is required, the failure to obtain the consent of Tencent or Sohu will have the effect of the proposed action’s notbeing approved, even if Sogou’s other shareholders approve it.The Voting Agreement and Sogou’s Amended and Restated Articles of Association also specify that if at any time Sohu alone holds more than 50% ofthe total voting power of the Sogou Class A Ordinary Shares and Class B Ordinary Shares, the voting arrangements with respect to the size andcomposition of Sogou’s Board of Directors will be automatically suspended until such time within five years after the completion of Sogou’s IPO asSohu’s voting power again drops to 50% or less, in which case the original voting arrangements will be reinstated, provided that Tencent will only berequired to vote the lower of 45,578,896 Sogou Class B Ordinary Shares held by it or such number as would give Sohu combined voting power of50.1%. If such a suspension continues after the fifth anniversary of the completion of Sogou’s IPO, the voting arrangements with respect to the size andcomposition of Sogou’s Board of Directors will terminate.All of the Sogou Class B Ordinary Shares held by Sohu will be converted into Sogou Class A Ordinary Shares if there is a transaction resulting inchange of control of Sohu that was not approved by Sohu’s board of directors, if specified competitors of Tencent control Sohu, or if a majority ofSohu’s board of directors consist of nominees of specified competitors of Tencent. The provisions with respect to the size and composition of Sogou’sBoard of Directors set out in the Voting Agreement and Sogou’s Amended and Restated Articles of Association will terminate upon occurrence of anysuch event. Such arrangements will also terminate (1) if Dr. Charles Zhang, the chairman of the board of directors of Sohu and the chief executiveofficer, both ceases being the chairman of the board of directors of Sohu and ceases being the single largest beneficial owner of Sohu’s outstandingshares; (2) if Sohu transfers 30% or more of the Sogou Class B Ordinary Shares that Sohu held upon the completion of Sogou’s IPO; (3) if Sogou fails toprovide irrevocable instructions to the person maintaining Sogou’s register of members to accept instructions from Tencent, under certaincircumstances, with respect to the conversion of Sogou Class B Ordinary Shares held by Sohu; (4) or Sogou changes, without Tencent’s consent, theperson that maintains Sogou’s register of members; (5) or if Tencent ceases to own any Sogou Class B Ordinary Shares.Under the Voting Agreement, Sohu and Tencent are subject to certain restrictions on transfer of their Sogou Class A and Class B Ordinary Shares. Inparticular, a transfer of Sogou Class B Ordinary Shares by either Sohu or Tencent, respectively, to any person or entity that is not a direct or indirectwholly-owned subsidiary of Sohu or Tencent, respectively, will cause such Sogou Class B Ordinary Shares to be converted into Sogou Class AOrdinary Shares.Voting Agreement between Sohu, Photon and Sogou ManagementSohu may be deemed to have beneficial ownership attributable to shared voting power of Sogou Class A Ordinary Shares beneficially owned byPhoton Group Limited (“Photon”), an investment vehicle of our Chairman and Chief Executive Officer Charles Zhang, Sogou’s chief executive officerXiaochuan Wang, and certain other members of the Sogou management as a result of a voting agreement by and among Sohu, Photon, Mr. Wang, andthe other members of Sogou management, pursuant to which Photon, Mr. Wang, and the other members of Sogou Management have agreed to votetheir Sogou Class A Ordinary Shares (not including shares acquired by Mr. Wang in the public market following Sogou’s IPO) to elect Sohu’sdesignees to Sogou’s Board of Directors. 62Table of ContentsSogou’s Share StructureAs of December 31, 2018, Sogou had a combined total of 397,158,375 Sogou Class A and Class B Ordinary Shares issued and outstanding, consistingof: (i)Sohu.com Limited: 127,200,000 Sogou Class B Ordinary Shares held by Sohu for its own account, and 3,717,250 Sogou Class A Ordinary Sharesheld by Sohu for the purpose of issuance upon the exercise of outstanding share-based awards and future share-based awards; (ii)Tencent: 151,557,875 Sogou Class B Ordinary Shares; (iii)Photon, an investment vehicle of the Sohu Group’s Chairman and Chief Executive Officer Charles Zhang: 24,686,863 Sogou Class A OrdinaryShares; and (iv)Shareholders other than Sohu, Tencent, and Photon: 89,996,387 Sogou Class A Ordinary Shares, including Sogou Class A Ordinary Sharesrepresented by Sogou ADSs.The totals of Sogou outstanding shares listed above include 5,805,000 Sogou Class A Ordinary Shares that are outstanding for legal purposes, but havebeen determined to be Sogou treasury stock for accounting purposes. See Note 17 to our audited consolidated financial statements, which begin onpage F-1 of this annual report.Changyou’s BusinessChangyou’s business lines consist of the online game business; the platform channel business, which consists primarily of online advertising andIVAS; and the cinema advertising business.Online Game BusinessChangyou’s online game business offers PC games and mobile games to game players. All of Changyou’s games are operated under the item-basedrevenue model, meaning that game players can play the games for free, but may choose to pay for virtual items, which are non-physical items that gameplayers can purchase and use within a game, such as gems, pets, fashion items, magic medicine, riding animals, hierograms, skill books and fireworks.Revenues derived from the operation of online games are classified as online game revenues in our consolidated statements of comprehensive income.PC GamesPC games are interactive online games that are accessed and played simultaneously by hundreds of thousands of game players through personalcomputers and require that local client-end game access software be installed on the computers used. Changyou’s dominant game is TLBB, a PC basedclient-end game. For the year ended December 31, 2018, revenues from TLBB were $200.9 million, accounting for approximately 52% of Changyou’sonline game revenues, approximately 41% of Changyou’s total revenues and approximately 11% of the Sohu Group’s total revenues.Mobile GamesMobile games are played on mobile devices and require an Internet connection. In the second quarter of 2017, Changyou launched a mobile game,Legacy TLBB Mobile, which is operated by Tencent under license from Changyou. For the year ended December 31, 2018, revenues from LegacyTLBB Mobile were $102.6 million, accounting for approximately 26% of Changyou’s online game revenues, approximately 21% of Changyou’s totalrevenues, and approximately 5% of the Sohu Group’s total revenues.Platform Channel BusinessChangyou’s platform channel business consists primarily of the operation of the 17173.com Website and RaidCall. Prior to the sale of MoboTap inMarch 2018, Changyou’s platform channel business also included MoboTap.17173.com Website 63Table of ContentsThe 17173.com Website provides news, electronic forums, online videos and other information services regarding online games to game players inChina. All revenues generated by the 17173.com Website are classified as brand advertising revenues.RaidCallRaidCall provides online music and entertainment services, primarily in Taiwan. IVAS revenues generated by RaidCall are classified as other revenuesin our consolidated statements of comprehensive income.Cinema Advertising BusinessChangyou also operates a cinema advertising business, which consists primarily of the acquisition from operators of movie theaters, and the sale toadvertisers, of pre-film advertising slots, which are advertisements shown before the screening of a movie in a cinema theatre. Revenues generated byChangyou’s cinema advertising business are classified as other revenues in our consolidated statements of comprehensive income.Changyou’s Share StructureAs of December 31, 2018, Changyou had a combined total of 106,501,420 Changyou Class A and Class B Ordinary Shares issued and outstanding,consisting of: (i)Sohu.com Limited.: 1,500,000 Changyou Class A Ordinary Shares and 70,250,000 Changyou Class B Ordinary Shares; (ii)Public shareholders: 34,751,420 Changyou Class A Ordinary Shares represented by ADSs.As of December 31, 2018 and the date of this report, we held and hold approximately 67% of the combined total of Changyou’s outstanding ordinaryshares, and controlled and control approximately 95% of the total voting power in Changyou. As Changyou’s controlling shareholder, we consolidateChangyou in our financial statements and provide for noncontrolling interests reflecting ordinary shares in Changyou held by shareholders other thanus.PRODUCTS AND SERVICESSohu’s BusinessBrand Advertising BusinessSohu’s main business is the brand advertising business, which offers to users, over our matrices of Chinese language online media, various content,products and services across multiple Internet-enabled devices, such as PCs, mobile phones and tablets. The majority of our products and services areprovided through Sohu Media Portal, Sohu Video and Focus.SourcesSohu Media PortalSohu Media Portal is a leading online news and information provider in China. We provide users comprehensive content by aggregating content fromother media organizations and partnering with independent contributors, and also use content generated by our in-house editorial teams. We usealgorithms to recommend to users personalized content that may interest them. We provide content through www.sohu.com for PCs, the mobile phoneapplication Sohu News APP and the mobile portal m.sohu.com.Sohu VideoSohu Video is an online video content and service provider in China. We deliver premium purchased video content, self-developed video content, andUGC. PGC is a sub-category of UGC where the content is made by a large group of professional or semi-professional content studios. We provide usersfree access to the majority of our extensive and comprehensive video content library, which includes popular domestic and overseas television dramas,variety shows, movies, animations, PGC, documentaries, interactive broadcasting, and self-developed video content. We also offer selected fee-basedcontent, which includes overseas television dramas, self-developed video content, and movies. Users can access our video content via PCs throughtv.sohu.com, or via mobile devices by visiting our mobile video site or installing Sohu Video APP, our mobile video application.Focus 64Table of ContentsFocus (www.focus.cn) is an online real estate information and services provider in China. Focus provides diversified online content consisting of newhomes for sale, properties for re-sale and home furnishing services, and other comprehensive services and solutions for real estate developers, houseseekers and homeowners. Focus has also developed a transaction platform to offer online and offline services that facilitate the purchase of new homesby buyers.Business ModelIn the brand advertising business, we enjoy a strong competitive position as one of the leading Internet companies in China. Through the platformsdescribed above, we have built a sizeable user base through good user experiences provided by our products and services. This user base is appealingto advertisers. Through PCs and mobile devices, we provide advertisement placements to our advertisers on different Internet platforms and in differentformats, which include banners, links, logos, buttons, full screen, pre-roll, mid-roll, post-roll video screens, pause video screens, loading page ads, newsfeed ads and in-feed video infomercial ads. We rely on both direct sales by our internal sales force and sales by advertising agents for advertising onour Internet platforms. Our advertisers include multinational companies and Chinese domestic medium-sized and small companies.Currently we have three main types of pricing models, consisting of the Fixed Price model, the Cost Per Impression (“CPM”) model, and the Cost Perclick (“CPC”) model.Fixed Price modelUnder the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. Given that advertisers benefitfrom displayed advertisements evenly over the period the advertisements are displayed, we recognize revenue on a straight-line basis over the period ofdisplay, provided all revenue recognition criteria have been met.CPM modelUnder the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the advertiser. A qualifying display is definedas the appearance of an advertisement, where the advertisement meets criteria specified in the contract. Given that the fees are priced consistentlythroughout the contract and the unit prices are fixed in accordance with our pricing practices for similar advertisers, we recognize revenue based on thefixed unit prices and the number of qualifying displays upon their occurrence, provided all revenue recognition criteria have been met.CPC modelUnder the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser and the unit price for each click isauction-based. We charge advertisers on a per-click basis, when the users click on the advertisements. Given that the fees are priced consistentlythroughout the contract and the unit prices are fixed in consistence with our pricing practices with similar advertisers, we recognize revenue based onqualifying clicks and the unit price upon the occurrence of the clicks, provided all revenue recognition criteria have been met.Other Sohu BusinessSohu also engages in the other business, which consists primarily of paid subscription services, interactive broadcasting services, and content providedthrough the platforms of the three main telecommunications operators in China. Revenues generated by Sohu from the other business are classified asother revenues in our consolidated statements of comprehensive income.Sogou’s BusinessSearch and Search-related BusinessProducts and Services for UsersSogou’s suite of products and services for users focuses on search and search related services that cover a wide variety of use cases, from online searchto input methods.Sogou SearchSogou Search makes information easily accessible for Chinese Internet users. Through Sogou Search, Sogou enables its users to conveniently findrelevant, high quality, and comprehensive information anytime, anywhere. Sogou Search offers users general and vertical search services through itswebsite sogou.com and its mobile search application. In addition, Sogou Search is the default general search engine for popular Internet portals such asqq.com and sohu.com, and popular browsers such as the Mobile QQ Browser and the Sogou Browser. Sogou Search was the second largest searchengine in China with an 18.5% market share by mobile queries in December 2018, according to CTR. 65Table of ContentsSogou Search strives to offer differentiated content in its search products and services in order to improve its search results and provide an enhancedsearch experience for its users. Through collaborations with industry-leading content providers, it offers a variety of vertical search services. Forexample, Sogou Weixin Search is the sole general search engine with access to search all content published on Weixin Official Accounts. SogouHealthcare Search provides authoritative healthcare information through collaboration with national healthcare authorities and third-party healthcareinformation platforms. Sogou English is the cross-language search service that enables Chinese users to discover English content on the Internet byquerying in Chinese and reading content that Sogou has translated into Chinese. Through a collaboration with Zhihu, the leading onlineknowledge-sharing platform in China according to iResearch, Sogou provides users with up-to-date knowledge, experience, and insights shared withinthe Zhihu Community.Sogou Input MethodSogou Input Method, the first cloud-based Chinese language input software, was launched in 2006 and has become an indispensable Chinese languageinput software tool for PC and mobile users. Sogou Input Method had achieved a penetration rate of 98% among PC Internet users in China inDecember 2018, according to iResearch. It was the second most widely used PC software in China by DAU and the number one Chinese language inputsoftware for PC users in terms of MAU in December 2018, according to iResearch, with 242 million PC MAU. Sogou Mobile Keyboard, the mobileapplication of Sogou Input Method, had achieved a penetration rate of over 66% among mobile users of third-party Chinese language inputapplications in December 2018, according to iResearch. It was the third most widely used mobile application in China by DAU and the number oneChinese language input application for mobile users in terms of MAU in December 2018, according to iResearch, with 558 million mobile MAU.Sogou’s core AI technologies, including voice, translation and conversation, have driven product innovation for Sogou Mobile Keyboard byproviding more intelligent user interactions and expressions. Sogou Mobile Keyboard processed as many as up to 540 million voice inputs in thefourth quarter of 2018, handled millions of translation requests per day, and provided many AI-enabled functions such as SmartShare, which generatesa diverse range of automated personalized response options for user chats. Sogou Mobile Keyboard possesses a large library of language data, withover 100 billion Chinese character inputs per day that Sogou’s users have generated across a wide variety of Internet use cases, such as social media,news, entertainment, shopping, travel, and financial services.Other ProductsSogou BrowserSogou Browser is designed to make Web navigation fast and easy. Sogou continually upgrades the browser to expand functionality from a browsingtool to a content distribution platform for an enriched user experience. In addition to a range of vertical services, Sogou also provides personalizednewsfeeds leveraging Sogou’s big data capabilities based on users browsing habits and history.Sogou Web DirectorySogou Web Directory, a content aggregation and distribution platform, is a one-stop shop for navigation of the Chinese Web.Sogou TranslationSogou Translation incorporates neural machine translation technology and a massive linguistic database to deliver language translation. It isweb-based and also available as a mobile application. In addition to written text translation, the Sogou Translation mobile application supportsspeech, Optical Character Recognition, and augmented reality translation.MonetizationSogou generates revenue primarily from its search and search-related advertising services. Search and search-related advertising services enableadvertisers’ promotional links to be displayed on Sogou’s search result pages and other properties and third parties’ Internet properties where the linksare relevant to search queries and such properties. Sogou’s large user base and big data capabilities allow Sogou to enhance the effectiveness of itstargeted advertising services, thereby strengthening its monetization capabilities.Search and search related advertising services consist primarily of auction-based pay-for-click services, for which Sogou charges advertisers on a perclick basis when users click on the advertisers’ promotional links displayed on Sogou’s and third parties’ Internet properties.Other Sogou Business 66Table of ContentsSogou also offers IVAS, primarily with respect to the operation of Web games and mobile games developed by third parties and the provision of onlinereading services, and offers other products and services including smart hardware products. Revenues generated by Sogou from the other business areclassified as other revenues in our consolidated statements of comprehensive income.Changyou’s BusinessOnline Game BusinessBusiness ModelChangyou’s game players typically access Changyou’s games through personal computers and mobile devices, such as mobile phones and tablets,connected to the Internet. In order to access Changyou’s PC games, game access software must be installed in the computer being used. Game playersusing PCs can typically download Changyou’s game access software, interim updates and expansion packs directly from its main game Website. Gameplayers access Changyou’s mobile games by downloading its mobile game applications, primarily from third-party mobile application stores or, to alesser extent, from Changyou’s game Website. Prior to the sale of Shenzhen 7Road in August 2015, Changyou’s online games also included Webgames, which became a relatively insignificant part of its online games business following the sale.Changyou’s online games include a variety of game genres, including MMORPGs and advanced casual games such as collectible card games(“CCGs”). Changyou is also developing, and plans to expand its game portfolio with, additional types of advanced casual games, such as MOBAs andsimulation games (“SLGs”). MMORPGs allow a large number of players to take on the role of a character and interact with one another within a virtualworld. Advanced casual games include CCGs, in which players collect cards and compete to win by using card sets with different functions; MOBAs,in which a player can join a team and work with his or her teammates to compete in a mapped field in order to achieve a common goal; and SLGs, inwhich players can control, manage and use game characters and items and to design and implement their own strategies to win the games.Changyou’s games are operated under the item-based revenue model, meaning game players can play Changyou’s games for free, but may choose topay for virtual items, which are non-physical items that game players can purchase and use within a game, such as gems, pets, fashion items, magicmedicine, riding animals, hierograms, skill books and fireworks. Through virtual items, players are able to enhance or personalize their gameenvironments or game characters, accelerate their progress in Changyou’s games and share and trade with friends.For players who choose to purchase virtual goods, Changyou delivers enhanced gameplay experiences and benefits, such as:Accelerated Progress. Many of Changyou’s games offer players the option to purchase items that can accelerate their progress in the game and increasetheir capabilities, so that they level up more quickly and compete more effectively against others in the game. While Changyou sells many items thataccelerate progress in its games, Changyou monitors and carefully balances the disparity in capabilities between paying and non-paying game playersto avoid discouraging non-paying game players and to keep the game challenging and interesting for paying game players.Enhanced Social Interaction. Changyou uses a variety of virtual items to promote interaction and to facilitate relationship-building among gameplayers in its games.Personalized and Customized Appearance. Many of Changyou’s games offer players the option to purchase decorative and functional items tocustomize the appearance of their characters, pets, vehicles, houses and other in-game possessions to express their individuality.Gifts. Many of Changyou’s games offer players the option to purchase gift items to send to their friends. Examples of gift items include decorativeitems and time-limited items for special holiday events and festivals, such as Valentine’s Day, Spring Festival (Chinese New Year) and Christmas.Changyou’s online game business includes games that it self-operates and games that it licenses out to third-party operators.Self-Operated GamesFor self-operated games, Changyou determines the price of virtual items based on the demand or expected demand for such virtual items. Changyoumay change the pricing of certain virtual items based on its consumption patterns. Changyou hosts the games on its own servers and is responsible forsales and marketing of the games as well as customer service. Changyou’s self-operated games include PC games and mobile games developed inhouse as well as PC games and mobile games that Changyou licenses from or jointly develops with third party developers. 67Table of ContentsLicensed-Out GamesChangyou also authorizes third parties to operate its online games. In 2016 and 2018, Changyou entered into an agreement with Tencent pursuant towhich Changyou granted an exclusive license to Tencent to distribute and operate within China its mobile game Legacy TLBB Mobile and XuanYuan Jian, which were launched in May 2017 and October 2018, respectively. Changyou has also licensed other third-party operators to distribute andoperate within China certain of its other mobile games, including Legend of Sword and Fairy 5. In addition, Changyou licenses its PC game TLBB andmobile games Legacy TLBB Mobile, TLBB 3D and Fengyun to third-party operators in selected overseas markets outside of China, including HongKong, Macau, Taiwan, Singapore, Malaysia, Thailand, Vietnam and South Korea.The licensed-out games include PC games and mobile games developed in house as well as mobile games licensed from and jointly developed withthird-party developers. Under Changyou’s licensing arrangements with third-party operators, the operators pay Changyou upfront license fees andChangyou has revenue sharing rights over the terms of the licenses. The licenses are typically for a term of one to three years. Changyou providesupdates and expansion packs for the licensed games, typically after it launches the updates and expansion packs in China.For licensed-out games, the third-party operators are responsible for all operations and costs, including marketing and customer service, as well as theleasing and maintenance of servers.Platform Channel BusinessChangyou’s platform channel business consists primarily of the operation of the 17173.com Website and RaidCall. Prior to the sale of MoboTap inMarch 2018, Changyou’s platform channel business also included MoboTap.17173.com WebsiteThe 17173.com Website provides news, electronic forums, online videos and other information services regarding online games to game players inChina. All revenues generated by the 17173.com Website are classified as brand advertising revenues.RaidCallRaidCall provides online music and entertainment services, primarily in Taiwan. All revenues generated by RaidCall from IVAS are classified as otherrevenues in our consolidated statements of comprehensive income.Cinema Advertising BusinessChangyou also operates a cinema advertising business, which consists primarily of the acquisition, from operators of movie theaters, and the sale, toadvertisers, of pre-film advertising slots, which are advertisements shown before the screening of a movie in a cinema theatre. Revenues generated byChangyou’s cinema advertising business are classified as other revenues in our consolidated statements of comprehensive income.INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTSWe regard our patents, copyrights, service marks, trademarks, trade secrets and other intellectual property as critical to our success. We rely on patent,trademark and copyright law, trade secret protection, non-competition and confidentiality and/or license agreements with our employees, customers,partners and others to protect our intellectual property rights. Before we launch any new products or services, we generally apply for registration ofrelated patents, trademarks, and software copyrights. Despite our precautions, it may be possible for third parties to obtain and use our intellectualproperty without authorization. Furthermore, the validity, enforceability and scope of protection of intellectual property rights in Internet-relatedindustries are uncertain and still evolving. The laws of the PRC and certain other countries do not protect intellectual property to the same extent as dothe laws of the United States.We have been issued 1,094 patents in China and 40 patents in countries and regions outside of China covering inventions, utility models, and designs;we have 1,560 patent applications currently pending in China and 109 patent applications currently pending in countries and regions outside ofChina; we have submitted 90 international patent applications through the procedures under the Patent Cooperation Treaty, or PCT; and we intend toapply for more patents to protect our core technologies and intellectual property. 68Table of ContentsWe have registered three service marks with the U.S. Patent and Trademark Office, consisting of Sohu.com, registered on August 1, 2000; Sohu.com(stylized), registered on August 1, 2000; and Sohu, registered on June 13, 2000. We have registered 4,253 trademarks with the Trademark Office of theState Administration for Industry and Commerce in China, including the mark “SOHU.com,” and such marks relating to our products as Sohu.comlogos, Sohu Fox logos, GoodFeel logos, Go2Map, Sogou logos, Sohu Focus, TLBB, ChangYou.com, cyou.com, TL logos, Blade Online, 17173 andtheir corresponding Chinese version marks; and we are in the process of applying for the registration of 933 other trademarks. We are the registeredowner of 455 registered trademarks and have also applied for 344 trademarks in countries and regions outside of China. In addition, we are in theprocess of applying for recognition of certain of our marks as famous Beijing trademarks and well-known Chinese trademarks. We also filedregistration of trademarks relating to our subsidiary companies’ names and Changyou’s online games and other businesses in various countries andregions, such as the United States, European Union, Turkey, Japan, South Korea, Malaysia, Indonesia, Vietnam, Thailand, Brazil, Taiwan and HongKong. Our rights to these marks could be affected adversely if any of our applications are rejected. It is possible that our competitors will adopt productor service names similar to ours, thereby impeding our ability to distinguish our brand and possibly leading to customer confusion. In addition, ifChangyou is unable to agree on relevant renewal terms for the existing licenses from the estate of Louis Cha for Changyou’s mobile games TLBB 3Dand Legacy TLBB Mobile and for Changyou’s PC game TLBB, Changyou could lose the rights to trademarks related to Tian Long Ba Bu. See “RiskFactors—Risks Related to Changyou.com Limited—Risks Relating to Changyou’s Business and Industry—Overall Risks—Changyou may need toincur significant expenses to enforce its proprietary rights, and if it is unable to protect such rights, its competitive position and financial performancecould be harmed” and “—Changyou may not have exclusive rights to trademarks, designs and technologies that are crucial to its business” in Item 3.We are the registered owner of 769 software copyrights and 439 copyrights for works in China, each of which we have registered with the StateCopyright Bureau of China and its local branches.We own the rights to 480 domain names that we use in connection with the operation of our business, including the Sohu, Sogou, and Changyouwebsites.Many parties are actively developing chat, search, Web directory and related Web technologies. We expect these parties to continue to take steps toprotect these technologies, including seeking patent protection. There may be patents issued or pending that are held by others and cover significantparts of our technology, business methods or services. For example, we are aware that a number of patents have been issued in the areas of e-commerce,Web-based information indexing and retrieval and online direct marketing. Disputes over rights to these technologies may arise in the future. Wecannot be certain that our products do not or will not infringe valid patents, copyrights or other intellectual property rights held by third parties. Wemay be subject to legal proceedings and claims, from time to time, relating to the intellectual property of others in the ordinary course of our business.See “Item 8. Financial Information—Legal Proceedings”.We also intend to continue licensing technology from third parties. The market is evolving and we may need to license additional technologies toremain competitive. We may not be able to license these technologies on commercially reasonable terms or at all. In addition, we may fail tosuccessfully integrate any licensed technology into our services. Our inability to obtain any of these licenses could delay product and servicedevelopment until alternative technologies can be identified, licensed and integrated.TECHNOLOGY INFRASTRUCTUREThe Sohu Group has built what we believe is a reliable and secure network infrastructure, that will fully support our operations. We have professionaltechnical support teams to maintain our current technology infrastructure and online operating platform, as well as develop new software features tofurther enhance the functionality of our management and security systems. We monitor the operation of our server network 24 hours a day, seven daysa week. Our remote control system allows us to track our concurrent online users in real time, and discover and fix hardware or software problems onour server network in a timely fashion.Content and Services provided by SohuAs of December 31, 2018, Sohu maintained approximately 15,000 servers in China. To fully support the operation of Sohu’s content and services,Sohu established these data centers primarily through China Mobile, China United Network Communication Group Company Limited (“ChinaUnicom”), and China Telecom Corporation (“China Telecom”), which are the three largest Internet connection service providers in China, to supportmost of Sohu’s core services. In addition, Sohu has established branch nodes in different provinces throughout China through differenttelecommunication operators in order to establish national coverage and provide fast and stable access to Sohu’s Internet platforms properties to usersacross China. In addition, Sohu has developed cooperation with several smaller private Internet service providers.Sohu has developed close working relationships with China Mobile, China Unicom, China Telecom and smaller-size telecommunication operators.Sohu’s operations depend on the ability of China Mobile, China Unicom, and China Telecom to protect Sohu’s systems against damage from fire,power loss, telecommunications failure, break-ins and other events. These telecommunication operators provide Sohu with support services twenty-four hours per day, seven days per week. They also provide connectivity for Sohu’s servers through multiple high-speed connections. All facilities areprotected by Uninterruptible Power Supplies. 69Table of ContentsFor reliability, availability, and serviceability, Sohu has created an environment in which each server can function independently. Key components ofSohu’s server architecture are served by multiple redundant machines. Sohu also uses in-house and third-party monitoring software. Sohu’s reportingand tracking systems generate daily traffic, demographic and advertising reports. Sohu deploys load balance equipment and cloud computing to avoidsingle point failure.Sohu’s operations must accommodate a high volume of traffic and deliver frequently updated information. Components or features of Sohu’s productsand services have in the past suffered outages or experienced slower response times because of equipment or software down time. These events havenot had a material adverse effect on Sohu’s business to date, but such events could have a material adverse effect in the future.Content and Services provided by SogouAs of December 31, 2018, Sogou owned approximately 33,000 servers located in eight Internet data centers in China. Sogou has also obtained what itbelieves is a sufficient amount of connectivity bandwidth to meet the current and anticipated needs of its operations, and has established a large-scaleGPU service cluster to provide computing power for its AI technologies.Online Games provided by ChangyouChangyou supports its operations with a network of reliable and secure physical and cloud-based servers that have fully supported its operations formany years. As of December 31, 2018, Changyou maintained for its online game business approximately 4,000 physical servers that are located inInternet data centers in 13 major cities in China, and 3,500 cloud-based servers that are spread across mainland China, Hong Kong, other Asia-pacificregions, Europe and North America. In order to enhance Changyou’s game players’ experience and to improve connectivity, Changyou has located itsphysical game servers in a number of regions throughout China. This allows its players to connect to the nearest servers that are located in their regionwithout exchanging data across the national backbone network. Furthermore, to ensure high quality services for its game players, Changyou workswith leading domestic cloud technology firms to provide efficient and stable game services using cloud-based resources.MARKETINGWe are a leading Chinese online media company and our brand effectively provides us with built-in word-of-mouth marketing. While we havesignificantly benefited from recognition of our brand in China, in 2018 we rolled out online and offline marketing campaigns to further promote ourbrand and products. We have online marketing such as advertising-for-advertising barter activities with other media companies to maintain our brandawareness, and we access online social media such as Weibo to promote our self-produced video programs. For offline marketing channels, we workclosely with mobile application stores as well as performance-based online advertising platforms. Moreover, to strengthen our precision marketing, wereach out and seek cooperation with market-dominant mobile phone manufacturers to pre-install our mobile APPs into certain models of their mobilephones. Such partnerships enable us to target different user groups by gender, demographics, age, and other categories.COMPETITIONThe Internet and Internet-related markets in China are rapidly evolving. We believe the rapid increase in China’s online population will draw moreattention to the PRC Internet market from both domestic and multinational competitors. Our existing competitors may in the future achieve greatermarket acceptance and gain additional market share. It is also possible that new competitors may emerge and acquire significant market share. Inaddition, our competitors may leverage their existing Internet platforms to cross-sell newly launched products and services. It is also possible that, as aresult of deficiencies in legal protections afforded intellectual property in the Internet industry in China, or inadequate enforcement of existing PRClaws protecting such intellectual property, we may not be able to prevent existing or new competitors from accessing and using our in-house developedWeb content or technologies.Competition for Sohu’s BusinessIn the PRC Internet space, competition for brand advertising business is intense and is expected to increase significantly in the future. We competewith our peers and competitors in China primarily on the following basis: • access to financial resources; • gateway to host of Internet users activities; • technological advancements; • attractiveness of products; • brand recognition; • volume of traffic and users; • quality of Internet platforms and content; 70Table of Contents • quality and quantity of purchased video content, self-developed video content, and user-generated content; • strategic relationships; • quality of services; • effectiveness of sales and marketing efforts; • talent of staff; and • pricing.Over time, our competitors may gradually build certain competitive advantages over us in terms of: • greater brand recognition among Internet users and clients; • better products and services; • larger user and advertiser bases; • more extensive and well developed marketing and sales networks; and • substantially greater financial and technical resources.There are a number of existing or new PRC Internet companies, including those controlled or sponsored by private entities and by PRC governmententities. As an Internet portal, we compete with various portals, including Alibaba, Baidu, and Tencent, the three dominating Internet Companies, aswell as Autohome, BitAuto, Century Cruises (formerly known as Giant Interactive Group Inc.), Da Xing (formerly known as Perfect World Co., Ltd.),Google, IGG Inc., iQIYI, Kalends Inc., Kingsoft, Leju, Microsoft, NetDragon, NetEase, Ourpalm Corporate limited, Phoenix, Qihoo, Qutoutiao, ShulongTechnologies (formerly known as Shanda Games Limited), Sina, SouFun, TouTiao.com, UCWeb, Youku Tudou, and YY.We also compete with traditional forms of media, such as newspapers, magazines, radio and television, for advertisers, advertising revenues andcontent. Some of these traditional media, such as CCTV, Xinhua News Agency and People’s Daily, have extended their businesses into the Internetmarket. As a result, we expect to face more intense competition with traditional media companies in both their traditional media and in the Internet-related markets.Competition for Sogou’s BusinessSogou’s business consists primarily of search and search-related services. Sogou faces intense competition in these areas primarily from Baidu andShenMa. Sogou also faces competition for both users and advertisers from websites that provide specialized search services in China, including travelservices and information platforms such as Ctrip and Qunar; group-buy platforms such as Meituan Dianping; online classified advertisement platformssuch as 58.com; and newsfeeds such as Toutiao. Sogou competes for advertisers not only with Internet companies, but also with other types ofadvertising media such as newspapers and magazines, billboards and bus advertisements, television, and radio.Sogou’s existing and potential competitors compete with Sogou for users and advertisers on the basis of the quality and quantity of search results; thefeatures, availability, and ease of use of products and services; and the number and quality of advertising distribution channels. They also competewith Sogou for talent with technological expertise, which is critical to the sustained development of Sogou’s products and services.Competition for Changyou’s BusinessOnline Game BusinessIn the online game industry, Changyou competes principally with the following three groups of competitors in China: • online game developers and/or operators in China that are publicly traded in the United States and in Hong Kong, including IGG Inc.,Kingsoft Corporation Limited, NetEase, Inc., and Tencent; • other companies in China devoted to game development and/or operation that are publicly traded in China, such as 37 InteractiveEntertainment(Shanghai) Technology Co., Ltd., Giant Network Group Co., Ltd., Kalends Inc., Perfect World Co., Ltd., YOOZOO GAMESCo., Ltd., or privately-held companies, usually backed by venture capital or private equity, including Shulong Technologies (formerlyknown as Shanda Games Limited); and • international competitors.Platform Channel Business 71Table of ContentsIn the platform channel business, Changyou’s game information portal operated through the 17173.com Website currently competes in China with,among others, the following game information portals: • Duowan.com, operated by YY Inc.; and • Game.sina.com.cn, operated by Sina Corporation.Cinema Advertising BusinessIn the cinema advertising industry, Changyou competes primarily with the following competitors in China: • Focus Film, operated by Focus Media Group; and • China Movie Media Group, operated by Wanda Cinema Line, a Wanda Group company.The existing and potential competitors in the online games industry compete with Changyou for talent, game player spending, time spent on gameplaying, marketing activities, quality of games, and distribution network. The existing and potential competitors in the online advertising industrycompete with Changyou for talent, advertiser spending, number of unique visitors, number of page views, visitors’ time spent on Websites, and qualityof service. The existing and potential competitors in the cinema advertising industry compete with Changyou for cooperative relationships withoperators of movie theaters that are popular among movie-goers, market share of quality pre-film advertisement slots, advertiser spending, andexperienced sales and marketing personnel.FACILITIESSohuIn February 2007, we purchased an office building of approximately 18,265 square meters in Beijing, for consideration of approximately$35.3 million, of which approximately 18,228 square meters have been leased to Sogou since November 2013.In November 2009, we entered into a contract for the purchase and development of an office building of approximately 41,283 square meters inBeijing to serve as our headquarters, for consideration of approximately $162 million. The office building was placed in service in May 2013.As of December 31, 2018, we leased office space in Beijing of approximately 2,413 square meters. We also leased office space of approximately 10,532square meters in other cities in the PRC.SogouAs of December 31, 2018, Sogou leased approximately 8,469 square meters of office space in Beijing, in addition to office space that Sogou leasedfrom Sohu. Sogou also leased office space of approximately 10,402 square meters in other cities in the PRC.ChangyouIn August 2009, Changyou purchased an office building of approximately 14,950 square meters in Beijing, for consideration of approximately$33.4 million. Since January 1, 2016, Changyou has leased out this building to third-party business tenants.In August 2010, Changyou entered into a contract for the purchase and development of an office building of approximately 56,549 square meters inBeijing to serve as its headquarters, for consideration of approximately $171 million. The office building was placed in service in December 2013.As of December 31, 2018, Changyou leased additional office space in Beijing of approximately 782 square meters. Changyou also leased office spaceof approximately 9,185 square meters in other cities in the PRC and in other countries.GOVERNMENT REGULATION AND LEGAL UNCERTAINTIESThe following description of PRC laws and regulations is based upon the opinion of Haiwen & Partners, or Haiwen, our PRC legal counsel. The lawsand regulations affecting China’s Internet industry and other aspects of our business are at an early stage of development and are evolving. There aresubstantial uncertainties regarding the interpretation and enforcement of PRC laws and regulations. We cannot assure you that the PRC regulatoryauthorities would find that our corporate structure and business operations strictly comply with PRC laws and regulations. If we are found to be inviolation of PRC laws and regulations by the PRC government, we may be required to pay fines, obtain additional or different licenses or permits,and/or change, suspend or discontinue our business operations until we are found to comply with applicable laws. For a description of legal risksrelating to our ownership structure and business, see “Item 3—Key Information—Risk Factors.” 72Table of ContentsOverviewThe Chinese government has enacted an extensive regulatory scheme governing Internet-related areas, such as telecommunications, Internetinformation services, international connections to computer information networks, online game services, information security and censorship.Various aspects of the PRC Internet industry are regulated by various PRC governmental authorities, including: • the Ministry of Industry and Information Technology (the “MIIT”), which resulted from the merger of the former Ministry of InformationIndustry and other governmental departments; • the Ministry of Culture and Tourism of the People’s Republic of China (the “MCT”), which was established in March 2018 and resultedfrom the merger of the former Ministry of Culture (the “MOC”), and the former China National Tourism Administration (the “CNTA”). The“MCT” as used in this report refers to the governmental authority that resulted from the merger, as well as to the MOC and the CNTAseparately for periods prior to the merger; • the Ministry of Public Security (“MPS”); • the Ministry of Commerce (“MOFCOM”); • the State Administration of Market Regulation (the “SAMR”), which resulted from the merger of, and assumed the responsibilitiespreviously held by, the State Administration for Industry and Commerce (the “SAIC”), the General Administration of Quality Supervision,Inspection and Quarantine (the “AQSIQ”) the Certification and Accreditation Administration, the Standardization Administration of China(the “SAC”), and the State Food and Drug Administration (the “SFDA”). The “SAMR” as used in this report refers to the governmentalauthority that resulted from the merger, as well as to the SAIC, the AQSIQ, the SAC, and the SFDA separately for periods prior to themerger; • the State Administration of Press, Publication, Radio, Film and Television (the “SAPPRFT”) was reorganized into three separategovernmental authorities, the National Radio and Television Administration (“NRTA”), the National Film Administration (the “NFA”), andthe State Press Publication Administration (the “SPPA”), in March 2018. The SAPPRFT had resulted from the merger of the former GeneralAdministration of Press and Publication (the “GAPP”) with the former State Administration of Radio, Film and Television (the “SARFT”) inMarch 2013. The “NRTA,” the “NFA” and the “SPPA” as used in this report refer to the respective governmental authorities after thereorganization; the “SAPPRFT” as used in this report refers to the governmental authority that resulted from the merger for the period afterthe merger and prior to the reorganization, as well as to the GAPP and the SARFT separately for periods prior to the merger; • the PRC State Council Information Office (the “SCIO”); • the Cyberspace Administration of China (the “CAOC”); and • the State Administration of Foreign Exchange (the “SAFE”).Specific Statutes and RegulationsRequirements for Establishment of WFOEsUnder the Law of the People’s Republic of China on Foreign Investment Enterprises (the “Foreign Investment Enterprises Law”), promulgated onApril 12, 1986 and amended on October 31, 2000, the establishment of a WFOE was required to be approved by MOFCOM or one of its local branches.On September 3, 2016, the Foreign Investment Enterprises Law was further amended by the Decision of the Standing Committee of the NationalPeople’s Congress on Amending Four Laws including the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises, issued by theStanding Committee of the National People’s Congress, and on October 8, 2016 MOFCOM issued the Interim Measures for the Administration ofFiling for Establishment and Change of the Foreign Investment Enterprises (the “Interim Filing Measures”), which were further amended on July 30,2017 and June 29, 2018, respectively. The Foreign Investment Enterprises Law and the Interim Filing Measures provide that, with certain exceptions,the establishment of foreign-invested enterprises is only subject to certain filing requirements with, and no longer requires prior approval by,MOFCOM or its local branches. 73Table of ContentsOn March 15, 2019, the Standing Committee of the National People’s Congress issued the Law of the People’s Republic of China on ForeignInvestment (“Foreign Investment Law”), which will take effect as of January 1, 2020 and then replace the Foreign Investment Enterprises Law and otherlaws relating to foreign investment. The stated purpose of the Foreign Investment Law is expanding China’s opening-up to the outside world,promoting and regulating foreign investment, and protecting the rights and interests of foreign investors. To achieve the above purpose, it provides, forexample, that treatment given to foreign investors and their investment during the investment access stage shall not be inferior to treatment afforded toPRC domestic investors and their investment except where a foreign investment is captured by the negative list. The Foreign Investment Law alsoprovides that the state will establish an information report system, and that foreign investors or foreign invested enterprises shall submit investmentinformation through the enterprise registration system and the enterprise credit information publicity system. However, since the Foreign InvestmentLaw is newly promulgated, at current stage, its impact upon the current procedures required for the establishment of a foreign-invested enterpriseremains unclear and is pending further clarification and guidance from the MOFCOM and other relevant governmental authorities.Each of our WFOEs established before September 3, 2016 was established with proper approval, and we have not established any WFOEs sinceSeptember 3, 2016.Requirements for Obtaining Business LicensesAll China-based companies may commence operations only upon the issuance of a business license by the relevant local branch of the SAMR. All ofour China-Based Subsidiaries and VIEs have been issued business licenses by the relevant local branches of the SAMR.In the opinion of Haiwen, our principal China-Based Subsidiaries and principal VIEs have satisfied the requirements for business licenses.Regulation of Value-added Telecommunications ServicesThe Telecommunications Regulations of the People’s Republic of China (“Telecom Regulations”), implemented on September 25, 2000 and amendedon July 29, 2014 and February 2, 2016, are the primary PRC law governing telecommunication services, and set out the general framework for theprovision of telecommunication services by domestic PRC companies. The Telecom Regulations require that telecommunications service providersprocure operating licenses prior to commencing operations. The Telecom Regulations draw a distinction between “basic telecommunicationsservices,” which we generally do not provide, and “value-added telecommunications services.” The Telecom Regulations define value-addedtelecommunications services as telecommunications and information services provided through public networks. The Catalogue ofTelecommunications Business (“Catalogue”), which was issued as an attachment to the Telecom Regulations and updated in February 2003 andDecember 2015, identifies Internet data centers, content delivery networks, domestic Internet virtual private networks, Internet access, online data andtransaction processing, on-demand voice and image communications, message storage and forwarding (including voice mailbox, e-mail and online faxservices), call centers, and online information and data search as value-added telecommunications services. We engage in various types of businessactivities that are value-added telecommunications services as defined and described by the Telecom Regulations and the Catalogue.On July 3, 2017, the MIIT issued the Administration Measures for Telecommunications Business Operating Permits (the “Telecom License Measures”),which became effective on September 1, 2017, to supplement the Telecom Regulations and replace the previous Measures on the Administration ofTelecommunications Business Operating Permits promulgated in 2009. The Telecom License Measures provide requirements and procedures forobtaining licenses for value-added telecommunications services, and stipulate that the competent governmental authorities will mandate improvedcredit management mechanisms for telecommunication business operators, and will establish an online platform in connection withtelecommunication business operating permits. The Telecom License Measures also confirm that there are two types of telecom operating licenses foroperators in China, one for basic telecommunications services and one for value-added telecommunications services. A distinction is also made as towhether a license is granted for “intra-provincial” or “trans-regional” (inter-provincial) activities. An appendix to each license granted will detail thepermitted activities of the enterprise to which it was granted. An approved telecommunication services operator must conduct its business (whetherbasic or value-added) in accordance with the specifications recorded in its Telecommunications Services Operating License.The business activities of Sohu Internet and Sogou Information include providing content to mobile phone users through the platforms of China’smain three telecommunications operators. The business activities of Sogou Information also include providing search services to mobile phone usersthrough the platforms of China’s main three telecommunications operators. On April 25, 2004, the MIIT issued a notice stating that China mobilenetwork operators may only provide mobile network access to those mobile Internet service providers which have obtained licenses from the relevantlocal arm of the MIIT before conducting operations. On the basis of the notice, China Mobile Communication Corporation (“China Mobile”) hasrequired each of its mobile Internet service providers to first obtain a license for trans-regional value-added telecommunications services in order togain full access to its mobile network, which is a nationwide policy in line with a similar notice issued by the Beijing branch of China Mobile onApril 12, 2004. 74Table of ContentsOn August 8, 2014 and January 30, 2015, respectively, the MIIT issued to Sohu Internet and Guangzhou Qianjun Value-Added TelecommunicationsServices Operating Licenses that authorize the provision of trans-regional mobile services classified as value-added telecommunication services. SohuInternet’s license was renewed on March 21, 2018, and Guangzhou Qianjun’s license was renewed on May 11, 2018. On June 2, 2016, the MIIT issuedto Sogou Information the Value-Added Telecommunications Services Operating Licenses that authorize the provision of information services, Internetdata centers and Internet access classified as value-added telecommunication services. The licenses are subject to the filing of annual reports, and theselicenses were renewed on November 28, 2018.Regulation of Foreign Direct Investment in Value-Added Telecommunications CompaniesVarious PRC regulations currently restrict foreign-invested entities from engaging in value-added telecommunication services, including providingInternet information services and operating online games. Foreign direct investment in telecommunications companies in China is regulated by theRegulations for the Administration of Foreign-Invested Telecommunications Enterprises (“FITE Regulations”), which were issued by the PRC StateCouncil, or State Council, on December 11, 2001, became effective on January 1, 2002 and were amended on September 10, 2008 and February 6,2016. The FITE Regulations stipulate that foreign invested telecommunications enterprises in the PRC (“FITEs”) must be established as Sino-foreignequity joint ventures. Under the FITE Regulations and in accordance with WTO-related agreements, the foreign party to a FITE engaging in value-added telecommunications services may hold up to 50% of the equity of the FITE, with no geographic restrictions on the FITE’s operations. OnJune 30, 2016, the MIIT issued an Announcement of the Ministry of Industry and Information Technology on Issues concerning the Provision ofTelecommunication Services in the Mainland by Service Providers from Hong Kong and Macao (the “MIIT Announcement”), which provides thatinvestors from Hong Kong and Macau may hold more than 50% of the equity in FITEs engaging in certain specified categories of value-addedtelecommunications services.For a FITE to acquire any equity interest in a value-added telecommunications business in China, it must satisfy a number of stringent performance andoperational experience requirements, including demonstrating a track record and experience in operating a value-added telecommunications businessoverseas. FITEs that meet these requirements must obtain approvals from the MIIT and the MOFCOM or their authorized local counterparts, whichretain considerable discretion in granting approvals.On July 13, 2006, the Notice of the Ministry of Information Industry on Intensifying the Administration of Foreign Investment in Value-addedTelecommunications Services (the “MIIT Notice”), which reiterates certain provisions of the FITE Regulations, was issued. Under the MIIT Notice, if aFITE intends to invest in a PRC value-added telecommunications business, the FITE must be established and must apply for a telecommunicationsbusiness license applicable to the business. Under the MIIT Notice, a domestic company that holds a license for the provision of Internet contentservices, or an ICP license, is considered to be a type of value-added telecommunications business in China, and is prohibited from leasing, transferringor selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreigninvestors to conduct value-added telecommunications businesses illegally in China. Trademarks and domain names that are used in the provision ofInternet content services must be owned by the ICP license holder or its shareholders. The MIIT Notice requires each ICP license holder to haveappropriate facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to maintain network and information security in accordance with standards set forth inrelevant PRC regulations. Our VIEs, rather than our subsidiaries, hold ICP licenses, own our domain names, and hold or have applied for registration inthe PRC of trademarks related to our business and own and maintain facilities that we believe are appropriate for our business operations.On November 27, 2017, the MIIT promulgated the Notice Regulating the Use of Domain Names in the Provision of Internet-based InformationServices, or the Domain Names Notice, which became effective on January 1, 2018. Under the Domain Names Notice, a domain name used by aprovider of Internet-based information services must be registered and owned by the provider or, if the provider is an entity, by a shareholder or seniormanagement of the provider.In view of these restrictions on foreign direct investment in the value-added telecommunications sector, we established or acquired several domesticVIEs to engage in value-added telecommunications services. For a detailed discussion of our VIEs, please refer to “Our Corporate Structure” above.Due to a lack of interpretative materials from the relevant PRC authorities, there are uncertainties regarding whether PRC authorities would considerour corporate structure and contractual arrangements to constitute foreign ownership of a value-added telecommunications business. See “RisksRelated to Our Corporate Structure.” In order to comply with PRC regulatory requirements, we operate our main business through companies withwhich we have contractual relationships but in which we do not have an actual ownership interest. If our current ownership structure is found to be inviolation of current or future PRC laws, rules or regulations regarding the legality of foreign investment in the PRC Internet sector, we could be subjectto severe penalties.In the opinion of Haiwen, subject to the uncertainties and risks disclosed elsewhere in this report under the heading “Risk Factors” and “GovernmentRegulation and Legal Uncertainties,” the ownership structures of our principal PRC Subsidiaries and our principal VIEs comply with all existing laws,rules and regulations of the PRC and each of such companies has the full legal right, power and authority, and has been duly approved, to carry on andengage in the business described in its business license.Regulation of the Provision of Internet Content 75Table of ContentsInternet Information ServicesOn September 25, 2000, the State Council issued the Measures for the Administration of Internet Information Services (“ICP Measures”), which wereamended on January 8, 2011. Under the ICP Measures, entities that provide information to online users on the Internet (“ICPs”) are obliged to obtainan operating license from the MIIT or its local branch at the provincial or municipal level in accordance with the Telecom Regulations describedabove.The ICP Measures further stipulate that entities providing online information services regarding news, publishing, education, medicine, health,pharmaceuticals and medical equipment must procure the consent of the national authorities responsible for such areas prior to applying for anoperating license from the MIIT or its local branch at the provincial or municipal level. Moreover, ICPs must display their operating license numbers inconspicuous locations on their home pages. ICPs are required to police their Internet platforms and remove certain prohibited content. Many of theserequirements mirror Internet content restrictions that have been announced previously by PRC ministries, such as the MIIT, the MCT, and theSAPPRFT, that derive their authority from the State Council.Sogou Information, Sohu Internet, Focus Interactive, Guangzhou Qianjun, Shanghai ICE, Guanyou Gamespace, and Gamease holdTelecommunications and Information Services Operating Licenses (each an “ICP license”), each of which is subject to the filing of an annual report.In 2000, the MIIT promulgated the Internet Electronic Bulletin Service Administrative Measures (“BBS Measures”). The BBS Measures required ICPsto obtain specific approvals before they provided BBS services, which included electronic bulletin boards, electronic forums, message boards and chatrooms. On September 23, 2014, the MIIT abolished the BBS Measures in a Decision on Abolishment and Amendment Certain Regulations and Rules.However, in practice certain local authorities still require operating companies to obtain approvals or make filings for the operation of BBS services.The ICP licenses held by Sohu Internet, Sogou Information, Focus Interactive, Gamease and Guanyou Gamespace include such specific approval of theBBS services that they provide.On December 29, 2011, the MIIT issued Several Provisions for Standardizing the Market Order of Internet Information Services (the “SeveralProvisions”) which took effect on March 15, 2012. With the aim of promoting the healthy development of the Internet information services market inChina, the Several Provisions strengthen the regulation of the operations of Internet information service providers, including prohibiting Internetinformation service providers from infringing the rights and interests of other Internet information service providers, regulating evaluations providedby Internet information service providers regarding the services and products of other Internet information service providers, and regulating theinstallation and running of software by Internet information service providers. The Several Provisions also provide various rules to protect the interestsof Internet information users, such as requesting Internet information service providers to take measures to protect the privacy information of their usersand prohibiting Internet information service providers from cheating and misleading their users.On August 25, 2017, the CAOC issued the Administration Measures for Internet Forum Community Service, effective on October 1, 2017, to regulatethe provision of online interactive social network services for information dissemination. On August 25, 2017, the CAOC issued the AdministrationMeasures for Internet Comment Thread Services, effective on October 1, 2017, regulating the provision of services by websites, applications,interactive broadcasting platforms, and other communication platforms with news and media characteristics that allow users to release text, photos,audio, and video. On February 20, 2018, the CAOC issued the Administrative Provisions on Micro-blogging and Blogging Information Services,effective on March 20, 2018, further regulating the provision of platform services for publishing and distributing information through micro-blogs andblogs. On September 7, 2017, the CAOC issued the Administration Measures for Internet Chat Group Services, effective on October 8, 2017, toregulate the provision of platform services for that allow Internet user groups to exchange information online. On September 7, the CAOC issued theAdministration Measures for Internet Users’ Social Account Information Services, effective on October 8, 2017. These measures provide, among otherthings, that Internet platform operators providing the covered services will be responsible for the security of information and content published overtheir platforms, and provide enhanced requirements for user registration, information review, emergency response, and security.On November 15, 2018, the CAOC promulgated the Provisions on the Security Assessment of Internet-based Information Services with Attribute ofPublic Opinions or Capable of Social Mobilization, which require that Internet information service providers that provide Internet services with thepotential to influence public opinion or provoke social movement, including BBS, blog, and micro-blog services, must conduct a security self-assessment and file with the local office of the CAOC a self-assessment report regarding their such Internet services and supporting technologies, theiruser base characteristics, and any significant changes in user opinions and potential risks concerning public security issues.Online News Dissemination and Online News Search ServicesIn May 2017, the Administrative Regulations for Internet News Information Services and Implementation Rules on the Administration of Internet NewsInformation Services Permits (collectively the “News Regulations”) were promulgated by the CAOC to replace the Administrative Rules for InternetNews Information Services promulgated by the SCIO in 2005 (the “Old News Rules”). The News Regulations stipulate that Internet news informationservices include production, publishing, and republishing services and platforms providing for the dissemination of news over the Internet, and specifythat platforms providing for the dissemination of news over the Internet will be required to obtain an Internet news information services permit. 76Table of ContentsRequirements of News Regulations include, among other things, the following: • Internet news information service providers must be entities duly incorporated within the territory of the PRC; • Managers and chief editors of Internet news information service providers must be Chinese citizens; • Internet news information service providers must have personnel who have appropriate qualification and professional training; • Internet news information service providers must have sound Internet news information service management systems; • Internet news information service providers must have rigorous information security management systems; • Internet news information service providers must have facilities that are suitable for their proposed services, and must be adequatelyfunded; and • Internet news information service providers may only republish news published by governmental news agencies and must ensure theoriginal sources are traceable.On July 3, 2016, the CAOC issued a Notice on Further Strengthening the Management and Prevention of Fake News (the “Fake News Notice”). TheFake News Notice requires all providers of online news services, including news applications, Weibo, and WeChat, to establish and maintain rigorousinternal supervision and management systems and to not provide any news without identifying the sources of the news, invent news, report news basedon hearsay, or distort facts.On May 11, 2004, Sohu Internet obtained from the Information Office of the Beijing Municipal Government (the local arm of the SCIO) an Internetnews information services permit, which was updated by the SCIO on June 6, 2006 and April 4, 2018, respectively. There is uncertainty as to whetherthe provision of news search services and aggregation of news links fit within the definition of news dissemination services. Sogou Information iscurrently in the process of applying for an online news services license.Internet PublishingOn February 4, 2016, the SAPPRFT and MIIT jointly issued the Rules for the Administration for Internet Publishing Services (the “Internet PublishingRules”), which took effect on March 10, 2016, to replace the Provisional Rules for the Administration for Internet Publishing that had been jointlyissued by the SAPPRFT and the MIIT on June 27, 2002. The Internet Publishing Rules define “Internet publications” as digital works that are edited,produced or processed to be published and provided to the public through the Internet, including (a) original digital works, such as pictures, maps,games, and comics; (b) digital works with content that is consistent with the type of content that, prior to the Internet age, typically was published inmedia such as books, newspapers, periodicals, audio-visual products, and electronic publications; (c) digital works in the form of online databasescompiled by selecting, arranging and compiling other types of digital works; and (d) other types of digital works identified by the SAPPRFT. Under theInternet Publishing Rules, Internet operators distributing such Internet publications via information networks, including Web portals such as ours, arerequired to apply to and register with the SAPPRFT before distributing Internet publications.On December 22, 2010, Sohu Internet obtained an Internet publishing license issued by the SAPPRFT, which was renewed on January 1, 2017. SogouInformation plans to apply for an Internet publishing license. For the details of the Internet publishing licenses held by Changyou’s VIEs, see “SpecificStatutes and Regulations—Regulation of Online Game Services—Online Games and Cultural Products.”Online Audiovisual Transmission Through the Public InternetOn December 20, 2007, the SAPPRFT and the MIIT jointly issued Rules for the Administration of Internet Audiovisual Program Services (“Document56”), which came into effect as of January 31, 2008 and was amended on August 28, 2015. Document 56 requires all online audio and video serviceproviders to be either state-owned or state-controlled and to obtain a permit for the Network Transmission of Audiovisual Programs. However, at a pressconference held on February 3, 2008 the SAPPRFT and the MIIT clarified that online audio-visual service providers that were already lawfullyoperating prior to the issuance of Document 56 may re-register and continue to operate without becoming state-owned or controlled, provided thatsuch providers do not engage in any unlawful activities. This exemption will not be granted to service providers set up after Document 56 was issued.As we were already engaged in online audiovisual transmission prior to the issuance of Document 56, we are presumably exempted from therequirement of being state-owned or state-controlled. Sohu Internet and Guangzhou Qianju currently hold permits, both for PC and for Mobile Apps,for the Network Transmission of Audiovisual Programs. 77Table of ContentsOn March 30, 2009, the SAPPRFT released a Notice on Strengthening the Administration of Online Audiovisual Content (the “March 2009 SAPPRFTnotice”). March 2009 SAPPRFT notice requires the operators of audiovisual Websites to enhance their processes for protecting copyrights, and to takeappropriate measures to protect the rights and interests of copyright holders. Operators of such sites must hold, or have a license to, the copyright to allcontent that they transmit. In addition, the March 2009 SAPPRFT notice stipulates that only those films or TV programs that have already obtainedfrom the SAPPRFT a Film Public Screening Permit, TV Drama Distribution Permit, TV Animation Distribution Permit, or TV Documentary FilmScreening Permit are allowed to be transmitted via audiovisual Websites. These permits are mandatory for all films and programs shown on TV and incinemas in China and must be obtained before such film or TV or program is allowed to be released. The approval applications for the Film PublicScreening Permit, Television Drama Distribution Permit, Television Animation Distribution Permit or Television Documentary Film Screening Permitare extremely difficult and time-consuming, and the SAPPRFT previously did not enforce very strictly the requirements regarding these permits.However, on September 2, 2014, the SAPPRFT issued a Notice on Further Strengthening the Administration of Online Foreign Audiovisual Content(“September 2014 SAPPRFT Notice”), which requires that operators of audiovisual Websites to obtain from the SAPPRFT a Film Public ScreeningPermit, TV Drama Distribution Permit, or TV Animation Distribution Permit for all foreign films and TV dramas before they are transmitted via theInternet in China. The September 2014 SAPPRFT Notice further stipulates that before any foreign films or TV dramas for transmission exclusively viathe Internet are purchased after the promulgation of the September 2014 SAPPRFT Notice, operators of audiovisual Websites must declare their annualpurchasing plans with the SAPPRFT before the end of the year preceding the year of the intended broadcast and obtain the SAPPRFT’s approval. TheSeptember 2014 SAPPRFT Notice also states that the number of foreign films and TV dramas to be purchased by an operator and transmitted via itsWebsite in a single year may not exceed 30% of the total amount of the Chinese films and TV dramas purchased and transmitted by the same Websitein the previous year.On April 1, 2010, SAPPRFT issued a Catalogue of Classification of Internet Audio-Video Program Services (Trial) (the “Internet Audio-VideoProgram Catalogue”), which was amended on March 10, 2017. The Internet Audio-Video Program Catalogue classifies Internet audio-video programservices (excluding IPTV, Internet TV and mobile TV services) provided to computer and mobile phone users the Internet into four categories,consisting of (i) Internet audio-video programs sponsored and broadcast through Internet radio and television stations, including political news,political talk shows, self-produced news programs and live programs of vital political, military, economic, social and sports activities; (ii) reprints ofpolitical news, Internet hosting, interviews, report and commentary services in entertainment, technology, financial, sports and educational audio-video programs, production and broadcasting of Internet dramas, compilation and broadcasting of entertainment, technology, financial, sports andeducation audio-video programs, and live broadcasting of cultural and sports activities; (iii) the aggregation of Internet audio-video programs, whichmeans editing and arranging Internet audio-visual programs on the same website, providing search and viewing services to public users, andbroadcasting user-uploaded audio-video programs; and (iv) retransmission of Internet audio-video programs. A permit for the Network Transmission ofAudiovisual Programs specifies the scope of the services under one or more of these categories that the holder of the permit is allowed to provide. Ourpermit for the Network Transmission of Audiovisual Programs allows us to provide services mostly under the categories described in clauses (ii), (iii),and (iv) above. Sogou information is currently in the process of negotiating with an entity that holds a permit for the Network Transmission ofAudiovisual Programs in order to acquire all of the equity interests in such entity.On July 6, 2012, the SAPPRFT and the CAOC jointly issued a Notice on Further Strengthening the Administration of Internet Dramas, Micro Moviesand Other Internet Audiovisual programs (the “2012 SAPPRFT Notice 53”), which reiterates that online audio-visual service providers must obtain aPermit for the Network Transmission of Audiovisual Programs from the SAPPRFT. The 2012 SAPPRFT Notice 53 further stipulates that online audio-visual service providers must review the content of Internet audiovisual programs prior to their transmission and must file certain information, such asthe names of the Internet audiovisual programs, summaries of their content and names of the persons conducting the reviews, with the appropriateprovincial office of the SAPPRFT.On January 2, 2014, the SAPPRFT issued a Supplemental Notice on 2012 SAPPRFT Notice 53, which stipulates that producers of Internet dramas,micro movies and other Internet audiovisual programs must obtain a Permit for Radio and Television Program Production and Operation. Online audio-visual service providers may only retransmit dramas and micro movies produced and uploaded by individuals whose identities have been verified andthe content of which complies with relevant regulations. Online audio-visual service providers must file with the provincial SAPPRFT the content ofInternet audiovisual programs proposed for transmission prior to transmitting the programs.On November 4, 2016, the SAPPRFT issued a Notice on Further Strengthening the Planning, Development and Administration of Original InternetAudiovisual Programs (“Document 198”). Document 198 stipulates that if online service providers plan to produce and disseminate audiovisualprograms that are considered to be key audiovisual programs under Document 198, the service providers must, during the early planning anddevelopment stage, file a summary of the programs and their titles, producer names, themes, and duration with the SAPPRFT and, for audiovisualprograms with sensitive themes such as politics, military, diplomacy, national security, national sovereignty, religion, the PRC justice system andpublic security, consult with designated PRC governmental authorities before production of the programs. On June 26, 2017, SAPPRFT and otherseveral governmental authorities issued a Notice on Several Policies Concerning the Prosperity and Development of Television Dramas that confirmsfiling procedures with respect to key Internet dramas. In accordance with the Notice on Upgrading the Filing System of the Online AudiovisualPrograms issued by the NRTA, effective December 18, 2018, producers of key audiovisual programs must make filings prior to the commencement ofthe production that include a summary of specified details concerning the programs and, following the completion of the production, submit thecompleted programs to the NRTA or its competent provincial counterpart and make filings with additional information concerning the programs. 78Table of ContentsOn March 16, 2018, the SAPPRFT issued a Notice on Further Regulating the Distribution Order of Internet Audiovisual Programs, which prohibitsoperators of audiovisual Websites from editing or adapting audiovisual programs of third-party content providers, broadcasting illegally edited and/oradapted audiovisual programs on their audiovisual Websites, and/or entering into business collaboration arrangements for online audiovisual serviceswith providers without a Permit of Network Transmission of Audiovisual Programs.Private Network and Targeted Communication Audiovisual Program ServicesOn April 25, 2016, the SAPPRFT issued the Provisions on the Administration of Private Network and Targeted Communication Audiovisual ProgramServices (the “Private Network Audiovisual Programs Administration Provisions”), effective on June 1, 2016, to replace the Measures for theAdministration of the Transmission of Audiovisual Programs over Internet and other Information Networks that had been issued by the SAPPRFT onJuly 6, 2004. The Private Network Audiovisual Programs Administration Provisions stipulate that private network and targeted communicationaudiovisual program services include the provision, integrated control, transmission and distribution of audiovisual content through IPTV, targetedmobile television, television network and other targeted channels. The Private Network Audiovisual Programs Administration Provisions provide thatoperators engaging in private network and targeted communication audiovisual program services must obtain a permit for the Network Transmission ofAudiovisual Programs from the SAPPRFT. The Private Network Audiovisual Programs Administration Provisions provide that only PRC state-ownedor state-controlled entities may engage in private network and targeted communication audiovisual program services. We provide a small amount ofaudiovisual program services through private network and/or targeted communication channels, such as IPTVs and television networks. In order tocomply with the Private Network Audiovisual Programs Administration Provisions, we partner with PRC state-owned entities for the provision of suchservices through private network and targeted communication channels. According to a press conference of SAPPRFT regarding the Private NetworkAudiovisual Programs Administration Provisions, Internet audiovisual program services provided through the public Internet, which include our mainonline video services, other than private network and targeted communication channels should comply with Document 56. See “GovernmentRegulation and Legal Uncertainties—Specific Statutes and Regulations—Regulation of the Provision of Internet Content—Online AudiovisualTransmission through the Public Internet” for a description of regulations affecting Internet Audio-video program services provided through the publicInternet;Online Cultural ProductsOn May 10, 2003, the MCT issued the Provisional Regulations for the Administration of Online Culture (“Online Culture Regulations”), which tookeffect on July 1, 2003 and were amended on July 1, 2004. On February 17, 2011, the MCT issued the new Provisional Regulations for theAdministration of Online Culture (“New Online Culture Regulations”), which took effect on April 1, 2011 and were amended on December 15, 2017,to replace the previous regulations. The New Online Culture Regulations apply to entities engaging in activities related to “Internet cultural products,”which include those cultural products that are produced specially for Internet use, such as online music and entertainment, online games, online plays,online performances, online works of art and Web animations, and those cultural products that, through technical means, produce or reproduce music,entertainment, games, plays and other art works for Internet dissemination. Pursuant to the New Online Culture Regulations, commercial entities arerequired to apply to the relevant local branch of the MCT for an Online Culture Operating Permit if they engage in any of the following types ofactivities: • the production, duplication, importation, release or broadcasting of Internet cultural products; • the dissemination of online cultural products on the Internet or transmission thereof via Internet or mobile phone networks to users’terminals such as computers, fixed-line or mobile phones, television sets, gaming consoles and Internet surfing service sites such as Internetcafés for the purpose of browsing, using or downloading such products; or • the exhibition or holding of contests related to Internet cultural products.On January 6, 2016, the MCT issued Trial Measures of Administration of Cultural Market Blacklist (the “Blacklist Measures”), which stipulate thatcultural products containing prohibited content, including content so specified by the New Online Culture Regulations, that has a material adverseeffect on society will be listed in a “cultural product blacklist” published by the MCT or its local branches. Any future application made to the MCT orits local branches by an online cultural operator that has engaged in the distribution of cultural products included in the blacklist will be subject toheightened scrutiny. 79Table of ContentsOn July 1, 2016, the MCT issued a Notice on Strengthening the Administration of Online Performance (the “Online Performance Notice”) and onDecember 2, 2016, issued the Measures of Administration of Online Performance Operating Activities (the “Online Performance Measures”), whichbecame effective on January 1, 2017. The Online Performance Notice and the Online Performance Measures both stipulate that online performanceservice providers must obtain an Online Culture Operating Permit and that online performances must not contain any content that is horrific, cruel,violent, vulgar or humiliating in nature, mocks persons with disabilities, includes photographs or video clips that infringe third parties’ privacy orother rights, features animal abuse, or presents characters and other features of online games that have not been registered and approved for publicationby applicable PRC governmental authorities.On September 2, 2016, the SAPPRFT issued the Notice on Strengthening the Management of Live Online Social Video Services (the “Live OnlineNotice”), which requires interactive broadcasting service providers to procure a permit for the Network Transmission of Audiovisual Programs. SohuInternet and Guangzhou Qianju currently hold permits for the Network Transmission of Audiovisual Programs. The Live Online Notice also stipulatesthat a service provider must make a filing with the local SAPPRFT branch at least five days before making any live broadcast of any significantpolitical, military, economic, social, cultural or sports activities and at least 48 hours before making any live broadcast of other cultural or sportsactivities. On November 4, 2016, the CAOC issued the Provisions on the Administration of Online Live Social Video Services (the “Live Social VideoProvisions”) effective December 1, 2016. The Live Social Video Provisions provide that business entities such as us that offer interactive broadcastingservices on their Internet platforms have the primary responsibility for monitoring content disseminated by interactive broadcasting hosts and viewersthrough such services, and must allocate sufficient staff in line with the scale of such services and establish and maintain adequate internal policies andprocedures for, among other things, content review, information security management, emergency management and technical support. The Live SocialVideo Provisions also require that Internet providers verify the real-name identity of interactive broadcasting hosts and viewers before allowing themto establish user accounts with the Internet providers and take appropriate remedial actions, such as issuing warnings, removing posted content, orterminating the user’s account, with respect to interactive broadcasting content or activity that is prohibited by the Live Social Video Provisions.Internet providers are subject to administrative penalties and other sanctions for noncompliance with the Live Social Video Provisions. On August 1,2018, the MIIT and several other governmental authorities issued a Notice on Strengthening the Administration of Live Online Social Video Services,which stipulates that providers of Internet access services and APP stores that distributing online interactive broadcasting services are required toobtain permits from specified governmental agencies in order to provide their services.Sohu Internet, Guangzhou Qianjun, Focus Interactive, Sogou Information, Gamease, Guanyou Gamespace, and Shanghai ICE currently hold OnlineCulture Operating Permits, each of which is subject to annual inspection. Focus Interactive has recently applied to have the license renewed.Mobile Internet Applications Information ServicesOn June 28, 2016, the CAOC issued the Provisions on the Administration of Mobile Internet Applications Information Services (the “APPProvisions”), which became effective on August 1, 2016. Under the APP Provisions, mobile application providers and application store serviceproviders are prohibited from engaging in any activity that may endanger national security, disturb the social order, or infringe the legal rights of thirdparties, and may not produce, copy, issue or disseminate through mobile applications any content prohibited by laws and regulations. The APPProvisions also require application providers to procure relevant approval to provide services through such applications and require application storeservice providers to register with local branch offices of the CAOC within 30 days after they start providing application store services. We haveprocured the required approvals for services that we provide through our mobile applications. Sogou Information has filed an application forregistration with the applicable local branch of the CAOC with respect to its provision of application store services.Internet Map ServicesUnder the Opinions on Strengthening the Supervision of Internet Map and Geographic Information Services and the Notices on FurtherStrengthening the Management of Internet Map Services Permit issued on February 25, 2008 and December 23, 2011, respectively, by the StateAdministration of Surveying, Mapping and Geo-information (the “SASMG,” formerly known as the State Bureau of Surveying and Mapping), and sixother governmental authorities and the Administrative Regulations on Maps issued by the State Council on November 26, 2015, effective onJanuary 1, 2016, any provider of Internet map services that is not a professional surveying and mapping enterprise must obtain the approval of theSASMG or its local branches and a Surveying and Mapping Qualification Certificate in order to provide such services. In addition, providers ofInternet map services must use maps obtained through government-approved channels and display the SASMG approval number, the Surveying andMapping Qualification Certificate number and the Telecommunications Services Operating License number in conspicuous locations on theirWebsites.On July 1, 2014, the SASMG issued new Administrative Regulations on Surveying and Mapping Qualification Certificate and ClassificationStandard on Surveying and Mapping Qualification Certificate (the “SASMG Regulations and Standards”) effective on August 1, 2014, to replaceprevious regulations and standards issued on February 16, 2004 and March 12, 2009. Under the SASMG Regulations and Standards, there are twotypes of Surveying and Mapping Qualification certificates that may be issued to providers of Internet map services. A Class A certificate allows aholder to provide (i) map-location services, (ii) geo-information uploading and dimension services, and (iii) geo-information database developmentservices, while a holder of a Class B certificate may only provide the first two types of services. 80Table of ContentsOn July 26, 2016, the SASMG and the Office of the Central Leading Group for Cyberspace Affairs (the “OCLGCA”) jointly issued a Notice onStandardizing the Usage of Maps by Internet Services Providers (the “Maps Usage Notice”), which stipulates that all the Internet service providersmust review and use maps in accordance with the PRC Surveying and Mapping Law and Administrative Regulations on Maps. The Maps Usage Noticerequires that maps displayed by Internet service providers be obtained through government-approved channels and identify their sources and censornumbers. Internet service providers are prohibited from using maps obtained from unaccredited sources, including foreign Websites. All maps, otherthan scenic maps, block maps, subway maps and other simple maps, must be reviewed by PRC governmental authorities before they are published, andmust not contain any information or content specified as prohibited in the Maps Usage Notice.On January 1, 2015, Sogou Information obtained a renewed Class A Certificate of Surveying and Mapping Qualification from the SASMG.Internet Medical, Health and Pharmaceuticals Information DisseminationUnder the Measures for the Administration of Internet Pharmaceuticals Information Services (the “Pharmaceuticals Information Services Measures”)issued by the SAMR on July 8, 2004, which were amended on November 17, 2017, formal approval from the SAMR or one of its local branches isrequired before a Website may disseminate information concerning pharmaceuticals.Under the Pharmaceuticals Information Services Measures, medical, health and pharmaceutical information (including information with respect tomedical equipment) provided by Websites must be scientific and accurate and must indicate the sources of such information. Websites that havereceived approval to disseminate such information must also publish or reprint health policies, information on epidemics and major health-relatedincidents, and other health-related information in accordance with law. Furthermore, medical and pharmaceutical advertisements (includingadvertisements for medical equipment) published by such Websites must not exaggerate the efficacy or promote the medical uses of such products.Sohu Internet, Guangzhou Qianjun, and Sogou Information received renewed approval from the SAMR, on November 26, 2014, April 30, 2014, andOctober 31, 2017, respectively, to disseminate pharmaceuticals information over the Internet.Regulation of Online Advertising ServicesBrand Advertising ServicesOn April 24, 2015, the Standing Committee of the National People’s Congress enacted the Advertising Law of the People’s Republic of China (the“New Advertising Law”), which became effective on September 1, 2015 and was amended on October 26, 2018. The New Advertising Law, which wasa major overhaul of an advertising law enacted in 1994, increases the potential legal liability of providers of advertising services, and includesprovisions intended to strengthen identification of false advertising and the power of regulatory authorities. On July 4, 2016, the SAMR issued theInterim Measures of the Administration of Online Advertising (the “SAMR Interim Measures”), effective on September 1, 2016. The New AdvertisingLaw and the SAMR Interim Measures both provide that advertisements posted or published through the Internet may not affect users’ normal usage of anetwork, and advertisements published in the form of pop-up windows on the Internet must display a “close” sign prominently and ensure one-keyclosing of the pop-up windows. The SAMR Interim Measures provide that all online advertisements must be marked “Advertisement” so that viewerscan easily identify them as such. Moreover, the SAMR Interim Measures treat pay-for-click search results as advertisements that are subject to PRCadvertisement laws, require that pay-for-click search results be conspicuously identified on search result pages as advertisements and subject revenuesfrom such advertisements to a 3% PRC tax that is applied to advertising revenues. The New Advertising Law and SAMR Interim Measures will requireus to conduct more stringent examination and monitoring of our advertisers and the content of their advertisements. In order to comply with theseregulations, Sogou has established more stringent standards for selecting advertisers for pay-for-click services, has turned down certain existingadvertisers, and has lowered the percentage that pay-for-click search results represent of results on Sogou search pages.On April 13, 2016, the SAMR and sixteen other PRC government agencies jointly issued a Notice of Campaign to Crack Down on Illegal InternetFinance Advertisements and Other Financial Activities in the Name of Investment Management (the ‘‘Campaign Notice’’), pursuant to which acampaign was conducted between April 2016 and January 2017 targeting, among other things, online advertisements for Internet finance and otherfinancial activities posted on Internet search portals and other portal, financial, real estate, P2P and investment product sales services Websites. TheNotice of Key Areas of Work in 2018 of the Inter-Ministerial Joint Meeting on Rectification of False and Illegal Advertisements, jointly issued bySAMR and ten other PRC government agencies on February 26, 2018, further emphasizes the responsibility of Internet service providers to verify andexamine the content and supporting documents of online advertisements and prevent the dissemination of false and illegal online advertisements. 81Table of ContentsOn August 31, 2018, the Standing Committee of the National People’s Congress enacted the E-commerce Law of the People’s Republic of China,which took effect on January 1, 2019 and which stipulates, among other things, that although an e-commerce business operator may provide anInternet consumer with search results for goods or services based on such consumer’s preferences or consumption habits, the operator must also providesuch consumer with options that are not based on such consumer’s preferences or habits, in order to respect and protect the rights and interests of suchconsumer, and reiterates that e-commerce business operators that distribute online advertisements to consumers must comply with the New AdvertisingLaw.Search and search-related ServicesOn October 23, 2015, the MCT issued a Notice on Further Strengthening and Improving the Administration of Content of Online Music (the “MCTFurther Notice”) which became effective on January 1, 2016. The MCT Further Notice provides that providing direct links to online music willconstitute engaging in the online music business, and that therefore an Online Culture Operating Permit is required for providing such search services.Sogou Information held an Online Culture Operating Permit pursuant to regulations that were in effect before the MCT Further Notice becameeffective. The permit was renewed on November 3, 2017 pursuant to the MCT Further Notice.On June 25, 2016, the CAOC issued Measures for the Administration of Online Information Search Services (the “CAOC Interim Measures”), whichcame into effect on August 1, 2016. The CAOC Interim Measures, like the SAMR Interim Measures, require that providers of online search servicesverify the credentials of pay-for-click advertisers, specify a maximum percentage that pay-for-click search results may represent of results on a searchpage, and require that providers of search services conspicuously identify pay-for-click search results as such.Regulation of Online Game ServicesOnline Games and Cultural ProductsIn September 2009, the SAPPRFT, together with the National Copyright Administration and the National Office of Combating Pornography and IllegalPublications, jointly issued a Notice on Further Strengthening the Administration of Pre-examination and Approval of Online Games and theExamination and Approval of Imported Online Games, or the SAPPRFT Online Game Notice. The SAPPRFT Online Game Notice states that foreigninvestors are not permitted to invest in online game operating businesses in China via wholly foreign-owned entities, China-foreign equity jointventures or cooperative joint ventures or to exercise control over or participate in the operation of domestic online game businesses through indirectmeans, such as other joint venture companies or contractual or technical arrangements. If the VIE structures of Sogou and Changyou were deemedunder the SAPPRFT Online Game Notice to be an “indirect means” for foreign investors to exercise control over or participate in the operation of adomestic online game business, the VIE structures of Sogou and Changyou might be challenged by the SPPA, as a successor agency to the SAPPRFT.We are not aware of any online game companies which use the same or similar VIE contractual arrangements as those Sogou and Changyou use havingbeen challenged by the SAPPRFT or the SPPA as using those VIE arrangements as an “indirect means” for foreign investors to exercise control over orparticipate in the operation of a domestic online game business or having been penalized or ordered to terminate operations since the SAPPRFT OnlineGame Notice first became effective. However, it is unclear whether and how the SAPPRFT Online Game Notice might be interpreted or implemented inthe future.On February 21, 2008, the SAPPRFT issued the Rules for the Administration of Electronic Publications, or the Electronic Publication Rules, whichwere amended on August 28, 2015. The Electronic Publication Rules regulate the production, publishing and importation of electronic publications inthe PRC and outline a licensing system for business operations involving electronic publishing. Under the Electronic Publication Rules and otherrelated regulations issued by the SAPPRFT, online games are classified as a type of electronic publication or Internet publication that may only beprovided by a licensed electronic publishing entity with a standard publication code, and the establishment of an electronic publishing entity must beapproved by the SAPPRFT. Electronic publishing entities are responsible for assuring that the content of electronic publications comply with relevantPRC law and regulations, and must obtain the approval of the SPPA, as a successor agency to the SAPPRFT, before publishing foreign electronicpublications. The New Internet Publication Measures, which became effective on March 10, 2016 and replaced the Temporary Measures for InternetPublication Administration that had become effective in 2002, require that entities in the Internet publishing business apply for an online publishingservices license instead of an Internet publishing license, that entities holding an Internet publishing license apply for an online publishing servicelicense within a specified period of time to replace their Internet publishing license, and that all such entities obtain approval from the SAPPRFT or theSPPA prior to the publication of new online games. In addition, under the New Internet Publication Measures, Sino-foreign joint ventures and foreign-invested entities are not permitted to engage in Internet publication services, and the legal representative of an entity providing Internet publicationservices may not be a foreigner. 82Table of ContentsGamease, which is the operator of TLBB, BO, BH2 and certain other licensed PC games, and Guanyou Gamespace, which provides online gameservices, obtained Internet publishing licenses on December 10, 2010 and October 13, 2011, respectively, and Gamease and Guanyou Gamespace haveobtained online publishing services licenses under the New Internet Publication Measures to replace the Internet publishing licenses previously heldby them. TLBB, BO, BH2 and some of Changyou’s other games were historically published through third parties that were licensed electronicpublishing entities, because Gamease had not obtained an Internet publishing license at the time those online games were made publicly available.TLBB, BO and BH2 and certain of Changyou’s other existing games are currently published under an Internet publishing license held by Gamease.Current PRC regulations are not clear as to the consequences of obtaining authorization codes through third-party electronic publishing entities. Whilewe believe that arrangements like Changyou’s are acknowledged by the SAPPRFT or SPPA, in view of the lack of formal interpretation regarding thisissue, the SPPA might challenge Changyou’s current and past practices and could subject Changyou to various penalties, including fines, confiscationof publishing equipment and the revenues generated from the publishing activities, the revocation of Changyou’s business license, or the forceddiscontinuation of or restrictions on its operations.On May 24, 2016, the SAPPRFT issued the Mobile Game Notice, which became effective on July 1, 2016 and sets forth requirements for thepublication and operation of mobile games online, including requiring that mobile game publishers and operators, including joint operators, reviewthe content of the games that they publish and operate, and apply for publication and authorization codes at least 20 business days before firstpublishing and operating domestic recreational and educational mobile games through open beta testing. The Mobile Game Notice, as updated by asubsequent notice, specifies that game publishers and game operators were required to review the content of mobile games that were published andoperated online before July 1, 2016, and to complete approval procedures for those games before December 31, 2016, or to cease operating the games.Changyou completed prior to December 31, 2016 all of the approval procedures required by the SAPPRFT for its mobile games that were in operationbefore July 1, 2016.The MCT issued the New Provisional Regulations for the Administration of Online Culture, or the Online Culture Regulations, which took effect onApril 1, 2011 and was amended on December 15, 2017 and replaced the Provisional Regulations for the Administration of Online Culture. The OnlineCulture Regulations apply to entities engaging in activities related to “Internet cultural products,” which include cultural products that are producedspecifically for Internet use, such as online music and entertainment, online games, online plays, online performances, online works of art and Webanimation, and other online cultural products that through technical means, produce or reproduce music, entertainment, games, plays and other artworks for Internet dissemination. Under the New Online Culture Regulations, commercial entities are required to apply to the relevant local branch ofthe MCT for an Online Culture Operating Permit if they engage in the production, duplication, importation, release or broadcasting of Internet culturalproducts; the dissemination of online cultural products on the Internet or the transmission of such products via Internet or mobile phone networks touser terminals, such as computers, phones, television sets and gaming consoles, or Internet surfing service sites such as Internet cafés; or the holding orexhibition of contests related to Internet cultural products. In January 2008 Gamease obtained an Online Culture Operating Permit, which wasre-certified in October 2015 and December 2017; in June 2011 Guanyou Gamespace obtained an Online Culture Operating Permit, which wasre-certified in October 2015 and December 2017; and in December 2010 Shanghai ICE obtained an Online Culture Operating Permit, which wasre-certified in January 2014. Shanghai ICE plans to apply for re-certification of its Online Culture Operating Permit in March 2018.The Online Game Measures issued by the MCT, which took effect on August 1, 2010 and was amended on December 15, 2017, regulate a broad rangeof activities related to the online games business, including the development, production and operation of online games, the issuance of virtualcurrencies used for online games, and the provision of virtual currency trading services. The Online Game Measures provide that any entity that isengaged in online game operations must obtain an Online Culture Operating Permit, and require the content of an imported online game to beexamined and approved by the MCT prior to the game’s launch and a domestic online game to be filed with the MCT within 30 days after its launch.The Notice of the Ministry of Culture on the Implementation of the Interim Measures for the Administration of Online Games, which was issued by theMCT on July 29, 2010 to implement the Online Game Measures (i) requires online game operators to protect the interests of online game users andspecifies certain terms that must be included in service agreements between online game operators and the users of their online games, (ii) specifiescontent review of imported online games and filing procedures for domestic online games, (iii) emphasizes the importance of the protection of minorsplaying online games, and (iv) requests online game operators to promote real-name registration by their game users. On December 1, 2016, the MCTissued the Online Game Operation Notice, which became effective on May 1, 2017. The Online Game Operation Notice includes clarification ofproducts and services that will be considered to be within the scope of the operation of online games, enhanced standards for the issuance of andpayment for virtual items used in online games and enhanced protection of online games users, and announces more stringent supervision of theoperation of online games and penalties for violations by online game operators of regulations with respect to the operation of online games. TheOnline Game Operation Notice stipulates that game operators are prohibited from providing lucky draws or lotteries that are conducted on thecondition that participants contribute cash or virtual currency in exchange for virtual items and services; must timely publish the name, properties,description, amount, and probability of winning for such lucky draws or lotteries on either the Website of the game or the Web page on which suchlucky draws or lotteries are provided; must require real-name registration of game players who wish to enter such lucky draws or lotteries; and mustpublish the results of such lucky draws or lotteries on the Website of or other conspicuous location in the game; and must maintain all relevant recordsfor at least 90 days. The Online Game Operation Notice also stipulates that online game operators must require real-name registration of online gameplayers and may sell game points and virtual items only to real-name registered game players, must set limits on the maximum amount of game pointsfor a particular game that game players may purchase in a single transaction, must require confirmation of transaction information by game playersplacing orders and maintain all relevant records for at least 180 days. Changyou filed its games TLBB, BO, BH2, and certain of its other existing gameswith the MCT. If Changyou fails to maintain any of its permits, approvals, or registrations; make any necessary filings; apply for and obtain anyrequired new permits, approvals, or registrations; make any new filings on a timely basis; or comply with the requirements under the Online GameOperation Notice and other laws and regulations, it may be subject to various penalties, including fines and a requirement that it discontinue or limitits operations. 83Table of ContentsThe Notice on Strengthening the Approval and Administration of Imported Online Games, or the Imported Online Game Notice, which was issued bythe SAPPRFT and took effect in July 2009, states that the SAPPRFT was, and the SPPA as a successor to the SAPPRFT is, the only governmentaldepartment authorized by the State Council to approve the importation of online games from Offshore copyright owners, and that any enterprise whichengages in online game publication and operation services within China must have the game examined and approved by the SAPPRFT or the SPPAand receive from the SAPPRFT or the SPPA an Internet publishing license (or after the New Internet Publication Measures became effective onMarch 10, 2016, an online publishing services license). Changyou’s VIEs Gamease and Guanyou Gamespace obtained Internet publishing licensesfrom the SAPPRFT and they have obtained online publishing services licenses under the New Internet Publication Measures to replace the Internetpublishing licenses previously held by them. In addition, the Imported Online Game Notice states that activities which involve the showing,exhibition, trading and promotion of Offshore online games in China must be examined and approved by the SAPPRFT or the SPPA.The Notice Regarding Improving and Strengthening the Administration of Online Game Content, or the Online Game Content Notice, issued by theMCT in November 2009, calls for online game operators to improve and adapt their game models by (i) mitigating the predominance of the “upgradeby monster fighting” model, (ii) limiting the use of the “player kill” model (where one player’s character attempts to kill another player’s character),(iii) limiting in-game marriages among game players, and (iv) improving their compliance with legal requirements for the registration of minors andgame time-limits.The Administrative Measures for Content Self-review by Internet Culture Business Entities, or the Content Self-review Administrative Measure, whichtook effect in December 2013, require Internet culture business entities to review the content of products and services to be provided prior to providingsuch content and services to the public. The content management system of an Internet culture business entity is required to specify theresponsibilities, standards and processes for content review as well as accountability measures, and is required be filed with the local provincial branchof the MCT.In January 2014, the SAIC promulgated the Administrative Measures for Online Trading, or the Online Trading Measures, which took effect onMarch 15, 2014, and replaced the Interim Measures for the Administration of Online Commodities Trading and Relevant Services, issued by the SAIC,which had taken effect on July 1, 2010. The Online Trading Measures regulate online commodity trading and related activities. The Online TradingMeasures require that online transactions in commodities or services comply with the provisions of all applicable laws, regulations and rules. Whenselling commodities or providing services to consumers, online operators must comply with all applicable laws with respect to the protection ofconsumer rights and interests, the protection of intellectual property rights of others and the prevention of unfair competition. Information providedwith respect to commodities and services provided by online commodity operators or related service operators must be authentic and accurate. IfChangyou fails to comply with all requirements of the Online Trading Measures, the local branch of the SAIC or SAMR or another governmentalauthority with jurisdiction might impose penalties on it, such as fines.Registration of Software CopyrightsThe Measures Concerning Registration of Computer Software Copyright, or the Software Copyright Measures, issued by the National CopyrightAdministration, which became effective in February 2002, encourage the registration of software and afford greater protection to registered softwarethan that afforded to unregistered software. Changyou has registered software copyrights covering all of its significant copyrightable products andenhancements.Regulation of Internet ContentThe PRC government has promulgated measures relating to Internet content through a number of government authorities, including the MIIT, theMCT, the SPPA, the NRTA and the MPS. These measures prohibit certain Internet activities, including the operation of online games that result in thepublication of any content which is found to, among other things, propagate obscenity, gambling or violence, instigate crimes, undermine publicmorality or the cultural traditions of the PRC, or compromise State security or secrets. If an ICP license holder violates these measures, the PRCgovernment may revoke its ICP license and shut down its Websites.On May 2, 2017, the CAOC, issued the Administrative Enforcement Procedures for the Administration of Internet-based Information Content, or theEnforcement Procedures, effective June 1, 2017. Pursuant to the Enforcement Procedures, the CAOC and its local branch offices have the authority toenforce, and impose administrative sanctions on activities prohibited by, applicable administrative laws and regulations concerning Internet-basedinformation content.Protection of Minors 84Table of ContentsOn April 15, 2007, the SAPPRFT and several other governmental authorities issued a circular requiring the implementation of an “anti-fatigue system”and a real-name registration system by all PRC online game operators, in an effort to curb addictive online game play behaviors of minors. Under theanti-fatigue system, three hours or less of continuous play by minors is considered to be “healthy,” three to five hours to be “fatiguing,” and five hoursor more to be “unhealthy.” Game operators are required to reduce the value of in-game benefits to a game player by half if the game player has reached“fatiguing” level, and to zero in the case of “unhealthy” level.To identify whether a game player is a minor and thus subject to the anti-fatigue system, there was adopted a real-name registration system, whichrequires online game players to register their real identity information before they play online games and requires online game operators such as Sogouand Changyou to submit the identity information of game players to the public security authorities for verification. On July 1, 2011, the SAPPRFT, theMIIT, the Ministry of Education and five other governmental authorities issued a Notice on Initializing the verification of Real-name Registration forAnti-Fatigue System on Internet Games, or the Real-name Registration Notice”), which took effect on October 1, 2011, to strengthen theimplementation of the anti-fatigue system and real-name registration. The Real-name Registration Notice’s main focus is to prevent minors from usingan adult’s ID to play Internet games and, accordingly, the notice imposes stringent punishments on online game operators that do not implement therequired anti-fatigue and real-name registration measures properly and effectively. The most severe punishment contemplated by the Real-nameRegistration Notice is to require termination of the operation of the online game if it is found to be in violation of the Anti-Fatigue Notice, the MonitorSystem Circular or the Real-name Registration Notice. Sogou and Changyou developed anti-fatigue and real-name registration systems for their games,and implemented them beginning in 2007. Under the systems of Sogou and Changyou, game players must use real identification in order to createaccounts, and in this way Sogou and Changyou generally are able to tell which of their game players are minors and thus subject to these regulations.For game players who do not register, Sogou and Changyou assume that they are minors. As required by the anti-fatigue rules, Changyou reduces thevalue of in-game benefits of game players under 18 years based on the amount of their continuous play. In order to comply with the anti-fatigue rules,game players under 18 years of age only receive half of the experience time they actually earn after three hours of play. And, after five hours of play,minors receive no experience points. Sogou uses this system to disincentivize minors from playing in excess of five hours at a time.On January 15, 2011, the MCT, the MIIT and six other central government authorities jointly issued a circular entitled Implementation of Online GameMonitor System of the Guardians of Minors, or the Monitor System Circular, aiming to provide protection measures to monitor the online gameactivities of minors and curb addictive online game playing behaviors of minors. Under the Monitor System Circular, online game operators arerequired to adopt various measures to maintain a system to communicate with the parents or other guardians of minors playing online games andonline game operators are required to monitor the online game activities of minors, and must suspend the account of a minor if so requested by theminor’s parents or guardians. The monitor system was formally implemented commencing March 1, 2011.In February 2013, 15 PRC government authorities, including the SAPPRFT, the Ministry of Education, the MCT and the MIIT, jointly issued the WorkPlan for the Integrated Prevention of Minors Online Game Addiction, or the Work Plan, implementing integrated measures by different authorities toprevent minors from being addicted to online games. Under the Work Plan, the current relevant regulations regarding online games will be furtherclarified and additional implementation rules will be issued; and as a result, online game operators will be required to implement measures to protectminors.On July 25, 2014, the SAPPRFT promulgated a Notice on Further Carrying out the Verification of Real-name Registration for Anti-Fatigue System onInternet Games, or the Verification of Real-name Registration Notice, which took effect on October 1, 2014. The Verification of Real-nameRegistration Notice requires local press and publication administrative departments to strengthen their administration over enterprises engaged inonline game publication and operations, and requires such enterprises to abide by anti-fatigue and real-name registration requirements whendeveloping and promoting online games, excluding, at present, mobile games.Information Security and CensorshipInternet content in China is also regulated and restricted from a State security standpoint. The Standing Committee of the National People’s Congressenacted the Decision on Internet Security Protection in 2000, and amended it in August, 2009. The decision makes it unlawful to: (i) gain improperentry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak State secrets; (iv) spread falsecommercial information; or (v) infringe intellectual property rights. The MPS has promulgated measures that prohibit the use of the Internet in wayswhich, among other things, result in a leakage of State secrets or distribution of socially destabilizing content. The MPS has supervision and inspectionrights in this regard, and Changyou may be subject to the jurisdiction of local security bureaus. If an ICP license holder violates these measures, thePRC government may revoke its ICP license and shut down its Websites. On November 7, 2016, the Standing Committee of the National People’sCongress issued the Internet Security Law, which took effect on June 1, 2017. The Internet Security Law requires providers of services over Internetnetworks to keep user information that they have collected in strict confidence and to establish improved systems for the protection of userinformation. Such service providers must provide notice of the purpose, methods and scope of their collection and use of user information, and obtainthe consent of each person whose personal information will be collected. Service providers may not collect any personal information that is not relatedto the services they provide, or disclose or tamper with personal information that they have collected, unless such information is encoded to preventidentification of individuals whose information is so disclosed or tampered with. Service providers who do not comply with the Internet Security Lawmay be subject to fines, suspension of their businesses, shutdown of their websites, and revocation of their business licenses. 85Table of ContentsIn 2004, the MCT issued a Notice Regarding the Strengthening of Online Game Censorship. This notice mandates the establishment of a newcommittee under the MCT that will screen the content of imported online games. In addition, all imported and domestic online games are required tobe filed with the MCT. Changyou has submitted the relevant documents to the MCT for the filing of all of its online games in operation.In 2005, the MCT and the MIIT promulgated the Opinions on the Development and Administration of Online Games emphasizing the PRCgovernment’s intent to foster and control the development of the online game industry in China and providing that the MCT will censor online gamesthat “threaten state security,” “disturb the social order,” or contain “obscenity” or “violence.”In April, 2009, the MCT issued a Public Announcement on Regulating Applications for the Examination of the Content of Imported Online Games, orthe Announcement. The Announcement emphasizes that enterprises operating imported online games must have the content of those games examinedand approved by the MCT.In November 2018, the MPS issued the Regulations for Internet Security Supervision and Inspection by Public Security Authority, which specifies thestandards for the inspection of network operators and the legal responsibilities of network operators that provide internet content.Virtual CurrencyOn February 15, 2007, the MCT, the People’s Bank of China, or the PBOC, and other relevant government authorities jointly issued the Notice on theReinforcement of the Administration of Internet Cafés and Online Games, or the Internet Cafés Notice. Under the Internet Cafés Notice, the PBOC isdirected to strengthen the administration of virtual currency in online games to avoid any adverse impact on the economy and financial system. TheInternet Cafés Notice limits the total amount of virtual currency that may be issued by online game operators and the amount that may be purchased byindividual game players, and includes a clear division between virtual transactions and real transactions carried out by way of electronic commerce.The Internet Cafés Notice also provides that virtual currency may only be used to purchase virtual items.On June 4, 2009, the MCT and the MOFCOM jointly issued the Virtual Currency Notice, to regulate the trading of online game virtual currencies. TheVirtual Currency Notice defines the meaning of virtual currency and places a set of restrictions on the trading and issuance of virtual currency. TheVirtual Currency Notice also states that online game operators are not allowed to give out virtual items or virtual currency through lottery-basedactivities, such as lucky draws, betting or random computer sampling, in exchange for user’s cash or virtual money. The Virtual Currency Notice ismainly targeted at lottery-based activities relating to the “treasure boxes” found in some online games.On July 20, 2009, the MCT promulgated the Filing Guidelines for Online Game Virtual Currency Issuing Enterprises and Online Game VirtualCurrency Trading Enterprises, which define the terms “issuing enterprise” and “trading enterprise” and stipulate that the same enterprise may not beboth an issuing enterprise and a trading enterprise.On December 1, 2016, the MCT issued the Online Game Operation Notice, which became effective on May 1, 2017. The Online Game OperationNotice standardizes rules regarding the issuance of virtual items used for online games. The Online Game Operation Notice provides that the issuanceand exchange of virtual items issued by online game operators must be administered in accordance with the regulations applicable to virtual currency;that online game operators may not allow online game virtual currency to be exchanged for real currency or physical items, except that, when onlinegame operators cease offering their online game products and services to users, the operators may repay the users with real currency or other actualphysical or intangible assets for unused virtual currency; requires that, when online game operators allow users to exchange small-value physical itemsfor virtual items, the content and value of such physical items must comply with applicable laws and regulations; and stipulates that online gameoperators are prohibited from providing lucky draws or lotteries that are conducted on the condition that participants contribute cash or virtualcurrencies in exchange for virtual items and services, must publish the results of such lucky draws or lotteries on the Website of or other conspicuouslocation in the game and must maintain all relevant records for at least 90 days.Import and Export of Software Technology 86Table of ContentsChina imposes controls on the import and export of technology and software products. Under the Regulations on Administration of Import and Exportof Technologies promulgated by the State Council, the term “technology import and export” is defined to include, among other things, the transfer orlicensing of patents and know-how, and the provision of services related to technology. Depending on the nature of the relevant technology, theimport and export of technology require either approval by or registration with the relevant PRC governmental authorities. Under the Software ExportManagement and Statistics Measures promulgated in October 2001, if a company is classified as a software enterprise and has a minimum ofRMB1 million (or approximately $158,000) in registered capital, it may engage in an export business after being registered with the relevant PRCgovernmental authorities. All contracts which relate to the export of software products, transfer of technology or provision of related services must befiled with the relevant PRC governmental authorities. The Measures for the Administration of Registration of Technology Import and ExportContracts, issued by the MOFCOM in February 2009, specify registration requirements related to the import and export of technology.Changyou has entered into license agreements with third parties outside of China to license its games, which may be deemed to constitute the export oftechnology under the regulations. As a result, such licenses are required to be registered with applicable PRC governmental authorities. Although thereare no explicit penalties set forth in these regulations for lack of such registration, failure to register an agreement where such registration is requiredmay result in restrictions concerning foreign exchange, banking and taxation matters relating to such agreements. Changyou has not registered all ofthe game license agreements under which it authorizes overseas third-party online game operators to operate its online games, and so far Changyou hasnot encountered any problems with respect to foreign exchange, banking or taxation matters relating to its license agreements, nor has Changyoureceived any notice from any governmental authority requiring it to complete the registration of its game license agreements.Regulation of Other ServicesReal Estate ServicesOn March 10, 2015, the National Development and Reform Commission (the “NDRC”) and the MOFCOM issued a new Foreign Investment IndustrialGuidance Catalogue (the “New Catalogue”), which became effective on April 10, 2015 and was amended on June 28, 2017 and June 28, 2018. TheNew Catalogue removed from the category of industries where foreign investment is restricted real estate agency and brokerage services, which hadbeen included in the restricted category in the previous Foreign Investment Industrial Guidance Catalogue issued in 2011. The New Catalogueloosened existing restrictions on foreign ownership of real estate agency and brokerage services in China, and as a result we may conduct real estateagency and brokerage services directly.On April 4, 2001, the Ministry of Housing and Urban-Rural Development (the “MHURD,” formerly the Ministry of Construction) promulgated theRegulatory Measures on the Sale of Commercial Houses, pursuant to which a real estate developer may engage a real estate services organization as abroker to pre-sell or sell primary residential housing. The regulatory measures provide that a real estate broker must not make any false statementsregarding a property to clients and must present clients with relevant title certificates or sale permits for the properties and a related letter ofauthorization.On December 29, 2006, the MHURD and the PBOC jointly issued the Circular Concerning Strengthening the Management of Real Estate Servicesand Regulating the Trade Settlement Capital Account, which provides a number of directives regulating the real estate services industry. Under thecircular, a real estate services company is not permitted to receive cash purchase payments on behalf of clients in secondary real estate transactions andis required to establish separate security deposit accounts for clients.On January 20, 2011, MHURD, the NDRC, and the Ministry of Human Resources and Social Security jointly issued the Measures for Administrationon Real Estate Brokerage (the “Brokerage Measures”), which became effective on April 1, 2011 and were amended on April 1, 2016, and govern theactivities of real estate brokerages and real estate brokerage personnel in providing intermediary, agency and related services and chargingcommissions. Furthermore, pursuant to the Brokerage Measures, a real estate brokerage company and its branches must have a sufficient number oflicensed real estate brokers. The Brokerage Measures also require real estate brokerage companies to file with real estate regulatory authorities at thecounty level or above within 30 days after their business registration with the relevant local counterparts of the SAMR. Focus Interactive has made therequired filings.On July 29, 2016, the MHURD and six other governmental authorities jointly issued the Opinions on Strengthening the Administration of SoundDevelopment of Real Estate Brokerage (the “MHURD Opinions”), to further regulate real estate brokerage services. The MHURD Opinions stipulatethat real estate brokers are obligated to censor specified real estate-related information, including ownership, price, area, and location, and may notprovide, directly or through agencies, loans for down payments and other similar financial services.On September 30, 2016, Beijing MHURD and five other governmental authorities jointly issued the Measures for the Promotion of Stable and HealthyDevelopment of the Local Real Estate Market (the “Beijing Measures”), with the goal of tempering rampant increases in housing prices by balancingland supply in favor of residential use and owner-occupied apartments, providing guidance for real estate developers and brokers as to the setting ofprices and the conduct of advertising, selling and financing activities, and providing for enhanced enforcement measures with respect to false andmisleading advertisements and pricing information and other illegal selling and financing activities in the local real estate market. Certain other cities,including Tianjin, Suzhou, Zhengzhou, Chengdu, Hefei, and Wuhan, adopted similar measures. One effect of these regulations has been to make realestate developers more cautious with respect to advertising housing on Internet platforms and cooperating on real estate-related e-commerce programswith Internet service providers. 87Table of ContentsOn May 19, 2018, the MHURD issued a Notice on Further Improving Relevant Issues Concerning the Regulation and Control of the Real EstateMarket, to prohibit certain behaviors by real estate developers and brokers, such as hoarding property for speculation. On June 25, 2018, the MHURDand six other government agencies jointly issued a Notice on Launching Special Actions to Combat the Infringement of the Interests of the Masses andRegulating the Real Estate Market in Some Cities, to prohibit certain additional behaviors of real estate developers and brokers, such as pricemanipulation and false advertising, in specified cities including Beijing, Shanghai, Guangzhou, and Tianjin.Online Payment ServicesOn June 14, 2010, the PBOC issued the Measures for the Administration of Payment Services Provided by Non-financial Institutions (the “PaymentServices Measures”), which took effect on September 1, 2010 and were amended on February 3, 2016. On December 1, 2010, the PBOC promulgatedthe Implementing Rules for the Payment Services Measures. The Payment Services Measures and their implementing rules require any non-financialinstitution engaging in payment services, such as online payments, issuance and acceptance of prepaid cards, and bill collection via bank cards, toobtain a Payment Service License. Applications for Payment Service Licenses are examined by the local branches of the PBOC and then submitted tothe PBOC for approval. To further regulate the operation of online payment services, the PBOC issued the Administration of Online Payment ServicesProvided by Non-Bank Payment Institutions (the “Online Payment Services Measures”), which took effect on July 1, 2016. The Online PaymentServices Measures classify personal payment accounts at entities that already hold a Payment Service License into three categories based on the extentto which the holders of the accounts have completed identity verification procedures, and provide that those account holders who have completedmore of the identity verification process are entitled to a broader range of payment options through their accounts. The Online Payment ServicesMeasures prohibit non-bank payment institutions from engaging in securities, insurance, financing, trusts and other unauthorized financial business.Non-bank payment institutions are also required to develop risk control systems, including a risk rating system for users, a dispute resolution system,and a risk reserve.In addition, on January 20, 2015, the SAFE issued the Notice of the State Administration of Foreign Exchange on the Pilot Scheme of Cross-borderForeign Exchange Payment Services Provided by Payment Institutions (the “Pilot Notice”), replacing the Guiding Opinions on the Pilot Services ofCross-Border E-commerce Foreign Exchange Payment by Payment Institutions issued by the SAFE on February 1, 2013, pursuant to which a paymentinstitution is required to obtain approval from the SAFE and to be registered in the Enterprise Directory for Foreign Exchange Receipts and Paymentsin Trade in order to provide pilot foreign exchange payment services for cross-border e-commerce transactions. Any institution applying for suchregistration and approval must first obtain a Payment Services License that authorizes it to engage in the online payments business.Lottery SalesOn May 4, 2009, the State Council issued the Regulation on Administration of Lottery stating that “lottery issuance agencies” and “lottery salesagencies” may authorize other entities to conduct lottery sales. On September 26, 2010, the Ministry of Finance (the “MOF”) issued the InterimMeasures on the Administration of Internet Lottery Sale (the “Lottery Measures”), which set forth detailed requirements for the administration ofonline lottery sales as well as requirements for qualified online lottery service providers. Pursuant to the Lottery Measures, the MOF is the supervisoryand regulatory department for online lottery sales. Lottery issuance agencies may collaborate with other entities or authorize lottery sales agencies toconduct online lottery sales, or appoint qualified entities as their online lottery sales agents. The Lottery Measures require qualified online lotteryservice providers to meet certain criteria, including having obtained an Internet content provider license. Lottery issuance agencies are required toapply to the MOF for approval of online lottery service providers that the lottery service agencies propose to engage to conduct an online lotterybusiness.On January 18, 2012, the MOF, the Ministry of Civil Affairs and the General Administration of Sports jointly issued the Implementing Rules of theRegulation on Administration of Lottery (the “Lottery Implementing Rules”), which became effective on March 1, 2012 and were amended onAugust 16, 2018. The Lottery Implementing Rules stipulate that lotteries sold through the Internet or sold without the MOF’s approval and a lotteryissuing agency’s or a lottery sales agency’s authorization may be categorized as illegal lotteries.On February 28, 2012, the General Administration of Sports issued the Urgent Notice on the Strengthening Execution of the Lottery ImplementingRules, reiterating that lotteries sold via the Internet without the approval of the MOF will be deemed to be illegal lotteries. In December 2012, the MOFissued the Lottery Distribution and Sale Administration Measures, which became effective on January 1, 2013 and expressly permit Internet lotterysales. 88Table of ContentsOn March 27, 2014, the MOF issued the Interim Measures on the Administration of the Sale of Lotteries via Telephone (the “Telephone LotteryMeasures”) to replace the MOF’s former version promulgated on September 26, 2010. Under the Telephone Lottery Measures, “sale of lotteries viatelephone” refers to the use of fixed-line telephones and mobile telephones to sell lotteries through short messages, voice calls and applications.Properly qualified lottery sales agencies may authorize other entities (“Telephone Sales Agents”) to carry out the business of sale of lotteries viatelephone. The lottery sales agencies and the Telephone Sales Agent must enter into a commission agreement. A qualified Telephone Sales Agent isrequired to meet certain criteria, including having obtained a Value-Added Telecommunications Services Operating License. The Telephone LotteryMeasures further provide that a Telephone Sales Agent must conduct business in accordance with parameters approved by the MOF and a pursuant to acommission agreement.On January 15, 2015, the MOF, the Ministry of Civil Affairs and the General Administration of Sports jointly promulgated the Notice related to Self-inspection and Self-Remedy of Unauthorized Online Lottery Sales (the “Self-inspection Notice”), which requires provincial and municipal governmentbranches, including financial, civil affairs and sports bureaus, to conduct inspections and take remedial measures for unauthorized online lottery saleswithin their respective jurisdictions. The scope of inspection includes, among other things, commission contracts, online lottery products, exchange oflottery sales data, online lottery sales channels, and sales commission fees in connection with unauthorized engagements of online sales agents bylottery sales agencies. The Notice further requires that a formal report on the result of the inspections and the remedial measures be submitted by eachprovincial or municipal government to the MOF, the Ministry of Civil Affairs and the General Administration of Sports by March 1, 2015.On April 3, 2015, eight governmental authorities consisting of the MOF, the MPS, the SAMR, the MIIT, the Ministry of Civil Affairs, the PBOC, theGeneral Administration of Sports and the CBRC jointly released a public announcement with regard to unauthorized online lottery sales (the “PublicAnnouncement”). The Public Announcement provides, among other things, that (i) all lottery institutions, internet companies, and other institutions orindividuals provide unauthorized online lottery sales services, either directly or through agents, must immediately cease such services; (ii) the localgovernmental authorities for finance, civil affairs and sports must investigate and sanction unauthorized online lottery sales in their respectivejurisdictions in accordance with applicable laws and regulations; (iii) the local governmental authorities for public security and industry andcommerce must investigate any issuances or sales of illegal lotteries within their respective jurisdictions, with necessary assistance from localgovernmental authorities for finance, communication, banking regulation, civil affairs and sports, and local branches of the PBOC, and report anycriminal activities to judicial authorities for prosecution; (iv) the lottery issuance authorities that plan to sell lottery products online must obtainapproval from the Ministry of Civil Affairs or the General Administration of Sports by submitting an application to the MOF for written approval, and(v) no entity may provide online lottery sales services without the approval of the MOF. On April 28, 2016, the MOF, the MPS, the Ministry of CivilAffairs, the General Administration of Sports, and the SAMR, and on May 5, 2015 the SAMR, issued notices regarding unauthorized online lotterysales and further emphasized the requirements specified in the Public Announcement. Online lottery sales are an insignificant business for us.On August 8, 2018, the MOF and several other government agencies jointly issued an Announcement on Further Regulating the Order of the LotteryMarket and Comprehensively Managing the Sale of Lotteries through the Internet, which further emphasizes that business entities and individualsmay not sell lottery tickets or conduct any other form of lottery business over the Internet without the approval of the MOF.Production of Radio and Telecommunications EquipmentOn September 11, 1993, the State Council and Central Military Commission jointly issued the Regulations on the Management of Radio Operations,which were amended on November 11, 2016, under which the working frequencies, bands, and related technical indices of radio transmissionequipment must conform to relevant regulations regarding radio and are required to be submitted to the state radio administration authority or its localbranches for approval, and failure to submit such information for approval will result in the imposition of a fine.On October 7, 1997, the State Radio Regulatory Bureau (formerly the State Radio Regulatory Commission), together with the SAMR (formerly theAQSIQ), promulgated Regulations on the Production of Radio Transmitting Equipment (the “Radio Transmitting Equipment Regulations”), whichtook effect on January 1, 1999. Pursuant to the Radio Transmitting Equipment Regulations, each type of radio transmission equipment is subject toapproval from State Radio Regulatory Bureau (“SRRC Certificate”) prior to production.On May 10, 2001, MIIT promulgated the Administration Measures of the Network Entry of Telecommunication Equipment (the “TelecommunicationEquipment Measures”), which was amended on September 23, 2014. Pursuant to the Telecommunication Equipment Measures, the State requires alltelecommunications terminal equipment to be connected to a public telecommunications network to obtain network connection permits. A Permit ofNetwork Connection, or China Type Approval Certificate (“CTA Certificate”), issued by the MIIT must be obtained for such telecommunicationsequipment. When a producer of such telecommunications terminal equipment applies for a CTA Certificate, it must submit a test report or productquality certificate (namely SRRC Certificate). If a CTA Certificate has not been obtained for such equipment, it may not be connected to a publictelecommunications network and may not be used or sold domestically.Miscellaneous 89Table of ContentsLaws and Regulations Related to International Connections for Computer Information NetworksThe State Council and the MIIT have promulgated regulations governing international connections for PRC computer networks, including: • Provisional Regulations of the People’s Republic of China for the Administration of International Connections to Computer InformationNetworks (1997) and related Implementing Measures (1998); and • Administrative Measures for International Communications Gateways (2002).Under the above regulations, any entity wishing to access international connections for their computer information networks in the PRC must complywith the following requirements: • be a PRC legal person; • have the appropriate equipment, facilities and technical and administrative personnel; • have implemented and registered a system of information security and censorship; and • effect all international connections through an international communications gateway established with the approval of the MIIT.We have adopted measures necessary to ensure that we are in compliance with all of these requirements.Laws and Regulations Related to Intellectual Property ProtectionChina has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents and trademarks.CopyrightOn September 7, 1990, the Standing Committee of the National People’s Congress promulgated the Copyright Law, which took effect on June 1, 1991and was amended in 2001 and in 2010. The amended Copyright Law extends copyright protection to Internet activities, products disseminated overthe Internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. Theamended Copyright Law also requires registration of the pledge of a copyright.In order to further implement the Computer Software Protection Regulations, promulgated by the State Council on December 20, 2001 and amendedon May 19, 2004 and January 30, 2013, the NCA issued Computer Software Copyright Registration Procedures on February 20, 2002 and amended iton May 19, 2004, which specify detailed procedures and requirements with respect to the registration of software copyrights.To address the problem of copyright infringement related to content posted or transmitted over the Internet, on April 29, 2005 the NCA and the MIITjointly promulgated the Measures for Administrative Protection of Copyright Related to Internet, which became effective on May 30, 2005. Thesemeasures apply to situations where an ICP operator (i) allows another person to post or store any works, recordings, audio or video programs on theWebsites operated by such ICP operator, or (ii) provides links to, or search results for, the works, recordings, audio or video programs posted ortransmitted by such person, without editing, revising or selecting the content of such material. Upon receipt of an infringement notice from a legitimatecopyright holder, an ICP operator must take remedial actions immediately by removing or disabling access to the infringing content. If an ICP operatorknowingly transmits infringing content or fails to take remedial actions after receipt of a notice of infringement harming public interest, the ICPoperator could be subject to administrative penalties, including an order to cease infringing activities; confiscation by the authorities of all incomederived from the infringement activities; or payment of fines.On May 18, 2006, the State Council promulgated the Regulations on the Protection of the Right to Network Dissemination of Information (asamended in 2013). Under these regulations, an owner of the network dissemination rights with respect to written works or audio or video recordingswho believes that information storage, search or link services provided by an Internet service provider infringe his or her rights may require that theInternet service provider delete, or disconnect the links to, such works or recordings. 90Table of ContentsSince 2005, the NCA, together with certain other PRC governmental authorities, have jointly launched annual campaigns, which normally last forthree to four months every year, specifically aiming to crack down on Internet copyright infringement and piracy in China. According to the Notice of2010 Campaign to Crack Down on Internet Infringement and Piracy promulgated by the NCA, the MPS and the MIIT on July 19, 2010, one of themain targets, among others, of the 2010 campaign was Internet audio and video programs. From the time the 2010 campaign commenced in late July,the local branches of the NCA focused on popular movies and television series, newly published books, online games and animation, music andsoftware and illegal uploading or transmission of a third party’s works without proper license or permission, sales of pirated audio/video and softwarethrough e-commerce platforms, providing search links, information storage, Web hosting or Internet access services for third parties engaging incopyright infringement or piracy and infringement by the use of mobile media. In serious cases, the operating permits of the Websites engaging inillegal activities may be revoked, and such Websites may be ordered to shut down. On July 16, 2018, the NCA, the CAOC, the MIIT and the MPSjointly announced the Jian Wang 2018 Campaign to crack down on copyright infringement related to re-transmission of Internet content anddissemination of short videos and comic videos over the Internet, and to further regulate live broadcast, knowledge sharing, and audio books servicesover the Internet.On April 17, 2015, the NCA issued the Circular on Regulating the Order of Internet Reproduction of Copyrighted Works (“Internet ReproductionCircular”). Under the Internet Reproduction Circular, in order to reproduce the work of others, Internet media companies must comply with relevantprovisions of the copyright laws and regulations, and, unless provided otherwise by law or regulation, must obtain permission from and payremuneration to the owner of the copyright to the work, and must indicate the name of the author, as well as the title and the source of the work, andmay not infringe any other rights or interests of the copyright owner. Moreover, when reproducing the work of others, Internet media companies maynot make material alterations to the content; and may not make editorial modifications or abridgments of the work that change the work’s title or itsoriginal intent. When reproducing the work of others, we will need to comply with these strict requirements of the Internet Reproduction Circular.We have adopted measures to mitigate copyright infringement risks, such as real-time monitoring and mechanisms for fast removal upon receipt ofnotices of infringement.On December 26, 2009, the Standing Committee of the National People’s Congress adopted the Torts Liability Law, which became effective on July 1,2010. Under this new law, both Internet users and Internet service providers may be liable for the wrongful acts of users who infringe the lawful rightsof other parties. If an Internet user utilizes Internet services to commit a tortious act, the party whose rights are infringed may request the Internetservice provider to take measures, such as removing or blocking the content, or disabling the links thereto, to prevent or stop the infringement. If theInternet service provider does not take necessary measures after receiving such a notice, it will be jointly liable for any further damages suffered by therights holder. Furthermore, if an Internet service provider fails to take necessary measures when it knows that an Internet user utilizes its Internetservices to infringe the lawful rights and interests of other parties, it will be jointly liable with the Internet user for damages resulting from theinfringement.On December 17, 2012, PRC Supreme People’s Court promulgated the Provisions on Several Issues Concerning the Application of Law for Trial ofCivil Dispute Cases Involving Infringement of the Right to Network Dissemination of Information (“Network Dissemination of InformationProvision”). The Network Dissemination of Information Provisions stipulate that the dissemination by network users or network service providers ofwritten works, performance or audio or video recordings without the permission of the holder of the rights to such dissemination will constituteinfringement of such rights, and that network service providers that aid or abet any network user’s infringement of the rights of another to networkdissemination of any works or recordings may be liable for such network user’s infringing activities.Patent LawOn March 12, 1984, the Standing Committee of the National People’s Congress promulgated the Patent Law, which was amended in 1992, 2000 and2008. On June 15, 2001, the State Council promulgated the Implementation Regulation for the Patent Law, which was lately amended in January 9,2010. According to these laws and regulations, the State Intellectual Property Office is responsible for administering patents in the PRC. The Chinesepatent system adopts a “first to file” principle, which means that where more than one person files a patent application for the same invention, a patentwill be granted to the person who filed the application first. To be patentable, invention or utility models must meet three conditions: novelty,inventiveness and practical applicability. A patent is valid for 20 years in the case of an invention and 10 years in the case of utility models anddesigns. A third-party user must obtain consent or a proper license from the patent owner to use the patent. Otherwise, third-party use constitutes aninfringement of patent rights.Trademark LawOn August 23, 1982, the Standing Committee of the National People’s Congress promulgated the Trademark Law (the “Trademark Law”), which wasamended in 1993, 2001 and 2013. On August 3, 2002, the State Council promulgated the Implementation Regulation for the Trademark Law, whichwas amended in April 29, 2014. Under the Trademark Law and the implementing regulation, the Trademark Office of the Administration for Industryand Commerce is responsible for the registration and administration of trademarks. The Administration for Industry and Commerce under the StateCouncil has established a Trademark Review and Adjudication Board for resolving trademark disputes. As with patents, China has adopted a“first-to-file” principle for trademark registration. If two or more applicants apply for registration of identical or similar trademarks for the same orsimilar commodities, the application that was filed first will receive preliminary approval and will be publicly announced. For applications filed on thesame day, the trademark that was first used will receive preliminary approval and will be publicly announced. Registered trademarks are valid for tenyears from the date the registration is approved. A registrant may apply to renew a registration within twelve months before the expiration date of theregistration. If the registrant fails to apply in a timely manner, a grace period of six additional months may be granted. If the registrant fails to applybefore the grace period expires, the registered trademark shall be deregistered. Renewed registrations are valid for ten years. 91Table of ContentsLaws and Regulations Related to Encryption SoftwareIn October 1999, the State Council promulgated the Regulations for the Administration of Commercial Encryption, lately amended on February 3,2016, followed in November 1999 by the Notice of the General Office of the State Encryption Administration Commission promulgated by the StateCommission for the Administration of Cryptography. Both of these regulations address the use in China of software with encryption functions.These regulations require that encryption products purchased for use be reported. Violation of the encryption regulations may result in the issuance ofa warning, levying of a penalty, confiscation of the encryption products and even criminal liabilities. On March 18, 2000, the Office of the StateCommission for the Administration of Cryptography issued a public announcement regarding the implementation of the regulations. Theannouncement states that only specialized hardware and software, the core functions of which are encryption and decoding, fall within theadministrative scope of the regulations as “encryption products and equipment containing encryption technology.” Other products, such as wirelesstelephone, Windows software and browsers do not fall within this scope.The State Commission for the Administration of Cryptography changed its name to the State Cryptography Administration Bureau (“SCAB”) in March2005. The SCAB maintains authority over the importation, research, production, sale and use of cryptographic products in China (“products” aredefined to include any cryptographic technologies and products to be applied in the encryption or secure authentication of information, other thanstate secrets). Legislation was issued to restrict the importation, research, production and sale of encryption products and requiring that the encryptionfunctions of such products be placed in escrow with the SCAB for reasons of national security.We are in full compliance with current PRC legislation governing encryption software.Laws and Regulations Related to Consumer Protection and Privacy ProtectionConsumer ProtectionThe MIIT set forth various requirements for consumer protection in a notice, issued on April 15, 2004, which addresses certain problems in thetelecommunications sector, including ambiguity in billing practices for premium services, poor quality of connections and unsolicited SMS messages,all of which impinge upon the rights of consumers.This trend was continued with the issuance of the Notice Regarding the Ratification and Administration of Mobile Information Services Fees andCharges Method by the MIIT on September 8, 2006.On January 26, 2014, the SAMR issued the Administrative Measures on Online Transactions (the “Online Transaction Measures”), which took effecton March 15, 2014, to regulate online commodity trading and related online services and replace the previous Interim Measures for the Administrationof Online Commodities Trading and Relevant Services issued on May 31, 2010. The Online Transaction Measures stipulate various obligations ofonline service providers, including the obligation to protect the interests of customers. Under the Online Transaction Measures, commodities orrelevant services transacted online must comply with relevant laws, regulations and rules. When selling commodities or providing services toconsumers, online commodity operators must comply with all applicable laws with respect to the protection of consumer rights/interests, intellectualproperty rights of others and the prevention of unfair competition. Information on commodities or services provided by online commodity operators orrelated service operators must be authentic and accurate.On May 26, 2016, the MIIT issued the Measures on the Complaint Settlement of the Telecommunication Services Users (the “Complaint SettlementMeasures”), which took effect on July 30, 2016. The Complaint Settlement Measures require telecommunication services providers to respond to theirusers within fifteen days upon the receipt of any complaint delivered by such users, the failure of which will give the complaining users the right to filea complaint against the service providers with the provincial branch offices of the MIIT.We are aware of the increasingly strict legal environment covering consumer protection in China, and we strive to adopt all measures necessary toensure that our business complies with these evolving standards.Privacy ProtectionThe PRC Constitution states that PRC law protects the freedom and privacy of the communications of citizens and prohibits infringement of suchrights. In recent years, PRC government authorities have issued various regulations on the use of the Internet that are designed to protect personalinformation from unauthorized disclosure. For example, the ICP Measures prohibit an Internet information services provider from insulting orslandering a third party or infringing upon the lawful rights and interests of a third party. In addition, PRC regulations authorize PRCtelecommunication authorities to demand rectification of unauthorized disclosure by ICPs. 92Table of ContentsChinese law does not prohibit ICPs from collecting and analyzing personal information from their users. The PRC government, however, has the powerand authority to order ICPs to submit personal information of an Internet user if such user posts any prohibited content or engages in illegal activitieson the Internet. In addition, the Several Provisions stipulate that ICPs must not, without the users’ consent, collect information on users that can beused, alone or in combination with other information, to identify the user, or User Personal Information, and may not provide any User PersonalInformation to third parties without prior user consent. ICPs may only collect User Personal Information necessary to provide their services and mustexpressly inform the users of the method, content and purpose of the collection and processing of such User Personal Information. In addition, an ICPmay use User Personal Information only for the stated purposes under the ICP’s scope of services. ICPs are also required to ensure the proper security ofUser Personal Information, and take immediate remedial measures if User Personal Information is suspected to have been disclosed. If the consequencesof any such disclosure are expected to be serious, the ICP must immediately report the incident to the telecommunications regulatory authorities andcooperate with the authorities in their investigations. We require our users to accept a user agreement whereby they agree to provide certain personalinformation to us. If we violate these regulations, the MIIT or its local bureaus may impose penalties and we may be liable for damage caused to ourusers.On December 28, 2012, the Standing Committee of the National People’s Congress enacted the Decision to Enhance the Protection of NetworkInformation (“Information Protection Decision”), to further enhance the protection of User Personal Information in electronic form. The InformationProtection Decision provides that ICPs must expressly inform their users of the purpose, manner and scope of the ICPs’ collection and use of UserPersonal Information, publish the ICPs’ standards for their collection and use of User Personal Information, and collect and use User PersonalInformation only with the consent of the users and only within the scope of such consent. The Information Protection Decision also mandates that ICPsand their employees must keep strictly confidential User Personal Information that they collect, and that ICPs must take such technical and othermeasures as are necessary to safeguard the information against disclosure.On July 16, 2013, the MIIT issued the Order for the Protection of Telecommunication and Internet User Personal Information (the “Order”). Most ofthe requirements under the Order that are relevant to ICP operators are consistent with the requirements already established under the MIIT provisionsdiscussed above, except that under the Order the requirements are often more strict and have a wider scope. If an ICP operator wishes to collect or usepersonal information, it may do so only if such collection is necessary for the services it provides. Further, it must disclose to its users the purpose,method and scope of any such collection or use, and must obtain consent from the users whose information is being collected or used. ICP operators arealso required to establish and publish their protocols relating to personal information collection or use, keep any collected information strictlyconfidential, and take technological and other measures to maintain the security of such information. ICP operators are required to cease any collectionor use of the user personal information, and de-register the relevant user account, when a given user stops using the relevant Internet service. ICPoperators are further prohibited from divulging, distorting or destroying any such personal information, or selling or providing such informationunlawfully to other parties. In addition, if an ICP operator appoints an agent to undertake any marketing or technical services that involve thecollection or use of personal information, the ICP operator is still required to supervise and manage the protection of the information. The Order states,in broad terms, that violators may face warnings, fines, and disclosure to the public and, in the most severe cases, criminal liability.On August 21, 2014, the supreme people’s court promulgated the Provisions of the Supreme People’s Court on Application of Laws to Cases InvolvingCivil Disputes over Infringement upon Personal Rights and Interests by Using Information Networks, pursuant to which if an ICP operator disclosesgenetic information, medical records, health examination data, criminal record, home address, private events and or other personal information of anatural person online, causing damage to the person, the People’s Court should support a claim by the infringed party for recovery of damages from theinfringing ICP operator.On January 5, 2015, the SAMR promulgated the Measures on Punishment for Infringement of Consumer Rights, pursuant to which business operatorscollecting and using personal information of consumers must comply with the principles of legitimacy, propriety and necessity, specify the purpose,method and scope of collection and use of the information, and obtain the consent of the consumers whose personal information is to be collected.Business operators may not: (i) collect or use personal information of consumers without their consent; (ii) unlawfully divulge, sell or provide personalinformation of consumers to others; (iii) send commercial information to consumers without their consent or request, or when a consumer has explicitlydeclined to receive such information.On August 29, 2015, the Standing Committee of the National People’s Congress issued Amendment (IX) to the Criminal Law of the People’s Republicof China (“Amendment (IX)”), which strengthens the protection of individual information and Internet security. Pursuant to Amendment (IX), networkservice providers who do not comply with laws and regulations regarding the safe management of information on their networks, and who do notcorrect their conduct after they receive notice of such non-compliance from the relevant regulatory authorities, may be sentenced to prison for up tothree years, and may also be subject to public surveillance and fines.On May 8, 2017, the Supreme People’s Court of the PRC and the Supreme People’s Procurator of the PRC issued the Interpretation of the SupremePeople’s Court and the Supreme People’s Procurator on Several Issues Concerning the Applicable Law for Criminal Cases With Respect toInfringement of Citizen’s Personal Information, which defines “personal information,” “the provision of personal information,” and “the illegalcollection of personal information.” 93Table of ContentsThe SAMR (formerly the AQSIQ and SAC) issued the Information Security Technology—Personal Information Security Specification, which cameinto effect on May 1, 2018. The specification includes a recommendation for the nationwide standards for protection and processing of privatepersonal information, and provides and clarifies the definitions and data processing, disclosure and protection requirements regarding personalinformation.On January 23, 2019, the OCLGCA, the MIIT, the MPS, and the SAMR jointly issued the Public Announcement Concerning the Illegal Collection ofPersonal Information by APPs, which emphasizes that APP operators must comply strictly with the Internet Security Law with in connection with theircollection and use of personal information.Our current security measures and those of the third parties with whom we transact business may not be adequate for the protection of user personalinformation. In addition, we do not have control over the security measures of our third-party online payment vendors. Security breaches of our systemand the online payment systems that we use could expose us to litigation and liability for failing to secure confidential customer information andcould harm our reputation, ability to attract customers and ability to encourage customers to purchase virtual items.Laws and Regulations Related to Security and CensorshipThe principal pieces of PRC legislation concerning information security and censorship are: • The Law of the People’s Republic of China on the Preservation of State Secrets (1988, as amended in 2010) and related ImplementingRules (2014); • The Law of the People’s Republic of China Regarding Anti-spy (2014); • Rules of the People’s Republic of China for Protecting the Security of Computer Information Systems (1994, as amended in 2011); • Administrative Regulations for the Protection of Secrecy on Railway Computer Information Systems Connected to International Networks(1999); • Regulations for the Protection of State Secrets for Computer Information Systems on the Internet (2000); • Notice issued by the Ministry of Public Security of the People’s Republic of China Regarding Issues Relating to the Implementation of theAdministrative Measure for the Security Protection of International Connections to Computer Information Networks (2000); and • The Decision of the Standing Committee of the National People’s Congress Regarding the Safeguarding of Internet Security (2000) whichhas been amended in 2009.These pieces of legislation specifically prohibit the use of Internet infrastructure where it results in a breach of public security, the provision of sociallydestabilizing content or the divulgence of State secrets, as follows: • “A breach of public security” includes a breach of national security or disclosure of state secrets; infringement on state, social or collectiveinterests or the legal rights and interests of citizens or illegal or criminal activities. • “Socially destabilizing content” includes any action that incites defiance or violation of Chinese laws; incites subversion of state powerand the overturning of the socialist system; fabricates or distorts the truth, spreads rumors or disrupts social order; advocates cult activities;spreads feudal superstition; involves obscenities, pornography, gambling, violence, murder, or horrific acts; or instigates criminal acts. • “State secrets” are defined as “matters that affect the security and interest of the state.” The term covers such broad areas as nationaldefense, diplomatic affairs, policy decisions on state affairs, national economic and social development, political parties and “other Statesecrets that the State Secrecy Bureau has determined should be safeguarded.” 94Table of ContentsUnder the aforementioned legislation, it is mandatory for Internet companies in the PRC to complete security filing procedures with the local publicsecurity bureau and for them provide regular updates to the local public security bureau regarding information security and censorship systems for theirWebsites. In this regard, on October 1, 2004, the Administrative Rules on the Filing of Commercial Websites (“Commercial Websites Filing Rules”)were promulgated by the Beijing Administration of Market Regulation (the “Beijing AMR”) to replace the Detailed Implementing Rules for theMeasures for the Administration of Commercial Website Filings for the Record promulgated by the Beijing AMR on September 1, 2000. TheCommercial Websites Filing Rules state that operators of commercial Websites must comply with the following requirements: • filing with the Beijing AMR and obtain electronic registration marks for the Websites; • placing the registration marks on the Websites’ homepages; and • registering the Website names with the Beijing AMR.On November 7, 2016, the Standing Committee of the National People’s Congress issued the Internet Security Law (the “Internet Security Law”),which took effect on June 1, 2017. The Internet Security Law requires providers of services over Internet networks to keep user information that theyhave collected in strict confidence and to establish improved systems for the protection of user information. Such service providers must provide noticeof the purpose, methods and scope of their collection and use of user information, and obtain the consent of each person whose personal informationwill be collected. Providers of services over Internet networks may not collect any personal information that is not related to the services they provide,or disclose or tamper with personal information that they have collected, unless such information is encoded to prevent identification of individualswhose information is so disclosed or tampered with. Service providers who do not comply with the Internet Security Law may be subject to fines,suspension of their businesses, shutdown of their websites, and revocation of their business licenses.Sohu Internet and Changyou have successfully registered the Sohu.com Website, the Changyou.com Website and the cy.com Website with the BeijingAMR and the electronic registration marks for the Websites are prominently placed on the homepages of the Sohu.com Website and the Changyou.comWebsite and the cy.com Website. Sogou Information has successfully registered the sogou.com Website with the Beijing AMR.In addition, the State Security Bureau has issued regulations authorizing the blocking of access to any site it deems to be leaking State secrets orfailing to comply with legislation regarding the protection of State secrets in the distribution of information online. Specifically, Internet companies inChina with message boards, chat rooms or similar services, such as Sohu, must apply for the approval of the State Secrets Bureau prior to operating suchservices.Accordingly, we have established an internal security committee and adopted security maintenance measures, employed a full-time supervisor andexchanged information on a regular basis with the local public security bureau with regard to sensitive or censored information and Websites.Internet Content and Anti-PornographyThe PRC government has promulgated measures relating to Internet content through a number of government authorities, including the MIIT, theMCT, the SAPPRFT and the MPS. These measures specifically prohibit certain Internet activities, including the operation of online games, whichresults in the publication of any content which is found to, among other things, propagate obscenity, gambling or violence, instigate crimes,undermine public morality or the cultural traditions of the PRC, or compromise State security or secrets. If an ICP license holder violates thesemeasures, the PRC government may revoke its ICP license and shut down its Websites.In addition, the PRC government has issued several regulations concerning the installation of filter software to filter out unhealthy and vulgar contentfrom the Internet. In April 1, 2009, the Ministry of Education, the MIIT and certain other PRC ministries and agencies issued a notice requiring that, bythe end of May 2009, all computer terminals connected with the Internet at all elementary and secondary schools be able to include and operate GreenDam-Youth Escort, which is software aimed at filtering out unhealthy and vulgar content in text and graphics from the Internet and which, according tothe Website for the software, may be used to control time spent on the Internet, prohibit access to computer games, and filter out unhealthy Websites.The MIIT further expanded the scope of required use of this filter software by issuing a notice on May 19, 2009 requiring that, effective as of July 1,2009, all computers manufactured and sold in China have the latest available version of Green Dam-Youth Escort preinstalled when they leave thefactory and that all imported computers have the latest available version of Green Dam-Youth Escort preinstalled before being sold in China.Green-Dam Youth Escort is to be preinstalled on the hard drive of the computer or in the form of a CD accompanying the computer and is also to beincluded in the backup partition and system restore CD. However, on June 30, 2009, the MIIT postponed the implementation of this requirementregarding pre-installation of Green Dam-Youth Escort. 95Table of ContentsOn December 4, 2009, the MIIT and three other PRC government authorities jointly issued the Incentives Measures for Report of Pornographic,Obscene and Vulgar Messages on Internet and Mobile Media (“Anti-Pornography Notice”), to crack down on online pornography. Pursuant to theAnti-Pornography Notice, rewards of up to RMB10,000 will be provided to Internet users who report Websites that feature pornography, and acommittee has been established to review such reports to determine an appropriate award. During a PRC anti-pornography campaign, which continuedduring 2014, many Websites (including mobile Websites) that contained pornography were closed down. In addition, China Mobile announced atemporary suspension of billing for Wireless Application Protocol (“WAP”) services, as a means of fighting against Websites providing pornographiccontent.On April 13, 2014, the National Working Group on Anti-Pornography and three other PRC government authorities jointly issued the Proclamation ofSpecial Action Regarding Crackdown on Online Pornographic Content (the “Anti-Pornography Proclamation”). Under the Anti-PornographyProclamation, Internet service providers must immediately remove texts, images, video, advertisements and other information that containpornographic content. The relevant government authority may order enterprises or individuals who flagrantly produce or disseminate pornographiccontent to stop conducting business, and may revoke relevant administrative permits. Moreover, an enterprise or individual who provides telecomoperation services, network access services, advertising services or payment services to facilitate dissemination of pornographic content may havecriminal or civil penalties imposed under the PRC Criminal Law and other relevant laws and regulations.Laws and Regulations Related to Unfair CompetitionPursuant to an amendment of the Unfair Competition Law of the PRC, or the Unfair Competition Law, adopted by the Standing Committee of theNational People’s Congress on November 4, 2017 and effective January 1, 2018, a business operator is prohibited from taking any of the followingactions: • unauthorized use of marks that are the same as or similar to the names, packaging, or decoration of another party’s products; • unauthorized use of another party’s organizational name or the name of an individual; • unauthorized use of another party’s domain name, website name, or webpage; and • other actions causing a third party to mistakenly believe that another party’s product is that of the business operator.The Unfair Competition Law forbids business operators to pay bribes in order to gain an opportunity or competitive advantage in a businesstransaction.The Unfair Competition Law also stipulates that, without the consent of the affected party, the operator of an Internet business operator may not insertlinks into the products and services of another Internet business operator in order to re-direct user traffic; may not mislead or compel users to modify,terminate, or un-install any Internet products or services of another Internet business operator; and may not take actions in bad faith to cause an Internetproduct or service of another Internet business operator to be unusable by users of the other business operator’s properties.The amendment of the Unfair Competition Law that became effective January 1, 2018 increases the maximum amount of administrative penalties thatmay be imposed for violations.In addition, the Supreme People’s Court has promulgated an Interpretation on Several Issues Relating to the Application of the Law in Civil Trials forUnfair Competition Cases, which became effective as of February 1, 2007. This interpretation provides guidance on how to conduct trials involvingunfair competition, protect the legal rights and interests of business operators, and maintain orderly market competition.Regulation of M&A and Overseas ListingsOn August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State Assets Supervision and Administration Commission, the StateAdministration of Taxation (“SAT”), the SAMR, the China Securities Regulatory Commission (the “CSRC”), and the SAFE, jointly issued theRegulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (“M&A Rule”), which became effective on September 8, 2006and amended on June 22, 2009. The M&A Rule includes provisions that purport to require that an Offshore special purpose vehicle formed forpurposes of the overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain theapproval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.On September 21, 2006, the CSRC published on its official Website procedures regarding its approval of overseas listings by special purpose vehicles.The CSRC approval procedures require the filing of a number of documents with the CSRC. The application of this PRC regulation remains unclear,with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement. 96Table of ContentsThe M&A Rules also establish procedures and requirements that could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction inwhich a foreign investor takes control of a Chinese domestic enterprise.In February 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers andAcquisitions of Domestic Enterprises by Foreign Investors (“Circular 6”), which established a security review system for mergers and acquisitions ofdomestic enterprises by foreign investors. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having“national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire “de facto control” of domesticenterprises with “national security” concerns. In August 2011, the MOFCOM promulgated the Rules on Implementation of Security Review System(“MOFCOM Security Review Rules”), to replace the Interim Provisions of the Ministry of Commerce on Matters Relating to the Implementation of theSecurity Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the MOFCOM in March 2011. TheMOFCOM Security Review Rules, which came into effect on September 1, 2011, provide that the MOFCOM will look into the substance and actualimpact of a transaction and prohibit foreign investors from bypassing the security review requirement by structuring transactions through proxies,trusts, indirect investments, leases, loans, control through contractual arrangements or Offshore transactions.Laws and Regulations Related to AntitrustOn August 30, 2007, the Standing Committee of the National People’s Congress of the PRC adopted the PRC Anti-Monopoly Law (“AML”), whichtook effect on August 1, 2008. Pursuant to the AML, monopolistic conduct, including entering into monopoly agreements, abuse of dominant marketposition and concentration of undertakings that have the effect of eliminating or restricting competition, is prohibited. To further implement theAntitrust Law and clarify certain issues, the State Council, the MOFCOM, the NDRC and the SAMR issued several regulations and rules, including theProvisions on Thresholds for Prior Notification of Concentrations of Undertakings issued by the State Council on August 3, 2008 and amended onSeptember 18, 2018, the Regulation on the Prohibition of Acts Involving Monopolistic Agreements issued by the SAMR on December 31, 2010, theRegulation on the Prohibition of Conduct Constituting an Abuse of a Dominant Market Position issued by the SAMR on December 31, 2010, theRegulation on the Prevention of Conduct Constituting an Abuse of Administrative Powers to Eliminate or Restrict Competition issued by the SAMRon December 31, 2010, the Anti-Price Monopoly Regulation issued by the NDRC on December 29, 2010, the Declaration Rules for Concentrations ofUndertakings issued by the MOFCOM on November 21, 2009, amended on June 6, 2014, and re-issued by the SAMR on September 29, 2018, theAssessment Rules for Concentration of Undertakings issued by the MOFCOM on November 24, 2009, and the Provisional Measures on theInvestigation and Handling of Concentrations between Business Operators which Were Not Notified in Accordance with the Law issued by theMOFCOM on December 30, 2011.Taken together these various laws and regulations provide for the following:Monopoly Agreement: competing business operators may not enter into monopoly agreements that eliminate or restrict competition, such as byboycotting transactions, fixing or changing the price of commodities, limiting the output of commodities, fixing the price of commodities for resale tothird parties, unless such agreements satisfy the exemptions under the Antitrust Law, such as improving technologies or increasing the efficiency andcompetitiveness of small and medium-sized enterprises. Sanctions for violations include an order to cease the relevant activities, confiscation of illegalgains and fines (from 1% to 10% of sales revenue from the previous year, or RMB 500,000 if the intended monopoly agreement has not beenperformed).Abuse of Dominant Market Position: a business operator with a dominant market position may not abuse its dominant market position to conduct actssuch as selling commodities at unfairly high prices or buying commodities at unfairly low prices, selling products at prices below cost without anyjustifiable cause, and refusing to trade with a trading party without any justifiable cause. Dominant market position refers to a market position held bya business operator having the capacity to control the price, quantity or other trading conditions of commodities in the relevant market, or to hinder oraffect any other business operator to enter the relevant market, which will be determined based on the market share of the relevant business operator,capacity of a business operator to control the sales market, the degree of dependence of other business operators upon the business operator in questionin transactions, and the degree of difficulty for other business operators to enter into the relevant market. Sanctions for violation of the prohibition onthe abuse of dominant market position include an order to cease the relevant activities, confiscation of illegal gains and fines (from 1% to 10% of salesrevenue from the previous year). 97Table of ContentsConcentration of Enterprises: pursuant to the AML, where a concentration of enterprises reaches the declaration threshold stipulated by the StateCouncil, a declaration must be lodged in advance with the antitrust authority under the State Council. Otherwise, the concentration cannot be effected.Concentration refers to (1) a merger of enterprises; (2) acquiring control over other enterprises by an enterprise through acquiring equities or assets; or(3) acquiring control over, or the possibility of exercising decisive influence on, an enterprise by contract or by any other means. Under the Provisionson Thresholds for Prior Notification of Concentrations of Undertakings, the thresholds for prior notification of concentration of enterprises are thefollowing: • the combined worldwide turnover of all of the subject enterprises in the preceding financial year is more than RMB10.00 billion, and thenationwide turnover within China of each of at least two of the subject enterprises in the preceding financial year is more thanRMB400.0 million; or • the combined nationwide turnover within China of all the subject enterprises in the preceding financial year is more than RMB2.00 billion,and the nationwide turnover within China of each of at least two of the subject enterprises in the preceding financial year is more thanRMB400.0 million.If business operators fail to comply with these mandatory declaration provisions, the antitrust authority is empowered to terminate and/or unwind thetransaction, dispose of relevant assets, shares or businesses and impose fines up to RMB500,000.Regulation of Foreign Currency Exchange and Dividend DistributionThe principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (“FX Regulations”),which were last amended in August 2008. Under the FX Regulations, the RMB is freely convertible for current account items, including thedistribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as directinvestments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the SAFE is obtained andprior registration with the SAFE is made. Dividends paid by a PRC subsidiary to its overseas shareholder are deemed income of the shareholder and aretaxable in the PRC. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises in thePRC may purchase or remit foreign currency, subject to a cap approved by the SAFE, for settlement of current account transactions without theapproval of the SAFE. Foreign currency transactions under the capital account are still subject to limitations and require approvals from, or registrationwith, the SAFE and other relevant PRC governmental authorities.In July 2014, the SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration Over the Overseas Investment andFinancing and Roundtrip Investment by Domestic Residents Via Special Purpose Vehicles (“Circular 37”) which replaced Relevant Issues ConcerningForeign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles(“Circular 75”). Circular 37 requires PRC residents, including PRC institutions and individuals, to register with the local SAFE branch in connectionwith their direct establishment or indirect control of an Offshore entity, referred to in Circular 37 as a “special purpose vehicle,” for the purpose ofholding domestic or Offshore assets or interests. PRC residents must also file amendments to their registrations in the event of any significant changeswith respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger,division or other material event. Under these regulations, PRC residents’ failure to comply with specified registration procedures may result inrestrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other distributions toits Offshore parent, as well as restrictions on capital inflows from the Offshore entity to the PRC entity, including restrictions on the ability tocontribute additional capital to the PRC entity. Further, failure to comply with the various SAFE registration requirements could result in liabilityunder PRC law for evasion of foreign exchange regulations.Under Circular 37, if a non-listed special purpose vehicle uses its own equity to grant equity incentives to any directors, supervisors, seniormanagement or any other employees directly employed by a domestic enterprise which is directly or indirectly controlled by such special purposevehicle, or with which such an employee has established an employment relationship, related PRC residents and individuals may, prior to exercisingtheir rights, apply to the SAFE for foreign exchange registration formalities for such special purpose vehicle. However, in practice, different local SAFEbranches may have different views and procedures on the interpretation and implementation of the SAFE regulations, and since Circular 37 was thefirst regulation to regulate the foreign exchange registration of a non-listed special purpose vehicle’s equity incentives granted to PRC residents, thereremains uncertainty with respect to its implementation.On December 25, 2006, the PBOC issued the Administration Measures on Individual Foreign Exchange Control, which were amended on May 29,2016, and related Implementation Rules were issued by the SAFE on January 5, 2007. Both became effective on February 1, 2007. Under theseregulations, all foreign exchange transactions involving an employee share incentive plan, share option plan, or similar plan participated in byindividuals in the PRC may be conducted only with approval from the SAFE or its authorized branch. Under the Notice of Issues Related to theForeign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company (“Offshore ShareIncentives Rules”), which was issued by the SAFE on February 15, 2012, PRC citizens who are granted share options, restricted share units or restrictedshares by an overseas publicly listed company are required to register with the SAFE or its authorized branch and to comply with a series of otherrequirements. In November 2011, the SAFE approved our application to designate our PRC subsidiary Sohu Media to handle the registrations andother procedures required by the Offshore Share Incentives Rules. In February 2012, the SAFE approved Changyou’s application to designate its PRCsubsidiary AmazGame to handle the registrations and other procedures required by the Offshore Share Incentive Rules. If we, Changyou or the PRCemployees of Changyou and us who hold options, restricted share units or restricted shares fail to comply with these registration or other proceduralrequirements, we, Changyou and/or such employees may be subject to fines and other legal sanctions. Sogou has applied for registration of its 2017Share Incentive Plan with the SAFE, and Sogou is in the process of applying for such registration of its 2010 Share Incentive Plan. If its 2017 ShareIncentive Plan and 2010 Share Incentive Plan are not accepted for registration by the SAFE, Sogou may not be able to grant further share-based awardsto its PRC employees, Sogou and those who have received awards may be subject to fines and legal sanctions, and Sogou’s ability to contributeadditional capital to its PRC subsidiaries and its PRC subsidiaries’ ability to distribute dividends to it may be limited. 98Table of ContentsThe principal regulations governing distribution of dividends of foreign holding companies include the Foreign Investment Enterprise Law (1986),which was amended in October 2000 and October, 2016, and the Administrative Rules under the Foreign Investment Enterprise Law (2001), which wasamended in February, 2014.Under these regulations, foreign investment enterprises in China may pay dividends only out of their accumulated profits, if any, determined inaccordance with PRC accounting standards and regulations. In addition, foreign investment enterprises in China are required to allocate at least 10% oftheir accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of theenterprises. These reserves are not distributable as cash dividends. Furthermore, under the Corporate Income Tax Law, which became effective onJanuary 1, 2008 and was amended on February 24, 2017, the maximum tax rate for the withholding tax imposed on dividend payments from PRCforeign invested companies to their overseas investors that are not regarded as “resident” for tax purposes is 20%. The rate was reduced to 10% underthe Implementing Regulations for the PRC Corporate Income Tax Law issued by the State Council. However, a lower withholding tax rate of 5% mightbe applied if there is a tax treaty between China and the jurisdiction of the foreign holding companies, such as is the case with Hong Kong, and certainrequirements specified by PRC tax authorities are satisfied.Laws and Regulations Related to Employment and Labor ProtectionOn June 29, 2007, the National People’s Congress promulgated the Employment Contract Law of PRC (“Employment Contract Law”), which becameeffective as of January 1, 2008 and was amended on December 28, 2012. The Employment Contract Law requires employers to provide writtencontracts to their employees, restricts the use of temporary workers and aims to give employees long-term job security.Pursuant to the Employment Contract Law, employment contracts lawfully concluded prior to the implementation of the Employment Contract Lawand continuing as of the date of its implementation shall continue to be performed. Where an employment relationship was established prior to theimplementation of the Employment Contract Law but no written employment contract was concluded, a contract must be concluded within one monthafter its implementation.On September 18, 2008, the State Council promulgated the Implementing Regulations for the PRC Employment Contract Law which came into effectimmediately. These regulations interpret and supplement the provisions of the Employment Contract Law.We have modified our standard employment contract to comply with the requirements of the Employment Contract Law and its implementingregulations. We have entered into written employment contracts with all of our employees.ConclusionIn the opinion of Haiwen, our principal PRC Subsidiaries and principal VIEs are approved to engage in the specific online services (categorized andaddressed in the above sections) as described in the respective scopes indicated in the corresponding licenses and/or permits issued to the respectivecompanies.ORGANIZATIONAL STRUCTUREThe charts below present the principal consolidated entities of Sohu.com Limited., not including our consolidated Sogou entities and Changyouentities, and our principal consolidated Sogou entities and Changyou entities. 99Table of ContentsSohu Organizational Chart 100Table of ContentsSogou Organizational Chart 101Table of ContentsChangyou Organizational Chart 102Table of ContentsPrincipal SubsidiariesThe following are our China-based principal direct or indirect operating subsidiaries, all of which were established as wholly foreign-owned enterprises(or “WFOEs”) under PRC law (collectively the “China-Based Subsidiaries,” or the “PRC Subsidiaries”):For Sohu’s Business • Sohu.com (Hong Kong) Ltd., or Sohu Era, established in 2000 • Beijing Sohu New Era Information Technology Co., Ltd., or Sohu Era, established in 2003; • All Honest International Limited, or All Honest, established in 2003; • Sohu.com (Search) Limited, or Sohu Search, established in 2005; • Beijing Sohu New Media Information Technology Co., Ltd., or Sohu Media, established in 2006; • Sohu.com (Game) Limtied, or Sohu Game, established in 2008; • Beijing Sohu New Momentum Information Technology Co., Ltd., or Sohu New Momentum, established in 2010; • Fox Video Investment Holding Limited, or Video Investment, established in 2011; • Fox Video Limited, or Sohu Video, established in 2011; • Fox Video (HK) Limited, or Video HK, established in 2011; • Fox Information Technology (Tianjin) Limited, or Video Tianjin, established in 2011; • Focus Investment Holding Limited, or Focus Investment, established in 2013; • Sohu Focus Limited, or Sohu Focus, established in 2013; and • Sohu Focus (HK) Limited, or Focus HK, established in 2013.For Sogou’s Business • Sogou Inc., or Sogou, established in 2005; • Sogou (BVI) Limited, or Sogou BVI, established in 2005; • Beijing Sogou Technology Development Co., Ltd., or Sogou Technology, established in 2006; • Sogou Hong Kong Limited, or Sogou HK, established in 2007; • Vast Creation Advertising Media Services Limited, or Vast Creation, established in 2004 and acquired by Sogou in 2011; • Beijing Sogou Network Technology Co., Ltd, or Sogou Network, established in 2012; • Sogou Technology Hong Kong Limited, or Sogou Technology HK, established in 2015; • Tianjin Sogou Network Technology Co., Ltd, or Tianjin Sogou Network, established in 2017; and • Sogou (Shantou) Internet Microcredit Co., Ltd, or Sogou Microcredit, established in 2017.For Changyou’s Business • Changyou.com Limited, or Changyou, established in 2007; 103Table of Contents • Changyou.com (HK) Limited, or Changyou HK, established in 2007; • Beijing AmazGame Age Internet Technology Co., Ltd., or AmazGame, established in 2007; • Beijing Changyou Gamespace Software Technology Co., Ltd., or Gamespace, established in 2009; • Beijing Yang Fan Jing He Information Consulting Co., Ltd., Yang Fan Jing He, established in 2010; • Shanghai Jingmao Culture Communication Co., Ltd., or Shanghai Jingmao, established in 2009 and acquired by Changyou in 2011; • Beijing Changyou Jingmao Film & Culture Communication Co., Ltd., or Beijing Jingmao, established in 2010 and acquired by Changyouin 2011; • 7Road.com Limited, or 7Road, established in 2011; • 7Road.com HK Limited, or 7Road HK, established in 2011; • Changyou.com Webgames (HK) Limited, or Changyou HK Webgames, established in 2011; • Shenzhen Brilliant Imagination Technologies Co., Ltd, or Brilliant Imagination, established in 2014; and • Beijing Changyou Chuangxiang Software Technology Co., Ltd., or Changyou Chuangxiang, established in 2016.Principal Variable Interest EntitiesThe following are our principal VIEs, which we established or acquired in China to perform value-added telecommunications services because of PRCrestrictions on direct foreign investment in and operation of value-added telecommunications businesses, which restrictions are discussed in“Government Regulation and Legal Uncertainties-Specific Statutes and Regulations-Regulation of Foreign Direct Investment in Value-AddedTelecommunications Companies.” We entered into contractual arrangements between our VIEs and our PRC Subsidiaries that govern a substantialportion of our operations, including those of the brand advertising business, the search and search-related business, the online game business and theothers business. These entities are consolidated in Sohu’s consolidated financial statements, and noncontrolling interest is recognized whenapplicable.For Sohu’s Business • Beijing Century High-Tech Investment Co., Ltd., or High Century, a PRC company that was incorporated in 2001. As of December 31,2018, Dr. Charles Zhang, our Chairman of the Board and Chief Executive Officer, and Wei Li, one of our employees, held 80% and 20%interests, respectively, in this entity; • Beijing Heng Da Yi Tong Information Technology Co., Ltd., or Heng Da Yi Tong, a PRC company that was incorporated in 2002. As ofDecember 31, 2018, Dr. Charles Zhang and Wei Li held 80% and 20% interests, respectively, in this entity; • Beijing Sohu Internet Information Service Co., Ltd., or Sohu Internet, a PRC company that was incorporated in 2003. As of December 31,2018, High Century held a 100% interest in this entity; • Beijing Sohu Donglin Advertising Co., Ltd., or Donglin, a PRC company that was incorporated in 2010. As of December 31, 2018, SohuInternet held a 100% interest in this entity; • Tianjin Jinhu Culture Development Co., Ltd, or Tianjin Jinhu, a PRC company that was incorporated in 2011. As of December 31, 2018,Xiufeng Deng and Xuemei Zhang, both of whom are our employees, each held a 50% interest in this entity; • Beijing Focus Interactive Information Service Co., Ltd., or Focus Interactive, a PRC company that was incorporated in July 2014. As ofDecember 31, 2018, Heng Da Yi Tong held a 100% interest in this entity; and • Guangzhou Qianjun Network Technology Co., Ltd, or Guangzhou Qianjun, a PRC company that we acquired in November 2014. As ofDecember 31, 2018, Tianjin Jinhu held a 100% interest in this entity. 104Table of ContentsFor Sogou’s Business • Beijing Sogou Information Service Co., Ltd., or Sogou Information, a PRC company that was incorporated in 2005. As of December 31,2018, Xiaochuan Wang, Sogou’s Chief Executive Officer, High Century and Tencent held 10%, 45% and 45% interests, respectively, inthis entity; and • Chengdu Easypay Technology Co., Ltd., or Chengdu Easypay, a PRC company that was incorporated in 2015. As of December 31, 2018,Sogou Information and Beijing Shi Ji Si Su Technology Co., Ltd., a subsidiary of Sogou Information, held 9% and 91% interests,respectively, in this entity.For Changyou’s Business • Beijing Gamease Age Digital Technology Co., Ltd., or Gamease, a PRC company that was incorporated in 2007. As of December 31, 2018,High Century held a 100% interest in this entity; • Shanghai ICE Information Technology Co., Ltd., or Shanghai ICE, a PRC company that was acquired by Changyou in 2010. As ofDecember 31, 2018, Gamease held a 100% interest in this entity; and • Beijing Guanyou Gamespace Digital Technology Co., Ltd., or Guanyou Gamespace, a PRC company that was incorporated in 2010. As ofDecember 31, 2018, Beijing Changyou Star Digital Technology Co., Ltd (“Changyou Star”) held a 100% interest in this entity.We have extended interest-free loans to the individual shareholders of the VIEs to fund their capital investment in the VIEs. The loans are secured bypledges of the shareholders’ equity interests in the VIEs, and can only be repaid by the shareholders by surrender of those equity interests to us. Wehave also entered into a series of agreements with the individual shareholders to transfer their equity interests in the VIEs to us when required to do so. ITEM 4A.UNRESOLVED STAFF COMMENTSNot applicable. ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled“Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in this annual report.The discussion in this section contains forward-looking statements that involve risks and uncertainties. As a result of various factors, including thoseset forth under “Item 3. Key Information—Risk Factors” and elsewhere in this annual report on Form 20-F, our actual future results may bematerially different from what we expect.OVERVIEWWe are a leading Chinese online media, search and game service group providing comprehensive online products and services on PCs and mobiledevices in China. Our businesses are conducted by the Sohu Group, which consists of Sohu, Sogou and Changyou. Sogou and Changyou are ourindirect controlled subsidiaries. Sohu is a leading Chinese language online media content and services provider. Sogou is an innovator in search and aleader in China’s Internet industry. With a mission to make it easy to communicate and get information, Sogou has grown to become the second largestsearch engine by mobile queries, according to CTR, and the fourth largest Internet company by MAU in China, according to iResearch. Changyou is aleading online game developer and operator in China as measured by the popularity of its PC game TLBB and its mobile game Legacy TLBB Mobile,and engages primarily in the development, operation and licensing of online games for PCs and mobile devices.Through the operation of Sohu, Sogou and Changyou, we generate online advertising revenues, including brand advertising revenues and search andsearch-related advertising revenues; online games revenues; and other revenues. Online advertising and online games are our core businesses. Most ofour operations are conducted through our China-Based Subsidiaries and VIEs.For the year ended December 31, 2018, our total revenues were approximately $1.88 billion, representing an increase of 1% compared to 2017, and ourgross margin decreased from 44% to 43%. Our online advertising business generated revenues of $1.25 billion, with a 12% annual increase,representing 66% of total revenues. Our online game business generated revenues of $389.8 million, with a 13% annual decrease, representing 21% oftotal revenues. In 2018, our net loss before deducting the noncontrolling interest was $67.4 million, compared to a net loss of $470.0 million in 2017.In 2018, our net loss after deducting the noncontrolling interest was $160.1 million, compared to a net loss of $554.5 million in 2017. Diluted net lossper share attributable to Sohu.com Limited was $4.13 in 2018, compared to a diluted net loss per share attributable to Sohu.com Inc. of $14.30 in 2017. 105Table of ContentsFactors and Trends Affecting our BusinessWith the accelerated shift in user activities from PCs to mobile devices and an increase in the number of Internet users, the use of various kinds ofmobile Internet services continued to increase. At Sohu, we focused our efforts on developing a portfolio of leading mobile products across ourbusiness lines that we believed our users would like.Smartphones have reshaped the online media business in China, as in-stream feeds have become a mainstream format through which users have becomeaccustomed to receiving personalized information. To ensure we remain as a premier destination for our audience, we invested extensively in contentand technology for Sohu Media Portal. We continually refined the design of our key product Sohu News APP, and introduced innovative features tomeet users’ appetites. We improved the algorithm used by the recommendation engine of Sohu News APP to enhance the user experience. Ouradvertising revenues from large brand advertisers decreased through 2018, as we faced challenges competing for their budgets. In response, we areupgrading our advertising systems to improve their effectiveness, with the goal of enhancing monetization, and increasing small and mediumenterprise (“SME”) customers’ allocations of their advertising budgets to us.Online video services remained one of the most popular Internet applications, and continued to gain viewers from television stations. Due tointensified competition among major players, the price of content, especially the prices of premium TV programs, went up sharply in the past few years.This caused industry-wide financial losses. For Sohu Video, we have changed our content procurement strategy and stopped buying expensive new TVprograms. We now concentrate on self-developed content and other short-form video program categories, which are much less expensive than TVcontent. Leveraging our exclusive original content, we also actively explore opportunities with subscription services that we believe will become animportant revenue source in addition to traditional advertising revenues. As a result of these measures, the operating loss of Sohu Video in 2018decreased by 54% year-on-year. We expect the loss will continue to narrow in the year of 2019.The online search market in China has continued to grow in recent years, but the rate of growth in the mobile search market has slowed from prior yearsand competition for the acquisition of mobile search traffic has intensified. For our search and search-related business, Sogou remains China’s second-largest search engine by mobile queries. In December 2018, Sogou Search had an 18.5% market share in China based on mobile queries, according toCTR. Sogou has strengthened its competitive advantages in search from content, channel to technology. It has enhanced its differentiated searchservices in key verticals such as healthcare. It has also continued to leverage the robust ecosystem it has built and shared with Tencent. In 2018, Sogourenewed its framework business collaboration arrangement with Tencent. As part of the arrangement, Sogou Search will remain the default searchengine for a range of Tencent products that offer general search functions over the next five years. Sogou Search will also continue to be the searchpartner with Weixin/WeChat as the preferred search engine for third-party search services to access external Internet content within Weixin/WeChat forthe next year, and Tencent intends to extend this partnership over the next five years on an annual basis. In addition, Sogou has made significantbreakthroughs in language-centered AI technology, including speech, computer vision, machine translation, dialogue, and Q&A. Sogou has furtherleveraged these AI capabilities to enhance the search experience for users and explore more applications in multiple sectors and in various commercialsettings. Going forward, Sogou will continue to invest in companies with valuable content, data, and technology, and look to build strategicpartnerships through equity investments that help to solidify its competitive edge and drive the long-term growth of its search business.For Changyou’s online game business, PC games revenue remained stable and mobile games revenue experienced a decrease during the year of 2018.In 2018, Changyou reviewed its previous experience in mobile game development, streamlined its game development processes, and set higherstandards in terms of the overall quality of games within the pipeline. It also continued to adjust the in-game environment of and optimize theoperational strategy for its existing games. Going forward, Changyou plans to continue to improve its capabilities in game design, game technology,and graphic quality, enhance project management over the development process, and improve development efficiencies, as well as to further invest intalent acquisition and development. While Changyou expects that MMORPG mobile games will continue to be its strategic focus, it also plans todevelop casual games and strategy games. For the three months ended December 31, 2018, the PC games and mobile games that Changyou operateshad approximately 4.9 million total average monthly active accounts and approximately 1.6 million total active paying accounts.CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATESOur discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have beenprepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). The preparation of these financialstatements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and relateddisclosures. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to bereasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below arethe accounting policies that reflect our most significant estimates and judgments, and those that we believe are the most critical to fully understandingand evaluating our consolidated financial statements. 106Table of ContentsBasis of Consolidation and Recognition of Noncontrolling InterestOur consolidated financial statements include the accounts of Sohu and its subsidiaries and consolidated VIEs. All intra-Group transactions areeliminated.VIE ConsolidationOur VIEs are wholly or partially owned by certain of our employees as nominee shareholders. For our consolidated VIEs, management madeevaluations of the relationships between us and our VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection withsuch evaluation, management also took into account the fact that, as a result of such contractual arrangements, we control the shareholders’ votinginterests in these VIEs. As a result of such evaluation, management concluded that we are the primary beneficiary of our consolidated VIEs.Noncontrolling Interest RecognitionNoncontrolling interests are recognized to reflect the portion of the equity of subsidiaries and VIEs which is not attributable, directly or indirectly, tothe controlling shareholder. Currently, the noncontrolling interests in our consolidated financial statements primarily consist of noncontrollinginterests for Sogou and Changyou.Noncontrolling Interest for SogouPrior to the completion of Sogou’s IPO in November of 2017, Sohu controlled the election of a majority of the Board of Directors of Sogou pursuant toa shareholders’ agreement that expired upon the completion of the IPO. Following the completion of Sogou’s IPO, pursuant to the Sogou VotingAgreement and Sogou’s amended and restated memorandum and articles of association, Sohu still has the right to appoint a majority of Sogou’s Boardof Directors.As Sogou’s controlling shareholder, we consolidate Sogou in our consolidated financial statements, and recognize noncontrolling interest reflectingeconomic interests in Sogou held by shareholders other than us (the “Sogou noncontrolling shareholders”). Sogou’s net income /(loss) attributable tothe Sogou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements of comprehensive income.Noncontrolling Interest Recognition before Sogou’s IPOBased on the principles of allocation of Sogou’s profit and loss set forth below, Sogou’s cumulative results of operations attributable to the Sogounoncontrolling shareholders, along with changes in shareholders’ equity/(deficit) and adjustments for share-based compensation expense in relation tothose share-based awards that were unvested and vested but not yet settled and the Sogou noncontrolling shareholders’ investments in Sogou Pre-IPOSeries A Preferred Shares, Sogou Pre-IPO Series B Preferred Shares, Sogou Pre-IPO Class A Ordinary Shares, and Sogou Pre-IPO Class B Ordinary Shares,were accounted for as a noncontrolling interest classified as permanent equity in our consolidated balance sheets, as we had the power to reject aredemption requested by the noncontrolling shareholders. These treatments were based on the terms governing investment, and on the terms of theclasses of Sogou shares held, by the noncontrolling shareholders in Sogou before Sogou’s IPO.Principles of Allocation of Sogou’s Profit and Loss—By virtue of the terms of the Sogou Pre-IPO Preferred Shares, Pre-IPO Class A Ordinary Shares, andPre-IPO Class B Ordinary Shares, Sogou’s losses were allocated in the following order before Sogou’s IPO:(i) net losses were allocated to holders of the Sogou Pre-IPO Class A Ordinary Shares and the holder of the Sogou Pre-IPO Class B Ordinary Sharesuntil their basis in Sogou decreased to zero;(ii) additional net losses were allocated to holders of the Sogou Pre-IPO Series A Preferred Shares until their basis in Sogou decreased to zero;(iii) additional net losses were allocated to the holder of the Sogou Pre-IPO Series B Preferred Shares until its basis in Sogou decreased to zero; and(iv) further net losses were allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou. 107Table of ContentsNet income from Sogou was allocated in the following order before Sogou’s IPO:(i) net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou until their basis inSogou increased to zero;(ii) additional net income was allocated to the holder of the Sogou Pre-IPO Series B Preferred Shares to bring its basis back;(iii) additional net income was allocated to holders of the Sogou Pre-IPO Series A Preferred Shares to bring their basis back;(iv) further net income was allocated to holders of the Sogou Pre-IPO Class A Ordinary Shares and the holder of the Sogou Pre-IPO Class B OrdinaryShares to bring their basis back; and(v) further net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.Noncontrolling Interest Recognition after Sogou’s IPOSogou’s cumulative results of operations attributable to the Sogou noncontrolling shareholders, based on their share of the economic interest in Sogou,along with changes in shareholders’ equity and adjustment for share-based compensation expense in relation to share-based awards that are unvestedand vested but not yet settled and adjustment for changes in our ownership percentage in Sogou, are recorded as noncontrolling interest in ourconsolidated balance sheets.Noncontrolling Interest for ChangyouAs of the date of this report, we hold approximately 67% of the combined total of Changyou’s outstanding ordinary shares, and control approximately95% of the total voting power in Changyou.As Changyou’s controlling shareholder, we consolidate Changyou in our consolidated financial statements, and recognize noncontrolling interestreflecting the economic interest in Changyou held by shareholders other than us (the “Changyou noncontrolling shareholders”). Changyou’s netincome /(loss) attributable to the Changyou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements ofcomprehensive income, based on their share of the economic interest in Changyou. Changyou’s cumulative results of operations attributable to theChangyou noncontrolling shareholders, along with changes in shareholders’ equity, adjustment for share-based compensation expense in relation tothose share-based awards which are unvested and vested but not yet settled and adjustment for changes in our ownership in Changyou, are recorded asnoncontrolling interest in our consolidated balance sheets.Segment ReportingOur Group’s segments are business units that offer different services and are reviewed separately by the chief operating decision maker (the “CODM”),or the decision making group, in deciding how to allocate resources and in assessing performance. The CODM is our Chief Executive Officer.Revenue RecognitionImpact of Adoption of ASC 606On January 1, 2018, we adopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018. Theadoption of ASC 606 did not have a material impact on our accumulated deficit as of January 1, 2018. Results for reporting periods beginning on orafter January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ourhistoric accounting under ASC 605.Under ASC 605, advertising-for-advertising barter transactions for which the fair value of the advertising services was not determinable were recordedat the carrying amount of the advertising surrendered since we did not settle such barter transactions with the counterparties in cash. As ASC 605 hasbeen superseded by ASC 606 on this subject, advertising-for-advertising barter transactions is to be recorded at the fair value of the advertisingreceived by reference to the fair value of advertising services provided to other customers. The impact for the year of 2018 was an increase ofapproximately $25.6 million in revenues, with corresponding increases in cost of revenues and sales and marketing expenses, most of which weregenerated from Sogou for services provided to and received from Tencent. To a lesser extent, there is a potential impact on our accounting forexchanges of brand advertising placements with other platforms by Sohu. Revenues are recognized in the same amount as the corresponding costs andexpenses. Therefore, there was no net profit and loss impact to us for the year of 2018. 108Table of ContentsThe following table illustrates the effect of the adoption of ASC 606 by presenting a comparison of selected line items from the Group’s consolidatedstatement of comprehensive income for the year ended December 31, 2018, as actually reported and as they would have been reported under ASC 605,without the adoption of ASC 606 (in thousands, except per share data): As reported Withoutadoption ofASC 606 Effect of changeHigher/(Lower) Revenue-Online advertising-Brand advertising $231,945 228,165 3,780 Revenue-Online advertising-Search and search related advertising 1,022,456 1,000,639 21,817 Cost of revenue- Online advertising-Search and search related advertising 664,164 642,920 21,244 Gross profit 811,308 811,308 0 Operating expenses- Sales and marketing 400,579 396,226 4,353 Operating loss (160,525) (160,525) 0 Income tax expenses 13,432 13,432 0 Net loss (67,359) (67,359) 0 Basic net loss per share attributable to Sohu.com Limited. (4.11) (4.11) 0 Diluted net loss per share attributable to Sohu.com Limited. (4.13) (4.13) 0 The adoption of ASC 606 did not change our consolidated balance sheet, consolidated statement of cash flows, or consolidated statement of changesin equity as of, or for the year ended, December 31, 2018.Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration weexpect to be entitled to in exchange for those goods or services. The recognition of revenues involves certain management judgments, includingestimated lives of virtual items purchased by game players, the estimation of the fair value of an advertising-for-advertising barter transaction,allocation of upfront license fees for licensed-out games between license and post-sale services, and the volume sales rebates. We do not believe thatsignificant management judgements are involved in revenue recognition, but the amount and timing of our revenues could be different for any periodif management made different judgments or utilized different estimates.The following table presents our revenues disaggregated by products and services: Year EndedDecember 31, 2018(in thousands) Year EndedDecember 31, 2017(in thousands) Sohu Sogou Changyou Total Sohu Sogou Changyou Total Brand advertising: Sohu Media Portal $127,348 0 0 127,348 $151,982 0 0 151,982 Sohu Video 53,756 0 0 53,756 79,743 0 0 79,743 Focus 31,144 0 0 31,144 57,245 0 0 57,245 17173.com Website 0 0 19,697 19,697 0 0 25,096 25,096 Search and search related advertising 0 1,022,456 0 1,022,456 0 801,199 0 801,199 Online games: PC games 0 0 236,743 236,743 0 0 239,149 239,149 Mobile games 0 0 151,737 151,737 0 0 208,355 208,355 Other games 0 0 1,308 1,308 0 0 2,029 2,029 Others: Cinema advertising business 0 0 70,202 70,202 0 0 91,419 91,419 Others 61,975 100,589 6,074 168,638 83,758 106,807 14,180 204,745 Total $274,223 1,123,045 485,763 1,883,029 $372,728 908,006 580,228 1,860,962 109Table of ContentsAs noted above, in accordance with the modified retrospective method upon adoption of ASC 606, prior period amounts were not adjusted.Online Advertising RevenuesOnline advertising revenues include revenues from brand advertising services as well as search and search-related advertising services. Certaincustomers may receive sales rebates, which are accounted for as variable consideration. We estimate annual expected revenue volume from each agentwith reference to its historical results. Sales rebates will reduce revenues recognized. We recognize revenue for the amount of fees we receive from ouradvertisers, after deducting sales rebates and net of value-added tax (“VAT”). We believe that there will not be significant changes to our estimates ofvariable consideration.Brand Advertising RevenuesRevenue Recognition of Multiple Performance ObligationsOur contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performanceobligation based on its relative standalone selling price. We generally determine the standalone selling price of each distinct performance obligationbased on the prices charged to customers when sold on a standalone basis. Where a standalone selling price is not directly observable, we generallyestimate the selling price based on the prices at which performance obligations of a similar nature and geography are charged to customers. Most ofsuch contracts have all performance obligations completed within the same quarter.Pricing ModelThrough PCs and mobile devices, we provide advertisement placements to our advertisers on different Internet platforms and in different formats,which include banners, links, logos, buttons, full screen, pre-roll, mid-roll, post-roll video screens, pause video screens, loading page ads, news feed adsand in-feed video infomercial ads.Currently we have three main types of pricing models, consisting of the Fixed Price model, the CPM model, and the CPC model. (i)Fixed Price modelUnder the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. Given that the advertisers benefitfrom displayed advertisements evenly over the period the advertisements are displayed, we recognize revenue on a straight-line basis over the period ofdisplay, provided all revenue recognition criteria have been met. (ii)CPM modelUnder the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the advertiser. A qualifying display is definedas the appearance of an advertisement, where the advertisement meets criteria specified in the contract. Given that the fees are priced consistentlythroughout the contract and the unit prices are fixed in accordance with our pricing practices for similar advertisers, we recognize revenue based on thefixed unit prices and the number of qualifying displays upon their occurrence, provided all revenue recognition criteria have been met. (iii)CPC modelUnder the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser and the unit price for each click isauction-based. We charge advertisers on a per-click basis when the users click on the advertisements. Given that the fees are priced consistentlythroughout the contract and the unit prices are fixed in accordance with our pricing practices with similar advertisers, we recognize revenue based onqualifying clicks and unit price upon the occurrence of the clicks, provided all revenue recognition criteria have been met.Search and Search-related Advertising Revenues 110Table of ContentsSearch and search-related services consist primarily of search and search-related advertising services offered by Sogou.Pay-for-click ServicesPay for click services enable advertisers’ promotional links to be displayed on Sogou search result pages and other Internet properties and third parties’Internet properties where the links are relevant to the subject and content of searches and such properties. For pay for click services, Sogou introducesInternet users to its advertisers through auction-based systems and charges advertisers on a per-click basis when the users click on the displayed links.The performance obligation of pay-for-click services is satisfied at the point in time once the users click on the displayed links, and revenue forpay-for-click services is recognized on a per-click basis.Other Online Advertising ServicesOther online advertising services mainly consist of displaying advertisers’ promotional links on Sogou’s Internet properties. For time-based advertisingservices, the Sogou’s performance obligation is satisfied over time when the advertising links are displayed over the contract periods, and revenue isnormally recognized on a straight-line basis over the contracted display period. For performance-based advertising services, for example, theadvertisers are charged based on the times that users download from the displayed links, Sogou’s performance obligation is satisfied at the point intime when the promised performance is completed and the revenue is recognized upon the completion of the promised performance.Sogou’s online advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’Internet properties, including Web content, software, and mobile applications. Sogou is the principal in such arrangement because its promise toadvertisers is to provide the advertising services itself rather than to arrange for the advertising services to be provided by third parties on their Internetproperties. Payments made to operators of third-party Internet properties are included in the traffic acquisition costs.Online Game RevenuesChangyou’s online game revenues are generated primarily from its self-operated and licensed-out PC games and mobile games. All of Changyou’sgames are operated under the item-based revenue model, where the basic game play functions are free of charge and players are charged for purchasesof in-game virtual items, including those with a predetermined expiration time and perpetual virtual items.Changyou is the primary obligor of its self-operated games. Changyou hosts the games on its own servers and is responsible for the sale and marketingof the games as well as customer service. Accordingly, revenues are recorded gross of revenue sharing-payments to third-party developers and/ormobile APP stores, but net of VAT and discounts to game card distributors where applicable. Changyou obtains revenues from the sale of in-gamevirtual items. Revenues are recognized as the virtual items are consumed or over the estimated lives of the virtual items, which are estimated byconsidering the average period that paying players typically play Changyou’s games and other player behavior patterns derived from operating data. Ifdifferent assumptions were used in deriving the estimated lives of the virtual items, the timing of the recording of the revenues could be impacted.PC GamesProceeds from Changyou’s self-operated PC games are collected from players and third-party game card distributors through sales of Changyou’s gamepoints on its online payment platform and prepaid game cards.Changyou’s self-operated PC games are either developed in house or licensed from third-party developers. For licensed PC games, Changyou remits apre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the balance. Such revenue-sharing amounts paid to third-party developers are recorded in Changyou’s cost of revenues.Mobile GamesSelf-operated Mobile GamesFor self-operated mobile games, Changyou sells game points to its game players via third-party mobile APP stores. The mobile APP stores in turn payChangyou proceeds after deducting their share of pre-agreed revenue-sharing amounts.Changyou’s self-operated mobile games are either developed in house or licensed from or jointly developed with third-party developers. For licensedand jointly developed mobile games, Changyou remits a pre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the balance. Such revenue-sharing amounts paid to mobile application stores and third-party developers are recorded inChangyou’s cost of revenues. 111Table of ContentsLicensed Out Mobile GamesChangyou also authorizes third parties to operate its mobile games. The licensed out games mainly include mobile games developed in house, such asChangyou’s mobile game Legacy TLBB Mobile, and mobile games jointly developed with third-party developers. Changyou receives monthlyrevenue-based royalty payments from the third-party licensee operators. Changyou receives additional up-front license fees from certain third-partylicensee operators who are entitled to an exclusive right to operate Changyou’s games in specified geographic areas. Since Changyou is obligated toprovide post-sale services (“PCS”), the initial license fees are allocated between the license and PCS based on relative standalone selling prices. Theamount allocated to the license is recognized as revenue upon the commencement of the license period, given that Changyou’s intellectual propertyrights subject to the license are considered to be functional and the licensee has the right to use such intellectual property rights as they exist at thepoint when the license is granted, and the amount allocated to PCS is recognized as revenue ratably over the license period. Monthly revenue-basedroyalty payments are recognized when the relevant services are delivered, provided that collectability is reasonably assured. Changyou views the third-party licensee operators as Changyou’s customers and recognizes revenues on a net basis, as Changyou does not have the primary responsibility forfulfillment and acceptability of the game services. Changyou remits to the third-party developers a pre-agreed percentage of revenues and keeps thebalance pursuant to revenue-sharing agreements. Such revenue-sharing amounts paid to third-party developers are included in Changyou’s cost ofrevenues or product development expenses.Other RevenuesSohuOther revenues attributable to Sohu consist primarily of revenues from paid subscription services, interactive broadcasting services, and contentprovided through the platforms of the three main telecommunications operators in China.SogouOther revenues attributable to Sogou are IVAS revenues, which are mainly from the operation of Web games and mobile games developed by thirdparties and the provision of online reading services, and revenues from other products and services including smart hardware products.ChangyouOther revenues attributable to Changyou are primarily from its cinema advertising business and from IVAS.In its cinema advertising business, Changyou provides clients advertising placements in slots that are shown in theaters before the screening of movies.The rights to place advertisements in such advertising slots are granted to Changyou, which takes inventory risk under the contracts Changyou signswith different theaters. Changyou charges its advertising clients fees either on a per advertising-slot basis or a fixed amount for an agreed-upon numberof slots during a specified contract period. When delivery of the advertising service is confirmed by the customers by their signing a form, revenuesfrom cinema advertising are recognized based on a percentage of the advertising slots actually delivered or on a straight-line basis over the contractperiod. As Changyou is considered to be the principal in the arrangements with the theaters, the fees paid to the theaters are recognized as cost ofrevenues.Changyou provides IVAS primarily through software applications for PCs and mobile devices offered by RaidCall. Prior to March 2018, IVASrevenues also included revenues generated from the Dolphin Browser operated by MoboTap. Revenues from IVAS are recognized during the period theservices are rendered or items are consumed under the gross method, as Changyou is the principal obligor for provision of the services.Contract BalancesTiming of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenuerecognized prior to invoicing, when we have satisfied our performance obligations and have the unconditional right to payment. The allowance fordoubtful accounts and authorized credits is estimated based upon our assessment of various factors, including historical experience, the age of theaccounts receivable balances, current economic conditions and other factors that may affect our customers’ ability to pay. Contract assets as ofDecember 31, 2018 were not material. The allowance for doubtful accounts and authorized credits was $16.9 million and $5.7 million, respectively, asof December 31, 2018 and December 31, 2017.Receipts in advance and deferred revenue related to unsatisfied performance obligations at the end of the period and primarily consist of fees receivedfrom the game players with online gaming business and advertisers with search and search-related advertising businesses. Due to the generally short-term duration of the contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenuerecognized that was included in the receipts in advance and deferred revenue balance at the beginning of the period was $111.8 million for the yearended December 31, 2018. 112Table of ContentsThere is no significant change in the contract assets and contract liability balances during the year of 2018.Revenue recognized in 2018 from performance obligations related to prior years was not material.Practical ExpedientsWe have used the following practical expedients as allowed under ASC 606:(i) The transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, has not been disclosed as substantiallyall of our contracts have a duration of one year or less.(ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one yearor less. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally donot include a significant financing component.(iii) We applied the portfolio approach in determining the commencement date of consumption and the estimated lives of virtual items for therecognition of games revenue given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materiallyfrom considering each one of them individually.(iv) We generally expense sales commissions when incurred, because the amortization period would be one year or less. These costs are recordedwithin sales and marketing expenses.Cost of RevenuesCost of Online Advertising RevenuesCost of online advertising revenues includes cost of revenues from brand advertising services as well as cost of revenues from search and search-relatedservices.Cost of Brand Advertising RevenuesCost of brand advertising revenues mainly consists of content and license costs, salary and benefits expenses, and bandwidth leasing costs. For self-developed video content, production costs incurred in excess of the amount of revenue contracted for are expensed as incurred.Cost of Search and Search-related Advertising RevenuesCost of search and search-related advertising revenues mainly consists of traffic acquisition costs, bandwidth leasing costs, depreciation expenses,salary and benefits expenses, and share-based compensation expense. Traffic acquisition costs consist primarily of payments to third parties that directsearch queries of the users to Internet properties of Sogou or distribute Sogou advertisers’ promotional links through such third parties’ Internetproperties. The traffic acquisitions costs for such arrangements consist primarily of fees that Sogou pays to the third parties based on an agreed-uponunit price and revenue-sharing payments that Sogou makes to such third parties based on an agreed-upon percentage of revenues generated from users’clicks.Cost of Online Game RevenuesCost of online game revenues mainly consists of revenue-sharing payments, salary and benefits expenses, bandwidth leasing costs, content and licensecosts, tax surcharges, depreciation and amortization expenses, and other direct costs.Cost of Other RevenuesCost of other revenues mainly consists of payments to theaters for pre-film screening advertising slots, revenue-sharing payments related to the IVASbusiness, content and license costs related to paid subscription services, and revenue-sharing payments related to interactive broadcasting services.Product Development Expenses 113Table of ContentsProduct development expenses mainly consist of salary and benefits expenses, technical service fees, content and license expenses, facilities expenses,and depreciation and amortization expenses. These expenses are incurred for the enhancement and maintenance of our Internet platforms as well as forour products and services. The development costs of online games are expensed as incurred, including the development costs of online games prior tothe establishment of technological feasibility and maintenance costs after the online games are available for marketing.Advertising ExpensesAdvertising expenses are included in sales and marketing expenses, and generally represent the expenses of promotions to create or stimulate apositive image of us or a desire to subscribe for our products and services. Advertising and promotional expenses are expensed as incurred.Share-based Compensation ExpenseSohu (excluding Fox Video Limited), Sogou, Changyou, and Fox Video Limited (“Sohu Video”) have incentive plans for the granting of share-basedawards, including stock options, share options and restricted share units, to members of the boards of directors, management and other key employees.For share-based awards for which a grant date has occurred, share-based compensation expense is recognized as costs and expenses in the consolidatedstatements of comprehensive income based on the fair value of the related share-based awards on their grant dates. For share-based awards for which theservice inception date precedes the grant date, share-based compensation expense is recognized as costs and expenses in the consolidated statements ofcomprehensive income beginning on the service inception date and is re-measured on each subsequent reporting date before the grant date, based onthe estimated fair value of the related share-based awards. Share-based compensation expense is charged to the shareholders’ equity or noncontrollinginterest section in the consolidated balance sheets. The assumptions used in share-based compensation expense recognition represent management’sbest estimates, but these estimates involve inherent uncertainties and the application of management judgment. If factors change or differentassumptions are used, our share-based compensation expense could be materially different for any period. Moreover, the estimates of fair value are notintended to predict actual future events or the value that ultimately will be realized by employees who receive equity awards.Sohu (excluding Sohu Video), Sogou, and Changyou Share-based AwardsSohu (excluding Sohu Video) Share-based AwardsIn determining the fair values of share options granted by Sohu (excluding Sohu Video) as share-based awards, the public market price of theunderlying shares at each reporting date was used, and a binomial valuation model was applied. In determining the fair value of restricted share unitsgranted, the public market price of the underlying shares on the grant dates was applied.Upon the dissolution of Sohu.com Inc. on May 31, 2018, we assumed all then existing obligations of Sohu.com Inc. with respect to equity incentiveawards that had been granted under Sohu.com Inc.’s Amended and Restated 2010 Stock Incentive Plan and remained outstanding, and such awardswere converted into the right to receive upon exercise or settlement our ordinary shares under the Sohu 2018 Share Incentive Plan rather than shares ofthe common stock of Sohu.com Inc., subject to the other terms of such outstanding awards. Options for the purchase of our ordinary shares, includingthe options converted from those contractually granted under the Sohu Amended and Restated 2010 Stock Incentive Plan, are subject to vesting in fourequal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjectiveperformance targets.Under ASC 718-10-25, no grant date can be established until a mutual understanding is reached between Sohu and the recipients clarifying thesubjective performance requirements. In accordance with ASC 718-10-55, as the service inception date preceded the grant date, compensation expensewas accrued beginning on the service inception date and will be re-measured on each subsequent reporting date before the grant date is established,based on the then-current fair value of the awards. The estimate of the awards’ fair values will be fixed in the period in which the grant date occurs, andcumulative compensation expense will be adjusted based on the fair value at the grant date.Sogou Share-based AwardsIn determining the fair value of share options granted by Sogou as share-based awards, a binomial valuation model was applied. The determination ofthe fair value is affected by the fair value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables,including risk-free interest rates, exercise multiples, expected forfeiture rates, expected share price volatility rates, and expected dividends. Before thecompletion of Sogou’s IPO, the fair values of the ordinary shares were assessed using the income approach/discounted cash flow method or based onthe mid-point of the estimated IPO price range, in each case with a discount for lack of marketability, given that the shares underlying the awards werenot publicly traded at the time of grant. After the completion of Sogou’s IPO, the fair values of the ordinary shares were determined based on thetrading price of Sogou’ ADSs in the public market. Certain persons who became Sogou employees when Tencent’s Soso search-related businesses weretransferred to Sogou in 2013 had been granted restricted share units under Tencent’s share award arrangements prior to the transfer of the businesses toSogou. These Tencent restricted share units will continue to vest under the original Tencent share award arrangements provided the transferredemployees continue to be employed by Sogou during the requisite service period. After the transfer of the Soso search-related businesses to Sogou,Sogou applied the guidance in ASC 505-50 to measure the related compensation expense based on the then-current fair value at each reporting date, asthe expense is deemed to have been incurred by Tencent as an investor on Sogou’s behalf. To determine the then-current fair value of the Tencentrestricted share units granted to these employees, the public market price of the underlying shares at each reporting date was applied. Because Sogou isnot required to reimburse Tencent for such share-based compensation expense, the related amount was recorded by Sogou as a capital contributionfrom Tencent. 114Table of ContentsChangyou Share-based AwardsIn determining the fair value of ordinary shares and restricted share units granted by Changyou as share-based awards in 2008, the income approach/discounted cash flow method with a discount for lack of marketability was applied, given that the shares underlying the awards were not publiclytraded at the time of grant. Changyou’s 2008 Share Incentive Plan expired in August 2018 and is no longer available for granting new share-basedawards. In determining the fair value of restricted share units granted after Changyou’s IPO, the public market price of the underlying shares on thegrant dates was applied.Options for the purchase of Changyou Class A ordinary shares contractually granted under the Changyou 2014 Share Incentive Plan are subject tovesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement andcertain subjective performance targets. Under ASC 718-10-25, no grant date can be established until a mutual understanding is reached betweenChangyou and the recipients clarifying the subjective performance requirements. In accordance with ASC 718-10-55, as the service inception datepreceded the grant date, compensation expense was accrued beginning on the service inception date and will be re-measured on each subsequentreporting date before the grant date is established, based on the then-current fair value of the awards. The estimates of the awards’ fair values will befixed in the period in which the grant date occurs, and cumulative compensation expense will be adjusted based on the fair values at the grant date. Indetermining the fair values of Changyou share options granted, the public market price of the underlying shares at each reporting date was used, and abinomial valuation model was applied.Compensation Expense RecognitionFor options and restricted share units granted with respect to Sohu (excluding Sohu Video) shares and Changyou shares, compensation expense isrecognized on an accelerated basis upon the requisite service period and certain subjective performance targets being met. For share options grantedwith respect to Sogou shares, compensation expense is recognized over the estimated period during which the service period requirement andperformance target will be met, which is usually within one year, or, after the performance target of Sogou’s completion of an IPO was met upon thecompletion of Sogou’s IPO on November 13, 2017, on an accelerated basis over the requisite service period, or, for options with only service periodrequirement, on an accelerated basis over the requisite service period. For Tencent restricted share units that Tencent had granted to employees whotransferred to Sogou with the Soso search and search-related businesses, compensation expense is recognized by Sogou on an accelerated basis over therequisite service period, and the fair value of the share-based compensation is re-measured at each reporting date until the service has been provided.The number of share-based awards for which the service is not expected to be rendered over the requisite period is estimated, and no compensationexpense is recorded for the number of awards so estimated.Sohu Video Share-based AwardsOn January 4, 2012, Sohu Video, the holding entity of Sohu’s video division, adopted a 2011 Share Incentive Plan (the “Video 2011 Share IncentivePlan”) which provides for the issuance of up to 25,000,000 ordinary shares of Sohu Video (representing approximately 10% of the outstanding SohuVideo shares on a fully-diluted basis) to management and key employees of the video division and to Sohu management. As of December 31, 2018,grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made, of which options for the purchase of4,972,800 ordinary shares were vested.For purposes of ASC 718-10-25, as of December 31, 2018, no grant date had occurred, because the broader terms and conditions of the option awardshad neither been finalized nor mutually agreed upon with the recipients. Therefore, the fair value of the awards was not determinable and could not beaccounted for. In accordance with ASC 718-10-55, our management determined that the service inception date with respect to vested option awards forthe purchase of 4,972,800 shares had preceded the grant date. Therefore, we recognized compensation expense for these vested Sohu Video share-basedawards and re-measured, and will re-measure, the compensation expense on each subsequent reporting date based on the then-current fair values ofthese vested awards until the grant date is established.Taxation 115Table of ContentsPRC Corporate Income TaxesRecognitionIncome taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for thecurrent year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or taxreturns. Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets and liabilities and aremeasured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation allowance, if based on available evidence, it isconsidered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination, weconsider factors including future reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were tooccur in the future that would allow us to realize more of our deferred tax assets than the presently recorded net amount, an adjustment would be madeto the deferred tax assets that would increase income for the period when those events occurred. If events were to occur in the future that would requireus to realize less of our deferred tax assets than the presently recorded net amount, an adjustment would be made to the valuation allowance againstdeferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required in determiningincome tax expense and deferred tax assets and liabilities.Our deferred tax assets are related to net operating losses and temporary differences between accounting basis and tax basis for our China-BasedSubsidiaries and VIEs, which are subject to corporate income tax in the PRC under the CIT law.Applicable Income Tax RatePrincipal Entities Qualified as HNTEsThe CIT Law generally applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to HNTEs. Under this preferential taxtreatment, HNTEs can enjoy an income tax rate of 15%, but need to re-apply every three years. During this three-year period, an HNTE must conduct aqualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for that year. If an HNTE fails tomeet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in that year, and must instead usethe regular 25% CIT rate.As of December 31, 2018, the following principal entities were qualified as HNTEs and were entitled to an income tax rate of 15%.For Sohu’s Business • Sohu Internet. Sohu Internet re-applied for HNTE qualification and received approval in October 2018. Sohu Internet is entitled tocontinue to enjoy the beneficial tax rate as HNTEs for the years 2018 through 2020, and will need to re-apply for HNTE qualification in2021. • Sohu Media and Guangzhou Qianjun. Sohu Media and Guangzhou Qianjun re-applied for HNTE qualification and received approval inNovember 2017 and December 2017, respectively. Sohu Media and Guangzhou Qianjun are entitled to continue to enjoy the beneficial taxrate as HNTEs for the years 2017 through 2019, and will need to re-apply for HNTE qualification in 2020. • Sohu New Momentum. Sohu New Momentum qualified as an HNTE for the years 2016 through 2018, and will need to re-apply for HNTEqualification in 2019.For Sogou’s Business • Sogou Information. Sogou Information re-applied for HNTE qualification and received approval in November 2018. Sogou Information isentitled to continue to enjoy the beneficial tax rate as HNTEs for the years 2018 through 2020, and will need to re-apply for HNTEqualification in 2021. • Sogou Technology. Sogou Technology re-applied for HNTE qualification and received approval in December 2017. Sogou Technology isentitled to continue to enjoy the beneficial tax rate as an HNTE for the years 2017 through 2019, and will need to re-apply for HNTEqualification in 2020. • Sogou Network. Sogou Network qualified as an HNTE for the years 2016 through 2018, and will need to re-apply for HNTE qualificationin 2019.For Changyou’s Business 116Table of Contents • Gamease and AmazGame. Gamease and AmazGame re-applied for HNTE qualification and received approval in October 2017 andDecember 2017, respectively. Gamease and AmazGame are entitled to continue to enjoy the beneficial tax rate as HNTEs for the years 2017through 2019, and will need to re-apply for HNTE qualification in 2020. • Gamespace. Gamespace qualified as HNTE for the years 2016 through 2018, and will need to re-apply for HNTE qualification in 2019.Principal Entities Qualified as Software Enterprises and KNSEsThe CIT Law and its implementing regulations provide that a “Software Enterprise” is entitled to an income tax exemption for two years beginningwith its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years. An entity that qualifies as a “KNSE” is entitled to afurther reduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessment each year to ensure they meet the criteria for qualification and file required supporting documents with the tax authorities before using thepreferential CIT rates. These enterprises will be subject to the tax authorities’ assessment each year as to whether they are entitled to use the relevantpreferential CIT treatments. If at any time during the preferential tax treatment years an enterprise uses the preferential CIT rates but the relevantauthorities determine that it fails to meet applicable criteria for qualification, the relevant authorities may revoke the enterprise’s SoftwareEnterprise/KNSE status.For Sohu’s Business • Sohu New Momentum. In 2018, Sohu New Momentum completed a self-assessment, filed required supporting documents, and wasqualified as a Software Enterprise, which entitled it to the second year of an income tax rate reduction from 25% to 12.5% for 2017. SohuNew Momentum will follow the same process in 2019 to entitle it to the third year of an income tax rate reduction from 25% to 12.5% for2018.For Sogou’s Business • Sogou Technology. In 2018, Sogou Technology completed a self-assessment and filed required supporting documents for KNSE status for2017. In 2018, Sogou Technology was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to apreferential income tax rate of 10% for 2017. Sogou Technology will follow the same process in 2019 for KNSE status for 2018.For Changyou’s Business • AmazGame. In 2018, AmazGame completed a self-assessment and filed required supporting documents for KNSE status for 2017. Also in2018, AmazGame was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to a preferential incometax rate of 10% for 2017. AmazGame will follow the same process in 2019 for KNSE status for 2018. • Changyou Chuangxiang. In 2018, Changyou Chuangxiang completed a self-assessment, filed required supporting documents, and wasqualified as a Software Enterprise, which entitled it to the first year of an income tax exemption for 2017. Changyou Chuangxiang willfollow the same process in 2019 to entitle it to the second year of an income tax exemption for 2018.PRC Withholding Tax on DividendsThe CIT Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises in the PRC to their immediate holdingcompanies outside Mainland China. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdictionof the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangementbetween the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion withRespect to Taxes on Income,” if such holding company is considered a non-PRC resident enterprise and holds at least 25% of the equity interests in thePRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holdingcompany is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to awithholding tax rate of 10%.PRC Value Added TaxOn May 1, 2016, the transition from the imposition of Business Tax to the imposition of VAT was expanded to all industries in China, and all of ourrevenues have been subject to VAT since that date. To record VAT payable, we adopted the net presentation method, which presents the differencebetween the output VAT (at rates of 6% or 17% for the years ended December 31, 2016 and 2017 and for the period from January 1, 2018 to April 30,2018, and at rates of 6% or 16% after May 1, 2018) and the available input VAT amount (at the rate applicable to the supplier). 117Table of ContentsU.S. Corporate Income TaxSohu.com Inc., which was formerly the top-tier publicly-traded parent company of the Sohu Group, was dissolved and liquidated on May 31, 2018.Sohu.com Inc. was a Delaware corporation that was subject to U.S. federal corporate income tax on its taxable income at a rate of 21% for taxable yearsbeginning after December 31, 2017 and of up to 35% for prior tax years. U.S. federal tax legislation signed into law on December 22, 2017, commonlyreferred to as the Tax Cuts and Jobs Act (the “U.S. TCJA”), significantly modified the U.S. Internal Revenue Code by, among other things, reducing themaximum statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/oreliminating many business deductions; migrating the U.S. to a partial territorial tax system with a one-time transition tax (the “Toll Charge”) on amandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generallyeliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. See Note 14 toour audited consolidated financial statements beginning on page F-1 of this report.Certain activities conducted in the PRC resulted in U.S. corporate income taxes being imposed on Sohu.com Inc. when its subsidiaries that werecontrolled foreign corporations (“CFCs”) generated income that was subject to Subpart F of the U.S. Internal Revenue Code (“Subpart F”). Generally,passive income, such as rents, royalties, interest, dividends, and gains from disposal of the Sohu Group’s investments, were among the types of incomethat were subject to taxation under Subpart F. Any income taxable under Subpart F was taxable in the U.S. at a federal corporate income tax rate of21%. Subpart F income also included certain income from intra-Group transactions between Sohu.com Inc.’s non-U.S. subsidiaries and VIEs andChangyou’s non-U.S. subsidiaries and VIEs or Sogou’s non-U.S. subsidiaries and VIEs, or where Sohu.com Inc.’s non-U.S. subsidiaries or VIEs made an“investment in U.S. property,” such as holding stock in, or making a loan to, a U.S. corporation.To the extent that portions of Sohu.com Inc.’s U.S. taxable income, such as Subpart F income or global intangible low-taxed income (“GILTI”), hadbeen determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may have been entitled to claim foreign tax creditsto offset its U.S. income tax liabilities. If dividends that Sohu.com Inc. received from its subsidiaries had been determined to be from sources outside ofthe U.S., subject to certain limitations, Sohu.com Inc. would generally not have been required to pay U.S. corporate income tax on those dividends.Any liabilities for U.S. corporate income tax were accrued in our consolidated statements of comprehensive income and estimated tax payments weremade when required by U.S. law.Treatment of Toll Charge Related to the U.S. TCJABeginning in the fourth quarter of 2017, the Sohu Group had recognized a provisional amount of income tax expense for the Toll Charge of$219 million, which represented management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based onthe deemed repatriation to the United States of its share of previously deferred earnings of certain of its non-U.S. subsidiaries, offset by a reduction of$4.0 million in liability for deferred U.S. income tax, as a result of the U.S. TCJA. The Sohu Group included the provisional amount of the Toll Chargeof $219 million in its interim financial statements through the quarter ended September 30, 2018, in reliance on SAB 118.For the fourth quarter of 2018, the Sohu Group’s management re-evaluated the impact on the Sohu Group of the Toll Charge under the U.S. TCJA.Management determined that it was more likely than not, based on the technical merits, that the tax position that the Sohu Group had no Toll Chargeliability would be sustained. The Group recognized a tax benefit in the amount of $77 million, which was the largest amount that managementdetermined to be greater than 50% likely to be realized upon settlement with the U.S. IRS. As a result, as of December 31, 2018 the Sohu Group had anunrecognized tax benefit in the amount of $142 million, which represented the difference between the tax benefit recognized in the fourth quarter of2018 and management’s previous estimate of the Toll Charge. In addition, the Sohu Group accrued $2 million in interest on the unrecognized taxbenefit.The tax benefit recognized and the unrecognized tax benefit in relation to the Toll Charge may be subject to further adjustment in subsequent periodsbased on facts and circumstances that arose after December 31, 2018, such as final IRS Toll Charge regulations published in February 2019, and anyfuture circumstances such as any guidance issued by the U.S. Department of the Treasury, any IRS assessments upon audit on the Toll Charge, if any,and management’s further judgment and estimates.Uncertain Tax PositionsWe are subject to various taxes in different jurisdictions, primarily the U.S. and the PRC. Management reviews regularly the adequacy of the provisionsfor taxes as they relate to our income and transactions. In order to assess uncertain tax positions, we apply a more likely than not threshold and atwo-step approach for tax position measurement and financial statement recognition. For the two-step approach, the first step is to evaluate the taxposition for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained,including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is morethan 50% likely to be realized upon settlement. 118Table of ContentsNet Income /(Loss) per ShareBasic net income /(loss) per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted netincome /(loss) per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstandingduring the period. Potential ordinary shares comprise shares issuable upon the exercise or settlement of share-based awards using the treasury stockmethod. The dilutive effect of share-based awards with performance requirements is not considered before the performance targets are actually met. Thecomputation of diluted net income /(loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net income /(loss) per share.Additionally, for purposes of calculating the numerator of diluted net income /(loss) per share, the net income /(loss) attributable to Sohu is calculatedas follows.Sogou’s net income /(loss) attributable to SohuBefore Sogou’s IPOBefore Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu was determined using the percentage that the weighted average number of Sogoushares held by Sohu represented of the weighted average number of Sogou Pre-IPO Preferred Shares and Pre-IPO Ordinary Shares outstanding, sharesissuable upon the conversion of convertible preferred shares under the if-converted method, and shares issuable upon the exercise or settlement ofshare-based awards under the treasury stock method, and was not determined by allocating Sogou’s net income /(loss) to Sohu using the methodologyfor the calculation of net income /(loss) attributable to the Sogou noncontrolling shareholders.After Sogou’s IPOAfter Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Sogoushares held by Sohu represents of the weighted average number of Sogou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Sogou, which is used forthe calculation of basic net income per share.In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, the percentage of Sohu’s shareholding in Sogou wascalculated by treating convertible preferred shares issued by Sogou as having been converted at the beginning of the period and unvested Sogou shareoptions with the performance targets achieved as well as vested but unexercised Sogou share options as having been exercised during the period. Thedilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. Assuming ananti-dilutive effect, all of these Sogou shares and share options were excluded from the calculation of Sohu’s diluted income /(loss) per share. As aresult, Sogou’s net income /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu.com Limited’s basic netincome /(loss) per share.Changyou’s net income /(loss) attributable to SohuChangyou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Changyou shares held bySohu represents of the weighted average number of Changyou ordinary shares and shares issuable upon the exercise or settlement of share-basedawards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Changyou, which is used forthe calculation of basic net income per share.In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, all of Changyou’s existing unvested restricted share unitsand share options, and vested restricted share units and share options that have not yet been settled, are treated as vested and settled by Changyouunder the treasury stock method, causing the percentage of the weighted average number of shares held by Sohu in Changyou to decrease. As a result,Changyou’s net income /(loss) attributable to Sohu on a diluted basis decreased accordingly. Assuming an anti-dilutive effect, all of these Changyourestricted share units and share options are excluded from the calculation of Sohu’s diluted net income /(loss) per share. As a result, Changyou’s netincome /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.Fair Value of Financial Instruments 119Table of ContentsU.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financialinstruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs whenmeasuring fair value. The three-tier fair value hierarchy is:Level 1—observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.Level 2—include other inputs that are directly or indirectly observable in the market place.Level 3—unobservable inputs which are supported by little or no market activity.Our financial instruments consist primarily of cash equivalents, short-term investments, accounts receivable, financing receivables, prepaid and othercurrent assets, long-term investments, accounts payable, accrued liabilities, receipts in advance and deferred revenue, short-term bank loans, othershort-term liabilities, long-term bank loans and long-term accounts payable.Cash EquivalentsOur cash equivalents mainly consist of time deposits with original maturities of three months or less, and highly liquid investments that are readilyconvertible to known amounts of cash.Short-term InvestmentsFor investments in financial instruments with a variable interest rate indexed to the performance of underlying assets, we elected the fair value methodat the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the consolidatedstatements of comprehensive income.Accounts Receivable, NetThe carrying value of accounts receivable is reduced by an allowance that reflects our best estimate of the amounts that will not be collected. We makeestimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance, including reviewingdelinquent accounts receivable, performing an aging analysis and a customer credit analysis, and analyzing historical bad debt records and currenteconomic trends.Financing Receivables, NetFinancing receivables consist primarily of small consumer loans to individual borrowers. Such amounts are recorded at the principal amount andinterest accrued, net of allowance for credit losses that reflects Sogou’s best estimate of the amounts that will not be collected. Interest on loans isaccrued based on the contractual interest rates of the loans when earned. The loan periods granted by Sogou to the borrowers related to the smallconsumer loans are generally within one year. The allowance for credit losses is determined at a level believed to be reasonable to absorb probablelosses inherent in the loan portfolio as of each balance sheet date. The allowance is provided based on an assessment performed on a portfolio basis andis estimated on a quarterly basis or more often as necessary based on the delinquency rate, the aging of the amount due and other relevant factors.Foreign Exchange Forward ContractsForeign exchange forward contracts are initially recognized on the date a foreign exchange forward contract is entered into and are subsequentlymeasured at fair value.Restricted Time DepositsRestricted time deposits are valued based on the prevailing interest rates in the market using the discounted cash flow method.Changyou Loans from Offshore Bank, Secured by Time DepositsIn 2018, Changyou drew down from Hong Kong branches of PRC banks loans that were secured by an equivalent or greater amount of RMB depositsby Changyou in the PRC branches of the banks. The loans from the Hong Kong branches of the lending banks were classified as short-term or long-term bank loans based on the loans’ payment terms. The rates of interest under the loan agreements with the lending banks were determined based onthe prevailing interest rates in the market. The RMB deposits in the PRC securing the Hong Kong loans are treated as restricted time deposits on ourconsolidated balance sheets.Equity Investments 120Table of ContentsInvestments in entities are recorded as equity investments under long-term investments. For entities over which we can exercise significant influencebut do not own a majority equity interest or control, the equity method is applied, and we adjust the carrying amount of an investment and recognizeinvestment income or loss for our share of the earnings or loss of the investee after the date of investment. For those equity investments accounted forother than under the equity method or those that result in consolidation, the fair value method is applied. However, for equity investments that do nothave readily determinable fair values, we choose to account for them at cost minus impairment, if any, plus or minus changes resulting from observableprice changes in orderly transactions for the identical or a similar investment of the same issuer. If this measurement alternative is elected, changes inthe carrying value of the equity investment will be required to be made whenever there are observable price changes in transactions for identical orsimilar investments of the same issuer. The implementation guidance notes that an entity should make a “reasonable effort” to identify price changesthat are known or that can reasonably be known.Long-Lived AssetsLong-lived assets include fixed assets and intangible assets.Fixed AssetsFixed assets mainly comprise office buildings, leasehold improvements, building improvements, vehicles, office furniture and computer equipmentand hardware. Fixed assets are recorded at cost less accumulated depreciation with no residual value. Depreciation is computed using the straight-linemethod over the estimated useful lives of the assets. Fixed Assets Estimated Useful Lives (years)Office buildings 36-47Leasehold improvements Lesser of term of the lease or the estimated useful lives of the assetsVehicles 4-10Office furniture 5Computer equipment and hardware 2-5Expenditure for maintenance and repairs is expensed as incurred.The gain or loss on the disposal of fixed assets is the difference between the net sales proceeds and the carrying value of the relevant assets and isrecognized in operating expenses in the consolidated statements of comprehensive income.Intangible AssetsIntangible assets mainly comprise purchased video content, operating rights for licensed games, domain names and trademarks, computer software, anddeveloped technologies. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of purchased videocontent is computed based on the trend in viewership accumulation over the shorter of the applicable license period or two years.The estimated useful lives of our intangible assets are listed below: Intangible Assets Estimated Useful Lives (years)Purchased video content 1 month to 2 yearsComputer software 1-5Developed technologies 3-10Domain names and trademarks 4-30Operating rights for licensed games over the contract termsSohu Video enters into nonmonetary transactions to exchange online broadcasting rights for purchased video content with other online videobroadcasting companies. Under ASC 845, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of theasset surrendered to obtain the acquired nonmonetary asset, and a gain or loss should be recognized on the exchange. The fair value of the assetreceived should be used to measure the cost if the fair value of the asset received is more reliable than the fair value of the asset surrendered. We recordthese nonmonetary exchanges at the fair values of the online broadcasting rights for purchased video content and recognize any net gain or loss fromsuch exchange transactions. 121Table of ContentsImpairment of Long-lived Assets Other Than Purchased Video ContentIn accordance with ASC 360-10-35, we review the carrying values of long-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying value of an asset may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flowsindependent of other assets. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flowsthe assets are expected to generate. If such review indicates that the carrying amount of the long-lived assets is not recoverable, the carrying amount ofsuch assets is reduced to fair value. The estimation of future cash flows requires significant management judgment based on our historical results andanticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in our business model is determined byour management.Impairment of Purchased Video ContentPurchased video content is stated at the lower of cost less accumulated amortization, or net realizable value (“NRV”).In accordance with ASC 920-350-35, if management’s expectations of the programming usefulness of a program, series, package, or program segmentare revised downward, it may be necessary to write down unamortized cost to estimated NRV. A write-down from unamortized cost to a lower estimatedNRV establishes a new cost basis. Accordingly, we measure the video content’s impairment loss by comparing the content’s carrying value to its NRV.An impairment loss will be recorded if the carrying value of video content is higher than its NRV. The impairment to be recognized is measured by theamount by which the carrying value of video content exceeds its NRV.GoodwillGoodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of our acquisitionsof interests in our subsidiaries and consolidated VIEs. If the initial accounting for a business combination is incomplete by the end of the reportingperiod in which the combination occurs, we report in our financial statements provisional amounts for the items for which the accounting isincomplete. If a measurement period adjustment is identified, we recognize the adjustment as part of the acquisition accounting. We increase ordecrease the provisional amounts of identifiable assets or liabilities by means of increases or decreases in goodwill for measurement periodadjustments.In accordance with ASC 350, we do not amortize goodwill, but test it for impairment. We test goodwill for impairment at the reporting unit level on anannual basis as of October 1, and between annual tests when an event occurs or circumstances change that could indicate that the asset might beimpaired. Under ASC 350-20-35, we have the option to choose whether we will apply a qualitative assessment first and then a quantitative assessment,if necessary, or to apply a quantitative assessment directly. For reporting units applying a qualitative assessment first, we start the goodwill impairmenttest by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory.Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the reporting unit with itscarrying value. For reporting units directly applying the quantitative assessment, we perform the two-step goodwill impairment test by quantitativelycomparing the fair values of those reporting units to their carrying amounts, including goodwill. After performing the assessment, if the carryingamounts of the reporting units are higher than their fair value, we perform the second step of the quantitative goodwill impairment test by comparingthe implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill, and if the carrying amount of the reporting unit’sgoodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assetsand liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. We estimate fair valueusing the income approach and the market approach. The judgment in estimating the fair value of reporting units includes estimating future cash flows,determining appropriate discount rates, control premium, comparable companies’ multipliers, and making other assumptions. Changes in theseestimates and assumptions could materially affect the determination of fair value for each reporting unit.Comprehensive IncomeComprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstancesexcluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented onour consolidated balance sheets, includes a cumulative foreign currency translation adjustment, and change in unrealized gains /(losses) on equitysecurities classified as available-for-sale before the adoption of ASU 2016-01.Functional Currency and Foreign Currency Translation 122Table of ContentsAn entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of theenvironment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency byassessing various indicators, such as cash flows, sales price and market, expenses, financing and intra-Group transactions and arrangements. Thefunctional currency of Sohu.com Limited, and its predecessor Sohu.com Inc., is the U.S. dollar. The functional currency of our subsidiaries in the U.S.,the Cayman Islands, the British Virgin Islands and Hong Kong is the U.S. dollar. The functional currencies of our subsidiaries and VIEs in othercountries are the national currencies of those counties, rather than the U.S. dollar.Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using theexchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet dateare re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are includedin the consolidated statements of comprehensive income.Financial statements of entities with a functional currency other than the U.S. dollar are translated into U.S. dollars, which is the reporting currency.Assets and liabilities are translated at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at theaverage of the exchange rates in effect during the reporting period. Shareholders’ equity accounts are translated using the historical exchange rates atthe date the entry to shareholders’ equity was recorded, except for the change in retained earnings during the year, which is translated using thehistorical exchange rates used to translate each period’s income statement. Differences resulting from translating a foreign currency to the reportingcurrency are recorded in accumulated other comprehensive income in the consolidated balance sheets.RESULTS OF OPERATIONSRevenuesThe following table presents our revenues by revenue source and by proportion for the periods indicated (in thousands, except percentages): 123Table of Contents Year ended December 31, 2016 2017 2018 2017 VS 2016 2018 VS 2017 Amount Percentage Amount Percentage Amount Percentage Amount Incrementalratio Amount Incrementalratio Revenues: Online advertising: Brandadvertising $447,956 27% $314,066 17% $231,945 12% $(133,890) (30)% $(82,121) (26)% Search andsearch-relatedadvertising 597,133 36% 801,199 43% 1,022,456 54% 204,066 34% 221,257 28% Subtotal ofonlineadvertisingrevenues 1,045,089 63% 1,115,265 60% 1,254,401 66% 70,176 7% 139,136 12% Online games 395,709 24% 449,533 24% 389,788 21% 53,824 14% (59,745) (13)% Others 209,633 13% 296,164 16% 238,840 13% 86,531 41% (57,324) (19)% Totalrevenues $1,650,431 100% $1,860,962 100% $1,883,029 100% $210,531 13% $22,067 1% 124Table of ContentsOnline Advertising RevenuesOnline advertising revenues were $1.25 billion for 2018, compared to $1.12 billion and $1.05 billion, respectively, for 2017 and 2016.Brand Advertising Revenues, Generated by Sohu and ChangyouBrand advertising revenues were $231.9 million for 2018, compared to $314.1 million and $448.0 million, respectively, for 2017 and 2016. Theyear-on-year reduction in brand advertising revenues from 2017 to 2018 resulted mainly from reductions in the revenues of Sohu Media, Sohu Videoand Focus. The year-on-year reduction in brand advertising revenues from 2016 to 2017 resulted mainly from a reduction in the revenues of SohuVideo and Focus.Sohu • Sohu Media PortalRevenues from Sohu Media Portal were $127.3 million for 2018, compared to $152.0 million and $181.8 million, respectively, for 2017 and 2016. In2018, the slowdown in the growth of the economy in China shrank the budgets of brand advertisers in general, and advertising by SMEs was alsoadversely affected. The number of advertisers for Sohu Media Portal was 4,074 for 2018, compared to 6,680 and 4,259, respectively, for 2017 and2016. The average amount spent per advertiser was approximately $31,000 for 2018, compared to $23,000 and $43,000, respectively, for 2017 and2016. • Sohu VideoRevenues from Sohu Video were $53.8 million for 2018, compared to $79.7 million and $123.1 million, respectively, for 2017 and 2016. The changeswere mainly attributable to reductions in the number of advertisers. The number of advertisers on Sohu Video was 200, 324 and 455, respectively, for2018, 2017 and 2016. The average amount spent per advertiser was approximately $269,000, $246,000 and $271,000, respectively, for 2018, 2017and 2016. • FocusRevenues from Focus were $31.1 million for 2018, compared to $57.3 million and $103.7 million, respectively, for 2017 and 2016. The decreases from2017 to 2018 were mainly due to the PRC government’s implementation of tightened real estate policies and increasingly intense competition in thereal estate market. Revenues generated from the Fixed Price model were $27.5 million for 2018, compared to $39.8 million and $49.0 million,respectively, for 2017 and 2016. The number of advertisers under the Fixed Price model was 1,282, 1,599 and 1,736, respectively, for 2018, 2017 and2016. The average amount spent per advertiser was approximately $21,449, $24,880 and $28,212, respectively, for 2018, 2017 and 2016.Changyou • 17173.com WebsiteRevenues from the 17173.com Website were $19.7 million for 2018, compared to $25.1 million and $39.4 million, respectively, for 2017 and 2016.The decreases were primarily a result of fewer PC games and Web games being marketed on the 17173.com Website. The number of advertisers on the17173.com Website was 126, 170 and 193, respectively, for 2018, 2017 and 2016. The average amount spent per advertiser was approximately$156,000, $148,000 and $204,000, respectively, for 2018, 2017 and 2016.Other informationSales to our five largest advertising agencies and advertisers comprised approximately 22% of total brand advertising revenues for 2018, compared to23% and 19%, respectively, for 2017 and 2016. As of December 31, 2018, 2017 and 2016, we recorded $10.3 million, $13.4 million and $12.3 million,respectively, of receipts in advance from advertisers. As of December 31, 2018, we had obligations to provide, and advertisers had obligations topurchase, advertising services under existing contracts in the amount of $19.5 million that are required to be provided during the year endingDecember 31, 2019.Search and Search-related advertising Revenues, Generated by Sogou 125Table of ContentsRevenues from search and search-related advertising services were $1.02 billion for 2018, compared to $801.2 million and $597.1 million,respectively, for 2017 and 2016. The year over year increase from 2017 to 2018 was mainly due to healthy traffic growth and improved monetizationon mobile devices.The increase in revenues from search and search-related advertising services was mainly attributable to an increase in revenues from auction-basedpay-for-click services. Revenues from auction-based pay-for-click services accounted for approximately 84% of the total search and search-relatedadvertising revenues for 2018, compared to 83% and 78%, respectively, for 2017 and 2016.The growth in revenues from auction-based pay-for-click services resulted from increases both in average revenue per advertiser (or “ARPA”), and to alesser extent, in the number of our advertisers. The ARPA for auction-based pay-for-click services was $6,168 for 2018, compared to $4,856 and$3,995, respectively, for 2017 and 2016. The increase in ARPA was primarily attributable to a higher cost per click paid by advertisers, which webelieve in turn resulted primarily from enhanced effectiveness of our advertising services, driven by machine learning technologies and big datacapabilities that improved the match between advertising content and users’ search intent. The number of auction-based pay-for-click advertisers wasapproximately 139,000 for 2018, compared to 137,000 and 116,000, respectively, for 2017 and 2016. The increase in auction-based pay-for-clickadvertisers was primarily driven by a successful expansion of our network of advertising agencies.Online Game Revenues Generated by ChangyouRevenues from the online game business were $389.8 million for 2018, compared to $449.5 million and $395.7 million, respectively, for 2017 and2016. The decrease from 2017 to 2018 was mainly due to the natural declining life cycle of Legacy TLBB Mobile, which was launched in the secondquarter of 2017, and the increase from 2016 to 2017 was mainly due to the revenue contribution of the mobile game Legacy TLBB Mobile after itslaunch.PC games and Mobile GamesRevenues from PC games were $236.7 million for 2018, compared to $239.2 million and $274.6 million, respectively, for 2017 and 2016, representing61%, 53% and 69%, respectively, of Changyou’s online game revenues for the corresponding years. The dominant PC game operated by Changyou isTLBB, which was launched in May 2007. In 2018, TLBB generated $200.9 million in revenues, accounting for approximately 52% of Changyou’sonline game revenues, approximately 41% of Changyou’s total revenues and approximately 11% of the Sohu Group’s total revenues. The year-on-yeardecrease in revenues from PC games was mainly due to the natural decline in revenues of TLBB.Revenues from mobile games were $151.7 million for 2018, compared to $208.4 million and $116.8 million, respectively, for 2017 and 2016. Thedominant mobile game operated by Changyou was Legacy TLBB Mobile, which was launched in May 2017. In 2018, the mobile game Legacy TLBBMobile generated $102.6 million in revenues, accounting for approximately 26% of Changyou’s online game revenues, approximately 21% ofChangyou’s total revenues, and approximately 5% of the Sohu Group’s total revenues. The year-on-year decrease in mobile game revenues for 2018was $56.7 million, mainly due to the natural decline in revenues of Changyou’s mobile games, including Legacy TLBB Mobile. The year-on-yearincrease in mobile game revenues for 2017 was $91.6 million, mainly due to the revenue contribution of Legacy TLBB Mobile.The following table sets forth certain operating data for Changyou’s PC games and mobile games for the periods indicated: Average Monthly ActiveAccounts(1) Three Months EndedMarch 31 Three Months EndedJune 30 Three Months EndedSeptember 30 Three Months EndedDecember 31 (in millions) PCgames Mobilegames PCgames Mobilegames PCgames Mobilegames PCgames Mobilegames 2016 3.0 3.2 2.9 2.4 2.7 2.8 2.5 1.6 2017 2.4 1.1 2.4 7.4 2.3 5.2 2.4 3.1 2018 2.5 2.6 2.3 3.2 2.3 3.7 2.0 2.9 Quarterly AggregateActive Paying Accounts(2) Three Months EndedMarch 31 Three Months EndedJune 30 Three Months EndedSeptember 30 Three Months EndedDecember 31 (in millions) PCgames Mobilegames PCgames Mobilegames PCgames Mobilegames PCgames Mobilegames 2016 1.1 0.8 1.0 0.6 1.0 0.7 1.0 0.4 2017 0.9 0.3 0.9 2.5 0.8 1.4 0.8 1.2 2018 0.8 0.8 0.7 0.7 0.8 0.7 0.9 0.7 126Table of Contents(1)Average Monthly Active Accounts for a given period refers to the number of registered accounts that were logged in to these games at least onceduring the period.(2)Quarterly Aggregate Active Paying Accounts for a given quarter refers to the number of accounts from which game points are used at least onceduring the quarter.Other GamesRevenues from games other than PC games and mobile games were $1.3 million for 2018, compared to $2.0 million and $4.3 million, respectively, for2017 and 2016.Other RevenuesRevenues from other services were $238.8 million for 2018, compared to $296.2 million and $209.6 million, respectively, for 2017 and 2016. The$57.4 million year-on-year decrease in 2018 was mainly attributable to a $21.2 million decrease in revenues from the cinema advertisement businessdue to a strategy adjustment related to the acquisition and sale of advertising resources during the second quarter of 2018, a $17.4 million decrease inrevenues from sub-licensing to third parties of purchased video content as a result of our reduction in purchases of video content with exclusive right,and a $15.4 million decrease in revenues from smart hardware products due to the phased-out of hardware products that were not AI-enabled. The$86.6 million year-on-year increase in 2017 was mainly attributable to a $22.9 million increase in revenues from the cinema advertisement business, a$20.3 million increase in revenues from interactive broadcasting services and a $16.9 million increase in revenues from paid subscription services.Costs and ExpensesCost of RevenuesThe following table presents our cost of revenues by source and by proportion for the periods indicated (in thousands, except percentages): 127Table of Contents Year ended December 31, 2016 2017 2018 2017 VS 2016 2018 VS 2017 Amount Percentage Amount Percentage Amount Percentage Amount Incrementalratio Amount Incrementalratio Cost of revenues: Online advertising: Brandadvertising $371,085 43% $363,592 35% $184,474 17% $(7,493) (2)% $(179,118) (49)% Search andsearch-relatedadvertising 290,158 34% 412,904 40% 664,164 62% 122,746 42% 251,260 61% Subtotal of costof onlineadvertisingrevenues 661,243 77% 776,496 75% 848,638 79% 115,253 17% 72,142 9% Online games 96,168 11% 62,775 6% 60,981 6% (33,393) (35)% (1,794) (3)% Others 102,389 12% 195,895 19% 162,102 15% 93,506 91% (33,793) (17)% Total costofrevenues $859,800 100% $1,035,166 100% $1,071,721 100% $175,366 20% $36,555 4% 128Table of ContentsCost of Online Advertising RevenuesCost of online advertising revenues was $848.6 million for 2018, compared to $776.5 million and $661.2 million, respectively, for 2017 and 2016.Cost of Brand Advertising RevenuesCost of brand advertising revenues was $184.5 million for 2018, compared to $363.6 million and $371.1 million, respectively, for 2017 and 2016.The year-on-year decrease for 2018 was $179.1 million, which mainly consisted of a $153.6 million decrease in content and license costs, a$17.9 million decrease in bandwidth leasing costs, a $3.7 million decrease in salary and benefits expenses, a $1.9 million decrease in depreciation andamortization expenses, and a $1.0 million decrease in facilities expenses.The year-on-year decrease for 2017 was $7.5 million, which mainly consisted of a $17.0 million decrease in bandwidth leasing costs, a $9.8 milliondecrease in salary and benefits expenses, a $2.9 million decrease in depreciation and amortization expenses, a $2.2 million decrease in travelling andentertainment expenses, and a $1.2 million decrease in facilities expenses, offset by a $27.7 million increase in content and license costs resultingprimarily from impairment charges related to video content in 2017.We recognized impairment losses for Sohu Video as content and license costs of $10.4 million, $70.6 million, and $42.9 million, respectively, in 2018,2017 and 2016, as revenues did not meet management’s expectations.Our brand advertising gross margin was 20% for 2018, compared to negative 16% and 17%, respectively, for 2017 and 2016. The year-over-yearincrease in our brand advertising gross margin for 2018 was mainly attributable to a decrease in video content costs and impairment charges comparedto 2017.Cost of Search and Search-related Advertising RevenuesCost of search and search-related advertising revenues was $664.2 million for 2018, compared to $412.9 million and $290.2 million, respectively, for2017 and 2016.The year-on-year increase for 2018 was $251.3 million, which mainly consisted of a $229.1 million increase in traffic acquisition costs, primarily dueto price inflation as a result of increased competition, and a $12.4 million increase in depreciation and amortization expenses associated with theoperation of Internet properties.The year-on-year increase for 2017 was $122.7 million, which mainly consisted of a $101.2 million increase in traffic acquisition costs due toexpanded user acquisition channels, and a $13.8 million increase in depreciation and amortization expenses associated with the operation of Internetproperties.Our search and search-related advertising gross margin was 35% for 2018, compared to 48% and 51%, respectively, for 2017 and 2016. The decrease inour search and search-related advertising gross margin for 2018 was mainly due to higher traffic acquisition costs as a percentage of search and search-related advertising revenues.Cost of Online Game RevenuesCost of online game revenues was $61.0 million for 2018, compared to $62.8 million and $96.2 million, respectively, for 2017 and 2016.The year-on-year decrease in cost of online game revenues for 2018 was $1.8 million. The decrease included a $5.4 million decrease in revenue-sharingpayments to mobile APP stores, a $0.6 million decrease in salary and benefits expenses, and a $0.6 million decrease in depreciation and amortizationexpenses, offset by a $2.9 million increase in bandwidth leasing costs, and a $1.8 million increase in content and license costs.The year-on-year decrease in cost of online game revenues for 2017 was $33.4 million. The decrease included a $16.3 million decrease in revenue-sharing payments to mobile APP stores, a $5.7 million decrease in bandwidth leasing costs, a $4.9 million decrease in salary and benefits expenses, a$2.9 million decrease in revenue-sharing payments to third-party developers and a $1.0 million decrease in content and license costs. 129Table of ContentsOur online game gross margin was 84%, 86% and 76%, respectively, for 2018, 2017 and 2016.Cost of Other RevenuesCost of other revenues was $162.1 million for 2018, compared to $195.9 million and $102.4 million, respectively, for 2017 and 2016. Theyear-on-year decrease for 2018 was $33.8 million, which was mainly due to a $15.4 million decrease in content and license costs related to paidsubscription services, a $14.7 million decrease in Sogou’s smart hardware product costs, and a $4 million decrease in Changyou’s IVAS business cost.The year-on-year increase for 2017 was $93.5 million compared to 2016, which was mainly due to a $39.0 million increase in Changyou’s costs forpre-film screening advertising slots, a $16.9 million increase in content and license costs related to paid subscription services, and a $15.2 millionincrease in Sogou’s smart hardware products costs.Operating ExpensesThe following table presents our operating expenses by nature and by proportion for the periods indicated (in thousands, except percentages): 130Table of Contents Year ended December 31, 2016 2017 2018 2017 VS 2016 2018 VS 2017 Amount Percentage Amount Percentage Amount Percentage Amount Incrementalratio Amount Incrementalratio Operating expenses: Productdevelopment $353,144 39% $412,173 40% $441,161 45% $59,029 17% $28,988 7% Sales and marketing 434,780 48% 413,045 40% 400,579 41% (21,735) (5)% (12,466) (3)% General andadministrative 119,841 13% 122,874 12% 113,724 12% 3,033 3% (9,150) (7)% Goodwillimpairment andimpairment ofintangible assetsacquired as partof businessacquisitions 0 0% 86,882 8% 16,369 2% 86,882 0% (70,513) (81)% Total operating expenses $907,765 100% $1,034,974 100% $971,883 100% $127,209 14% $(63,141) (6)% 131Table of ContentsProduct Development ExpensesProduct development expenses were $441.2 million for 2018, compared to $412.2 million and $353.1 million, respectively, for 2017 and 2016.The year-on-year increase for 2018 was $29.0 million, representing a year-on-year increase of 7%. The increase mainly consisted of a $42.3 millionincrease in salary and benefits expenses, a $3.4 million increase in professional fees, and a $2.2 million increase in communication expenses, offset bya $17.4 million decrease in share-based compensation expense and a $2.6 million decrease in depreciation and amortization expense.The year-on-year increase for 2017 was $59.1 million, representing a year-on-year increase of 17%. The increase mainly consisted of a $35.2 millionincrease in salary and benefits expenses, a $14.4 million increase in share-based compensation expense, a $5.4 million increase in technical servicefees, and a $2.1 million increase in travelling and entertainment expenses.Sales and Marketing ExpensesSales and marketing expenses were $400.6 million for 2018, compared to $413.0 million and $434.8 million, respectively, for 2017 and 2016.The year-on-year decrease for 2018 was $12.5 million, representing a year-on-year decrease of 3%. The decrease mainly consisted of a $10.7 milliondecrease in advertising and promotional expenses, a $5.5 million decrease in share-based compensation expense, and a $2.1 million decrease intravelling and entertainment expenses, offset by a $3.1 million increase in salary and benefits expense.The year-on-year decrease for 2017 was $21.8 million, representing year-on-year decrease of 5%. The decrease mainly consisted of a $20.5 milliondecrease in advertising and promotional expenses, and a $5.7 million decrease in salary and benefits expenses, offset by a $3.5 million increase inshare-based compensation expense.General and Administrative ExpensesGeneral and administrative expenses were $113.7 million for 2018, compared to $122.9 million and $119.8 million, respectively, for 2017 and 2016.The year-on-year decrease for 2018 was $9.2 million, representing a year-on-year decrease of 7.5%. The decrease mainly consisted of a $20.2 milliondecrease in share-based compensation expense and a $2.0 million decrease in office expenses, offset by a $7.6 million increase in bad debt expensesand a $6.3 million increase in professional fees.The year-on-year increase for 2017 was $3.1 million, representing a year-on-year increase of 3%. The increase mainly consisted of an $8.6 millionincrease in share-based compensation expense, a $2.2 million increase in bad debts offset by a $4.2 million decrease in salary and benefits expenses, a$1.6 million decrease in professional fees, and a $1.4 million decrease in facilities expenses.Goodwill Impairment and Impairment of Intangible Acquired as Part of Business AcquisitionsIn 2018, we recognized a $16.4 goodwill impairment loss associated with the 17173.com Website, which is operated by Changyou. The $16.4 millionof goodwill impairment was primarily due to (i) the launch of new initiatives for the 17173.com Website having fallen behind schedule in the fourthquarter of 2018, and the profit outlook of the business remained uncertain, and (ii) the relevant Chinese authority’s suspension between April andDecember of 2018 of its review of, and issuance of publishing and authorization codes for, online games, which resulted in declines in the number ofnew games launched and the related demand from game developers and operators for online advertising services on the 17173.com Website. Changyoumanagement determined that, as a result, there was a material adverse impact on our ability to generate revenues from the 17173.com Website.In 2017, we recognized $86.9 million goodwill impairment and impairment of intangible assets associated with MoboTap. This $86.9 millionimpairment loss consisted primarily of an $83.5 million impairment loss for goodwill and a $3.4 million impairment loss for intangible assets related tothe Dolphin Browser, as a result of our management’s assessment that it was unlikely to gain users and grow its revenues in China.In 2016, there was no goodwill impairment or impairment of intangibles via acquisitions of businesses. 132Table of ContentsShare-based Compensation ExpenseShare-based compensation expense was recognized in costs and expenses for the years ended December 31, 2016, 2017 and 2018, respectively, asfollows (in thousands): Year Ended December 31, Share-based compensation expense 2016 2017 2018 Cost of revenues $366 $198 $(69) Product development expenses 9,184 23,547 6,131 Sales and marketing expenses 2,394 5,915 405 General and administrative expenses 7,176 15,817 (4,372) $19,120 $45,477 $2,095 Share-based compensation expense recognized for share awards of Sohu (excluding Sohu Video), Sogou, Changyou and Sohu Video was as follows (inthousands): Year Ended December 31, Share-based compensation expense 2016 2017 2018 For Sohu (excluding Sohu Video) share-based awards $2,761 $652 $(5,100) For Sogou share-based awards (1) 8,802 27,729 14,204 For Changyou share-based awards 8,402 17,394 (6,461) For Sohu Video share-based awards (845) (298) (548) $19,120 $45,477 $2,095 The negative amounts in the tables above resulted from re-measured compensation expense based on the then-current fair value of the awards on thereporting date.Note (1): Compensation expense for Sogou share-based awards also includes compensation expense for Tencent restricted share units that Tencent hadgranted to employees who transferred to Sogou with the Soso search and search-related businesses.There was no capitalized share-based compensation expense for 2016, 2017 and 2018.As of December 31, 2018, unrecognized share-based compensation expense for Sohu (excluding Sohu Video), Sogou and Changyou share-basedawards was as follows (in thousands): Unrecognized share-based compensation expense As of December 31, 2018 For Sohu (excluding Sohu Video) share-based awards $0 For Sogou share-based awards (2) 10,378 For Changyou share-based awards 394 $10,772 Note (2): Includes the unrecognized compensation expense for employees who transferred from Tencent with Soso search and search-relatedbusinesses.Operating Profit /(Loss)We had an operating loss of $160.5 million for 2018, compared to an operating loss of $209.2 million for 2017 and an operating loss of $117.1 millionfor 2016.Other Income /(Expense)Other income was $64.2 million for 2018, compared to other income of $6.7 million and other loss of $10.7 million, respectively, for 2017 and 2016.The year-over-year increase in 2018 was mainly attributable to a $33.4 million increase in gain from a change in the fair value of financial instrumentsand $17.8 million in investment income recognized by Sogou due to an increase in the fair value of its long-term equity investment in Zhihu under anew accounting standard (ASC321) that became effective on January 1, 2018.Interest Income 133Table of ContentsInterest income was $24.1 million for 2018, compared to $24.1 million and $22.5 million, respectively, for 2017 and 2016.Interest ExpenseInterest expense was $17.5 million for 2018, compared to $4.1 million and $1.4 million, respectively, for 2017 and 2016. The increase in 2018 wasprimarily due to $11.4 million in interest expense incurred from bank loans under loan agreements that Sohu entered into with ICBC in late 2017 andwith CMB in 2018 which contributed an increase of approximately $10.0 million in interest expense in 2018.Income Tax Expense /(Benefit)Income tax benefit was $13.4 million for 2018, compared to income tax expense of $273.1 million and $21.1 million, respectively, for 2017 and 2016.The income tax benefit for 2018 compared to the income tax expense for 2017 resulted primarily from our re-evaluation during the fourth quarter of2018 of the impact on the Sohu Group of the Toll Charge imposed by the U.S. TCJA and adjustment of the tax expense previously recognized for theToll Charge; the resulting recognition of a previously unrecognized tax benefit in the amount of $77 million and recording of a $142 millionunrecognized tax benefit related to the balance of the Toll Charge; and interest accrued in relation to the previously unrecognized tax benefit. The taxbenefit recognized and the unrecognized tax benefit recorded in 2018 in relation to the Toll Charge may be subject to further adjustment in subsequentperiods based on circumstances that arose after December 31, 2018, such as final IRS Toll Charge regulations published in January 2019, and anyfuture circumstances such as any U.S. IRS challenge of our position on the Toll Charge and management’s further judgment and estimates.The increase in income tax expense in 2017 from 2016 resulted primarily from our accrual in the fourth quarter of 2017 of income tax expense of$219 million that was management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based on the deemedrepatriation to the United States of its share of previously deferred earnings of certain of its non-U.S. subsidiaries, offset by a reduction of $4 million inliability for deferred U.S. income tax as a result of the U.S. TCJA, and to a lesser extent from an increase in online game revenues as a result ofChangyou’s launch of Legacy TLBB Mobile in the second quarter of 2017.Net Income /(Loss)As a result of the foregoing, we had a net loss of $67.4 million for 2018, compared to a net loss of $470.0 million and net loss of $115.0 million,respectively, for 2017 and 2016.Net Income Attributable to Noncontrolling InterestOur net income attributable to noncontrolling interest was $92.7 million for 2018, compared to a net income attributable to noncontrolling interest of$84.5 million for 2017, and a net income attributable to noncontrolling interest of $109.0 million for 2016.Net Loss attributable to Sohu.com LimitedAs a result of the foregoing, we had a net loss of $160.1 million attributable to Sohu.com Limited for 2018, compared to a net loss of $554.5 millionand $224.0 million attributable to Sohu.com Inc. for 2017 and 2016, respectively.LIQUIDITY AND CAPITAL RESOURCESResources AnalysisLiquidity Sources and BalancesOur principal sources of liquidity are cash and cash equivalents, short-term investments, and cash flows generated from our operations. Cashequivalents mainly consist of time deposits with original maturities of three months or less, and highly liquid investments that are readily convertibleto known amounts of cash. Short-term investments comprise investment instruments issued by commercial banks in China, with a variable interest rateindexed to performance of underlying assets and maturity dates within one year. 134Table of ContentsAs of December 31, 2018, we had cash and cash equivalents of approximately $819.7 million, restricted cash of $6.0 million, short-term investments of$1.04 billion, and restricted time deposits of $244.2 million. Of our cash and cash equivalents, $254.8 million was held in financial institutions insideMainland China and $564.9 million was held in financial institutions outside of Mainland China. Of the cash and cash equivalents held in financialinstitutions inside Mainland China, $65.9 million was held by our VIEs and $188.9 million was held by our PRC-based subsidiaries.We believe our current liquidity and capital resources are sufficient to meet anticipated working capital needs (net cash used in operating activities),commitments, capital expenditures, and investment activities over the next twelve months. We may, however, require additional cash resources due tochanges in business conditions and other future developments, or changes in general economic conditions.See “Item 3 Key Information—Risk Factors—Risks Related to China’s Regulatory Environment—Restrictions on currency exchange may limit ourability to use our revenues effectively,” “—Our Offshore entities may need to rely on dividends and other distributions on equity paid by our MainlandChina-based subsidiaries, including the Mainland China-based subsidiaries of our subsidiaries Sogou and Changyou, to fund any cash requirementsthose Offshore entities may have. Our Offshore entities may not be able to obtain cash from distributions because our subsidiaries and VIEs inMainland China are subject to restrictions imposed by PRC law on paying such dividends and making other payments,” and “—Dividends we receivefrom our operating subsidiaries located in the PRC are subject to PRC profit appropriation and PRC withholding tax,” and “Risks Related to OurCorporate Structure—Although the Sohu Group holds substantial amounts of cash and cash equivalents, a significant portion of such cash and cashequivalents is held by Changyou and Sogou, and it can be difficult for Sohu to have access to the portion held by Changyou and Sogou.” See also“Restrictions and Limitations on Cash Available to Sohu.com Limited.” below and Item 11 “Quantitative and Qualitative Disclosure About MarketRisk—Foreign Currency Exchange Rate Risk.”Cash Generating AbilityOur cash flows were summarized below (in thousands): Year Ended December 31, 2016 2017 2018 Net cash provided by operating activities $239,620 $187,687 $84,025 Net cash used in investing activities (411,650) (714,503) (459,244) Net cash provided by /(used in) financing activities (327,934) 801,975 96,334 Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted time deposits (46,310) 30,226 (19,544) Reclassification of cash and cash equivalents from /(to) assets held for sale (11,684) 11,684 0 Net increase /(decrease) in cash, cash equivalents, restricted cash and restricted time deposits (557,958) 317,069 (298,429) Cash, cash equivalents, restricted cash and restricted time deposits at beginning of period 1,609,184 1,051,226 1,368,295 Cash, cash equivalents, restricted cash and restricted time deposits at end of period $1,051,226 $1,368,295 $1,069,866 Net Cash Provided by Operating ActivitiesFor 2018, $84.0 million net cash provided by operating activities was primarily attributable to our net loss of $67.4 million, adjusted by (i) the addback of non-cash items consisting of $152.4 million in depreciation and amortization expenses, $18.2 million in bad debt expense, $16.4 in goodwillimpairment and impairment of intangible assets acquired as part of business acquisitions, $10.8 million in impairment of other intangible assets andother assets, and $2.1 million of share-based compensation expense, (ii) offset by $10.9 million in change in fair value of financial instruments,$11.6 million of investment loss from equity investments, and $0.7 million from other operating activities. The decrease in cash from $25.3 million inworking capital items is also included in operating cash flow.For 2017, $187.7 million net cash provided by operating activities was primarily attributable to our net loss of $470.0 million, adjusted by (i) the addback of non-cash items consisting of $224.0 million in depreciation and amortization expenses, $86.9 in goodwill impairment and impairment ofintangible assets acquired as part of business acquisitions, $72.3 million in impairment of other intangible assets and other assets, $41.5 million ofshare-based compensation expense, $9.1 million in provision for allowance for doubtful accounts, $5.8 million in impairment of available-for-salesecurities, and $2.0 million of investment loss from equity investments, (ii) offset by $10.4 million in change in fair value of financial instruments and$1.3 million from other operating activities. The increase in cash from $227.8 million in working capital items is also included in operating cash flow. 135Table of ContentsFor 2016, $239.6 million net cash provided by operating activities was primarily attributable to our net loss of $115.0 million, adjusted by (i) the addback of non-cash items consisting of $204.6 million in depreciation and amortization expenses, $22.9 million in impairment of other intangible andother assets, $19.1 million of share-based compensation expense, $7.1 million in provision for allowance for doubtful accounts, and a $2.0 millioninvestment loss from equity investments, (ii) offset by $13.1 million in change in fair value of financial instruments and $1.2 million from otheroperating activities. The increase in cash from $113.2 million in working capital items is also included in operating cash flow.Net Cash Used in Investing ActivitiesFor 2018, $459.2 million net cash used in investing activities was primarily attributable to (i) $3.18 billion used in purchase of financial instruments,$199.4 million used in purchase of fixed assets and intangible assets, $98.8 million for investments in financing receivables, and $20.6 million used inthe purchase of long-term investments, (ii) offset by $2.96 billion in proceeds from financial instruments, $60.0 million from collection of financingreceivables, $12.1 million from sale of an equity investment, $5.3 million from loan repayment by a third party to Changyou, and $1.8 million cashreceived from other investing activities.For 2017, $714.5 million net cash used in investing activities was primarily attributable to (i) $1.79 billion used in purchase of financial instruments,$145.3 million used in purchase of fixed assets and intangible assets, and $7.7 million used in the purchase of long-term investments, (ii) offset by$1.22 billion in proceeds from financial instruments, $4.9 million from loan repayment by a third party to Changyou, and $2.1 million cash receivedfrom other investing activities.For 2016, $411.7 million net cash used in investing activities was primarily attributable to (i) $509.4 million used in the purchase of financialinstruments, $288.9 million used in purchase of fixed assets and intangible assets, $21.0 million used in the purchase of long-term investments, and$18.1 million used in a matching loan from Changyou to Fox Financial, (ii) offset by $415.4 million of proceeds from financial instruments,$5.1 million from loan repayment by a third party to Changyou, and $5.2 million cash received from other investing activities.Net Cash Provided by /(Used in) Financing ActivitiesFor 2018, $96.3 million net cash provided by financing activities was primarily attributable to (i) $325.8 million in proceeds received from bank loans,(ii) offset by $162.5 million for the portion of a Changyou dividend distributed to holders of the non-controlling interests in Changyou, and$67.0 million used in repayment of Changyou loans from banks.For 2017, $802.0 million net cash provided by financing activities was primarily attributable to (i) $622.1 million received from Sogou’s IPO, net ofrelated underwriting discounts and commissions and offering expenses, $190.2 million in proceeds received from bank loans, and $0.6 millionreceived from exercise of share-based awards in a subsidiary, (ii) offset by $7.7 million used in repayment of Changyou loans from banks and$3.2 million used in the repurchase of Sogou Pre-IPO Class A Common Shares from a noncontrolling shareholder.For 2016, $327.9 million net cash used in financing activities was primarily attributable to (i) $344.5 million used in repayment of Changyou loansfrom banks, and $0.7 million used in related financing activities, (ii) offset by $17.0 million Changyou received from a matching loan with FoxFinancial and $0.3 million received from exercise of share-based awards in a subsidiary.Restrictions and Limitations on Cash Available to Sohu.com Limited.To fund any cash requirements it may have, Sohu.com Limited may need to rely on dividends and other distributions on equity paid by our directsubsidiaries, which are all located outside PRC. Since substantially all of our operations are conducted through our indirect Mainland China-basedsubsidiaries and VIEs, all of Sohu.com Limited’s direct subsidiaries may need to rely on dividends, loans or advances made by our PRC subsidiariesand VIEs in order to make dividends and other distributions to us.The ability of Sohu.com Limited’s direct subsidiaries to receive dividends and distributions from our China-based subsidiaries and VIEs, and theamount of cash available for distribution to, and use by, Sohu.com Limited, are subject to certain restrictions and limitations related to PRC law andour subsidiary and VIE structure. We do not expect any of such restrictions or taxes to have a material impact on our ability to meet our cashobligations. However, such restrictions and taxes limit our ability to use cash and cash equivalents held by Changyou and its subsidiaries and VIEs,and by Sogou and its subsidiaries and VIEs, for our Sohu business separate from Changyou and Sogou. See “Risk Factors—Risks Related to OurCorporate Structure—Although the Sohu Group holds substantial amounts of cash and cash equivalents, a significant portion of such cash and cashequivalents is held by Changyou and Sogou, and it can be difficult for Sohu to have access to the portion held by Changyou and Sogou.” 136Table of ContentsPRC Regulations Related to Profit Appropriation, Withholding Tax on Dividends and Foreign Currency ExchangeRegulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated profits as determined in accordance withaccounting standards and regulations in China. Our China-based WFOEs are also required to set aside each year to their general reserves at least 10% oftheir after-tax profit based on PRC accounting standards, until the cumulative amount reaches 50% of their paid-in capital. These reserves may not bedistributed as cash dividends, or as loans or advances. Our WFOEs may also allocate a portion of their after-tax profits, at the discretion of their Boardsof Directors, to their staff welfare and bonus funds. Any amounts so allocated may not be distributed by Sohu.com Limited, Sogou’s parent companySohu.com (Search) Limited, or Changyou.com Limited and, accordingly, would not be available for distribution to Sohu.com Limited.The CIT Law imposes a 10% withholding income tax for dividends distributed by foreign-invested enterprises in the PRC to their immediate holdingcompanies outside Mainland China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between Mainland China and thejurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under anarrangement between the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of FiscalEvasion with Respect to Taxes on Income” if such holding company is considered a non-PRC resident enterprise and holds at least 25% of the equityinterests in the PRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the HongKong holding company is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend willremain subject to withholding tax at a rate of 10%. As of December 31, 2018, we had accrued deferred tax liabilities in the amount of $79.8 million forwithholding taxes associated with dividends paid by Changyou’s Mainland China-based WFOEs to Changyou’s Hong Kong subsidiary.Under regulations of the PRC State Administration of Foreign Exchange (“SAFE”), the RMB is not convertible into foreign currencies for capitalaccount items, such as loans, repatriation of investments and investments outside of Mainland China, unless prior approval of the SAFE is obtainedand prior registration with the SAFE is made.PRC Restrictions Related to Our VIE StructureA significant portion of our operations is conducted through our VIEs, which generate a significant amount of our revenues. Significant cash balancesremained in certain of our VIEs as of December 31, 2018. As our VIEs are not owned by our PRC subsidiaries, the VIEs are not able to make dividendpayments to the subsidiaries. Therefore, in order for Sohu.com Limited or our subsidiaries outside of Mainland China to receive any dividends, loans,or advances from our PRC subsidiaries, in some cases we may need to rely on payments made by our VIEs to our PRC subsidiaries pursuant to servicecontracts between them. Depending on the nature of services provided by our PRC subsidiaries to their corresponding VIEs, certain of these paymentswill subject to PRC taxes, such as VAT, which will effectively reduce the amount that the PRC subsidiary receives from its corresponding VIE. Inaddition, the PRC government could impose restrictions on such payments or change the tax rates applicable to such payments.Capital ExpenditureOur capital expenditures include the purchase of fixed assets, intangible assets and other assets. Our capital expenditures were 288.9 million,145.3 million, and 199.4 million, respectively, for the years ended December 31, 2016, 2017, and 2018.CONTRACTUAL OBLIGATIONSThe following table sets forth our contractual obligations as of December 31, 2018 (in thousands): 2019 2020 2021 2022 2023 Thereafter Total Purchase of cinema advertisement slot rights $56,396 40,579 18,064 6,103 4,019 0 125,161 Purchase of bandwidth 82,814 1,143 311 0 0 0 84,268 Operating lease obligations 14,713 13,897 6,971 809 271 0 36,661 Interest payment commitment 16,754 11,119 7,062 0 0 0 34,935 Purchase of content and services—video 23,746 2,159 2,066 0 0 0 27,971 Expenditures for operating rights for licensed games withtechnological feasibility 19,475 1,098 0 0 0 0 20,573 Expenditures for titles of games in development 6,990 725 0 0 0 0 7,715 Purchase of content and services—others 6,148 90 54 54 18 0 6,364 Fees for operating rights for licensed games in development 585 0 0 0 0 0 585 Others 5,640 0 0 0 0 0 5,640 Total Payments Required $233,261 70,810 34,528 6,966 4,308 0 349,873 137Table of ContentsIn addition to the above contractual obligations, we also have commitments for repayment of principal of bank loans, amounted to $129.7 million,$82.3 million, $220.0 million and nil in the year of 2019, 2020, 2021 and thereafter, respectively. Outstanding principal of the bank loans totaling$80.0 million was repaid in January 2019 by Changyou.OTHER LONG-TERM LIABILITIESWe recorded long-term tax liabilities of $174.3 million, consisting primarily of a $144 million unrecognized tax benefit related to the balance of theToll Charge and related accrued interest, and $29.6 million related to certain business transactions that took place in previous years and managementdetermined may result in additional tax obligations under relevant tax rules.At this time, we are unable to make a reasonably reliable estimate of the timing of payments of long-term liabilities in individual years beyond 12months due to uncertainties in the timing of the tax impact of the transactions. As a result, this amount is not included in the table above.OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTSWe have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. We are not subject toany additional potential payments. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’sequity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assetstransferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in anyunconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or product developmentservices with us.IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSRevenue from Contracts with Customers. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue fromContracts with Customers (Topic 606).” This guidance supersedes current guidance on revenue recognition in Topic 605, “Revenue Recognition.” Inaddition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. On January 1, 2018, weadopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018. Adoption did not have amaterial impact on retained earnings as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. Additionaldisclosures have been made. Please see the Notes to Consolidated Financial Statements for details.Financial Instruments (Subtopic 825-10). In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments- Recognition and Measurementof Financial Assets and Financial Liabilities. This guidance amends certain aspects of recognition, measurement, presentation and disclosure offinancial instruments. The main provisions require equity investments (except those accounted for under the equity method of accounting or those thatresult in consolidation of the investee) to be measured at fair value through earnings, unless they qualify for a measurement alternative. The newguidance will require modified retrospective application to all outstanding instruments beginning January 1, 2018, with a cumulative effectadjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. However, changes tothe accounting for equity securities without a readily determinable fair value will be applied prospectively. Additional disclosures have been made.Please see the Notes to Consolidated Financial Statements for details.Statements of Cash Flows (Topic 230): Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18, Statements of Cash Flows (Topic 230):Restricted Cash. This guidance requires that a statement of cash flows explain the changes during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cashequivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown onthe statements of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.The standard should be applied to each period presented using a retrospective transition method. The adoption of this standard resulted in restrictedcash and restricted time deposits being included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period totalamounts shown on the statements of cash flows. 138Table of ContentsOther accounting standards adopted beginning January 1, 2018 do not have a significant impact on our consolidated financial statements.IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTEDThe FASB has issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires an entity to recognize both assets and liabilities arising from financeand operating leases, along with additional qualitative and quantitative disclosures. ASU No. 2016-02 requires a lessee to recognize a liability in itsbalance sheet to make lease payments (a “lease liability”) and a right-of-use asset representing its right to use the underlying asset for the lease term. Intransition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest comparative period presented, or at thebeginning of the period of adoption. ASU 2016-02 is required to be adopted at the beginning of the first quarter of fiscal year 2019. We expect torecord a right-of-use asset of approximately $26.7 million and a lease liability of approximately $24.2 million on our adoption date of January 1, 2019,primarily related to our leased office space. We will use a modified retrospective approach and will not restate prior periods. We expect to implementnew accounting policies as well as to elect certain practical expedients available to us under ASU 2016-02, including those related to capitalizationthresholds and leases with terms of less than 12 months. The implementation of the amended lease guidance is subject to the same internal controlsover financial reporting that we apply to our consolidated financial statements.Financial Instruments-Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requiresentities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, andreasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financialassets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15,2018. We do not expect to adopt ASU 2016-13 early and are currently evaluating the impact that the standard will have on our consolidated financialstatements and related disclosures.Simplifying the Test for Goodwill Impairment. In January 2017 the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” Theguidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now bethe amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should beadopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permittedfor interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect to adopt ASU 2017-04 early and arecurrently evaluating the impact of adopting this standard on our consolidated financial statements. ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors and Senior ManagementThe following table sets forth information regarding our directors and executive officers as of the date of this annual report. The business address ofeach of our directors and executive officers is Sohu.com Media Plaza, Block 3, No. 2 Kexueyuan South Road, Haidian District, Beijing 100190,People’s Republic of China. Directors and Executive Officers Age PositionCharles Zhang 54 Chairman of the Board and Chief Executive OfficerXiaochuan Wang 40 Chief Executive Officer of SogouDewen Chen 43 Chief Executive Officer of ChangyouJoanna Lv 48 Chief Financial OfficerCharles Huang 49 DirectorZhonghan Deng(1)(2)(3) 51 Independent DirectorDave De Yang(1) 53 Independent DirectorDave Qi(1)(2)(3) 55 Independent DirectorShi Wang(3) 68 Independent Director (1)Member of the audit committee of our Board of Directors.(2)Member of the compensation committee of our Board of Directors.(3)Member of the nominating committee of our Board of Directors.Dr. Charles Zhang is our founder and has been Chairman of our Board and Chief Executive Officer since August 1996. Dr. Charles Zhang also servedas our President from August 1996 to July 2004. Prior to founding Sohu, Dr. Charles Zhang worked for Internet Securities Inc. and helped to establishits China operations. Prior to that, Dr. Charles Zhang worked as the Massachusetts Institute of Technology’s, or MIT’s, liaison officer with China.Dr. Charles Zhang is also the Chairman of the Board of Changyou and Sogou. Dr. Charles Zhang has a Ph.D. in experimental physics from MIT and aBachelor of Science degree from Tsinghua University. 139Table of ContentsXiaochuan Wang has been the Chief Executive Officer of Sogou since 2010, and was named as one of our executive officers effective November 1,2016. Under his leadership, Sogou has developed many strategic products, including the Sogou Search Engine, the Sogou Pinyin Input Method, andthe Sogou Browser. Mr. Wang has played an integral role in establishing a technology-driven culture at Sogou through a focus on team building andproduct innovation. From 2009 to 2013, Mr. Wang also served as our Chief Technology Officer and as a senior vice president from 2008 to 2009.Mr. Wang received a Gold Medal in the 8th International Olympiad in Informatics. Mr. Wang received a bachelor’s degree and a master’s degree inComputer Science from Tsinghua University.Dewen Chen is the Chief Executive Officer of Changyou and was one of the principal founders of Changyou’s online game business. Mr. Chen wasnamed as one of our executive officers effective November 1, 2016. Mr. Chen joined us in 2005 as a business manager, responsible for building a salesteam for game products. Beginning in May 2006, Mr. Chen was in charge of the overall marketing, promotion, sales and channel distribution of ourgame products. Prior to Changyou’s carve-out from us in 2007, Mr. Chen was the Director of Marketing & Operations of our online game business.From April 2000 until he joined us in 2005, Mr. Chen worked at Shanghai Hua Teng Software System Co. Ltd. as a pre-sale technology consultant andsales manager. Prior to that, Mr. Chen worked with Fujian Shi Da Computer Group as a software engineer and project manager, and later as the Directorof the Technology Department of the Shanghai branch office. Mr. Dewen Chen received a bachelor’s degree in Computer Engineering from Xi’anJiaotong University.Joanna Lv has been our Chief Financial Officer since January 27, 2018. Ms. Lv joined us in August 2000. From July 31, 2016 to January 26, 2018,Ms. Lv was our Acting Chief Financial Officer. Prior to July 31, 2016, Ms. Lv was our Senior Finance Director, in charge of day-to-day financeoperations, including financial reporting, budget planning and treasury. Ms. Lv brings extensive experience in financial management and has beeninvolved in multiple strategic financial projects for us. Ms. Lv received a bachelor’s degree in economics from the Capital University of Economicsand Business in Beijing and an EMBA degree from Tsinghua University.Mr. Charles Huang is the Founder, Chief Executive Officer and Chairman of Netbig Education Holdings Ltd. (“Netbig”), a leading educationenterprise in China. Prior to founding Netbig in 1999, Mr. Huang served as Executive Director and Head of the Asia Securitization Group of DeutscheBank, New York and Hong Kong, as well as a Senior Vice President of Prudential Securities Inc., New York. Mr. Huang is also a Chartered FinancialAnalyst, and serves as director of ZTO Express (Cayman) Inc. (New York Stock Exchange). Mr. Huang holds a Master of Science degree in ComputerScience from MIT and a Bachelor of Science degree from the University of Science and Technology of China.Dr. Zhonghan Deng is the Chief Executive Officer and Chairman of the Board of Directors of Vimicro International Corporation (“Vimicro”), which heco-founded in 1999. Dr. Zhonghan Deng also worked as a research scientist for International Business Machines Corporation at the T.J. WatsonResearch Center in Yorktown Heights, New York. Dr. Deng received a Ph.D. in electrical engineering and computer sciences, a Master of Sciencedegree in economics and a Master of Science degree in physics from the University of California, Berkeley.Dave De Yang has served as the Chief Financial Officer and a Partner of Dalton International, an investment firm based in Chicago, since 2017. From2012 through 2016, Mr. Yang served as Chief Financial Officer for the North Asia region, including China, Hong Kong, Taiwan, Japan, and Korea, ofReckitt Benckiser, a London-based company that is listed on the London Stock Exchange and is included in the FTSE 100 Index. Prior to joiningReckitt Benckiser, Mr. Yang worked for McDonald’s Corporation as a senior financial director, including an international assignment as the CorporateController of McDonald’s China for three and half years. Prior to that role, he served as acting controller of McDonald’s India and Indonesia divisionsand as a senior director of McDonald’s Corporation in the Asia Pacific, Middle East and Africa division, where he oversaw the development andsupervision of financial strategy and policy. Prior to joining McDonald’s Corporation, Mr. Yang worked in the U.S. business unit of Ernst & YoungLLP for seven years in various positions, including as a group manager. During Mr. Yang’s tenure at Ernst & Young LLP, he focused on business riskmanagement consultation, corporate M&A, restructuring of corporate internal management processes, internal audits, risk assessment, control systemdesigns, and auditing of corporate financial statements, primarily for Fortune 500 companies. Mr. Yang has also served as a member of the Board ofDirectors and of the Audit Committee of Changyou since 2009. Mr. Yang has a master of business administration degree from the City University ofNew York, a master’s degree in Management and Engineering from the Graduate School of the Chinese Academy of Sciences in Beijing, and abachelor’s degree in physics from the University of Science and Technology of China. Mr. Yang is a member of the U.S. Institute of Certified InternalAuditors, the Institute of Certified Public Accountants and the Institute of Certified Management Accountants. 140Table of ContentsDr. Dave Qi is a Professor of Accounting and the former Associate Dean of the Cheung Kong Graduate School of Business. He began teaching at theCheung Kong Graduate School of Business in 2002 and was the founding Director of the Executive MBA program. Before joining the Cheung KongGraduate School of Business, Dr. Dave Qi was an Associate Professor at the School of Accounting of the Chinese University of Hong Kong. Dr. Dave Qihas published many articles and research essays on accounting, financial reporting, capital market and other related topics. Dr. Dave Qi also serves asdirector of the following public companies: Bison Finance Group Limited (HK Stock Exchange), CTV Golden Bridge International Media Co., LTD.(Hong Kong Stock Exchange), iKang Healthcare Group, Inc. (NASDAQ), Momo Inc. (NASDAQ), Jutal Offshore Oil Services Limited (Hong Kong StockExchange), Yunfeng Financial Group Limited (formerly Reorient Group Limited) (Hong Kong Stock Exchange) and Haidilao International HoldingLtd. (HK Stock Exchange). In addition, Dr. Dave Qi serves as Chairman of the Audit Committee of each of Roadshow Holdings Limited, CTV GoldenBridge International Media Co., LTD., and iKang Healthcare Group, Inc., and as a member of the Audit Committee of each of Momo Inc., Jutal OffshoreOil Services Limited and Yunfeng Financial Group Limited. Dr. Qi has a Ph.D. in accounting from the Eli Broad Graduate School of management ofMichigan State University, a Master of Business Administration from the University of Hawaii at Manoa and a Bachelor of Science and a Bachelor ofArts degree from Fudan University. Dr. Dave Qi is currently a member of the American Accounting Association.Mr. Shi Wang is the Honorary Chairman of the Board of Directors of Vanke, of which he also served as General Manager from 1991 to 1999. In 1984Mr. Shi Wang founded the Shenzhen Exhibition Center of Modern Science and Education Equipment, which is the predecessor of Vanke. Mr. ShiWang is the Executive Manager of the China Real Estate Association and is Deputy Director of the City Housing Development Council of the ChinaReal Estate Association.Board of DirectorsOur Board of Directors currently consists of six directors and is divided into two classes consisting of three directors each, with one class of directorsbeing elected by the holders of our ordinary shares at each annual general meeting of shareholders and holding office for staggered two-year terms,with the term of one of the classes expiring at each annual general meeting. Our directors currently consist of Dr. Charles Zhang, Zhonghan Deng, andDave De Yang, whose terms will expire at our 2020 annual general meeting of shareholders, and Charles Huang, Dave Qi, and Shi Wang, whose termswill expire at our 2019 annual meeting of shareholders. A director is not required to hold any shares in our company by way of qualification. A directormay vote with respect to any contract, proposed contract, or arrangement in which he is materially interested, provided the nature of such interest isdisclosed prior to any vote thereon.Committees of the Board of DirectorsAudit CommitteeThe members of our audit committee currently are Dr. Dave Qi, Dr. Zhonghan Deng and Mr. Dave De Yang, who are each independent as that term isdefined in Rule 10A-3 under the Exchange Act and Rule 5605(a)(2) of the NASDAQ Listing Rules. Our Board has determined that Dr. Dave Qi is anaudit committee financial expert as set forth under the applicable SEC rules and Rule 5605(c)(2) of the Nasdaq Listing Rules. The full responsibilitiesof our audit committee are set forth in its charter, which will be reviewed and updated annually and approved by our board, and will be posted on ourWebsite at http://investors.sohu.com/committee-details/audit-committee. The audit committee is responsible for, among other things: • selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independentauditors; • overseeing our accounting and financial reporting processes and audits of the financial statements of our company; • reviewing with the independent auditors any audit problems or difficulties and management’s response; • reviewing and approving all proposed related party transactions, as defined in the Nasdaq Listing Rules; • discussing the annual audited financial statements with management and the independent auditors; • reviewing major issues as to the adequacy of our internal controls over financial reporting and any special audit steps adopted in the lightof any significant deficiencies or materially weakness in our internal controls; and • meeting separately and periodically with management and the independent auditors.Compensation Committee 141Table of ContentsThe members of our compensation committee currently are Dr. Dave Qi and Dr. Zhonghan Deng, who are each independent as that term is definedin Rule 5605(a)(2) of the NASDAQ Listing Rules. Our compensation committee makes recommendations concerning salaries and incentivecompensation, administers and approves share-based awards under our equity incentive plans, and otherwise determines compensation levels andperforms such other functions regarding compensation as our Board of Directors may delegate to our compensation committee. The full responsibilitiesof our compensation committee are set forth in its charter, which is posted on our Web site at http://investors.sohu.com/committee-details/compensation-committeeNominating CommitteeThe members of our nominating committee currently are Dr. Dave Qi, Mr. Shi Wang and Dr. Zhonghan Deng, who are each independent as thatterm is defined in Rule 5605(a)(2) of the NASDAQ Listing Rules. The purpose of our nominating committee is to assist our Board of Directors inidentifying individuals qualified to become directors under criteria approved by our Board of Directors, periodically review director compensation andbenefits, recommend to our Board of Directors any proposed revisions to our corporate governance guidelines and assist our Board of Directors inassessing directors’ independence, board effectiveness, continuing education, new director orientation and committee membership. The fullresponsibilities of our nominating committee are set forth in its charter, which is posted on our Web site at http://investors.sohu.com/committee-details/nominating-committeeIt is a policy of our nominating committee that candidates for director (i) be determined to have unquestionable integrity and honesty, (ii) havethe ability to exercise sound, mature and independent business judgment which is in the best interests of the shareholders as a whole, (iii) have abackground and experience in fields which will complement the talents of the other Board members, (iv) have the willingness and capability to takethe time to actively participate in Board and committee meetings and related activities, (v) have the ability to work professionally and effectively withother Board members and our management, (vi) have the ability to remain on our Board long enough to make a meaningful contribution and (vii) haveno material relationships with competitors or other third parties that could create a reasonable likelihood of a conflict of interest or other legal issues.Neither our nominating committee nor our Board of Directors has a policy with regard to the consideration of diversity when identifying andevaluating proposed director candidates, although both may consider diversity when identifying and evaluating proposed director candidates, and oneof the enumerated factors under our nominating committee’s charter that the committee may consider when identifying potential nominees is theinterplay of the candidate’s experience with the experience of the other board members. In compiling a list of possible candidates and considering theirqualifications, our nominating committee makes its own inquiries, solicits input from other directors on our Board and may consult or engage othersources, such as a professional search firm, if it deems appropriate.Duties of DirectorsUnder Cayman Islands law, our directors have a common law duty to act honestly in good faith with a view to our best interests and for a properpurpose. A director must exercise the skill and care of a reasonably diligent person having both – (a) the general knowledge, skill and experience thatmay reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company (an objectivetest), and (b) if greater, the general knowledge, skill and experience that that director actually possesses (a subjective test). In fulfilling their duty ofcare to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder may have the right to seek variousremedies, including damages on behalf of our company, if a duty owed by our directors is breached.Terms of Directors and OfficersA director may be removed by ordinary resolution passed by a majority of our shareholders before the expiration of such director’s term. For moreinformation about the classification of our Board of Directors, see “—Board of Directors.” Officers are elected by and serve at the discretion of theBoard of Directors.Compensation of Executive Officers and DirectorsDuring the year ended December 31, 2018, we paid an aggregate of approximately $6.2 million in cash compensation to our executive officers. Wepaid an aggregate of approximately $1.0 million in cash compensation to our directors other than Dr. Charles Zhang. In 2018, the total compensationexpense for our non-executive directors and executive officers recorded in our consolidated statements of comprehensive income was $7.3 million.None of our directors, other than Dr. Charles Zhang, have service contracts that provide for benefits upon termination of employment.Employment Agreements with Executive OfficersEmployment Agreements with Dr. Charles Zhang, Ms. Joanna Lv and Mr. Dewen Chen. 142Table of ContentsWe have entered into a three-year employment agreement with our Chief Executive Officer, Dr. Charles Zhang, and a three-year employment agreementwith our Chief Financial Officer, Ms. Joanna Lv, and Changyou has entered into an employment agreement with Mr. Dewen Chen, Changyou’s ChiefExecutive Officers. Under these agreements we or Changyou may terminate Dr. Zhang’s, Ms. Lv’s or Mr. Chen’s employment for cause, at any time, forcertain acts of such officer such as willful misconduct or gross negligence, repeated failure to perform substantially his or her duties, indictment orconviction for or confession of a felony, or any crime involving moral turpitude. In any such case, such officer will not be entitled to receive paymentof any severance benefits or other amounts by reason of termination other than accrued salary and vacation through the date of termination and suchofficer’s right to all other benefits will terminate, except as required by applicable law.We or Changyou may also terminate our employment agreements with Dr. Zhang, Ms. Lv or Mr. Chen without cause upon thirty days’ advance writtennotice. In such case of termination by us and also in a case where Dr. Zhang, Ms. Lv or Mr. Chen voluntarily terminates his or her employment with usupon thirty-days’ advance written notice for “good reason,” we are required to provide him or her with severance benefits equal to an amount up to six(6) months of his or her monthly base salary, provided that he or she complies during the severance period with the non-competition, non-solicitation,confidential information and work product provisions discussed below, which are incorporated into the employment agreement, and executes a releaseagreement in a form requested by us. “Good reason” includes (i) any significant change in the executive officer’s duties and responsibilitiesinconsistent in any material and adverse respect with his or her title and position, and (ii) any material breach of the employment agreement by us,including any reduction in the executive officer’s base salary or our failure to pay to him or her any portion of his or her compensation.Each of Dr. Zhang, Ms. Lv and Mr. Chen has entered into an employee non-competition, non-solicitation, confidential information, and work productagreement with us or Changyou, respectively. Under these agreements, Dr. Zhang, Ms. Lv or Mr. Chen has agreed to be bound by (i) non-competitionrestrictions during his or her employment and for one year after the termination of his or her employment or for such longer period during which we payhim or her any severance benefits, and (ii) non-solicitation restrictions during the non-competition period. Each of Dr. Zhang, Ms. Lv and Mr. Chen hasagreed to hold in confidence, 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, all of our confidential information or trade secrets, allconfidential information or trade secrets of our clients or customers, and all confidential or proprietary information of any third party held by us. Eachof Dr. Zhang, Ms. Lv and Mr. Chen has also agreed to disclose to us or Changyou all inventions which he or she conceives and develops during theemployment and to assign all right, title and interest in them to us or Changyou and has agreed not to assert any such rights against us or Changyou.Employment Agreement with Mr. Xiaochuan WangOur subsidiary Beijing Sogou Technology Development Co., Ltd. entered into an open-ended employment agreement with Mr. Xiaochuan Wang.Under his employment agreement, Mr. Wang is entitled to (i) base salaries and (ii) a performance-based cash bonus. His employment agreement alsoprovide for certain additional benefits to the extent applicable, including vacation time; life, unemployment, medical, work-related injury and otherinsurance; and allowances for housing. Mr. Wang also agreed in his employment agreement to be bound by obligations regarding (i) assignment ofintellectual property and (ii) confidential treatment of proprietary information. His employment agreements is governed by the Chinese law.Share Incentive PlansSohu Share Incentive PlansWe adopted a share incentive plan in April 2018, or the Sohu 2018 Share Incentive Plan, which will expire in April 2028. The maximum number of ourordinary shares issuable under the Sohu 2018 Share Incentive Plan is 1,132,315, which is equal to the remaining number of 1,148,565 of shares ofcommon stock issuable under the Sohu.com Inc. 2010 Share Incentive Plan as of the adoption of the Sohu 2018 Share Incentive Plan, reduced by16,250 shares that were issued upon exercise or settlement between the time of the adoption of Sohu 2018 Share Incentive Plan and the dissolution andliquidation of Sohu.com Inc. on May 31, 2018. Our Board of Directors may amend, suspend, or terminate the Sohu 2018 Share Incentive Plan at anytime; provided, however, that our Board of Directors must first seek the approval of the participants in the Sohu 2018 Share Incentive Plan if suchamendment, suspension or termination would adversely affect the rights of participants with respect to any of their existing awards. Share incentiveawards may be granted under the Sohu 2018 Share Incentive Plan to our management and employees. Share incentive awards that were granted, or maybe granted, under the Sohu 2018 Share Incentive Plan include, among other forms, options, restricted share units and restricted shares, and themaximum term of any share incentive award granted is ten years from the grant date.Our compensation committee, or our Board of Directors in the absence of such a committee, administers the Sohu 2018 Share Incentive Plan, anddetermines the terms and conditions of awards under the Sohu 2018 Share Incentive Plans. Awards granted under the Sohu 2018 Share Incentive Planare evidenced by an award document that sets forth the terms and conditions applicable to each of the awards, as determined by our Board of Directorsor compensation committee in its sole discretion. 143Table of ContentsUpon the dissolution of Sohu.com Inc. on May 31, 2018, we assumed all then existing obligations of Sohu.com Inc. with respect to equity incentiveawards that had been granted under Sohu.com Inc.’s Amended and Restated 2010 Stock Incentive Plan and then remained outstanding, and suchawards were converted into the right to receive upon exercise or settlement our ordinary shares under the Sohu 2018 Share Incentive Plan rather thanshares of the common stock of Sohu.com Inc., subject to the other terms of such outstanding awards.Sogou Share Incentive PlansSogou adopted a share incentive plan in October 2010, as amended from time to time and with the last amendment taking effect on August 22, 2014, orthe Sogou 2010 Share Incentive Plan. The maximum number of Sogou Class A Ordinary Shares issuable under the Sogou 2010 Share Incentive Plan is41,500,000. Share incentive awards may be granted under the Sogou 2010 Share Incentive Plan to Sogou management and employees, and tomanagement and employees of any of the Sohu Group companies. Sogou also adopted a share incentive plan in October 2017, or the Sogou 2017Share Incentive Plan and, together with the Sogou 2010 Share Incentive Plan, the Sogou Share Incentive Plans. The maximum number of SogouClass A Ordinary Shares issuable under the Sogou 2017 Share Incentive Plan is 28,000,000. Share incentive awards may be granted under the Sogou2017 Share Incentive Plan to Sogou management and employees and to management and employees of any of the Sohu Group companies that is notour VIE. Share incentive awards that may be granted under the Sogou Share Incentive Plans include, among other forms, options, restricted share unitsand restricted shares, and the maximum term of any share incentive award granted is ten years from the grant date.Sogou’s compensation committee, or Sogou’s Board of Directors in the absence of such a committee, administers the Sogou Share Incentive Plans, anddetermines the terms and conditions of awards under the Sogou Share Incentive Plans. Awards granted under the Sogou Share Incentive Plans areevidenced by an award document that sets forth the terms and conditions applicable to each of the awards, as determined by Sogou’s Board of Directorsor compensation committee in its sole discretion. Prior to Sogou’s IPO, the award documents for options previously granted under the Sogou 2010Share Incentive Plan gave Sogou a right to repurchase from a grantee, within a certain time period, up to 50% of a grantee’s Class A Ordinary Sharessubject to vested options, upon such grantee’s death, disability, or voluntary, or involuntary termination of employment with us (other than for“Cause,” as defined in the Sogou 2010 Share Incentive Plan); the repurchase price for such a purchase was equal to the fair market value of Sogou’sordinary shares, as determined in an appraisal by an independent professional appraisal firm chosen by Sogou. Sogou’s such repurchase rights underthe award documents terminated upon the completion of Sogou’s IPO.The Sogou 2010 Share Incentive Plan will terminate in October 2020 and the Sogou 2017 Share Incentive Plan will terminate in October 2027.Sogou’s Board of Directors may amend, suspend, or terminate the Share Incentive Plans at any time; provided, however, that Sogou’s Board ofDirectors must first seek the approval of the participants in the Share Incentive Plans if such amendment, suspension or termination would adverselyaffect the rights of participants with respect to any of their existing awards.Awards for Sogou Class A Ordinary Shares held by SohuWe also grant to our management and employees options to purchase from us Sogou Class A ordinary shares that we hold for the purpose of makingsuch grants. Vesting of options that we grant generally occurs in equal annual installments over a four-year period, but vesting for each year is alsosubject to the achievement of annual performance milestones related to Sogou that our Board of Directors establishes in its discretion.Changyou Share Incentive PlanChangyou adopted a share incentive plan in August 2008, or the Changyou 2008 Share Incentive Plan, which expired in August 2018 and is no longeravailable for granting new equity incentive awards. Changyou also adopted a share incentive plan in November 2014, or the Changyou 2014 ShareIncentive Plan and, together with the Changyou 2008 Share Incentive Plan, the Changyou Share Incentive Plans, which will terminate in November2024. The maximum number of Changyou’s Class A ordinary shares issuable under the Changyou 2014 Share Incentive Plan is 6,000,000. Changyou’sBoard of Directors may amend, suspend, or terminate the Changyou 2014 Share Incentive Plan at any time; provided, however, that Changyou’s Boardof Directors must first seek the approval of the participants in the Changyou 2014 Share Incentive Plan if such amendment, suspension or terminationwould adversely affect the rights of participants with respect to any of their existing awards. Share incentive awards may be granted, under theChangyou Share Incentive Plans to Changyou management and employees and to management and employees of any of the Sohu Group companies.Share incentive awards that were granted, or may be granted, under the Changyou Share Incentive Plans include, among other forms, options, restrictedshare units and restricted shares, and the maximum term of any share incentive award granted is ten years from the grant date. 144Table of ContentsChangyou’s compensation committee, or Changyou’s Board of Directors in the absence of such a committee, administers the Changyou ShareIncentive Plans, and determines the terms and conditions of awards under the Changyou Share Incentive Plans. Awards granted under the ChangyouShare Incentive Plans are evidenced by an award document that sets forth the terms and conditions applicable to each of the awards, as determined byChangyou’s Board of Directors or compensation committee in its sole discretion.Sohu Video Share Incentive PlanOur subsidiary Sohu Video adopted a share incentive plan in January 2012, or the Sohu Video 2011 Share Incentive Plan, which will expire in January2021. The maximum number of Sohu Video ordinary shares issuable under the Sohu Video 2011 Share Incentive Plan is 25,000,000. Share incentiveawards may be granted under the Sohu Video 2011 Share Incentive Plan to Sohu Video management and employees, and to management andemployees of any of the Sohu Group companies. Share incentive awards that may be granted under the Sohu Video 2011 Share Incentive Plans include,among other forms, options, restricted share units and restricted shares, and the maximum term of any share incentive award granted is ten years fromthe grant date.Sohu Video’s compensation committee, or Board of Directors in the absence of such a committee, administers the Sohu Video 2011 Share IncentivePlan, and determines the terms and conditions of awards under the Sohu Video 2011 Share Incentive Plan. Awards granted under the Sohu Video 2011Share Incentive Plan are evidenced by an award document that sets forth the terms and conditions applicable to each of the awards, as determined bySohu Video’s Board of Directors or compensation committee in its sole discretion. The award documents for options granted under the Sohu Video2011 Share Incentive Plan give Sohu Video a right to repurchase from a grantee, within a certain time period, up to 50% of a grantee’s Sohu Videoordinary shares subject to vested options, upon such grantee’s death, disability, or voluntary, or involuntary termination of employment with us (otherthan for “Cause,” as defined in the Sohu Video 2011 Share Incentive Plan). The repurchase price for such a purchase was equal to the fair market valueof Sohu Video’s ordinary shares, as determined in an appraisal by an independent professional appraisal firm chosen by Sohu Video. Sohu Videorepurchase rights under the award documents will terminate upon the completion of Sohu Video’s IPO.Sohu Video’s Board of Directors may amend, suspend, or terminate the Share Incentive Plans at any time; provided, however, that Sohu Video’s Boardof Directors must first seek the approval of the participants in the Sohu Video 2011 Share Incentive Plan if such amendment, suspension or terminationwould adversely affect the rights of participants with respect to any of their existing awards.Grants of Shares and Options to Directors and Executive OfficersThe following tables set forth summaries of all outstanding equity awards granted by us to, and held by each of our directors and executive officers asof March 15, 2019.Awards Granted under Sohu 2018 Share Incentive Plan Directors and Executive Officers OrdinaryShares underlyingoutstanding options Exerciseprice Date ofgrant Expirationdate Charles Zhang 75,000(1) $0.001 2/16/2015 2/15/2025 Joanna Lv 7,500(2) $0.001 2/16/2015 2/15/2025 (1)Consists of options to purchase our ordinary shares at a nominal exercise price, of which 75,000 options are vested and exercisable as ofMarch 15, 2019.(2)Consists of options to purchase our ordinary shares at a nominal exercise price, of which 7,500 options are vested and exercisable as of March 15,2019.Awards Granted under Sogou Share Incentive Plans Directors and Executive Officers Restricted Sogou Class AOrdinaryShares Exerciseprice Date ofgrant Expirationdate Xiaochuan Wang 4,320,000(1) $0.625 1/31/2013 N/A (1)Consists of Sogou Class A Ordinary Shares beneficially held by Mr. Wang that were issued in 2013 upon Mr. Wang’s early exercise of shareoptions granted under the Sogou 2010 Share Incentive Plan. Such Sogou Class A Ordinary Shares are subject to vesting in three equalinstallments upon the second, third and fourth anniversaries of the completion of Sogou’s IPO, which took place on November 13, 2017. 145Table of ContentsAwards Granted under Changyou 2014 Share Incentive Plan Directors and Executive Officers OrdinaryShares underlyingoutstanding options Exerciseprice Date ofgrant Expirationdate Dewen Chen 150,000(1) $0.01 11/2/2014 11/1/2024 (1)Originally granted under the Changyou 2014 Share Incentive Plan in the form of restricted share units settleable in Changyou’s Class A ordinaryshares, which were subject to vesting over a four-year period and would be forfeited if the vesting conditions were not met. On February 16, 2015,Changyou’s Board of Directors approved the conversion of the restricted share units into options for the purchase of Class A ordinary shares at anexercise price of $0.01, subject to the same vesting conditions, of which 150,000 are fully vested and exercisable.Awards Granted under Sohu Video 2011 Share Incentive Plan Directors and Executive Officers OrdinaryShares underlyingoutstanding options Exerciseprice Date ofgrant Expirationdate Joanna Lv 110,000(1) $0.01 1/4/2012 1/3/2022 Xiaochuan Wang 50,000(2) $0.01 1/4/2012 1/3/2022 2/15/2025 (1)Consists of options to purchase Sohu Video’s ordinary shares at a nominal exercise price, vesting in equal annual installments over a four-yearperiod, but vesting for each year will also be subject to the achievement of annual performance milestones related to Sohu Video that our Boardof Directors establishes in its discretion. As of March 15, 2019, 27,500 options are fully vested and exercisable.(2)Consists of options to purchase Sohu Video’s ordinary shares at a nominal exercise price, vesting in equal annual installments over a four-yearperiod, but vesting for each year will also be subject to the achievement of annual performance milestones related to Sohu Video that our Boardof Directors establishes in its discretion. As of March 15, 2019, 12,500 options are fully vested and exercisable.EmployeesAs of December 31, 2018, we had approximately 8,500 employees, including 3,400 employees for Sohu, 3,000 employees for Sogou, and 2,100employees for Changyou. None of our personnel are represented under collective bargaining agreements.We have entered into standard employment agreements with our employees through our subsidiaries and VIEs. Sohu’s and Sogou’s employees haveentered into confidentiality, non-competition and non-solicitation agreements with Sohu or Sogou, respectively. Changyou’s employees have enteredinto confidentiality agreements with Changyou. However, the degree of protection afforded to an employer pursuant to confidentiality andnon-competition undertakings governed by PRC law may be more limited when compared to the degree of protection afforded under the laws of otherjurisdictions. A number of our employees hold share-based awards granted by Sohu, Sogou, Changyou, and Sohu Video, which provide additionalfinancial incentives to them. Most of these awards vest over a period of four years.Share OwnershipRefer to “Item 7: Major Shareholders and Related Party Transactions” below for a description of the share ownership of our directors and seniorexecutive officers. ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSMajor ShareholdersThe following table sets forth certain information regarding the beneficial ownership of our ordinary share as of March 15, 2019 by (i) each person(including any “group” as that term is used in Section 13(d)(3) of the Exchange Act known by us to be the beneficial owner of more than 5% of ourordinary share (assuming conversion of all outstanding exercisable options and warrants held by that person), (ii) each current director, (iii) each namedexecutive officer and (iv) all of our current directors and named executive officers as a group. Except as otherwise provided in the footnotes to thistable, we believe that the persons named in this table have voting and investment power with respect to all the shares of common stock indicated. 146Table of ContentsName and Address of Beneficial Owner Amount and Nature ofBeneficial Ownership(1) Percent of Class(1) Charles Zhang 9,763,196(2) 24.83% Charles Huang(3) 76,265 * Shi Wang(4) 34,132 * Dave Qi(5) 28,940 * Zhonghan Deng(6) 15,549 * Dave De Yang(7) — — Joanna Lv 10,500(8) * Xiaochuan Wang(9) 69,258 * Dewen Chen(10) — — All directors, nominees and executive officers as a group (9 persons) 9,852,683(11) 25.06% Photon Group Limited(12) 9,419,496 23.96% Public Sector Pension Investment Board(13) 4,178,087 10.70% Macquarie Investment Management Business Trust(14) 4,063,431 10.44% Orbis Investment Management Ltd.(15) 2,961,013 7.60% *Less than 1%.(1)Includes the number of shares and percentage ownership represented by such shares determined to be beneficially owned by a person inaccordance with the rules of the SEC. The number of shares beneficially owned by a person includes the number of ordinary shares subject tooptions or restricted stock units held by that person that are currently exercisable or settleable or that are exercisable or settleable within 60 daysof March 15, 2019. Such shares are deemed outstanding for the purpose of computing the percentage of outstanding shares owned by that person.Such shares are not deemed outstanding, however, for the purpose of computing the percentage ownership of each other person.(2)Includes (i) 75,000 ordinary shares subject to options exercisable within 60 days of March 15, 2018 and (ii) 9,419,496 ordinary sharesbeneficially owned by Photon Group Limited. Dr. Charles Zhang is a Director of Photon Group Limited, and may be deemed to be a beneficialowner of shares owned by it. Dr. Charles Zhang disclaims beneficial ownership of such shares except to the extent of his pecuniary interest insuch shares. Dr. Charles Zhang’s address is c/o Sohu.com Limited., Level 18, Sohu.com Media Plaza, Block 3, No. 2 Kexueyuan South Road,Haidian District, Beijing 100190, People’s Republic of China.(3)Mr. Charles Huang’s address is Suite 1804B, Tower 1, Admiralty Centre, 18 Harbour Road, Hong Kong.(4)Mr. Shi Wang’s address is Vanke Architecture Research Center, No. 68 Meilin Road, Futian District, Shenzhen 518049, People’s Republic ofChina.(5)Dr. Dave Qi’s address is 3/F, Tower E3, Oriental Plaza, 1 East Chang An Avenue, Beijing, China.(6)Dr. Zhonghan Deng’s address is 16/F, Shining Tower, No. 35, Xueyuan Road, Haidian District, Beijing 100191, People’s Republic of China.(7)Mr. Dave De Yang’s address is 427 Ashbury Drive, Hinsdale, IL 60521, U.S.A.(8)Includes 7,500 ordinary shares subject to options exercisable within 60 days of March 15, 2019. Ms. Joanna Lv’s address is c/o Sohu.comLimited., Level 18, Sohu.com Media Plaza, Block 3, No. 2 Kexueyuan South Road, Haidian District, Beijing 100190, People’s Republic ofChina.(9)Mr. Xiaochuan Wang’s address is c/o Sogou Inc., Level 15, Sohu.com Internet Plaza, No. 1 Unit, Zhongguancun East Road, Haidian District,Beijing 100084, People’s Republic of China.(10)Mr. Dewen Chen’s address is c/o Changyou.com Limited, Changyou Tower, No. 65 East Bajiao Road, Shijingshan District, Beijing 100043,People’s Republic of China.(11)Includes 82,500 ordinary shares that such persons have the right to acquire pursuant to currently exercisable options or options that may beexercised within 60 days of March 15, 2019(12)Photon Group Limited’s address is c/o Sohu.com Limited., Sohu.com Media Plaza, Block 3, No. 2 Kexueyuan South Road, Haidian District,Beijing 100190, People’s Republic of China. 147Table of Contents(13)Data based on a Schedule 13G/A filed with the SEC on February 6, 2019. The principal business address of Public Sector Pension InvestmentBoard is 1250 Rene-Levesque West, Suite 1400, Montreal, Quebec, H3B 5E9 Canada.(14)Data based on a Schedule 13G/A filed with the SEC on February 14, 2019. The principal business address of Macquarie Investment ManagementBusiness Trust is 2005 Market Street, Philadelphia, PA 19103.(15)Data based on a Schedule 13G/A filed with the SEC on February 14, 2019. Orbis Investment Management Ltd.’s address is Orbis House, 25 FrontStreet, Hamilton HM 11, Bermuda.Related Party TransactionsChangyou’s Loan Arrangements with Fox Financial Technology Group Limited (“Fox Financial,” formerly known as “SoEasy Internet FinanceGroup Limited”)Commencing in April 2015, certain subsidiaries of Changyou and certain subsidiaries of Fox Financial entered into a series of loan agreementspursuant to which the subsidiaries of Changyou are entitled to draw down HK dollar-denominated or U.S. dollar-denominated loans from the FoxFinancial subsidiaries and the Fox Financial subsidiaries are entitled to draw down equivalent RMB-denominated loans from the subsidiaries ofChangyou, to facilitate each other’s business operations. All of the loans carry a fixed rate of interest equal to the current market interest rate.During the first quarter of 2016, Changyou drew down from Fox Financial U.S. dollar-denominated loans of approximately $29.9 million and grantedRMB-denominated loans to Fox Financial of approximately $30.2 million. During the second quarter of 2016, Changyou repaid to Fox Financial HKdollar-denominated loans of approximately $12.9 million and received from Fox Financial RMB-denominated loans of $12.1 million. As ofDecember 31, 2016, Changyou had U.S. dollar-denominated loans payable to Fox Financial in a total amount of approximately $28.1 million, whichwas recorded in other short-term liabilities. As of the same date, Changyou had RMB-denominated loans receivable from Fox Financial in a totalamount of approximately $28.1 million, which was recorded in prepaid and other current assets. For the year of 2016, Changyou incurred interestexpense of $0.7 million and earned interest income of $1.2 million. As of December 31, 2016, total interest expense payable to Fox Financialamounted to $0.6 million, which was recorded in other short-term liabilities; and total interest income receivable from Fox Financial was $0.9 million,which was recorded in prepaid and other current assets.As of December 31, 2017, Changyou had U.S. dollar-denominated loans payable to Fox Financial in a total amount of approximately $29.8 million,and RMB-denominated loans receivable from Fox Financial in a total amount of approximately $29.8 million. For the year of 2017, Changyouincurred interest expense of $0.7 million and earned interest income of $1.2 million. As of December 31, 2017, total interest expense payable to FoxFinancial amounted to $1.4 million; and total interest income receivable from Fox Financial was $2.2 million.In December 2018, Changyou entered into a supplemental agreement with Fox Fianncial pursuant to which all accrued and unpaid interest on theloans as of December 31, 2018 was added to the principal of the corresponding loans. As of December 31, 2018, Changyou had U.S. dollar-denominated loans payable to Fox Financial in a total amount of approximately $32.7 million, and RMB-denominated loans receivable from FoxFinancial in a total amount of approximately $31.6 million. For the year ended December 31, 2018, Changyou incurred interest expense of$0.5 million in connection with the loans payable and earned interest income of $1.1 million in connection with the loans receivable.Transactions with Vanke Co., Ltd.In the 2018 fiscal year, Vanke Co., Ltd. purchased $220,755 in advertising services from us. Mr. Shi Wang, one of our directors, is the HonoraryChairman of the Board of Vanke Co., Ltd.Loan Agreement between Sohu and ChangyouOn October 24, 2016, Sohu Media entered into a loan agreement (the “Loan Agreement”) with AmazGame, pursuant to which Sohu Media may borrowfrom time to time from AmazGame up to RMB1.00 billion (or approximately $144.9 million). Principal amounts outstanding under the LoanAgreement bear interest at an annual rate of 6%. The outstanding principal of each advance will be due one year from the date of the advance, subjectto extension for an additional year with the consent of AmazGame.On October 24, 2016, Sohu Game, a Cayman Islands company that is an indirect subsidiary of Sohu and is the direct parent of Changyou, andChangyou entered into a share pledge agreement (the “Share Pledge Agreement”) pursuant to which Sohu Game pledged to Changyou Class Bordinary shares of Changyou held by Sohu Game. The number of Changyou Class B ordinary shares pledged by Sohu Game to Changyou is subject toupward adjustment from time to time while amounts are outstanding under the Loan Agreement if the price of Changyou’s American depositary shares(“ADSs”) on the NASDAQ Global Select Market drops for at least 10 consecutive trading days by an amount of 20% or more from such price as of thedate of the Share Pledge Agreement, and is subject to further upward adjustment in the event of any additional incremental drops of 20% or more in theprice of Changyou’s ADSs during 10 consecutive trading days. The share pledge agreement gives Changyou the right to apply the outstandingprincipal and accrued interest on the loan to the repurchase of Changyou Class B ordinary shares from Sohu Game in the event that such principal andinterest under the Loan Agreement are not paid when due. As of December 31, 2018, the number of Class B ordinary shares pledged by Sohu Game toChangyou was 21,847,751. 148Table of ContentsIn December 2016, March 2017 and April 2017, Sohu Media received RMB500.0 million (or approximately $72.9 million), RMB200.0 million (or$29.1 million) and RMB300.0 million (or $43.7 million), respectively, from AmazGame. As of December 31, 2017, the total outstanding balance of theloan was RMB1.0 billion (or $153.0 million). In January 2018, Sohu Media entered into a supplementary agreement with AmazGame and VideoTianjin, a subsidiary of the Company, pursuant to which Sohu Media assigned and transferred the entire principal amount outstanding and all therights and obligations under the Loan Agreement to Video Tianjin. In December 2018, Video Tianjin and AmazGame entered into an agreementextending the due date of each advance for an additional year. As of December 31, 2018, the total outstanding balance of the loan was RMB1.0 billion(or $145.7 million). The intra-Group loan has been eliminated upon consolidation.Contractual Arrangements with our VIEs and their ShareholdersPRC law currently restricts foreign ownership of Internet information and content, internet access, value-added telecommunications, online game, andcertain other businesses. To comply with PRC law, we conduct a significant part of our value-added telecommunications, search and search-related,online game and other businesses through contractual arrangements between our principal PRC subsidiaries and their corresponding VIEs and theirrespective shareholders. See “Information on the Company—Organizational Structure” in Item 4 of this annual report for a description of the ownershipinformation of our current principal VIEs.The following is a summary of the agreements currently in effect between these principal PRC subsidiaries and our principal VIEs:Agreements between Subsidiaries, Consolidated VIEs and Nominee ShareholdersLoan and share pledge agreement between Sohu Media and the shareholders of High Century: The agreement provides for loans to the shareholders ofHigh Century for them to make contributions to the registered capital of High Century in exchange for the equity interests in High Century, and theshareholders pledge those equity interests to Sohu Media as security for the loans. The agreement includes powers of attorney that give Sohu Mediathe power to appoint nominees to act on behalf of the shareholders of High Century in connection with all actions to be taken by High Century.Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in High Century, which are held by the Sohu Group’slegal department and may be completed and effected at Sohu Media’s election.Loan and share pledge agreement between Sohu Focus (HK) Limited (“Focus HK”) and the shareholders of Heng Da Yi Tong: The agreement providesfor loans to the shareholders of Heng Da Yi Tong for them to make contributions to the registered capital of Heng Da Yi Tong in exchange for theequity interests in Heng Da Yi Tong, and the shareholders pledge those equity interests to Focus HK as security for the loans. The agreement includespowers of attorney that give Focus HK the power to appoint nominees to act on behalf of the shareholders of Heng Da Yi Tong in connection with allactions to be taken by Heng Da Yi Tong. Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in Heng Da YiTong, which are held by the Sohu Group’s legal department and may be completed and effected at Focus HK’s election.Loan agreements and equity pledge agreements between Fox Information Technology (Tianjin) Limited (“Video Tianjin”) and the shareholders ofTianjin Jinhu. The loan agreements provide for loans to the shareholders of Tianjin Jinhu for them to make contributions to the registered capital ofTianjin Jinhu in exchange for the equity interests in Tianjin Jinhu. Under the equity pledge agreements, the shareholders of Tianjin Jinhu pledge toVideo Tianjin their equity interests in Tianjin Jinhu to secure the performance of their obligations under the loan agreements and Tianjin Jinhu’sobligations to Video Tianjin under their business agreements. The loans are interest free and are repayable on demand, but the shareholders can onlyrepay the loans by transferring to Video Tianjin their equity interests in Tianjin Jinhu.Exclusive equity interest purchase right agreements between Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. Pursuant to theseagreements, Video Tianjin and any third party designated by it have the right, exercisable at any time when it becomes legal to do so under PRC law,to purchase from the shareholders of Tianjin Jinhu all or any part of their equity interests at the lowest purchase price permissible under PRC law. 149Table of ContentsBusiness operation agreement among Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. The agreement sets forth the right of VideoTianjin to control the actions of the shareholders of Tianjin Jinhu. The agreement has a term of 10 years, renewable at the request of Video Tianjin.Powers of Attorney executed by the shareholders of Tianjin Jinhu in favor of Video Tianjin with a term of 10 years, extendable at the request of VideoTianjin. These powers of attorney give Video Tianjin the right to appoint nominees to act on behalf of each of the Tianjin Jinhu shareholders inconnection with all actions to be taken by Tianjin Jinhu.Loan and share pledge agreements between Sogou Technology and the shareholders of Sogou Information. The loan agreement provides for a loan toXiaochuan Wang, the individual shareholder of Sogou Information, to be used by him to make contributions to the registered capital of SogouInformation in exchange for his equity interest in Sogou Information. The loan is interest free-and is repayable on demand, but the shareholder mayrepay the loan only by transferring to Sogou Technology his equity interest in Sogou Information. Under the pledge agreement, all of the shareholdersof Sogou Information pledge their equity interests to Sogou Technology to secure the performance of their obligations under the various VIE-relatedagreements. If any shareholder of Sogou Information breaches any of his or its obligations under any VIE-related agreements, Sogou Technology isentitled to exercise its right as the beneficiary under the share pledge agreement. The share pledge agreement terminates only after all of theobligations of the shareholders under the various VIE-related agreements are no longer in effect.Exclusive equity interest purchase right agreements between Sogou Technology, Sogou Information and the shareholders of Sogou Information.Pursuant to these agreements, Sogou Technology and any third party designated by it have the right, exercisable at any time when it becomes legal todo so under PRC law, to purchase from the shareholders of Sogou Information all or any part of their equity interests at the lowest purchase pricepermissible under PRC law.Business operation agreement among Sogou Technology, Sogou Information and the shareholders of Sogou Information. The agreement sets forth theright of Sogou Technology to control the actions of the shareholders of Sogou Information. The agreement has a term of 10 years, renewable at therequest of Sogou Technology.Powers of Attorney executed by the shareholders of Sogou Information in favor of Sogou Technology with a term of 10 years, extendable at the requestof Sogou Technology. These powers of attorney give Sogou Technology the right to appoint nominees to act on behalf of each of the three SogouInformation shareholders in connection with all actions to be taken by Sogou Information.Loan agreements and equity pledge agreements between AmazGame and the sole shareholder of Gamease and between Gamespace and the soleshareholder of Guanyou Gamespace. The loan agreements provide for loans to the respective shareholders of Gamease and Guanyou Gamespace for theshareholders to make contributions to the registered capital of Gamease and Guanyou Gamespace in exchange for 100% of the equity interests inGamease and Guanyou Gamespace. The loans are interest free and are repayable on demand, but the shareholders can only repay the loans bytransferring to AmazGame and Gamespace, as the case may be, their equity interests in Gamease and Guanyou Gamespace. Under the equity pledgeagreements, the respective shareholders of Gamease and Guanyou Gamespace pledge to AmazGame and Gamespace, their equity interests in Gameaseand Guanyou Gamespace to secure the performance of their obligations under the loan agreements and Gamease’s and Guanyou Gamespace’sobligations to AmazGame and Gamespace under the various VIE-related agreements. If the shareholders breach their obligations under any VIE-relatedagreements (Gamease’s or Guanyou Gamespace’s breach of any of its obligations under the various applicable VIE-related agreements will be treated asits shareholder’s breach of its obligations), including the equity pledge agreements, AmazGame and Gamespace are entitled to exercise their rights asthe beneficiaries under the applicable equity pledge agreements, including all rights the respective shareholders have as shareholders of Gamease orGuanyou Gamespace.Equity interest purchase right agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, GuanyouGamespace and the sole shareholder of Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace have the right, exercisable atany time if and when it is legal to do so under PRC law, to purchase from the respective shareholders of Gamease and Guanyou Gamespace all or anypart of their equity interests in Gamease and Guanyou Gamespace at a purchase price equal to their initial contributions to the registered capital ofGamease and Guanyou Gamespace.Powers of attorney executed by the sole shareholder of Gamease in favor of AmazGame and by the sole shareholder of Guanyou Gamespace in favor ofGamespace, with a term of 10 years. These powers of attorney give the respective boards of directors of AmazGame and Gamespace the exclusive rightto appoint nominees to act on behalf of their respective shareholders in connection with all actions to be taken by Gamease and Guanyou Gamespace.Business operation agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, Guanyou Gamespace andthe sole shareholder of Guanyou Gamespace. These agreements set forth the right of AmazGame and Gamespace to control the actions of Gamease andGuanyou Gamespace, as the case may be, and the respective shareholders of Gamease and Guanyou Gamespace. Each agreement has a term of 10 years. 150Table of ContentsBusiness Arrangements between Subsidiaries and Consolidated VIEsExclusive technology consulting and service agreement between Sohu Era and Sohu Internet. Pursuant to this agreement Sohu Era has the exclusiveright to provide technical consultation and other related services to Sohu Internet, in exchange for a percentage of the gross revenue of Sohu Internet.The agreement has an initial term of two years, and is renewable at the request of Sohu Era.Exclusive technology consulting and service agreement between Video Tianjin and Tianjin Jinhu. Pursuant to this agreement Video Tianjin has theexclusive right to provide technical consultation and other related services to Tianjin Jinhu in exchange for a fee. The agreement has a term of 10 yearsand is renewable at the request of Video Tianjin.Exclusive technology consulting and service agreement between Sogou Technology and Sogou Information. Pursuant to this agreement SogouTechnology has the exclusive right to provide technical consultation and other related services to Sogou Information in exchange for a fee. Theagreement has a term of 10 years and is renewable at the request of Sogou Technology.Technology support and utilization agreements between AmazGame and Gamease and between Gamespace and Guanyou Gamespace. Pursuant tothese agreements, AmazGame and Gamespace have the exclusive right to provide certain product development and application services andtechnology support to Gamease and Guanyou Gamespace, respectively, for a fee equal to a predetermined percentage, subject to adjustment byAmazGame or Gamespace at any time, of Gamease’s and Guanyou Gamespace’s respective revenues. Each agreement terminates only when AmazGameor Gamespace is dissolved.Services and maintenance agreements between AmazGame and Gamease between Gamespace and Guanyou Gamespace. Pursuant to these agreements,AmazGame and Gamespace, respectively, provide marketing, staffing, business operation and maintenance services to Gamease and GuanyouGamespace, respectively, in exchange for a fee equal to the cost of providing such services plus a predetermined margin. Each agreement terminatesonly when AmazGame or Gamespace, as the case may be, is dissolved.Certain of the contractual arrangements described above between the VIEs and the related wholly-owned subsidiaries of the Sohu Group are silentregarding renewals. However, because the VIEs are controlled by the Sohu Group through powers of attorney granted to the Sohu Group by theshareholders of the VIEs, the contractual arrangements can be, and are expected to be, renewed at the subsidiaries’ election.Other Transactions with Certain Directors, Shareholders and AffiliatesSee “Directors, Senior Management and Employees—Compensation of Directors and Executive Officers.”Employment AgreementsSee “Directors, Senior Management and Employees—Employment Agreements with Executive Officers.”Share Incentive PlansSee “Directors, Senior Management and Employees—Equity Incentive Plans.”Interests of Experts and CounselNot applicable. ITEM 8.FINANCIAL INFORMATIONConsolidated Financial StatementsPlease see Item 18 “Financial Statements” for our audited consolidated financial statements filed as a part of this annual report.Legal ProceedingsFrom time to time we become subject to legal proceedings and claims in the ordinary course of our business. Such legal proceedings or claims, even ifnot meritorious, could result in the expenditure of significant financial and management resources. 151Table of ContentsDividend PolicyThe Sohu Group intends to retain all available funds and any future earnings for use in the operation and expansion of its own business, and does notanticipate paying any cash dividends on Sohu.com Limited’s common stock for the foreseeable future. Future cash dividends distributed by Sohu.comLimited., if any, will be declared at the discretion of Sohu.com Limited’s Board of Directors and will depend upon future operations and earnings,capital requirements and surplus, general financial condition, contractual restrictions and such other factors as our Board of Directors may deemrelevant. ITEM 9.THE OFFER AND LISTINGOur ADSs are traded on the NASDAQ Global Select Market, under the symbol “SOHU.” On or prior to May 31, 2018, shares of the common stock of ourpredecessor Sohu.com Inc. were listed and traded on the NASDAQ Global Select Market under the same “SOHU” symbol.The following table provides the high and low reported sale prices for (i) shares of the common stock of Sohu.com Inc., on or prior to May 31, 2018 and(ii) our ADSs, after May 31, 2018, on the Nasdaq Global Select Market for (1) the five most recent fiscal years (2) each quarter in the two most recentfiscal years, (3) each of the last six full months, and (4) the month of March 1, 2019 through March 15, 2019. Trading Price ($) High Low 2014 Full Year 87.68 42.03 2015 Full Year 71.78 40.20 2016 Full Year 55.21 32.60 2017 Full Year 70.86 34.59 First Quarter 43.60 34.59 Second Quarter 50.81 37.78 Third Quarter 58.98 44.24 Fourth Quarter 70.86 43.23 2018 Full Year 47.98 15.89 First Quarter 47.98 29.66 Second Quarter 42.12 26.70 Third Quarter 37.39 19.43 Fourth Quarter 23.60 15.89 September 21.67 19.43 October 20.44 15.89 November 21.67 16.50 December 23.60 17.12 2019 January 21.11 16.51 February 22.71 19.24 March (through March 15) 21.49 17.68 The closing price of our ADSs on March 15, 2019 as reported by the NASDAQ Global Select Market was $19.38. ITEM 10.ADDITIONAL INFORMATIONMemorandum and Articles of AssociationWe incorporate by reference into this annual report the description of our amended and restated memorandum of association and our amended andrestated articles of association contained in our Registration Statement on Form F-4 (File No. 333-224069) filed with the SEC on April 19, 2018 and inSohu.com Inc.’s and our joint proxy statement/prospectus filed with the SEC on April 23, 2018. Our shareholders adopted our Memorandum andArticles of Association by a special resolution on April 2, 2018, which became effective on April 2, 2018. 152Table of ContentsDifferences in Corporate Law—Mergers and Similar ArrangementsThe Companies Law is modeled after similar laws in the United Kingdom but does not follow all statutory enactments or legislative changes in theUnited Kingdom. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is asummary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companiesincorporated in the State of Delaware.Mergers and Similar ArrangementsA merger or consolidation of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approvedby the directors of each constituent company and authorization by (a) a special resolution of the members of each constituent company and (b) suchother authorisation, if any, as may be specified in such constituent company’s articles of association.A merger or consolidation between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolutionof shareholders. For this purpose, a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are held by orregistered in the name of 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 inthe Cayman Islands.Save in certain circumstances, a dissenting shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upondissenting 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 onthe grounds that the merger or consolidation is void or unlawful.In addition, there are statutory provisions applicable to a scheme of arrangement that facilitate the takeover of companies or the reconstruction andamalgamation of companies, provided that the scheme of arrangement is approved by a majority in number of each class of shareholders or creditorswith 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, asthe 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 themeetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has theright 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 itdetermines that: • the statutory provisions as to the required majority vote have been met; • the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion ofthe minority shareholders or creditors to promote interests adverse to those of the class; • the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and • the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.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 periodcommencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares to the offeror on the sameterms as 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 hasbeen so approved unless there is evidence of a lack of compliance with the statutory procedures, of fraud, bad faith, or collusion.If a scheme of arrangement and reconstruction or takeover offer is thus approved, the dissenting shareholder would have no rights comparable toappraisal rights, which would otherwise ordinarily be available to dissenting shareholders in a merger or consolidation or to dissenting shareholders ofDelaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.Shareholders’ SuitsIn principle, we will normally be the proper plaintiff, and, as a general rule, a derivative action may not be brought by a minority shareholder andrequires leave or permission from the court in the Cayman Islands for such an action to be brought. However, based on English authorities, whichwould in all likelihood be of persuasive authority in the Cayman Islands, subject to leave being given, a derivative action may be available when: • a company acts or proposes to act illegally or ultra vires; 153Table of Contents • the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote of ourshareholders and this has not been obtained; and • those who control the company are perpetrating a “fraud on the minority.”Indemnification of Directors and Executive Officers and Limitation of LiabilityCayman 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 indemnificationagainst civil fraud or the consequences of committing a crime. Our Amended and Restated Memorandum of Association and Amended and RestatedArticles of Association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as suchunless such losses or damages arise from fraud or dishonesty of such directors or officers. This standard of conduct is generally the same as permittedunder the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with ourdirectors and senior executive officers that provide such persons with additional indemnification beyond that provided in our Amended and RestatedMemorandum of Association and Amended and Restated 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 theforegoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in theSecurities Act and is therefore unenforceable as a matter of United States law.Anti-Takeover Provisions in the Memorandum of Association and Articles of AssociationSome provisions of our Amended and Restated Memorandum of Association and Amended and Restated Articles of Association may discourage,delay, or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize ourBoard of Directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of suchpreferred 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 Amended and RestatedMemorandum of Association and Amended and Restated Articles of Association, as amended and restated from time to time, for what they believe ingood faith to be in the best interests of our company and for a proper purpose.In January 2019, we entered into a Shareholders’ Rights Agreement with The Bank of New York Mellon, as Rights Agent (the “Shareholders’ RightsAgreement”). The Shareholders’ Rights Agreement is designed to deter coercive takeover tactics, including the accumulation of shares in the openmarket or through private transactions, and to prevent an acquirer from gaining control of the Sohu Group without offering a fair and adequate priceand terms to all of our shareholders. Under the terms of the Shareholders’ Right Agreement if a person or group acquired more than 15% or more of ouroutstanding ordinary shares (including ordinary shares represented by ADSs), except as specifically permitted under the Shareholders’ RightAgreement, all other shareholders and holders of our ADSs would have the right to purchase securities from us at a substantial discount to thosesecurities’ fair market value, thus causing substantial dilution to the holdings of the person or group that acquires more than 15%. The rights grantedunder the Shareholders’ Rights Agreement will expire on January 13, 2029, unless redeemed or cancelled earlier. Also see “Certain provisions of ourMemorandum and Articles of Association, Cayman Islands law regarding mergers and similar arrangements, and our Shareholders’ Rights Agreementcould delay or deter a change in control” in Item 3 of this report.Directors’ Fiduciary DutiesUnder Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has twocomponents: 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 prudentperson would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all materialinformation reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believesto be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing bya director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer orcontrolling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informedbasis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may berebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a directormust 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 owes the following duties to the company—a duty to act bona fide in thebest interests of the company and for a proper purpose, a duty not to make a personal profit based on his position as director (unless the companypermits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to athird party. A director must exercise the skill and care of a reasonably diligent person having both—(a) the general knowledge, skill and experiencethat may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company (an objectivetest), and (b) if greater, the general knowledge, skill and experience that that director actually possesses (a subjective test). 154Table of ContentsTransactions with Interested ShareholdersThe Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless thecorporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engagingin certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interestedshareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding votingstock 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 allshareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes aninterested shareholder, the Board of Directors approves either the business combination or the transaction which resulted in the person becoming aninterested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transactionwith 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 businesscombination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it doesprovide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose and not with theeffect of constituting a fraud on the minority shareholders.Dissolution: Winding-upUnder the Delaware General Corporation Law, unless the Board of Directors approves the proposal to dissolve, dissolution must be approved byshareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the Board of Directors may it beapproved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate ofincorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the Companies Law of the CaymanIslands and our Amended and Restated Articles of association, our company may be dissolved, liquidated or wound up voluntarily by a specialresolution (the vote of the holders of two-thirds of our shares voting at a meeting or the unanimous written resolution of all shareholders) or, if ourcompany is unable to pay its debts as they fall due, by an ordinary resolution of our shareholders. Under Cayman Islands law, a company may bewound up compulsorily by an order of the courts of the Cayman Islands if the company has passed a special resolution of its shareholders to be woundup by the court or, if the company is unable to pay its debts as they fall due. The court also has authority to order a winding up in a number of otherspecified circumstances including where it is, in the opinion of the court, just and equitable to do so.Material ContractsWe have not entered into any material contracts within the past two fiscal years other than in the ordinary course of business, other than those listed inItem 19 “Exhibits” or described elsewhere in this annual report.Exchange ControlsChina’s government imposes control over the convertibility of RMB into foreign currencies. The conversion of RMB into foreign currencies,including U.S. dollars, has been based on rates announced by the People’s Bank of China. On July 21, 2005, the PRC government changed itsdecade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow andmanaged band against a basket of certain foreign currencies. This change in policy has resulted in significant appreciation of the RMB against the U.S.dollar by the end of 2014. While the international reaction to the RMB revaluation has generally been positive, there remains significant internationalpressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation ofthe RMB against the U.S. dollar.Pursuant to the Foreign Exchange Administration Regulations issued by the State Council on January 29, 1996, and effective as of April 1, 1996 (andamended on January 14, 1997 and August 5, 2008) and the Regulations on the Administration of Settlement, Sale and Payment of Foreign Exchangeissued by the People’s Bank of China on June 20, 1996 and effective on July 1, 1996, or the FX Regulations, regarding the administration and controlof foreign exchange, conversion of RMB into foreign exchange by foreign investment enterprises for current account items, including the distributionof dividends and profits to foreign investors in joint ventures, is permissible. Foreign investment enterprises are permitted to remit foreign exchangefrom their foreign exchange bank accounts in China on the basis of, inter alia, the terms of the relevant joint venture contracts and the boardresolutions declaring the distribution of the dividend and payment of profits. Each conversion of RMB into a foreign currency and each remittance of aforeign currency for capital account items, including direct investment, loans and security investment, is subject to the approval of the SAFE.Under the Foreign Exchange Administration Regulations, foreign investment enterprises are required to open and maintain separate foreign exchangeaccounts for capital account items (but not for other items). In addition, foreign investment enterprises may only buy, sell and/or remit foreigncurrencies at those banks authorized to conduct foreign exchange business upon the production of valid commercial documents and, in the case ofcapital account item transactions, approval of the documents by the SAFE. 155Table of ContentsCurrently, foreign investment enterprises are required to apply to the SAFE for “foreign exchange registration certificates for foreign investmententerprises” (which are granted to foreign investment enterprises, upon fulfilling specified conditions and which are subject to review and renewal bythe SAFE on an annual basis). With such foreign exchange registration certificates and required underlying transaction documents, or with approvaldocuments from the SAFE if the transactions are under capital account (which are obtained on a transaction-by-transaction basis), foreign-investedenterprises may enter into foreign exchange transactions at banks authorized to engage in the foreign exchange business to obtain foreign exchange fortheir needs.TaxationThe following summary of the material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs orordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change.This summary does not discuss all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequencesunder United States state, local and other tax laws.Cayman Islands TaxationThe Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxationin the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and ordinary shares. We will not besubject to Cayman Islands taxation on payments of dividends or upon the repurchase by us of your ADSs or Ordinary Shares, nor will gains derivedfrom the disposal of ADSs or Ordinary Shares be subject to Cayman Islands income or corporation tax. There are no other taxes likely to be material tous or holders of our ADSs or ordinary shares levied by the Government of Cayman Islands except for stamp duties, which may be applicable oninstruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands ontransfers of shares of Cayman Islands exempted companies, except those which hold interests in land in the Cayman Islands. The Cayman Islands is notparty to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.PRC TaxationUnder the CIT Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC isconsidered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rulesdefine 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. On April 22, 2009, the SAT issued a circular, known as Circular 82, which providescertain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated Offshore is locatedin China, which will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primarylocation of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters aremade or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, companyseals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executiveshabitually reside in the PRC. Circular 82 applies only to Offshore enterprises controlled by PRC enterprises or PRC enterprise groups, rather than thosecontrolled by PRC individuals or foreigners, like us, but the criteria set forth in the circular may reflect the SAT’s general position on how the “de factomanagement body” text should be applied in determining the tax resident status of all Offshore enterprises. Although we believe we are not a PRC taxresident enterprise, it is not clear whether Sohu.com Limited and our subsidiaries established outside of the PRC will be deemed to be PRC taxresidents under the CIT Law. If we are considered to be a PRC tax resident under the CIT law by the PRC tax authorities, our global income will besubject to corporate income tax at a rate of 25%.The implementation rules of the CIT Law provide that, (i) if an enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realizedfrom transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as PRC-sourced income. It is notclear how “domicile” may be interpreted under the CIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident.Therefore, if we, or our subsidiaries located in Hong Kong, are considered to be a PRC tax resident enterprise for tax purposes, any dividends we pay toour non-PRC resident shareholders or ADS holders as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSsmay be regarded as PRC-sourced income and as a result become subject to PRC tax at the rate up to 10% in the case of enterprises or 20% in the case ofindividuals. In the case of dividends, we would be required to withhold any PRC tax at source. See “Risk Factors—Risk Related to China’s Regulatoryand Economic Environment—Dividends paid by us to our foreign investors and profits on the sale of our shares or ADSs may be subject to tax underPRC tax laws.”United States Federal Income TaxationThe following is a general summary of the material United States federal income tax considerations related to the purchase, ownership and dispositionof our ADSs or ordinary shares by U.S. holders (as defined below). This summary applies only to U.S. holders that hold the ADSs or ordinary shares ascapital assets and that have the U.S. dollar as their functional currency. This discussion does not address any aspect of U.S. federal gift, estate tax orMedicare tax, or state, local or foreign tax consequences of an investment in our ADSs or ordinary shares. This discussion is based on the tax laws ofthe United States as in effect on the date of this annual report and on United States Treasury regulations in effect or, in some cases, proposed, as of thedate of this annual report, as well as judicial and administrative interpretations of such tax laws and regulations available on or before such date. All ofthe foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below. 156Table of ContentsThe following discussion does not describe the tax consequences that may be relevant to any particular investor or to persons in special tax situationssuch as: • banks or certain financial institutions; • insurance companies; • broker dealers; • traders that elect to mark to market; • tax-exempt entities; • persons liable for alternative minimum tax; • persons holding ADSs or ordinary shares as part of a straddle, hedging, conversion transaction or other integrated investment; • regulated investments companies; • persons who acquired ADSs or ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation; • persons who actually or constructively own 10% or more of the total combined voting power of all classes of our shares entitled to vote or10% or more of the total value of all classes of our shares; or • partnerships or other pass-through entities for U.S. federal income tax purposes or persons holding ADSs or ordinary shares throughpartnerships or other pass-through entities.U.S. holders are urged to consult their own tax advisors about the application of the United States federal tax rules to their particular circumstancesas well as the state, local and foreign tax consequences to them of the purchase, ownership and disposition of our ADSs or ordinary shares.The discussion below of the United States federal income tax consequences to “U.S. holders” will apply to a beneficial owner of ADSs or ordinaryshares as capital assets for purposes of U.S. federal income tax laws and who is, for United States federal income tax purposes: • a citizen or individual resident of the United States; • a corporation (or other entity taxable as a corporation for United States federal income tax purposes) organized under the laws of the UnitedStates, any state thereof or the District of Columbia; • an estate whose income is subject to United States federal income taxation regardless of its source; or • a trust (1) whose administration is subject to the primary supervision of a court within the United States and one or more United Statespersons have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable UnitedStates Treasury regulations to be treated as a United States person.For U.S. federal income tax purposes, the tax treatment of a partner in a partnership or other entity taxable as a partnership that holds ADSs or ordinaryshares depends on the partner’s status and the activities of the partnership. U.S. holders who hold their ADSs or ordinary shares through a partnership,limited liability company, or other entity taxable as a partnership should consult their tax advisers regarding their tax treatment.The discussion below assumes that the representations contained in the Deposit Agreement are true and that the obligations in the Deposit Agreementand any related agreement have been and will be complied with in accordance with their terms. Holders of ADSs will be treated as the holders of theunderlying ordinary shares represented by those ADSs for United States federal income tax purposes. Accordingly, deposits of ordinary shares in returnfor ADSs representing those shares, and surrender of ADSs in return for the underlying ordinary shares, will not be subject to United States federalincome tax.The U.S. Treasury has expressed concerns that parties to whom ADSs are released before the underlying shares are delivered to the depositary(“pre-release”), or intermediaries in the chain of ownership between holders of ADSs and the issuer of the security underlying the ADSs, may be takingactions that are inconsistent with the claiming of foreign tax credits by holders of ADSs. These actions would also be inconsistent with the claiming ofthe reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of PRCtaxes, and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. holders, each described below, could be affectedby actions taken by such parties or intermediaries. 157Table of ContentsPassive Foreign Investment CompanyWe believe that we may have been classified as a PFIC for United States federal income tax purposes for our 2018 taxable year ended November 30,2018. Our expectation is based on our operations and the composition of our earnings and assets for the 2018 taxable year, including the valuation ofour assets (including goodwill) based on the expected price of our ADSs in the market. We currently hold, and expect to continue to hold, a substantialamount of cash and cash equivalents, and because the value of our other assets may be based in part on the market price of our ADSs, which hasfluctuated and is likely to continue to fluctuate (and may fluctuate considerably given that market prices of internet and online game companieshistorically have been especially volatile), our PFIC status in the current and future taxable years may depend in large part on the market price of ourADSs. A drop in the market price of our ADSs and associated decrease in the value of our goodwill would cause a reduction in the value of ournon-passive assets for purposes of the asset test. In addition, the composition of our income and assets will be affected by how, and how quickly, wespend our cash. Furthermore, it is not entirely clear how the contractual arrangements between us and our consolidated VIEs will be treated for purposesof the PFIC rules. If these contractual arrangements were found by PRC authorities with appropriate jurisdiction to be unenforceable, such a findingalone could cause more than 75% of our gross income or more than 50% of our assets to be passive in the year that this finding was made or insubsequent years, which, in a given taxable year for which we might not otherwise expect to be classified as a PFIC, could cause us to be classified as aPFIC. See “Risk Factors—Risks Related to Our Corporate Structure and Corporate Governance—Our contractual arrangements with our VIEs and theirshareholders may not be as effective in providing control over our VIEs as direct ownership of the VIEs and the shareholders of our VIEs may haveconflicts of interest with us or with each other.” Also our actual PFIC status for any taxable year will depend upon the character of our income andassets and the value of our assets for such year, which will not be determinable until after the close of the taxable year. Accordingly, there is noguarantee regarding our PFIC status for any taxable year.A non-U.S. corporation is considered a PFIC for any taxable year if either: • at least 75% of its gross income is passive income (such as certain dividends, interest or royalties) (the “income test”), or • at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assetsthat produce or are held for the production of passive income (the “asset test”).For the purposes of this determination, we will be treated as owning our proportionate share of the assets and earning our proportionate share of theincome of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the shares.We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change from one year to the next.If we are a PFIC for any taxable year during which a U.S. holder holds our ADSs or ordinary shares, such U.S. holder will be subject to special tax ruleswith respect to any “excess distribution” that such U.S. holder receives and any gain that such U.S. holder realizes from a sale or other disposition(including a pledge) of the ADSs or ordinary shares, unless the holder makes a “mark-to-market” election as discussed below. For purposes of thesespecial rules, if we are a PFIC for any year during which a U.S. holder holds ADSs or ordinary shares, we will continue to be treated as a PFIC withrespect to such U.S. holder for all succeeding years during which such U.S. holder holds ADSs or ordinary shares, even if we are no longer classified as aPFIC in subsequent years. Under certain attribution rules, if we are a PFIC, a U.S. holder will be deemed to own such U.S. holder’s proportionate shareof any subsidiaries or other entities that are PFICs in which we hold (directly or indirectly through other PFICs) an equity interest (“subsidiary PFICs”),and will generally be treated for purposes of the PFIC rules as if such U.S. holder directly held the shares of such subsidiary PFICs.Under these special rules, distributions that a U.S. holder receives in a taxable year that are greater than 125% of the average annual distributions thatsuch U.S. holder received during the shorter of the three preceding taxable years or such U.S. holder’s holding period for the ADSs or ordinary shareswill be treated as an excess distribution. Under these special tax rules: • the excess distribution or gain will be allocated ratably over the U.S. holder’s holding period for the ADSs or ordinary shares; • the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will betreated as ordinary income; and • the amount allocated to each other taxable year will be subject to the highest tax rate in effect for that taxable year and the interest chargegenerally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such taxable year.The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses forsuch years, and gains (but not losses) realized on the sale of ADSs or ordinary shares cannot be treated as capital, even if the U.S. holder holds the ADSsor ordinary shares as capital assets. A U.S. holder will be subject to the same United States federal income tax rules as described above on indirect orconstructive distributions that the U.S. holder is deemed to receive on shares of a subsidiary PFIC and on indirect or constructive dispositions of sharesof subsidiary PFICs. 158Table of ContentsAlternatively, a U.S. holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock of a PFIC to electout of the tax treatment discussed in the two preceding paragraphs. A mark-to-market election will not be available, however, with respect to anysubsidiary PFICs. If a U.S. holder makes a mark-to-market election for the ADSs or ordinary shares, such U.S. holder will generally include in incomeeach year an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares as of the close of such U.S. holder’s taxable yearover such U.S. holder’s adjusted tax basis in such ADSs or ordinary shares. The U.S. holder will be allowed a deduction for the excess, if any, of theadjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only tothe extent of any net mark-to-market gains on the ADSs or ordinary shares included in the U.S. holder’s income for prior taxable years. Amountsincluded in a U.S. holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or ordinaryshares, will generally be taxed at ordinary income rates. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss onthe ADSs or ordinary shares, as well as to any loss realized on the actual sale or disposition of the ADSs or ordinary shares, to the extent that the amountof such loss does not exceed the net mark-to-market gains previously included for such ADSs or ordinary shares. A U.S. holder’s basis in the ADSs orordinary shares will be adjusted to reflect any such income or loss amounts. A mark-to-market election will not apply to ADSs or ordinary shares heldby a U.S. holder for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which webecome a PFIC.The mark-to-market election will only be available for “marketable stock” which is stock that is traded in more than de minimis quantities on at least15 days during each calendar quarter on a qualified exchange or other market, as defined in applicable Treasury regulations. We expect that the ADSswill continue to be listed and regularly traded on the Nasdaq Global Select Market, which is a qualified exchange for these purposes, and,consequently, that the mark-to-market election would be available to U.S. holders of our ADSs if and when we are a PFIC. U.S. holders should consulttheir own tax advisors regarding the availability and tax consequences of a mark-to-market election with respect to our ADSs and ordinary shares.A third alternative taxation regime that may be available to some U.S. investors in PFICs, known as qualified electing fund, or QEF, treatment, will notbe available to U.S. holders of our ADSs or ordinary shares. This is because QEF treatment requires the PFIC to supply annually certain information toits U.S. holders of ADSs or ordinary shares that we will not be supplying.A U.S. holder of ADSs or ordinary shares in any year in which we are a PFIC will be required to file Internal Revenue Service Form 8621 regardingdistributions received on the ADSs or ordinary shares and any gain realized on the disposition of the ADSs or ordinary shares. In addition, if we are aPFIC for a taxable year in which we pay a dividend, or for the prior taxable year, the lower rate on “qualified dividend income” discussed below withrespect to dividends paid to certain non-corporate U.S. holders would not apply.U.S. holders and prospective holders of our ADSs and ordinary shares are urged to consult their own tax advisors regarding the application of thePFIC rules to an investment in ADSs or ordinary shares.Taxation of Dividends and Other Distributions on ADSs or Ordinary SharesSubject to the PFIC rules discussed above, the gross amount of our distributions to a U.S. holder with respect to ADSs or ordinary shares (including anyamount withheld in respect of PRC taxes) generally will be included in a U.S. holder’s gross income as foreign source dividend income on the date ofreceipt by the depositary, in the case of ADSs, or by the U.S. holder, in the case of ordinary shares, but only to the extent that the distribution is paidout of our current or accumulated earnings and profits (as determined under United States federal income tax principles). To the extent, if any, that theamount of any such distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of the U.S. holder’stax basis in the ADSs or the ordinary shares (thereby increasing the amount of any gain or decreasing the amount of any loss realized on the subsequentsale or disposition of such ADSs or ordinary shares) and thereafter as capital gain. Further, any distributions treated as dividends will not be eligible forthe dividends-received deduction allowed to U.S. shareholders who are corporations in respect of dividends received from other United Statescorporations to the extent that the Company is a PFIC. Where the Company is not a PFIC, U.S. shareholders who are corporations that own 10% or moreof the Company via ADSs or ordinary shares may be eligible to claim a dividends-received deduction. U.S. holders and prospective holders of ourADSs are urged to consult their own tax advisors regarding the application of the dividends-received deduction rules to their investments.With respect to certain non-corporate U.S. holders, including individual U.S. holders, dividends may be taxed at a special rate (the applicable capitalgains rate) that is applicable to “qualified dividend income” provided that (1) the ADSs or ordinary shares are readily tradable on an establishedsecurities market in the United States, (2) we are not treated as a PFIC with respect to the U.S. holder (as discussed above) for our taxable year in whichthe dividend was paid and we were not a PFIC in the preceding taxable year, and (3) certain holding period requirements are met. Under InternalRevenue Service authority, our ordinary shares, or ADSs representing such shares, will be considered for the purpose of clause (1) above to be readilytradable on an established securities market in the United States if they are listed (as our ADSs currently are) on the Nasdaq Global Select Market. U.S.holders should consult their own tax advisors regarding the availability of the lower rate for dividends paid with respect to our ADSs or ordinary shares.Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (asdiscussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the grossamount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normallyapplicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Forforeign tax credit purposes, dividends paid on our ordinary shares will generally constitute “passive category income” but could, in the case of certainU.S. holders, constitute “general category income.” 159Table of ContentsIf PRC withholding taxes apply to dividends paid to a U.S. holder with respect to our ADSs or ordinary shares, subject to certain conditions andlimitations, such PRC withholding taxes will be treated as foreign taxes eligible for credit against the U.S. holder’s United States federal income taxliability. The rules governing foreign tax credits are complex, and U.S. holders should consult their tax advisors regarding the availability of a foreigntax credit in such U.S. holders’ particular circumstances.Taxation of Disposition of SharesSubject to the PFIC rules discussed above, a U.S. holder will recognize taxable gain or loss on any sale, exchange or other taxable disposition of anADS or ordinary share equal to the difference between the amount realized for the ADS or ordinary share and the U.S. holder’s adjusted tax basis in theADS or ordinary share. Such gain or loss will be capital gain or loss. A non-corporate U.S. holder, including an individual U.S. holder, who has held theADS or ordinary share for more than one year will be eligible for reduced capital gains tax rates. The deductibility of capital losses is subject tolimitations. Any such gain or loss that a U.S. holder recognizes will be treated as United States source income (or loss, in the case of losses, subject tocertain limitations) for foreign tax credit limitation purposes.As described above under “Taxation—PRC Taxation,” any gain from the disposition of our ADSs or ordinary shares may be subject to PRCwithholding tax. In such event, a U.S. holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may electto treat the gain as PRC source income for foreign tax credit purposes.U.S. holders should consult their tax advisors regarding their eligibility for benefits under the income tax treaty between the United States and thePRC and their ability to credit any PRC tax withheld in respect of a sale of our ADSs or ordinary shares against their United States federal incometax liability.Information Reporting and Backup WithholdingDividend payments with respect to ADSs or ordinary shares and proceeds from the sale, exchange or redemption of ADSs or ordinary shares may besubject to information reporting to the Internal Revenue Service and possible United States backup withholding at a rate of 24% for taxable yearsbeginning after December 31, 2017, and before January 1, 2026. Backup withholding will not apply, however, to a U.S. holder who furnishes a correcttaxpayer identification number and makes any other required certifications or who is otherwise exempt from backup withholding. U.S. holders who arerequired to establish their exempt status must provide such certification on Internal Revenue Service Form W-9. U.S. holders should consult their taxadvisors regarding the application of the United States information reporting and backup withholding rules.Individual U.S. holders, and certain entities that are U.S. holders, that own “specified foreign financial assets” with an aggregate value in excess of$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets.“Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S.issuer (which would include our ADSs and ordinary shares) that are not held in accounts maintained by financial institutions. Higher reportingthresholds apply to certain individuals living abroad and to certain married individuals. Regulations have been proposed that would extend thisreporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assetsbased on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospectiveinvestors should consult their own tax advisors concerning the application of these rules to their investment in our ADSs and ordinary shares,including the application of the rules to their particular circumstances.Prospective purchasers of our ADSs or ordinary shares should consult their own tax advisor regarding the application of the U.S. federal income taxlaws to their particular situations as well as any tax consequences resulting from purchasing, holding or disposing of our ADSs and Ordinary Shares,including the applicability and effect of the tax laws of any state, local or foreign jurisdiction and including estate, gift and inheritance laws.Available Additional InformationWe are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to filereports and other information with the SEC.Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public referencefacilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtaininformation regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains aWebsite at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronicfilings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing thefurnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting andshort-swing profit recovery provisions contained in Section 16 of the Exchange Act. 160Table of ContentsAs permitted under Nasdaq Listing Rule 5250(d)(1)(C), we will post our annual reports filed with the SEC on our Web site at http://investors.sohu.com.We will not furnish hard copies of such reports to holders of our ADSs unless we are requested to do so in writing by a holder. Upon receipt of such arequest, we will provide a hard copy of such reports to such requesting holder free of charge. ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.FOREIGN CURRENCY EXCHANGE RATE RISKWhile our reporting currency is the U.S. dollar, to date the majority of our revenues and costs are denominated in RMB and a significant portion of ourassets and liabilities are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may beaffected by fluctuations in the exchange rate between the U.S. dollar and the RMB. If the RMB depreciates against the U.S. dollar, the value of ourRMB revenues and assets as expressed in our U.S. dollar financial statements will decline. For example, our revenues for 2018 were $1.88 billion andour total assets as of December 31, 2018 were $3.30 billion, representing revenue of RMB12.92 billion and total assets of RMB22.64 billion at thecentral parity rate of RMB 6.8632 to $1.00 on December 28, 2018. If the value of the RMB were to depreciate by approximately 10% to RMB 7.5495to $1.00, the value of the same amount of RMB-denominated revenue and total assets in U.S. dollars would be $1.71 billion and $3.0 billion,respectively.The RMB is currently freely convertible under the “current account,” which includes dividends, trade and service-related foreign exchangetransactions, but not under the “capital account,” which includes foreign direct investment. In addition, commencing on July 21, 2005, China reformedits exchange rate regime by changing to a managed floating exchange rate regime based on market supply and demand with reference to a basket ofcurrencies. Under the managed floating exchange rate regime, the RMB is no longer pegged to the U.S. dollar, and the People’s Bank of China willannounce the closing prices of foreign currencies such as the U.S. dollar traded against the RMB in the inter-bank foreign exchange market after theclosing of the market on each business day, and will make such prices the central parity for trading against the RMB on the following business day. OnJune 19, 2010, the People’s Bank of China announced that it had decided to proceed further with the reform of the RMB exchange rate regime toenhance the flexibility of the RMB exchange rate and that emphasis would be placed on reflecting market supply and demand with reference to abasket of currencies. While so indicating its intention to make the RMB’s exchange rate more flexible, the People’s Bank of China ruled out any sharpfluctuations in the currency or a one-off adjustment. On March 17, 2014, the People’s Bank of China announced a policy to expand the maximumdaily floating range of RMB trading prices against the U.S. dollar in the inter-bank spot foreign exchange market to 2%. In the long term, the RMBmay appreciate or depreciate more significantly in value against the U.S. dollar or other foreign currencies, depending on the market supply anddemand with reference to a basket of currencies.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 decideto enter into hedging transactions in the future, the effectiveness of these hedges may be limited and we may not be able to successfully hedge ourexposure. Accordingly, we may incur economic losses in the future due to foreign exchange rate fluctuations, which could have a negative impact onour financial condition and results of operations.The following table sets forth a summary of our foreign currency sensitive financial instruments as of December 31, 2018. These financial instrumentsare recorded at their fair value. ($ in thousands) US$ RMB HK$ Others Total Cash and cash equivalents $502,846 308,436 6,908 1,523 819,713 Restricted cash 0 5,974 0 0 5,974 Short-term investments 722,134 319,261 0 0 1,041,395 Account and financing receivables, net 1,355 279,368 196 254 281,173 Prepaid and other current assets 2,016 169,233 0 163 171,412 Equity securities with readily determinable fair values 0 6,790 0 0 6,790 Restricted time deposits 240 243,939 0 0 244,179 Current liabilities 65,336 1,114,646 1,373 1,525 1,182,880 Long-term bank loans 220,000 82,323 0 0 302,323 161Table of ContentsINFLATION RATE RISKAccording to the National Bureau of Statistics of China, the consumer price index grew 2.1% in 2018, compared to an increase of 1.6% in 2017. Theremay be a further increase in the rate of inflation in the future, which could have an adverse effect on our business.INTEREST RATE RISKThe basic objectives of our investment program are to protect the invested funds from excessive risk and to provide for liquidity that is sufficient tomeet operating and investment cash requirements. Under the investment policy, our excess cash is invested in high-quality securities which are limitedas to length of time to maturity and the amount of credit exposure.Our exposure to interest rate risk primarily relates to the interest income generated from excess cash invested in demand deposits, and interest expensegenerated from loans to Changyou from Offshore banks. We have not used derivative financial instruments in our investment portfolio in order toreduce this risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESThe following table summarizes the fees and charges that a holder of our ADSs may have to pay, directly or indirectly, pursuant to the DepositAgreement and the types of services and the amount of the fees or charges paid therefore: Persons depositing or withdrawing shares or ADS holders must pay: For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) •   Issuance of ADSs, including issuances resulting from a distributionof shares or rights or other property •   Cancellation of ADSs for the purpose of withdrawal, including if theDeposit Agreement terminates$0.05 (or less) per ADS •   Any cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securitiesdistributed to you had been shares and the shares had beendeposited for issuance of ADSs •   Distribution of securities distributed to holders of depositedsecurities which are distributed by the depositary to ADS holders$0.05 (or less) per ADSs per calendar year •   Depositary servicesRegistration or transfer fees •   Transfer and registration of shares on our share register to or from thename of the depositary or its agent when you deposit or withdrawsharesExpenses of the depositary •   Cable, telex and facsimile transmissions (when expressly providedin the Deposit Agreement) •   converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or thecustodian have to pay on any ADS or share underlying an ADS,for example, stock transfer taxes, stamp duty or withholdingtaxes •   As necessaryAny charges incurred by the depositary or its agents for servicingthe deposited securities •   As necessaryPursuant to an agreement dated April 23, 2018, between us and the Bank of New York Mellon, the depositary for our ADSs, the depositary reimbursedus in cash for our expenses, including investor relations expenses, legal fees, accounting fees, Nasdaq listing application and listing fees, and relatedexpenses, of $nil, which figures are net of U.S. withholding tax, related to the establishment of an American depositary receipt facility.PART II 162Table of ContentsITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNot Applicable. ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSOn May 31, 2018, effective at 4:30 PM Eastern Time (such date and time, the “Effective Time”), pursuant to a proposal (the “Liquidation Proposal”)for the dissolution of our predecessor Sohu.com Inc., a Delaware corporation, and adoption of a plan of complete liquidation and dissolution ofSohu.com Inc. that was approved by the stockholders of Sohu.com Inc. at a special meeting of stockholders held on May 29, 2018, Sohu.com Inc. wasdissolved; all outstanding shares of the common stock of Sohu.com Inc. were cancelled; ADSs representing all our outstanding ordinary shares weredistributed by Sohu.com Inc. on a share-for-share basis to the stockholders of Sohu.com Inc. as of immediately prior to the Effective Time.The rights of a former stockholder of Sohu.com Inc. were governed by the Delaware General Corporation Law and the certificate of incorporation andbylaws of Sohu.com Inc. After the Effective Time, those stockholders became the holders of ADSs representing our ordinary shares, and the rights ofour shareholders will be governed by the Companies Law of the Cayman Islands, our Memorandum and Articles of Association, and the DepositAgreement. Many of the principal attributes of shares of Sohu.com Inc.’s common stock and our ordinary shares, including economic and voting rights,are similar. However, there are differences between rights under the Delaware General Corporation Law and under the Companies Law. In addition,there are differences between the certificate of incorporation and bylaws of Sohu.com Inc. and our Memorandum and Articles of Association. For asummary of certain material differences in the rights of a holder of shares of Sohu.com Inc. common stock and a holder of our ordinary shares, you mayrefer to the section titled “Comparison of Rights of Sohu Delaware Stockholders and Sohu Cayman Shareholders” in our Registration Statement onForm F-4 (File No. 333-224069) filed with the SEC on April 19, 2018 and in Sohu.com Inc.’s and our joint proxy statement/prospectus filed with theSEC on April 23, 2018, which section is incorporated herein by reference.USE OF PROCEEDSOn July 17, 2000, our predecessor Sohu.com Inc. completed an underwritten IPO of shares of its common stock pursuant to a Registration Statement onForm S-1 (SEC file No. 333-96137), which became effective on July 10, 2000. There has been no change in the information regarding use of proceedsfrom the IPO that was included in the Annual Report on Form 10-K for the year ended December 31, 2017 filed by Sohu.com Inc. with the SEC onFebruary 28, 2018. ITEM 15.CONTROLS AND PROCEDURESEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURESOur Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”), haveconcluded that as of the Evaluation Date our disclosure controls and procedures were effective and designed to ensure that all material informationrelating to Sohu.com Limited required to be included in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensurethat information required to be disclosed is accumulated and communicated to our management, including our principal executive and financialofficers, as appropriate to allow timely decisions regarding required disclosure.MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer andChief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on thisevaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate. The effectiveness of our internal control over financial reporting as ofDecember 31, 2018 has been audited by PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, as stated in theirreport which is included in this report on pages F-2. 163Table of ContentsCHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGThere have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act during the Company’s fiscal year ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting. ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur Board of Directors has determined that Dr. Dave Qi is an “audit committee financial expert” as defined under the applicable SEC rules and Rule5605(c)(2) of the Nasdaq Listing Rules. Our Board of Directors has determined that all three members of our audit committee are “independent” underRule 10A-3 under the Securities Exchange Act of 1934 and Rule 5605 of the Nasdaq Listing Rules. ITEM 16B.CODE OF ETHICSOur Board of Directors adopted a code of ethics and conduct that is applicable to all of our directors, officers and employees. A copy of our code ofethics and conduct is filed as an exhibit to this annual report, and is also posted on our Website at http://investors.sohu.com. ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered byPricewaterhouseCoopers Zhong Tian LLP, our principal external auditor, and its affiliates for the periods indicated below. For the year endedDecember 31, 2017 2018 (in thousands) Audit fees(1) $4,300 $2,647 Tax fees(2) 2,100 8,226 Audit related fees(3) 340 326 All other fees 4 4 Total $6,434 $11,203 (1)“Audit fees” means the aggregate fees incurred in each of the fiscal years listed for professional services rendered by our principal auditors for theaudit of our annual financial statements and our internal controls over financial reporting.(2)“Tax fees” means the aggregate fees incurred in each of the fiscal years listed for professional services rendered by our principal auditors for taxcompliance and tax advice.(3)“Audit-related fees” means the aggregate fees incurred in each of the fiscal years listed for professional services rendered by our principalauditors related to the audit of our financial statements and our internal controls over financial reporting that are not reported under “Audit Fees”and consultation on accounting standards or transactions.Audit Committee Pre-approval Policies and ProceduresOur audit committee has adopted procedures which set forth the manner in which the committee will review and approve all audit and non-auditservices to be provided by PricewaterhouseCoopers Zhong Tian LLP before that firm is retained for such services. The pre-approval procedures are asfollows: • Any audit or non-audit service to be provided to us by the independent accountant must be submitted to the audit committee for reviewand approval, with a description of the services to be performed and the fees to be charged. • The audit committee in its sole discretion then approves or disapproves the proposed services and documents such approval, if given,through written resolutions or in the minutes of meetings, as the case may be. 164Table of ContentsITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot Applicable. ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNot Applicable. ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot Applicable. ITEM 16G.CORPORATE GOVERNANCENot Applicable. ITEM 16H.MINE SAFETY DISCLOSURENot Applicable.PART III ITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements pursuant to Item 18. ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements of Sohu and its subsidiaries and VIEs are included at the end of this annual report. 165Table of ContentsITEM 19.EXHIBITS Exhibit No. Description1.1(1) Amended and Restated Memorandum and Articles of Association of the Registrant.2.1(24) Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.2)2.2(24) Amended and Restated Deposit Agreement, dated January 14, 2019, among the Registrant, the depositary and all registeredholders and beneficial owners of the American Depositary Shares.2.3(24) Shareholders’ Rights Agreement, dated as of January 14, 2019, between the Registrant and The Bank of New York Mellon.4.1(2) Loan and Share Pledge Agreement dated November 19, 2001 among Sohu.com Inc., Dr. Charles Zhang and Li Wei.4.2(3) Purchasing Agreement of Real Property between Sohu Era and Vision Hua Qing.4.3(4) Master Transaction Agreement, dated January 1, 2009, by and between Sohu.com Inc. and Changyou.com Limited.4.4(4) Project Cooperation Agreement, dated November 20, 2009, by and between Beijing Raycom Real Estate Development Co., Ltd.and Beijing Sohu Media.4.5(5) Amended and Restated Marketing Services Agreement, dated January 1, 2010, by and between Sohu.com Inc. and Changyou.comLimited.4.6(6) Project Cooperation Agreement of Changyou, dated August 23, 2010.4.7(6) Amended and Restated 2010 Stock Incentive Plan.4.8(6) Cooperation Agreement, dated September 30, 2010. (Portions of this exhibit have been omitted pursuant to a request forconfidential treatment, and the omitted information has been filed separately with the Securities and Exchange Commission).4.9(7) Master Transaction Agreement, dated as of November 29, 2011, between, on the one hand, Sohu.com Inc., the registrant, SohuInternet, Sohu Era, and Sohu Media, and, on the other hand, Changyou.com Limited, Changyou.com HK, Gamespace, andGuanyou Gamespace4.10(7) Amended and Restated Non-Competition Agreement, dated as of November 29, 2011, between Changyou.com Limited andSohu.com Inc.4.11(7) Services Agreement, dated as of November 29, 2011, between Changyou Gamespace and Sohu Media.4.12(8) 2011 Share Incentive Plan of Sohu Video.4.13(8) English Translation of Services and Maintenance Agreement, dated November 30, 2007, between AmazGame and Gamease.4.14(8) English Translation of Technology Support and Utilization Agreement, dated August 20, 2008, between AmazGame andGamease.4.15(8) English Translation of Exclusive Technology Consulting and Services Agreement, dated September 26, 2010, between SogouTechnology and Sogou Information.4.16(9) English Translation of Loan Agreement, dated December 2, 2013, between Sogou Technology and Xiaochuan Wang.4.17(9) English Translation of Share Pledge Agreement, dated December 2, 2013, among Sogou Technology, Sogou Information and theshareholders of Sogou Information. 166Table of Contents4.18(9) English Translation of Exclusive Equity Interest Purchase Rights Agreement, dated December 2, 2013, among Sogou Technology,Sogou Information and the shareholders of Sogou Information.4.19(9) English Translation of Business Operation Agreement, dated December 2, 2013, among Sogou Technology, Sogou Information and theshareholders of Sogou Information.4.20(9) English Translation of Power of Attorney, dated December 2, 2013, by the shareholders of Sogou Information in favor of SogouTechnology.4.21(9) English Translation of Exclusive Technology Consulting and Services Agreement August 2, 2012, between Sohu Internet and Sohu Era.4.22(10) 2010 Share Incentive Plan of Sogou Inc. (as amended and restated)4.23(10) 2014 Share Incentive Plan of Changyou.com Limited4.24(10) English Translation of Loan Agreement, dated November 15, 2011, between Video Tianjin and Ye Deng, the shareholder of TianjinJinhu.4.25(10) English Translation of Loan Agreement, dated December 4, 2013, between Video Tianjin and Xuemei Zhang, the shareholder of TianjinJinhu.4.26(10) English Translation of Equity Pledge Agreement, dated November 15, 2011, between Video Tianjin and Ye Deng, the shareholder ofTianjin Jinhu.4.27(10) English Translation of Equity Pledge Agreement, dated December 4, 2013, between Video Tianjin and Xuemei Zhang, the shareholderof Tianjin Jinhu.4.28(10) English Translation of Exclusive Equity Interest Purchase Right Agreement, dated December 4, 2013, between Video Tianjin, TianjinJinhu and the shareholders of Tianjin Jinhu.4.29(10) English Translation of Business Operation Agreement, dated December 4, 2013, among Video Tianjin, Tianjin Jinhu and theshareholders of Tianjin Jinhu.4.30(10) English Translation of Powers of Attorney, dated December 4, 2013, executed by the shareholders of Tianjin Jinhu in favor of VideoTianjin.4.31(10) English Translation of Exclusive Technology Consulting and Services Agreement, dated December 4, 2013, between Video Tianjin andTianjin Jinhu.4.32(10) Loan and Share Pledge Agreement, effective as of April 28, 2014, by and among Sohu.com Limited, Charles Zhang and Wei Li.(Portions of this exhibit have been omitted pursuant to a request for confidential treatment, and the omitted information has been filedseparately with the Securities and Exchange Commission)4.33(11) English Translation of Loan Agreement, dated April 15, 2015, between AmazGame and High Century.4.34(11) English Translation of Equity Interest Pledge Agreement, dated April 15, 2015 among AmazGame, Gamease and High Century.4.35(11) English Translation of Equity Interest Purchase Right Agreement, dated April 15, 2015, between AmazGame, Gamease and HighCentury.4.36(11) English Translation of Power of Attorney, dated April 15, 2015, executed by High Century in favor of AmazGame.4.37(11) English Translation of Business Operation Agreement, dated April 15, 2015, among AmazGame, Gamease and High Century.4.38(12) Loan and Share Pledge Agreement, dated July 1, 2015, among Sohu Media, Charles Zhang and Wei Li. 167Table of Contents4.39(12) Loan and Share Pledge Agreement, dated July 1, 2015, among Focus HK, Charles Zhang and Wei Li.4.40(13) English translation of Loan Agreement, dated July 6, 2015, between Gamespace and Changyou Star.4.41(13) English translation of Equity Interest Purchase Right Agreement, dated July 6, 2015, among Gamespace, Guanyou Gamespace andChangyou Star.4.42(13) English translation of Equity Pledge Agreements, dated July 6, 2015, among Gamespace, Guanyou Gamespace and Changyou Star.4.43(13) English translation of Business Operation Agreement, dated July 6, 2015, among Gamespace, Guanyou Gamespace and Changyou Star.4.44(13) English translation of Power of Attorney, dated July 6, 2015, executed by Changyou Star in favor of Gamespace.4.45(13) English translation of Share Purchase Agreement, dated April 16, 2015, between Gamease and Shanghai Yong Chong.4.46(14) Letter Agreement dated June 27, 2016 between Changyou.com Limited and Carol Yu.4.47(15) Letter Agreement dated June 8, 2016 between Sohu.com Inc. and Carol Yu.4.48(15) Amendment, dated July 30, 2016, of Letter Agreement between Sohu.com Inc. and Carol Yu.4.49(16) English Translation of Loan Agreement, dated as of October 24, 2016, between AmazGame and Sohu Media.4.50(16) Share Pledge Agreement, dated as of October 24, 2016, between Sohu Game and Changyou.4.51(17) English translation of Employment Agreement effective as of April 1, 2012, between Sohu Era and Joanna Lv.4.52(17) English translation of Agreement Changing One Party to Employment Agreement effective as of April 1, 2013, among Sohu Era, JoannaLv and Sohu Media.4.53(17) English translation of Employment Agreement effective as of November 30, 2012, between Sogou Technology and Xiaochuan Wang.4.54(18) English translation of Credit Agreement, dated May 19, 2017, between Ping An Bank and Beijing Sohu New Media InformationTechnology Co., Ltd.4.55(18) English translation of Credit Agreement, dated May 19, 2017, between Ping An Bank and Fox Information Technology (Tianjin)Limited.4.56(18) English translation of Credit Agreement, dated May 19, 2017, between Ping An Bank and Tianjin Jinhu Culture Development Co., Ltd.4.57(18) English translation of Form of Loan Agreement.4.58(18) English translation of Asset Pledge Agreement, dated May 19, 2017, between Ping An Bank and Beijing Sohu New MomentumInformation Technology Co., Ltd.4.59(18) English translation of Asset Pledge Agreement, dated May 19, 2017, between Ping An Bank and Beijing Sohu New Media InformationTechnology Co., Ltd.4.60(18) English translation of Asset Pledge Agreement, dated May19, 2017, between Ping An Bank and Beijing Sohu New Era InformationTechnology Co., Ltd.4.61(18) English translation of Guaranty Agreement, dated May 19, 2017, between Ping An Bank and Sohu.com (Game) Limited. 168Table of Contents4.62(18) English translation of Commitment Letter, dated May 19, 2017, between Ping An Bank and Sohu.com Inc.4.63(18) English translation of Strategic Cooperation Agreement, dated May 19, 2017, between Ping An Bank and Sohu.com Inc.4.64(19) English translation of Amendment to the Original PAB Credit Agreements, dated September 1, 2017.4.65(19) English translation of Credit Agreement, dated September 7, 2017, between ICBC and Beijing Sohu New Media InformationTechnology Co., Ltd., Fox Information Technology (Tianjin) Limited, and Beijing Sohu New Momentum Information Technology Co.,Ltd.4.66(19) English translation of Asset Pledge Agreement, dated September 7, 2017, between ICBC and Beijing Sohu New Momentum InformationTechnology Co., Ltd.4.67(19) English translation of Asset Pledge Agreement, dated September 7, 2017, between ICBC and Beijing Sohu New Media InformationTechnology Co., Ltd.4.68(19) English translation of Commitment Letter, dated September 7, 2017, between ICBC and Sohu.com Inc.4.69(20) Voting Agreement dated September 16, 2013 among Sogou Inc., Sohu.com (Search) Limited, Photon, Xiaochuan Wang, and othermembers of Sogou Management, as amended as of August 11, 2017.4.70(20) Voting Agreement dated as of August 11, 2017 among Sogou Inc., Sohu.com (Search) Limited, and THL A21 Limited.4.71(20) Registration Rights Agreement dated as of August 11, 2017 among Sogou Inc., Sohu.com (Search) Limited, Photon and THL A21Limited.4.72(20) English Translation of Second Amended and Restated Mobile Browser Cooperation Agreement, dated September 25, 2017, betweenShenzhen Tencent Computer Systems Co., Ltd. and Sogou Inc., Sogou Technology, Sogou Network, Sogou Information and ShenzhenShi Ji Guang Su Information Technology Co., Ltd (Portions of this exhibit have been omitted pursuant to a request for confidentialtreatment, and the omitted information has been filed separately with the Securities and Exchange Commission)4.73(20) English Translation of Cooperation Agreement between Weixin Official Platform and Sogou Search, dated September 15, 2017, betweenShenzhen Tencent Computer Systems Co., Ltd. and Sogou Information.4.74(20) English Translation of Amended and Restated Business Development and Resource Sharing Agreement, dated September 25, 2017,between Shenzhen Tencent Computer Systems Co., Ltd. and Sogou Inc., Sogou Technology, Sogou Network, Sogou Information,Shenzhen Shi Ji Guang Su Information Technology Co., Ltd. and Sohu.com Limited.4.75(20) Sohu.com Internet Plaza Office Building Lease, dated December 30, 2016, between Sogou Network and Beijing Sohu New MediaInformation Technology Co., Ltd., as amended and supplemented.4.76(21) Seventh Amended and Restated Memorandum of Association and Third Amended and Restated Articles of Association of Sogou Inc.4.77(21) 2017 Share Incentive Plan of Sogou Inc., as amended and restated4.78(21) Employment Agreement effective as of January 1, 2018 between Changyou and Dewen Chen.4.79(21) Employment Agreement effective as of January 1, 2018 between Sohu.com Inc. and Charles Zhang.4.80(24) Employment Agreement effective as of May 1, 2018 between Sohu.com Limited and Joanna Lv.4.81(22) English translation of Credit Facility Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Media InformationTechnology Co., Ltd. 169Table of Contents4.82(22) English translation of Asset Pledge Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Era InformationTechnology Co., Ltd.4.83(22) English translation of Asset Pledge Agreement, dated April 11, 2018, between CMB and Beijing Sohu New Media InformationTechnology Co., Ltd.4.84(22) English translation of Commitment Letter, dated April 11, 2018, issued by the registrant to CMB.4.85 (23) 2018 Share Incentive Plan of Sohu.com Limited8.1(24) Subsidiaries of the Registrant11.1(24) Code of Ethics and Conduct for Directors, Officers and Employees.12.1(24) Rule 13a-14(a)/15d-14(a) Certification of Dr. Charles Zhang.12.2(24) Rule 13a-14(a)/15d-14(a) Certification of Joanna Lv.13.1(24) Section 1350 Certification of Dr. Charles Zhang.13.2(24) Section 1350 Certification of Joanna Lv.15.1(24) Consent of Independent Registered Public Accounting Firm.15.2(24) Consent of Haiwen & Partners, PRC Counsel.101(24) Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2018 and 2017; (ii)Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017, and 2016; (iii) ConsolidatedStatements of Cash Flows for the years ended December 31, 2018, 2017, and 2016; (iv) Consolidated Statements of Changes in Equityfor the years ended December 31, 2018, 2017, and 2016; (v) Notes to Consolidated Financial Statements, tagged using four differentlevels of detail; and (vi) Additional Information—Condensed Financial Statements. (1)Incorporated herein by reference to Sohu.com Limited’s Registration Statement on Form F-4 (File No. 333-224069) filed with the SEC onApril 19, 2018.(2)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on March 15, 2002.(3)Incorporated herein by reference to Sohu.com Inc.’s Quarterly Report on Form 10-Q filed on May 8, 2007.(4)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on February 26, 2010.(5)Incorporated herein by reference to Sohu.com Inc.’s Quarterly Report on Form 10-Q filed on May 7, 2010.(6)Incorporated herein by reference to Sohu.com Inc.’s Quarterly Report on Form 10-Q filed on November 8, 2010.(7)Incorporated herein by reference to Sohu.com Inc.’s Current Report on Form 8-K filed on December 1, 2011.(8)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on February 28, 2013.(9)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on February 28, 2014.(10)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on March 2, 2015.(11)Incorporated herein by reference to Sohu.com Inc.’s Quarterly Report on Form 10-Q filed on August 7, 2015.(12)Incorporated herein by reference to Sohu.com Inc.’s Quarterly Report on Form 10-Q filed on November 6, 2015. 170Table of Contents(13)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on February 26, 2016.(14)Incorporated herein by reference to Sohu.com Inc.’s Current Report on Form 8-K filed on June 27, 2016.(15)Incorporated herein by reference to Sohu.com Inc.’s Quarterly Report on Form 10-Q filed on August 8, 2016.(16)Incorporated herein by reference to Sohu.com Inc.’s Current Report on Form 8-K filed on October 24, 2016.(17)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on February 27, 2017.(18)Incorporated herein by reference to Sohu.com Inc.’s Current Report on Form 8-K filed on May 19, 2017.(19)Incorporated herein by reference to Sohu.com Inc.’s Current Report on Form 8-K filed on September 7, 2017.(20)Incorporated herein by reference to Sohu.com Inc.’s Quarterly Report on Form 10-Q filed on November 3, 2017.(21)Incorporated herein by reference to Sohu.com Inc.’s Annual Report on Form 10-K filed on February 28, 2018.(22)Incorporated herein by reference to Sohu.com Inc.’s Current Report on Form 8-K filed on April 16, 2018.(23)Incorporated herein by reference to Sohu.com Limited’s Registration Statement on Form S-8 POS filed on June 1, 2018.(24)Filed herewith. 171Table of ContentsSIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf. SOHU.COM LIMITED By /s/ Charles Zhang Name: Charles Zhang Title: Chief Executive Officer By /s/ Joanna Lv Name: Joanna Lv Title: Chief Financial OfficerDate: March 28, 2019 172Table of ContentsSOHU.COM LIMITEDINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2017 and 2018 F-4 Consolidated Statements of Comprehensive Income /(Loss) 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-8 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2017 and 2018 F-10 Notes to Consolidated Financial Statements F-13 F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo Board of Directors and Shareholders of Sohu.com Limited:Opinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of Sohu.com Limited and its subsidiaries (the “Company”) as of December 31, 2018and December 31, 2017, and the related consolidated statements of comprehensive income /(loss), of cash flows and of changes in equity for each ofthe three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in InternalControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company asof December 31, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in InternalControl—Integrated Framework (2013) issued by the COSO.Change in Accounting PrinciplesAs discussed in Note 2 and Note 10 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues fromcontracts with customers and the manner in which it accounts for financial instruments in 2018.Basis for OpinionsThe Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Management’s Annual Report onInternal Control Over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financialstatements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordancewith the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whethereffective internal control over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on atest basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide areasonable basis for our opinions.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea material effect on the financial statements. F-2Table of ContentsBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers Zhong Tian LLPBeijing, the People’s Republic of ChinaMarch 28, 2019We have served as the Company’s auditor since 1999. F-3Table of ContentsSOHU.COM LIMITEDCONSOLIDATED BALANCE SHEETS(In thousands) As of December 31, 2017 2018 ASSETS Current assets: Cash and cash equivalents $1,364,096 $819,713 Restricted cash 3,928 5,974 Short-term investments 818,934 1,041,395 Account and financing receivables, net 250,468 281,173 Prepaid and other current assets (including $32,005 and $31,607, respectively, due from a related party as ofDecember 31, 2017 and 2018) 192,675 168,305 Total current assets 2,630,101 2,316,560 Fixed assets, net 529,717 504,998 Goodwill 71,565 53,263 Long-term investments, net 90,145 108,356 Intangible assets, net 23,060 24,118 Restricted time deposits 271 244,179 Prepaid non-current assets 4,211 3,107 Other assets 40,169 43,928 Total assets $3,389,239 $3,298,509 LIABILITIES Current liabilities: Accounts payable (including accounts payable of consolidated variable interest entities (“VIEs”) without recourse tothe Company of $53,842 and $84,749, respectively, as of December 31, 2017 and 2018) $288,394 $295,954 Accrued liabilities (including accrued liabilities of consolidated VIEs without recourse to the Company of $76,883and $60,555, respectively, as of December 31, 2017 and 2018) 343,106 301,915 Receipts in advance and deferred revenue (including receipts in advance and deferred revenue of consolidated VIEswithout recourse to the Company of $46,939 and $43,020, respectively, as of December 31, 2017 and 2018) 127,758 124,782 Accrued salary and benefits (including accrued salary and benefits of consolidated VIEs without recourse to theCompany of $8,137 and $7,389, respectively, as of December 31, 2017 and 2018) 102,087 112,898 Tax payables (including tax payables of consolidated VIEs without recourse to the Company of $18,210 and $14,110,respectively, as of December 31, 2017 and 2018) 96,541 93,569 Short-term bank loans (including short-term bank loans of consolidated VIEs without recourse to the Company of nilas of both December 31, 2017 and 2018) 61,216 129,677 Other short-term liabilities (including other short-term liabilities of consolidated VIEs without recourse to theCompany of $71,644 and $65,352, respectively, as of December 31, 2017 and 2018, and due to a related party of$31,192 and $32,719, respectively, as of December 31, 2017 and 2018.) 136,300 124,085 F-4Table of ContentsTotal current liabilities 1,155,402 1,182,880 Long-term accounts payable (including long-term accounts payable of consolidated VIEs without recourse to theCompany of nil as of both December 31, 2017 and 2018 ) 1,157 752 Long-term bank loans (including long-term bank loans of consolidated VIEs without recourse to the Company of nil asof both December 31, 2017 and 2018) 122,433 302,323 Long-term tax liabilities (including long-term tax liabilities of consolidated VIEs without recourse to the Company of$14,293 and $13,554, respectively, as of December 31, 2017 and 2018) 249,618 174,339 Deferred tax liabilities (including deferred tax liabilities of consolidated VIEs without recourse to the Company of$3,451 and $2,239, respectively, as of December 31, 2017 and 2018) 43,392 85,264 Total long-term liabilities 416,600 562,678 Total liabilities $1,572,002 $1,745,558 Commitments and contingencies SHAREHOLDERS’ EQUITY Sohu.com Limited shareholders’ equity: Ordinary Shares: $0.001 par value per share (75,400 shares authorized; 38,898 shares and 39,229 shares,respectively, issued and outstanding as of December 31, 2017 and 2018) $45 $39 Additional paid-in capital 1,098,455 958,883 Treasury stock (5,890 shares and nil, respectively, as of December 31, 2017 and 2018) (143,858) 0 Accumulated other comprehensive income 38,212 24,719 Accumulated deficit (242,220) (394,801) Total Sohu.com Limited shareholders’ equity 750,634 588,840 Noncontrolling interest 1,066,603 964,111 Total shareholders’ equity 1,817,237 1,552,951 Total liabilities and shareholders’ equity $3,389,239 $3,298,509 The accompanying notes are an integral part of these consolidated financial statements. F-5Table of ContentsSOHU.COM LIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)(In thousands, except per share data) Year Ended December 31, 2016 2017 2018 Revenues: Online advertising: Brand advertising (including revenues generated from a related party of $1,180, $247 and $224,respectively, for 2016, 2017 and 2018) $447,956 $314,066 $231,945 Search and search-related advertising 597,133 801,199 1,022,456 Subtotal of online advertising revenues 1,045,089 1,115,265 1,254,401 Online games 395,709 449,533 389,788 Others 209,633 296,164 238,840 Total revenues 1,650,431 1,860,962 1,883,029 Cost of revenues: Online advertising: Brand advertising 371,085 363,592 184,474 Search and search-related advertising 290,158 412,904 664,164 Subtotal of cost of online advertising revenues 661,243 776,496 848,638 Online games 96,168 62,775 60,981 Others 102,389 195,895 162,102 Total cost of revenues 859,800 1,035,166 1,071,721 Gross profit 790,631 825,796 811,308 Operating expenses: Product development 353,144 412,173 441,161 Sales and marketing (including expenses generated for a related party of $216, nil and nil,respectively, for 2016, 2017 and 2018) 434,780 413,045 400,579 General and administrative 119,841 122,874 113,724 Goodwill impairment and impairment of intangible assets acquired as part of business acquisitions 0 86,882 16,369 Total operating expenses 907,765 1,034,974 971,833 Operating loss (117,134) (209,178) (160,525) Other income /(expense), net (10,713) 6,658 64,167 Interest income (including interest income generated from a related party of $1,244, $1,157 and $1,051,respectively, for 2016, 2017 and 2018) 22,499 24,138 24,079 Interest expense (including interest expense generated from a related party of $662, $724, and $519,respectively, for 2016, 2017 and 2018) (1,356) (4,088) (17,538) Exchange difference 12,803 (14,385) 9,026 Loss before income tax expense /(benefit) (93,901) (196,855) (80,791) Income tax expense /(benefit) 21,072 273,148 (13,432) Net loss (114,973) (470,003) (67,359) Less: Net income attributable to the noncontrolling interest shareholders 109,048 84,523 92,723 Net loss attributable to Sohu.com Limited $(224,021) $(554,526) $(160,082) Net loss $(114,973) $(470,003) $(67,359) Foreign currency translation adjustments (73,235) 56,250 (37,339) F-6Table of ContentsChange in unrealized gain /(loss) for equity securities with readily determinable fair values (3,920) 12,179 0 Other comprehensive income /(loss) (77,155) 68,429 (37,339) Comprehensive loss (192,128) (401,574) (104,698) Less: Comprehensive income attributable to noncontrolling interest shareholders 78,824 117,960 61,376 Comprehensive loss attributable to Sohu.com Limited (270,952) (519,534) (166,074) Basic net loss per share attributable to Sohu.com Limited $(5.79) $(14.27) $(4.11) Shares used in computing basic net loss per share attributable to Sohu.com Limited 38,706 38,858 38,959 Diluted net loss per share attributable to Sohu.com Limited $(5.83) $(14.30) $(4.13) Shares used in computing diluted net loss per share attributable to Sohu.com Limited 38,706 38,858 38,959 The accompanying notes are an integral part of these consolidated financial statements. F-7Table of ContentsSOHU.COM LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2016 2017 2018 Cash flows from operating activities: Net loss $(114,973) $(470,003) $(67,359) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of intangible assets and purchased video content in prepaid expense 131,182 140,881 59,352 Depreciation 73,449 83,114 93,037 Goodwill impairment and impairment of intangible assets acquired as part of businessacquisitions 0 86,882 16,369 Share-based compensation expense 19,120 41,468 2,094 Other-than-temporary impairment of available-for-sale equity investment 0 5,754 0 Impairment of other intangible assets and other assets 22,906 72,259 10,797 Investment loss /(gain) from equity investments 2,085 1,451 (11,440) Allowance for doubtful accounts and credit losses 7,109 9,076 15,660 Provision for inventory 0 0 2,547 Loss /(gain) from sale of equity investments (149) 523 (134) Change in fair value of financial instruments (13,133) (10,447) (10,857) Others (1,182) (1,063) (705) Changes in assets and liabilities, net of acquisition: Account and financing receivables 62,520 (55,061) (14,827) Prepaid and other assets 15,091 23,455 (23,865) Accounts payable 40,273 33,395 60,148 Receipts in advance and deferred revenue (8,152) 1,404 3,784 Tax liabilities (36,666) 263,108 (74,058) Deferred tax 5,268 (45) 43,798 Accrued liabilities and other short-term liabilities 34,872 (38,464) (20,316) Net cash provided by operating activities 239,620 187,687 84,025 Cash flows from investing activities: Purchase of fixed assets (105,063) (78,924) (101,122) Purchase of intangible and other assets (183,791) (66,393) (98,255) Purchase of long-term investments (20,950) (7,680) (20,613) Return of funds from a third party 5,061 4,928 5,264 Collection of financing receivables 0 0 59,967 Investment in financing receivables 0 0 (98,774) Proceeds from financial instruments 415,383 1,219,986 2,957,984 Purchase of financial instruments (509,357) (1,785,012) (3,177,532) Matching loan to a related party (18,115) 0 0 Proceeds received from sale of equity investment 0 0 12,073 F-8Table of ContentsOther cash proceeds /(payments) related to investing activities 5,182 (1,408) 1,764 Net cash used in investing activities (411,650) (714,503) (459,244) Cash flows from financing activities: Consideration received from Sogou IPO, net of IPO Transaction Expenses 0 622,131 0 Proceeds from long-term bank loan 0 122,433 251,738 Proceeds from short-term bank loan 0 67,785 74,056 Exercise of share-based awards in subsidiaries 291 494 12 Repayments of loans from banks (344,500) (7,684) (67,011) Repurchase of Sogou Pre-IPO Class A Ordinary Shares from noncontrolling shareholders 0 (3,190) 0 Matching loan from a related party 17,041 0 0 Distribution of Changyou dividend to noncontrolling interest shareholders 0 0 (162,461) Other cash proceeds /(payments) related to financing activities (766) 6 0 Net cash provided by /(used in) financing activities (327,934) 801,975 96,334 Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted time deposits (46,310) 30,226 (19,544) Reclassification of cash and cash equivalents from /(to) assets held for sale (11,684) 11,684 0 Net increase /(decrease) in cash, cash equivalents, restricted cash, and restricted timedeposits (557,958) 317,069 (298,429) Cash, cash equivalents, restricted cash and restricted time deposits at beginning of year 1,609,184 1,051,226 1,368,295 Cash, cash equivalents, restricted cash and restricted time deposits at end of year $1,051,226 $1,368,295 $1,069,866 Supplemental cash flow disclosures: Cash paid for income taxes (25,179) (43,264) (53,147) Cash paid for interest expense (965) (7,176) (12,563) Barter transactions 12,384 6,110 28,404 Supplemental schedule of non-cash investing activity: Changes in payables and other liabilities related to fixed assets and intangible assetsadditions 35,470 56,486 30,797 The accompanying notes are an integral part of these consolidated financial statements. F-9Table of ContentsSOHU.COM LIMITEDCONSOLIDATED STATEMENT OF CHANGES IN EQUITYYear Ended December 31, 2016(In thousands) Shareholders’ Equity Total CommonStock AdditionalPaid-inCapital TreasuryStock AccumulatedOtherComprehensiveIncome RetainedEarnings NoncontrollingInterest Beginning balance $1,730,752 45 798,357 (143,858) 50,151 536,327 489,730 Share-based compensation expense 19,120 0 2,678 0 0 0 16,442 Settlement of share-based awards in subsidiary 337 0 19,501 0 0 0 (19,164) Contribution from noncontrolling interest shareholder 0 0 1,333 0 0 0 (1,333) Disposal of noncontrolling interest (238) 0 0 0 0 0 (238) Net income/(loss) attributable to Sohu.com Limited andnoncontrolling interest shareholders (114,973) 0 0 0 0 (224,021) 109,048 Accumulated other comprehensive loss (77,155) 0 0 0 (46,931) 0 (30,224) Others (48) 0 (2) 0 0 0 (46) Ending balance $1,557,795 45 821,867 (143,858) 3,220 312,306 564,215 The accompanying notes are an integral part of these consolidated financial statements. F-10Table of ContentsSOHU.COM LIMITEDCONSOLIDATED STATEMENT OF CHANGES IN EQUITYYear Ended December 31, 2017(In thousands) Shareholders’ Equity Total CommonStock AdditionalPaid-inCapital TreasuryStock AccumulatedOtherComprehensiveIncome AccumulatedDeficit NoncontrollingInterest Beginning balance $1,557,795 45 821,867 (143,858) 3,220 312,306 564,215 Consideration received from Sogou IPO, net of IPOTransaction Expenses 622,131 0 278,428 0 0 0 343,703 Share-based compensation expense 41,468 0 827 0 0 0 40,641 Settlement/Adjustment of share-based awards insubsidiary 494 0 (2,755) 0 0 0 3,249 Repurchase of Sogou Pre-IPO Class A OrdinaryShares from noncontrolling shareholders (3,190) 0 0 0 0 0 (3,190) Purchase of noncontrolling interest 193 0 88 0 0 0 105 Disposal of noncontrolling interest (80) 0 0 0 0 0 (80) Net income/(loss) attributable to Sohu.com Limitedand noncontrolling interest shareholders (470,003) 0 0 0 0 (554,526) 84,523 Accumulated other comprehensive Loss 68,429 0 0 0 34,992 0 33,437 Ending balance $1,817,237 45 1,098,455 (143,858) 38,212 (242,220) 1,066,603 The accompanying notes are an integral part of these consolidated financial statements. F-11Table of ContentsSOHU.COM LIMITEDCONSOLIDATED STATEMENT OF CHANGES IN EQUITYYear Ended December 31, 2018(In thousands) Sohu.com Limited Shareholders’ Equity Total OrdinaryShares AdditionalPaid-inCapital TreasuryStock AccumulatedOtherComprehensiveIncome AccumulatedDeficit NoncontrollingInterest Beginning balance $1,817,237 45 1,098,455 (143,858) 38,212 (242,220) 1,066,603 Impact of adoption of new accounting standards* 0 0 0 0 (7,501) 7,501 0 Share-based compensation expense 2,095 0 (5,559) 0 0 0 7,654 Settlement/Adjustment of share-based awards insubsidiary 1,811 0 9,839 0 0 0 (8,028) Distribution of Changyou dividend tononcontrolling interest shareholders (162,461) 0 0 0 0 0 (162,461) Disposal of a majority-owned subsidiary (2,113) 0 0 0 0 0 (2,113) Liquidation of Sohu.com Inc. 0 (6) (143,852) 143,858 0 0 0 Net income/(loss) attributable to Sohu.com Limitedand noncontrolling interest shareholders (67,359) 0 0 0 0 (160,082) 92,723 Accumulated other comprehensive Loss (37,339) 0 0 0 (5,992) 0 (31,347) Others 1,080 0 0 0 0 0 1,080 Ending balance $1,552,951 39 958,883 0 24,719 (394,801) 964,111 *For details see Note 10—Fair Value Measurements—Financial Instruments Measured at Fair Value—Equity Investments.The accompanying notes are an integral part of these consolidated financial statements. F-12Table of ContentsSOHU.COM LIMITEDNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.THE COMPANY AND NATURE OF OPERATIONSNature of Operations and OrganizationSohu.com Limited was incorporated in the Cayman Islands on May 30, 2003 as a direct wholly-owned subsidiary of Sohu.com Inc., which wasincorporated in Delaware in August 1996 and was the ultimate parent company of the Sohu Group (as defined below) until its dissolution on May 31,2018. On July 17, 2000, Sohu.com Inc. completed an initial public offering (“IPO”) of shares of its common stock on NASDAQ trading under thesymbol “SOHU.” On May 31, 2018, pursuant to a proposal for the dissolution of Sohu.com Inc. and adoption of a plan of complete liquidation anddissolution of Sohu.com Inc. that was approved by the stockholders of Sohu.com Inc. at a special meeting of stockholders held on May 29, 2018,Sohu.com Inc. was dissolved, all outstanding shares of the common stock of Sohu.com Inc. were delisted and cancelled, and ADSs representing alloutstanding ordinary shares of Sohu.com Limited were distributed on a share-for-share basis to the stockholders of Sohu.com Inc. On June 1, 2018Sohu.com Limited’s ADSs began trading on the NASDAQ Global Select Market under the same “SOHU” symbol in place of the common stock ofSohu.com Inc. As a result, Sohu.com Limited replaced Sohu.com Inc. as the top-tier, publicly-traded holding company of the Sohu Group (as definedbelow). Sohu.com Limited (or its predecessor Sohu.com Inc., as applicable), together with its subsidiaries and consolidated VIEs, are collectivelyreferred to herein as the “Sohu Group,” the “Group” or the “Company.”The Sohu Group is a leading Chinese online media, search and game service group providing comprehensive online products and services on PCs andmobile devices in China. The Sohu Group, which consists of “Sohu,” which when referred to in this report, unless the context requires otherwise,excludes the businesses and the corresponding subsidiaries and VIEs of Sogou Inc. (“Sogou”) and Changyou.com Limited (“Changyou”), Sogou andChangyou. Sogou and Changyou are the indirect controlled subsidiaries of the Company. Sohu is a leading Chinese language online media contentand services provider; Sogou is an innovator in search and a leader in China’s Internet industry; and Changyou is a leading online game developer andoperator in China that engages primarily in the development, operation and licensing of online games for PCs and mobile devices. Most of the SohuGroup’s operations are conducted through the Group’s China-based subsidiaries and VIEs.Sogou completed its IPO on the NYSE in November 2017 trading under the symbol “SOGO.” Changyou completed its IPO on NASDAQ in April 2009,trading under the symbol “CYOU.”As Sohu.com Limited, or its predecessor Sohu.com Inc., is the controlling shareholder of both Sogou and Changyou, Sohu.com Limited consolidatesSogou and Changyou in its consolidated financial statements, and recognizes noncontrolling interests reflecting economic interests in Sogou andChangyou held by shareholders other than Sohu.com Limited. The consolidated financial statements of Sohu.com Limited represent the continuationof the financial statements of Sohu.com Inc., reflecting the assets and liabilities, accumulated deficit and other equity balances of Sohu.com Inc.immediately before Sohu.com Inc.’s dissolution on May 31, 2018.Through the operation of Sohu, Sogou and Changyou, the Sohu Group generates online advertising revenues, including brand advertising revenuesand search and search-related advertising revenues; online games revenues; and other revenues. Online advertising and online games are the SohuGroup’s core businesses.The principal subsidiaries and VIEs through which the Group conducts its business operations as of December 31, 2018 are described below: Name of Entity Date ofIncorporation/Acquisition Place ofIncorporation/Acquisition EffectiveInterestheld Subsidiaries: For Sohu’s Business: Sohu.com (Hong Kong) Limited (“Sohu HongKong”) Incorporated on April 19, 2000 Hong Kong 100% Beijing Sohu New Era Information Technology Co.,Ltd. (“Sohu Era”) Incorporated on July 25, 2003 People’s Republic of China 100% All Honest International Limited (“All Honest”) Incorporated on October 8, 2003 British Virgin Islands 100% Sohu.com (Search) Limited (“Sohu Search”) Incorporated on October 28, 2005 Cayman Islands 100% Beijing Sohu New Media Information TechnologyCo., Ltd. (“Sohu Media”) Incorporated on June 19, 2006 People’s Republic of China 100% F-13Table of ContentsSohu.com (Game) Limited (“Sohu Game”) Incorporated on February 11, 2008 Cayman Islands 100% Beijing Sohu New Momentum InformationTechnology Co., Ltd. (“Sohu New Momentum”) Incorporated on May 31, 2010 People’s Republic of China 100% Fox Video Investment Holding Limited (“VideoInvestment”) Incorporated on July 25, 2011 Cayman Islands 100% Fox Video Limited (“Sohu Video”) Incorporated on July 26, 2011 Cayman Islands 100% Fox Video (HK) Limited (“Video HK”) Incorporated on September 30, 2011 Hong Kong 100% Fox Information Technology (Tianjin) Limited(“Video Tianjin”) Incorporated on November 17, 2011 People’s Republic of China 100% Focus Investment Holding Limited (“FocusInvestment”) Incorporated on July 10, 2013 Cayman Islands 100% Sohu Focus Limited (“Sohu Focus”) Incorporated on July 11, 2013 Cayman Islands 100% Sohu Focus (HK) Limited (“Focus HK”) Incorporated on July 26, 2013 Hong Kong 100% For Sogou’s Business: Sogou Inc. (“Sogou”) Incorporated on December 23, 2005 Cayman Islands 33% Sogou (BVI) Limited (“Sogou BVI”) Incorporated on December 23, 2005 British Virgin Islands 33% Beijing Sogou Technology Development Co., Ltd.(“Sogou Technology”) Incorporated on February 8, 2006 People’s Republic of China 33% Sogou Hong Kong Limited (“Sogou HK”) Incorporated on December 12, 2007 Hong Kong 33% Vast Creation Advertising Media Services Limited(“Vast Creation”) Acquired on November 30, 2011 Hong Kong 33% Beijing Sogou Network Technology Co., Ltd(“Sogou Network”) Incorporated on March 29, 2012 People’s Republic of China 33% Sogou Technology Hong Kong Limited (“SogouTechnology HK”) Incorporated on August 25, 2015 Hong Kong 33% Tianjin Sogou Network Technology Co., Ltd(“Tianjin Sogou Network”) Incorporated on May 18, 2017 People’s Republic of China 33% Sogou (Shantou) Internet Microcredit Co., Ltd.(“Sogou Microcredit”) Incorporated on November 22, 2017 People’s Republic of China 33% For Changyou’s Business: Changyou.com Limited (“Changyou”) Incorporated on August 6, 2007 Cayman Islands 67% Changyou.com (HK) Limited (“Changyou HK”) Incorporated on August 13, 2007 Hong Kong 67% Beijing AmazGame Age Internet Technology Co.,Ltd. (“AmazGame”) Incorporated on September 26, 2007 People’s Republic of China 67% Beijing Changyou Gamespace Software TechnologyCo., Ltd. (“Gamespace”) Incorporated on October 29, 2009 People’s Republic of China 67% Beijing Yang Fan Jing He Information ConsultingCo., Ltd. (“Yang Fan Jing He”) Incorporated on April 22, 2010 People’s Republic of China 67% Beijing Changyou Jingmao Film & CultureCommunication Co., Ltd. (“Beijing Jingmao”) Acquired on January 25, 2011 People’s Republic of China 67% Shanghai Jingmao Culture Communication Co.,Ltd. (“Shanghai Jingmao”) Acquired on January 25, 2011 People’s Republic of China 67% 7Road.com Limited (“7Road”) Incorporated on June 15, 2011 Cayman Islands 67% 7Road.com HK limited (“7Road HK”) Incorporated on July 6, 2011 Hong Kong 67% Changyou.com Webgames (HK) Limited(“Changyou HK Webgames”) Incorporated on September 21, 2011 Hong Kong 67% Shenzhen Brilliant Imagination Technologies Co.,Ltd. (“Brilliant Imagination”) Incorporated on April 18, 2014 People’s Republic of China 67% Beijing Changyou Chuangxiang SoftwareTechnology Co., Ltd. (“ChangyouChuangxiang”) Incorporated on November 8, 2016 People’s Republic of China 67% F-14Table of ContentsVIEs: For Sohu’s Business: Beijing Century High-Tech Investment Co., Ltd.(“High Century”) Incorporated on December 28, 2001 People’s Republic of China 100% Beijing Heng Da Yi Tong Information Technology Co.,Ltd. (“Heng Da Yi Tong”) Incorporated on February 7, 2002 People’s Republic of China 100% Beijing Sohu Internet Information Service Co., Ltd.(“Sohu Internet”) Incorporated on July 31, 2003 People’s Republic of China 100% Beijing Sohu Donglin Advertising Co., Ltd.(“Donglin”) Incorporated on May 17, 2010 People’s Republic of China 100% Tianjin Jinhu Culture Development Co., Ltd (“TianjinJinhu”) Incorporated on November 24, 2011 People’s Republic of China 100% Beijing Focus Interactive Information Service Co., Ltd.(“Focus Interactive”) Incorporated on July 15, 2014 People’s Republic of China 100% Guangzhou Qianjun Network Technology Co., Ltd(“Guangzhou Qianjun”) Acquired on November 25, 2014 People’s Republic of China 100% For Sogou’s Business: Beijing Sogou Information Service Co., Ltd. (“Sogou Information”) Incorporated on December 28, 2005 People’s Republic of China 33% Chengdu Easypay Technology Co., Ltd. (“ChengduEasypay”) Incorporated on January 19, 2015 People’s Republic of China 33% For Changyou’s Business: Beijing Gamease Age Digital Technology Co., Ltd.(“Gamease”) Incorporated on August 23, 2007 People’s Republic of China 67% Shanghai ICE Information Technology Co., Ltd.(“Shanghai ICE”) Acquired on May 28, 2010 People’s Republic of China 67% Beijing Guanyou Gamespace Digital Technology Co.,Ltd. (“Guanyou Gamespace”) Incorporated on August 5, 2010 People’s Republic of China 67% Sohu’s BusinessBrand Advertising BusinessSohu’s main business is the brand advertising business, which offers to users, over Sohu’s matrices of Chinese language online media, various content,products and services across multiple Internet-enabled devices such as PCs, mobile phones and tablets. The majority of Sohu’s products and servicesare provided in China through Sohu Media Portal, Sohu Video and Focus. • Sohu Media Portal. Sohu Media Portal is a leading online news and information provider in China. It provides users with access tocomprehensive content through the mobile phone application Sohu News APP, www.sohu.com for PCs and the mobile portal m.sohu.com; • Sohu Video. Sohu Video is an online video content and service provider in China through tv.sohu.com for PCs and the mobile phone applicationSohu Video APP; and • Focus. Focus (www.focus.cn) is an online real estate information and services provider in China.Revenues generated by the brand advertising business are classified as brand advertising revenues in the Sohu Group’s consolidated statements ofcomprehensive income.Other Sohu BusinessSohu also engages in the other business, which consists primarily of paid subscription services, interactive broadcasting services, and content providedthrough the platforms of the three main telecommunications operators in China. Revenues generated by Sohu from the other business are classified asother revenues in the Sohu Group’s consolidated statements of comprehensive income. F-15Table of ContentsSogou’s BusinessSearch and Search-related BusinessThe search and search-related business consists primarily of search and search-related advertising services offered by Sogou. Search and search-relatedadvertising services enable advertisers’ promotional links to be displayed on Sogou’s search results pages and other Internet properties and thirdparties’ Internet properties where the links are relevant to the subject and content of searches and such properties. Sogou’s advertising services expanddistribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’ Internet properties, including Web content,software, and mobile applications. The search and search-related business also benefits from Sogou’s collaboration with Tencent Holdings Limited(together with its subsidiaries, “Tencent”), which provides Sogou access to traffic and content generated from products and services provided byTencent.Revenues generated by the search and search-related business are classified as search and search-related advertising revenues in the Sohu Group’sconsolidated statements of comprehensive income.Other Sogou BusinessSogou also offers IVAS, primarily with respect to the operation of Web games and mobile games developed by third parties and the provision of onlinereading services, and offers other products and services, including smart hardware products. Revenues generated by Sogou from other business areclassified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.Initial Public Offering of SogouOn November 13, 2017, Sogou completed its IPO on the NYSE, trading under the symbol “SOGO.”Sogou’s Ordinary Shares are divided into Sogou Class A Ordinary Shares and Sogou Class B Ordinary Shares. Holders of Sogou Class A OrdinaryShares and holders of Sogou Class B Ordinary Shares have identical rights with the exception of voting and conversion rights. Each Sogou Class AOrdinary Share is entitled to one vote per share and is not convertible. Each Sogou Class B Ordinary Share is entitled to ten votes per share and isconvertible into one Sogou Class A Ordinary Share at any time.Sogou issued and sold in its IPO 50,643,856 Sogou Class A Ordinary Shares represented by 50,643,856 ADSs, including 5,643,856 Sogou Class AOrdinary Shares represented by 5,643,856 ADSs sold pursuant to the exercise of the underwriters’ over-allotment option. Proceeds to Sogou from theIPO were approximately $622.1 million, after deducting underwriting discounts and commissions and offering expenses.Following the completion of Sogou’s IPO, pursuant to the Voting Agreement among Sohu, Tencent, and Sogou (the “Voting Agreement”) that tookeffect upon the completion of Sogou’s IPO, Sohu has the right to appoint a majority of Sogou’s Board of Directors, and Sohu continues to consolidateSogou in Sohu’s financial statements and provide for noncontrolling interests reflecting ordinary shares in Sogou held by shareholders other thanSohu.In the fourth quarter of 2017, Sohu recognized a one-time credit to additional paid-in capital of $278.4 million in shareholders’ equity in Sohu’sconsolidated balance sheets to reflect the increase in the value of Sohu’s equity in Sogou that resulted from the completion of Sogou’s IPO.Voting Agreement between Sohu, Tencent and SogouPursuant to the Voting Agreement, Sohu and Tencent agreed that, subject to certain exceptions, (1) within three years following the completion ofSogou’s IPO, Sohu will vote all Sogou Class B Ordinary Shares and any Sogou Class A Ordinary Shares held by it and Tencent will vote 45,578,896 ofits Sogou Class B Ordinary Shares to elect a Board of Directors consisting of seven directors, four of whom will be appointed by Sohu, two of whomwill be appointed by Tencent, and the seventh of whom will be Sogou’s then chief executive officer, and (2) after three years following the completionof Sogou’s IPO, Sohu will be entitled to choose to change the size and composition of Sogou’s Board of Directors, subject to Tencent’s right to appointat least one director. The effect of these provisions is to give Sohu the power to appoint a majority of Sogou’s Board of Directors, and to give Tencentthe power to appoint two directors within three years following the completion of Sogou’s IPO and at least one director after three years after thecompletion of Sogou’s IPO. The Voting Agreement also provides that, subject to certain conditions, for so long as Sohu and Tencent together holdmore than 50% of the total voting power of the Sogou Class A Ordinary Shares and the Sogou Class B Ordinary Shares, Sohu or Tencent may removeand replace any director appointed by it. These provisions of the Voting Agreement are also reflected in Sogou’s Amended and Restated Memorandumof Association and Amended and Restated Articles of Association.Due to the additional voting power of the Sogou Class B Ordinary Shares held by Sohu and Tencent, as of the date of this report Sohu holdsapproximately 33% of the total of Sogou’s outstanding Class A and Class B Ordinary Shares and controls approximately 44% of the total voting powerof the combined total of Sogou’s outstanding Class A and Class B Ordinary Shares; Tencent has an indirect shareholding of approximately 38% of thetotal of Sogou’s outstanding Class A and Class B Ordinary Shares and controls approximately 52% of the total voting power of the combined total ofSogou’s outstanding Class A and Class B Ordinary Shares; and Sohu and Tencent together have the power to decide all matters that may be brought toa vote of Sogou’s shareholders. F-16Table of ContentsThe Voting Agreement and Sogou’s Amended and Restated Articles of Association also specify that for so long as Sohu or Tencent holds not less than15% of Sogou’s issued shares (calculated on a fully diluted basis), consent from the holder of 15% or more (either or both of Sohu or Tencent, as thecase may be) will be required (1) to amend Sogou’s Amended and Restated Memorandum of Association or Amended and Restated Articles ofAssociation, (2) to make material changes in Sogou’s principal lines of business, (3) to issue any additional Sogou Class B Ordinary Shares, (4) tocreate any new class or series of shares that is pari passu with or senior to the Sogou Class A Ordinary Shares, (5) for Sogou to approve a liquidation,dissolution or winding up of Sogou, or a merger or consolidation resulting in a change in control, or any disposition of all or substantially all ofSogou’s assets, or (6) for Sogou to enter into any transactions with affiliates of Sohu, other than in the ordinary course of business. Of these corporateactions that are subject to consent of Sohu or Tencent (as applicable), shareholder approval is required under the Companies Law of the CaymanIslands for any amendment of Sogou’s Amended and Restated Memorandum of Association or Amended and Restated Articles of Association, anywinding-up of Sogou Inc., or any merger or consolidation with a third-party entity. The Voting Agreement and Sogou’s Amended and Restated Articlesof Association further provide that if Sogou’s shareholders have voted in favor of any of these actions requiring the approval of Sogou’s shareholdersbut consent from Sohu or Tencent (as applicable) has not been obtained, then the holders of all classes of Sogou’s shares who have voted against suchaction will be deemed to have such number of votes as are equal to the aggregate number of votes cast in favor of such actions plus one additionalvote. Under these provisions of the Voting Agreement and Sogou’s Amended and Restated Articles of Association, if an action is proposed for whichthe consent of either Tencent or Sohu is required, the failure to obtain the consent of Tencent or Sohu will have the effect of the proposed action’s notbeing approved, even if Sogou’s other shareholders approve it.The Voting Agreement and Sogou’s Amended and Restated Articles of Association also specify that if at any time Sohu alone holds more than 50% ofthe total voting power of the Sogou Class A Ordinary Shares and the Sogou Class B Ordinary Shares, the voting arrangements with respect to the sizeand composition of Sogou’s Board of Directors will be automatically suspended until such time within five years after the completion of Sogou’s IPOas Sohu’s voting power again drops to 50% or less, in which case the original voting arrangements will be reinstated, provided that Tencent will onlybe required to vote the lower of 45,578,896 Sogou Class B Ordinary Shares held by it or such number as would give Sohu combined voting power of50.1%. If such a suspension continues after the fifth anniversary of the completion of Sogou’s IPO, the voting arrangements with respect to the size andcomposition of Sogou’s Board of Directors will terminate.All of the Sogou Class B Ordinary Shares held by Sohu will be converted into Sogou Class A Ordinary Shares if there is a transaction resulting inchange of control of Sohu that was not approved by Sohu’s board of directors, if specified competitors of Tencent control Sohu, or if a majority ofSohu’s board of directors consist of nominees of specified competitors of Tencent. The provisions with respect to the size and composition of Sogou’sBoard of Directors set out in the Voting Agreement and Sogou’s Amended and Restated Articles of Association will terminate upon occurrence of anysuch event. Such arrangements will also terminate (1) if Dr. Charles Zhang, the chairman of the board of directors of Sohu and the chief executiveofficer, both ceases being the chairman of the board of directors of Sohu and ceases being the single largest beneficial owner of Sohu’s outstandingshares; (2) if Sohu transfers 30% or more of the Sogou Class B Ordinary Shares that Sohu held upon the completion of Sogou’s IPO; (3) if Sogou fails toprovide irrevocable instructions to the person maintaining Sogou’s register of members to accept instructions from Tencent, under certaincircumstances, with respect to the conversion of Sogou Class B Ordinary Shares held by Sohu; (4) or Sogou changes, without Tencent’s consent, theperson that maintains Sogou’s register of members; (5) or if Tencent ceases to own any Sogou Class B Ordinary Shares.Under the Voting Agreement, Sohu and Tencent are subject to certain restrictions on transfer of their Sogou Class A and Class B Ordinary Shares. Inparticular, a transfer of Sogou Class B Ordinary Shares by either Sohu or Tencent, respectively, to any person or entity that is not a direct or indirectwholly-owned subsidiary of Sohu or Tencent, respectively, will cause such Sogou Class B Ordinary Shares to be converted into Sogou Class AOrdinary Shares.Voting Agreement between Sohu, Photon and Sogou ManagementSohu may be deemed to have beneficial ownership attributable to shared voting power of Sogou Class A Ordinary Shares beneficially owned byPhoton Group Limited (“Photon”), an investment vehicle of the Company’s Chairman and Chief Executive Officer Charles Zhang, Sogou’s chiefexecutive officer Xiaochuan Wang, and certain other members of the Sogou management, as a result of a voting agreement by and among Sohu,Photon, Mr. Wang and the other members of Sogou management, pursuant to which Photon, Mr. Wang, and the other members of Sogou Managementhave agreed to vote their Sogou Class A Ordinary Shares (not including shares acquired by Mr. Wang in the public market following Sogou’s IPO) toelect Sohu’s designees to Sogou’s Board of Directors. F-17Table of ContentsSogou’s Share StructureAs of December 31, 2018, Sogou had a combined total of 397,158,375 Sogou Class A Ordinary Shares and Sogou Class B Ordinary Shares issued andoutstanding, consisting of: (i)Sohu: 127,200,000 Sogou Class B Ordinary Shares held by Sohu for its own account, and 3,717,250 Sogou Class A Ordinary Shares held bySohu for the purpose of issuance upon the exercise of outstanding share-based awards and future share-based awards; (ii)Tencent: 151,557,875 Sogou Class B Ordinary Shares; (iii)Photon: 24,686,863 Sogou Class A Ordinary Shares; and (iv)Shareholders other than Sohu, Tencent, and Photon: 89,996,387 Sogou Class A Ordinary Shares, including Sogou Class A Ordinary Sharesrepresented by Sogou’s ADSs.The total number of Sogou outstanding shares listed above include 5,805,000 Sogou Class A Ordinary Shares that are outstanding for legal purposes,but have been determined to be Sogou treasury stock for accounting purposes.Changyou’s BusinessChangyou’s business lines consist of the online game business; the platform channel business, which consists primarily of online advertising andIVAS; and the cinema advertising business.Online Game BusinessChangyou’s online game business offers PC games and mobile games to game players. All of Changyou’s games are operated under the item-basedrevenue model, meaning that game players can play the games for free, but may choose to pay for virtual items, which are non-physical items that gameplayers can purchase and use within a game, such as gems, pets, fashion items, magic medicine, riding animals, hierograms, skill books and fireworks.Revenues derived from the operation of online games are classified as online game revenues in the Sohu Group’s consolidated statements ofcomprehensive income.PC GamesPC games are interactive online games that are accessed and played simultaneously by hundreds of thousands of game players through personalcomputers and require that local client-end game access software be installed on the computers used. Changyou’s dominant game is Tian Long Ba Bu(“TLBB”), a PC based client-end game. For the year ended December 31, 2018, revenues from TLBB were $200.9 million, accounting forapproximately 52% of Changyou’s online game revenues, approximately 41% of Changyou’s total revenues and approximately 11% of the SohuGroup’s total revenues.Mobile GamesMobile games are played on mobile devices and require an Internet connection. In the second quarter of 2017, Changyou launched a new mobilegame, Legacy TLBB (“Legacy TLBB Mobile”), which is operated by Tencent under license from Changyou. For the year ended December 31, 2018,revenues from Legacy TLBB Mobile were $102.6 million, accounting for approximately 26% of Changyou’s online game revenues, approximately21% of Changyou’s total revenues, and approximately 5% of the Sohu Group’s total revenues.Platform Channel BusinessChangyou’s platform channel business consists primarily of the operation of the 17173.com Website and RaidCall. Prior to Changyou’s sale ofMoboTap Inc. (“MoboTap”) in March 2018, Changyou’s platform channel business also included MoboTap.17173.com WebsiteThe 17173.com Website provides news, electronic forums, online videos and other information services regarding online games to game players inChina. All revenues generated by the 17173.com Website are classified as brand advertising revenues.RaidCallRaidCall provides online music and entertainment services, primarily in Taiwan. IVAS revenues generated by RaidCall are classified as other revenuesin the Sohu Group’s consolidated statements of comprehensive income. F-18Table of ContentsCinema Advertising BusinessChangyou also operates a cinema advertising business, which consists primarily of the acquisition from operators of movie theaters, and the sale toadvertisers of pre-film advertising slots, which are advertisements shown before the screening of a movie in a cinema theater. Revenues generated byChangyou’s cinema advertising business are classified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.Changyou’s Share StructureAs of December 31, 2018, Changyou had a combined total of 106,501,420 Changyou Class A and Class B Ordinary Shares issued and outstanding,consisting of: (i)Sohu: 1,500,000 Changyou Class A Ordinary Shares and 70,250,000 Changyou Class B Ordinary Shares; and (ii)Public shareholders: 34,751,420 Changyou Class A Ordinary Shares represented by Changyou’s ADSs.As of December 31, 2018 and the date of this report, Sohu held and holds approximately 67% of the combined total of Changyou’s outstandingordinary shares, and controlled and controls approximately 95% of the total voting power in Changyou. As Changyou’s controlling shareholder, Sohuconsolidates Changyou in its financial statements and provides for noncontrolling interests reflecting ordinary shares in Changyou held byshareholders other than the Company. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESAccounting StandardsThe consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S.GAAP”) to reflect the financial position and results of operations of the Sohu Group.Use of EstimatesThe preparation of these financial statements requires the Sohu Group to make estimates and judgments that affect the reported amounts of assets,liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Group evaluates its estimates based on historical experienceand on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. Identified below are the accounting policies that reflect the Group’s most significant estimates and judgments, andthose that the Group believes are the most critical to fully understanding and evaluating its consolidated financial statements.Basis of Consolidation and Recognition of Noncontrolling InterestThe Sohu Group’s consolidated financial statements include the accounts of the Company and its subsidiaries and consolidated VIEs. All intra-Grouptransactions are eliminated.VIE ConsolidationThe Sohu Group’s VIEs are wholly or partially owned by certain employees of the Group as nominee shareholders. For consolidated VIEs, managementmade evaluations of the relationships between the Sohu Group and the VIEs and the economic benefit flow of contractual arrangements with the VIEs.In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Group controlsthe shareholders’ voting interests in these VIEs. As a result of such evaluation, management concluded that the Sohu Group is the primary beneficiaryof its consolidated VIEs.Noncontrolling Interest RecognitionNoncontrolling interests are recognized to reflect the portion of the equity of subsidiaries and VIEs which is not attributable, directly or indirectly, tothe controlling shareholders. Currently, the noncontrolling interests in the Sohu Group’s consolidated financial statements primarily consist ofnoncontrolling interests for Sogou and Changyou.Noncontrolling Interest for SogouPrior to the completion of Sogou’s IPO in November 2017, the Company controlled the election of a majority of the Board of Directors of Sogoupursuant to a shareholders’ agreement that expired upon completion of the IPO. Following the completion of Sogou’s IPO, pursuant to the VotingAgreement and Sogou’s Third Amended and Restated Articles of Association, the Company still has the right to appoint a majority of Sogou’s Boardof Directors. F-19Table of ContentsAs Sogou’s controlling shareholder, the Company consolidates Sogou in its consolidated financial statements, and recognizes noncontrolling interestreflecting economic interests in Sogou held by shareholders other than it (the “Sogou noncontrolling shareholders”). Sogou’s net income /(loss)attributable to the Sogou noncontrolling shareholders is recorded as noncontrolling interest in its consolidated statements of comprehensive income.Noncontrolling Interest Recognition before Sogou’s IPOBased on the principles of allocation of Sogou’s profit and loss set forth below, Sogou’s cumulative results of operations attributable to the Sogounoncontrolling shareholders, along with changes in shareholders’ equity/(deficit) and adjustments for share-based compensation expense in relation tothose share-based awards that were unvested and vested but not yet settled and the Sogou noncontrolling shareholders’ investments in Sogou Series APreferred Shares outstanding before Sogou’s IPO (“Sogou Pre-IPO Series A Preferred Shares”) and Sogou Series B Preferred Shares outstanding beforeSogou’s IPO (“Sogou Pre-IPO Series B Preferred Shares”) (together, the “Sogou Pre-IPO Preferred Shares”) and Sogou ordinary shares outstandingbefore Sogou’s IPO (“Sogou Pre-IPO Class A Ordinary Shares” and “Sogou Pre-IPO Class B Ordinary Shares, as applicable) were accounted for as anoncontrolling interest classified as permanent equity in the Sohu Group’s consolidated balance sheets, as Sohu Group had the power to reject aredemption requested by the noncontrolling shareholders. These treatments were based on the terms governing investment, and on the terms of theclasses of Sogou shares held, by the noncontrolling shareholders in Sogou before Sogou’s IPO.Principles of Allocation of Sogou’s Profit and Loss - By virtue of the terms of the Sogou Pre-IPO Preferred Shares, Pre-IPO Class A Ordinary Shares, andPre-IPO Class B Ordinary Shares, Sogou’s losses were allocated in the following order before Sogou’s IPO:(i) net losses were allocated to holders of the Sogou Pre-IPO Class A Ordinary Shares and the holder of the Sogou Pre-IPO Class B Ordinary Sharesuntil their basis in Sogou decreased to zero;(ii) additional net losses were allocated to holders of the Sogou Pre-IPO Series A Preferred Shares until their basis in Sogou decreased to zero;(iii) additional net losses were allocated to the holder of the Sogou Pre-IPO Series B Preferred Shares until its basis in Sogou decreased to zero; and(iv) further net losses were allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.Net income from Sogou was allocated in the following order before Sogou’s IPO:(i) net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou until their basis inSogou increased to zero;(ii) additional net income was allocated to the holder of the Sogou Pre-IPO Series B Preferred Shares to bring its basis back;(iii) additional net income was allocated to holders of the Sogou Pre-IPO Series A Preferred Shares to bring their basis back;(iv) further net income was allocated to holders of the Sogou Pre-IPO Class A Ordinary Shares and the holder of the Sogou Pre-IPO Class B OrdinaryShares to bring their basis back; and(v) further net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.Noncontrolling Interest Recognition after Sogou’s IPOSogou’s cumulative results of operations attributable to the Sogou noncontrolling shareholders, based on their share of the economic interest in Sogou,along with changes in shareholders’ equity and adjustment for share-based compensation expense in relation to share-based awards that are unvestedand vested but not yet settled and adjustment for changes in the Sohu Group’s ownership percentage in Sogou, are recorded as noncontrolling interestin the Sohu Group’s consolidated balance sheets.Noncontrolling Interest for ChangyouAs of the date of this report, Sohu holds approximately 67% of the combined total of Changyou’s outstanding ordinary shares, and controlsapproximately 95% of the total voting power in Changyou. F-20Table of ContentsAs Changyou’s controlling shareholder, Sohu consolidates Changyou in its consolidated financial statements, and recognizes noncontrolling interestreflecting the economic interest in Changyou held by shareholders other than the Company (the “Changyou noncontrolling shareholders”).Changyou’s net income /(loss) attributable to the Changyou noncontrolling shareholders is recorded as noncontrolling interest in the Sohu Group’sconsolidated statements of comprehensive income, based on the noncontrolling shareholders’ share of the economic interest in Changyou. Changyou’scumulative results of operations attributable to the Changyou noncontrolling shareholders, along with changes in shareholders’ equity, adjustment forshare-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment forchanges in the Company’s ownership in Changyou, are recorded as noncontrolling interest in the Sohu Group’s consolidated balance sheets.Segment ReportingThe Sohu Group’s segments are business units that offer different services and are reviewed separately by the chief operating decision maker (the“CODM”), or the decision making group, in deciding how to allocate resources and in assessing performance. The Group’s CODM is the Company’sChief Executive Officer.Revenue RecognitionImpact of Adoption of ASC 606On January 1, 2018, the Sohu Group adopted ASC 606, applying the modified retrospective method to contracts that were not completed as ofJanuary 1, 2018. The adoption of ASC 606 did not have a material impact on the Company’s accumulated deficit as of January 1, 2018. Results forreporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior-period amounts are not adjusted and continue to bereported in accordance with the Group’s historic accounting under ASC 605.Under ASC 605, advertising-for-advertising barter transactions for which the fair value of the advertising services was not determinable were recordedat the carrying amount of the advertising surrendered, since the Group did not settle such barter transactions with the counterparties in cash. AsASC 605 has been superseded by ASC 606 on this subject, advertising-for-advertising barter transactions are to be recorded at the fair value of theadvertising received by reference to the fair value of advertising services provided to other customers. The impact for the year of 2018 was an increaseof approximately $25.6 million in revenues, with corresponding increases in cost of revenues and sales and marketing expenses, most of which weregenerated from Sogou for services provided to and received from Tencent. To a lesser extent, there is a potential impact on the Group’s accounting forexchanges of brand advertising placements with other platforms by Sohu. Revenues are recognized in the same amount as the corresponding costs andexpenses. Therefore, there was no net profit and loss impact to the Group for the year of 2018.The following table illustrates the effect of the adoption of ASC 606 by presenting a comparison of selected line items from the Group’s consolidatedstatement of comprehensive income for the year ended December 31, 2018, as actually reported and as they would have been reported under ASC 605without the adoption of ASC 606 (in thousands, except per share data): As reported Without adoption ofASC 606 Effect of changeHigher/(Lower) Revenue-Online advertising-Brand advertising $231,945 228,165 3,780 Revenue-Online advertising-Search and search relatedadvertising 1,022,456 1,000,639 21,817 Cost of revenue- Online advertising-Search and searchrelated advertising 664,164 642,920 21,244 Gross profit 811,308 811,308 0 Operating expenses- Sales and marketing 400,579 396,226 4,353 Operating loss (160,525) (160,525) 0 Income tax expense 13,432 13,432 0 Net loss (67,359) (67,359) 0 Basic net loss per share attributable to Sohu.comLimited (4.11) (4.11) 0 Diluted net loss per share attributable to Sohu.comLimited (4.13) (4.13) 0 F-21Table of ContentsThe adoption of ASC 606 did not change the Group’s consolidated balance sheet, consolidated statement of cash flows, or consolidated statement ofchanges in equity as of, or for the year ended, December 31, 2018.Revenues are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects theconsideration the Group expects to be entitled to in exchange for those goods or services. The recognition of revenues involves certain managementjudgments, including estimated lives of virtual items purchased by game players, the estimation of the fair value of an advertising-for-advertisingbarter transaction, allocation of upfront license fees for licensed-out games between license and post-sale services, and volume sales rebates. The Groupdoes not believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Group’s revenuescould be different for any period if management made different judgments or utilized different estimates.The following table presents the Group’s revenues disaggregated by products and services: Year EndedDecember 31, 2018(in thousands) Year EndedDecember 31, 2017(in thousands) Sohu Sogou Changyou Total Sohu Sogou Changyou Total Brand advertising: Sohu Media Portal $127,348 0 0 127,348 $151,982 0 0 151,982 Sohu Video 53,756 0 0 53,756 79,743 0 0 79,743 Focus 31,144 0 0 31,144 57,245 0 0 57,245 17173.com Website 0 0 19,697 19,697 0 0 25,096 25,096 Search and search related advertising 0 1,022,456 0 1,022,456 0 801,199 0 801,199 Online games: PC games 0 0 236,743 236,743 0 0 239,149 239,149 Mobile games 0 0 151,737 151,737 0 0 208,355 208,355 Other games 0 0 1,308 1,308 0 0 2,029 2,029 Others: Cinema advertising business 0 0 70,202 70,202 0 0 91,419 91,419 Others 61,975 100,589 6,074 168,638 83,758 106,807 14,180 204,745 Total $274,223 1,123,045 485,761 1,883,029 $372,728 908,006 580,228 1,860,962 As noted above, in accordance with the modified retrospective method upon adoption of ASC 606, prior-period amounts were not adjusted.Online Advertising RevenuesOnline advertising revenues include revenues from brand advertising services as well as search and search-related advertising services. Certaincustomers may receive sales rebates, which are accounted for as variable consideration. The Group estimates annual the expected revenue volume fromeach agent with reference to its historical results. Sales rebates will reduce revenues recognized. The Group recognizes revenue for the amount of fees itreceives from its advertisers, after deducting sales rebates and net of value-added tax (“VAT”). The Group believes that there will not be significantchanges to its estimates of variable consideration.Brand Advertising RevenuesRevenue Recognition of Multiple Performance ObligationsThe Group’s contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates revenues to eachperformance obligation based on its relative standalone selling price. The Group generally determines the standalone selling price of each distinctperformance obligation based on the prices charged to customers when sold on a standalone basis. Where a standalone selling price is not directlyobservable, the Group generally estimates the selling price based on the prices at which performance obligations of a similar nature and geography arecharged to customers. Most of such contracts have all performance obligations completed within the same quarter. F-22Table of ContentsPricing ModelThrough PCs and mobile devices, the Group provides advertisement placements to its advertisers on different Internet platforms and in differentformats, which include banners, links, logos, buttons, full screen, pre-roll, mid-roll, post-roll video screens, pause video screens, loading page ads, newsfeed ads and in-feed video infomercial ads.Currently the Group has three main types of pricing models, consisting of the Fixed Price model, the Cost Per Impression (“CPM”) model and the CostPer click (“CPC”) model. (i)Fixed Price modelUnder the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. Given that the advertisers benefitfrom displayed advertisements evenly over the period the advertisements are displayed, the Group recognizes revenue on a straight-line basis over theperiod of display, provided all revenue recognition criteria have been met. (ii)CPM modelUnder the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the advertiser. A qualifying display is definedas the appearance of an advertisement, where the advertisement meets criteria specified in the contract. Given that the fees are priced consistentlythroughout the contract and the unit prices are fixed in accordance with the Group’s pricing practices for similar advertisers, the Group recognizesrevenue based on the fixed unit prices and the number of qualifying displays upon their occurrence, provided all revenue recognition criteria havebeen met. (iii)CPC modelUnder the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser and the unit price for each click isauction-based. The Group charges advertisers on a per-click basis, when the users click on the advertisements. Given that the fees are pricedconsistently throughout the contract and the unit prices are fixed in accordance with the Group’s pricing practices for similar advertisers, the Grouprecognizes revenue based on qualifying clicks and unit price upon the occurrence of the clicks, provided all revenue recognition criteria have beenmet.Search and Search-related Advertising RevenuesSearch and search-related services consist primarily of search and search-related advertising services offered by Sogou.Pay-for-click ServicesPay for click services enable advertisers’ promotional links to be displayed on Sogou search result pages and other Internet properties and third parties’Internet properties where the links are relevant to the subject and content of searches and such properties. For pay for click services, Sogou introducesInternet users to its advertisers through auction-based systems and charges advertisers on a per-click basis when the users click on the displayed links.The performance obligation of pay-for-click services is satisfied at the point in time when the user clicks on the displayed links, and revenue forpay-for-click services is recognized on a per-click basis.Other Online Advertising ServicesOther online advertising services mainly consist of displaying advertisers’ promotional links on Sogou’s Internet properties. For time-based advertisingservices, the Sogou’s performance obligation is satisfied over time when the advertising links are displayed over the contract periods, and revenue isnormally recognized on a straight-line basis over the contracted display period. For performance-based advertising services, for example, advertisersare charged based on the times that users download from the displayed links, Sogou’s performance obligation is satisfied at the point in time when thepromised performance is completed, and the revenue is recognized upon the completion of the promised performance.Sogou’s online advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’Internet properties, including Web content, software, and mobile applications. Sogou is the principal in such arrangement because its promise toadvertisers is to provide the advertising services itself rather than to arrange for the advertising services to be provided by third parties on their Internetproperties. Payments made to operators of third-party Internet properties are included in traffic acquisition costs. F-23Table of ContentsOnline Game RevenuesChangyou’s online game revenues are generated primarily from its self-operated and licensed-out PC games and mobile games. All of Changyou’sgames are operated under the item-based revenue model, where the basic game play functions are free of charge and players are charged for purchasesof in-game virtual items, including those with a predetermined expiration time and perpetual virtual items.Changyou is the principal of its self-operated games. Changyou hosts the games on its own servers and is responsible for the sale and marketing of thegames as well as customer service. Accordingly, revenues are recorded gross of revenue sharing-payments to third-party developers and/or mobile APPstores, but net of VAT and discounts to game card distributors where applicable. Changyou obtains revenues from the sale of in-game virtual items.Revenues are recognized as the virtual items are consumed or over the estimated lives of the virtual items, which are estimated by considering theaverage period that paying players typically play Changyou’s games and other player behavior patterns derived from operating data. If differentassumptions were used in deriving the estimated lives of the virtual items, the timing of the recording of the revenues could be impacted.PC GamesProceeds from Changyou’s self-operated PC games are collected from players and third-party game card distributors through sales of Changyou’s gamepoints on its online payment platform and prepaid game cards.Changyou’s self-operated PC games are either developed in house or licensed from third-party developers. For licensed PC games, Changyou remits apre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the balance. Such revenue-sharing amounts paid to third-party developers are recorded in Changyou’s cost of revenues.Mobile GamesSelf-operated Mobile GamesFor self-operated mobile games, Changyou sells game points to its game players via third-party mobile APP stores. The mobile APP stores in turn payChangyou proceeds after deducting their share of pre-agreed revenue-sharing amounts.Changyou’s self-operated mobile games are either developed in house or licensed from or jointly developed with third-party developers. For licensedand jointly-developed mobile games, Changyou remits a pre-agreed percentage of the proceeds to the third-party developers pursuant to revenue-sharing agreements, and keeps the balance. Such revenue-sharing amounts paid to mobile application stores and third-party developers are recorded inChangyou’s cost of revenues.Licensed Out Mobile GamesChangyou also authorizes third parties to operate its mobile games. Licensed out games mainly include mobile games developed in house, such asChangyou’s mobile game Legacy TLBB Mobile, and mobile games jointly developed with third-party developers. Changyou receives monthlyrevenue-based royalty payments from the third-party licensee operators. Changyou receives additional up-front license fees from certain third-partylicensee operators who are entitled to an exclusive right to operate Changyou’s games in specified geographic areas. Since Changyou is obligated toprovide post-sale services (“PCS”), the initial license fees are allocated between the license and PCS based on relative standalone selling prices. Theamount allocated to the license is recognized as revenue upon the commencement of the license period, given that Changyou’s intellectual propertyrights subject to the license are considered to be functional and the licensee has the right to use such intellectual property rights as they exist at thepoint when the license is granted, and the amount allocated to PCS is recognized as revenue ratably over the license period. Monthly revenue-basedroyalty payments are recognized when the relevant services are delivered, provided that collectability is reasonably assured. Changyou views the third-party licensee operators as Changyou’s customers and recognizes revenues on a net basis, as Changyou does not have the primary responsibility forfulfillment and acceptability of the game services. Changyou remits to the third-party developers a pre-agreed percentage of revenues and keeps thebalance pursuant to revenue-sharing agreements. Such revenue-sharing amounts paid to third-party developers are included in Changyou’s cost ofrevenues or product development expenses.Other RevenuesSohuOther revenues attributable to Sohu consist primarily of revenues from paid subscription services, interactive broadcasting services, and contentprovided through the platforms of the three main telecommunications operators in China. F-24Table of ContentsSogouOther revenues attributable to Sogou are IVAS revenues, which are mainly from the operation of Web games and mobile games developed by thirdparties and the provision of online reading services, and revenues from other products and services, including smart hardware.ChangyouOther revenues attributable to Changyou are primarily from its cinema advertising business and from IVAS.In its cinema advertising business, Changyou provides clients advertising placements in slots that are shown in theaters before the screening of movies.The rights to place advertisements in such advertising slots are granted to Changyou, which takes inventory risk under the contracts Changyou signswith different theaters. Changyou charges its advertising clients fees either on a per advertising-slot basis or a fixed amount for an agreed-upon numberof slots during a specified contract period. When delivery of the advertising service is confirmed by the customers by their signing a form, revenuesfrom cinema advertising are recognized based on a percentage of the advertising slots actually delivered or on a straight-line basis over the contractperiod. As Changyou is considered to be the principal in the arrangements with the theaters, the fees paid to the theaters are recognized as cost ofrevenues.Changyou provides IVAS primarily through software applications for PCs and mobile devices offered by RaidCall. Prior to March 2018, IVASrevenues also included revenues generated from the Dolphin Browser operated by MoboTap. Revenues from IVAS are recognized during the period theservices are rendered or items are consumed under the gross method, as Changyou is the principal obligor for provision of the services.Contract BalancesTiming of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenuerecognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment. The allowance fordoubtful accounts and authorized credits is estimated based upon the Group’s assessment of various factors, including historical experience, the age ofthe accounts receivable balances, current economic conditions and other factors that may affect the Group’s customers’ ability to pay. Contract assetsas of December 31, 2018 were not material. The allowance for doubtful accounts and authorized credits was $16.9 million and $5.7 million,respectively, as of December 31, 2018 and December 31, 2017.Receipts in advance and deferred revenue relate to unsatisfied performance obligations at the end of the period and primarily consist of fees receivedfrom game players in the online game business and from advertisers in the search and search-related advertising business. Due to the generally short-term duration of the contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenuerecognized that was included in the receipts in advance and deferred revenue balance at the beginning of the period was $111.7 million for the yearended December 31, 2018.There was no significant change in the contract assets and contract liability balances during 2018.Revenue recognized in 2018 from performance obligations related to prior years was not material.Practical ExpedientsThe Group has used the following practical expedients as allowed under ASC 606:(i) The transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied has not been disclosed, as substantially all ofthe Group’s contracts have a duration of one year or less.(ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one yearor less. In instances where the timing of revenue recognition differs from the timing of invoicing, the Group has determined that its contracts generallydo not include a significant financing component.(iii) The Group applied the portfolio approach in determining the commencement date of consumption and the estimated lives of virtual items for therecognition of games revenue, given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materiallyfrom considering each one of them individually.(iv) The Group generally expenses sales commissions when incurred because the amortization period would be one year or less. These costs arerecorded within sales and marketing expenses. F-25Table of ContentsCost of RevenuesCost of Online Advertising RevenuesCost of online advertising revenues includes cost of revenues from brand advertising services as well as cost of revenues from search and search-relatedservices.Cost of Brand Advertising RevenuesCost of brand advertising revenues mainly consists of content and license costs, salary and benefits expenses, and bandwidth leasing costs. For self-developed video content, production costs incurred in excess of the amount of revenue contracted for are expensed as incurred.Cost of Search and Search-related Advertising RevenuesCost of search and search-related advertising revenues mainly consists of traffic acquisition costs, bandwidth leasing costs, depreciation expenses,salary and benefits expenses, and share-based compensation expense. Traffic acquisition costs consist primarily of payments to third parties that directsearch queries of the users to Internet properties of Sogou or distribute Sogou advertisers’ promotional links through such third parties’ Internetproperties. The traffic acquisitions costs for such arrangements consist primarily of fees that Sogou pays to the third parties based on an agreed-uponunit price and revenue-sharing payments that Sogou makes to such third parties based on an agreed-upon percentage of revenues generated from users’clicks.Cost of Online Game RevenuesCost of online game revenues mainly consists of revenue-sharing payments, salary and benefits expenses, bandwidth leasing costs, content and licensecosts, tax surcharges, depreciation and amortization expenses, and other direct costs.Cost of Other RevenuesCost of other revenues mainly consists of payments to theaters for pre-film screening advertising slots, revenue-sharing payments related to the IVASbusiness, content and license costs related to paid subscription services, and revenue-sharing payments related to interactive broadcasting services.Product Development ExpensesProduct development expenses mainly consist of salary and benefits expenses, technical service fees, content and license costs, facilities expenses, anddepreciation and amortization expenses. These expenses are incurred for the enhancement and maintenance of the Sohu Group’s Internet platforms aswell as for its products and services. The development costs of online games are expensed as incurred, including the development costs of onlinegames prior to the establishment of technological feasibility and maintenance costs after the online games are available for marketing.Sales and Marketing ExpensesSales and marketing expenses mainly consist of advertising and promotional expenses, salary and benefits expenses, travelling and entertainmentexpenses, and facilities expenses. Advertising and promotional expenses generally represent the expenses of promotions to create or stimulate apositive image of the Sohu Group or a desire to subscribe for the Group’s products and services. Advertising and promotional expenses are expensed asincurred.General and Administrative ExpensesGeneral and administrative expenses mainly consist of salary and benefits expenses, professional fees, bad debts, travelling and entertainmentexpenses, depreciation and amortization expenses, and facilities expensesShare-based Compensation ExpenseSohu (excluding Sohu Video), Sogou, Changyou, and Sohu Video have incentive plans for the granting of share-based awards, including share optionsand restricted share units, to members of the boards of directors, management and other key employees. F-26Table of ContentsFor share-based awards for which a grant date has occurred, share-based compensation expense is recognized as costs and expenses in the consolidatedstatements of comprehensive income based on the fair value of the related share-based awards on their grant dates. For share-based awards for which theservice inception date precedes the grant date, share-based compensation expense is recognized as costs and expenses in the consolidated statements ofcomprehensive income beginning on the service inception date and is re-measured on each subsequent reporting date before the grant date, based onthe estimated fair value of the related share-based awards. Share-based compensation expense is charged to the shareholders’ equity or noncontrollinginterest section in the consolidated balance sheets. The assumptions used in share-based compensation expense recognition represent management’sbest estimates, but these estimates involve inherent uncertainties and the application of management judgment. If factors change or differentassumptions are used, the Group’s share-based compensation expense could be materially different for any period. Moreover, the estimates of fair valueare not intended to predict actual future events or the value that ultimately will be realized by employees who receive equity awards.Sohu (excluding Sohu Video), Sogou, and Changyou Share-based AwardsSohu (excluding Sohu Video) Share-based AwardsIn determining the fair values of share options granted by Sohu (excluding Sohu Video) as share-based awards, the public market price of theunderlying shares at each reporting date was used, and a binomial valuation model was applied. In determining the fair value of restricted share unitsgranted, the public market price of the underlying shares on the grant dates was applied.Upon the dissolution of Sohu.com Inc. on May 31, 2018, Sohu.com Limited assumed all then existing obligations of Sohu.com Inc. with respect toequity incentive awards that had been granted under Sohu.com Inc.’s Amended and Restated 2010 Stock Incentive Plan (the “Sohu 2010 StockIncentive Plan”) and remained outstanding, and such awards were converted into the right to receive upon exercise or settlement Sohu.com Limited’sordinary shares under the Sohu.com Limited 2018 Share Incentive Plan (the “Sohu 2018 Share Incentive Plan”) rather than shares of the common stockof Sohu.com Inc., subject to the other terms of such outstanding awards. Options for the purchase of Sohu.com Limited’s ordinary shares, includingoptions converted from those contractually granted under the Sohu 2010 Stock Incentive Plan, are subject to vesting in four equal installments over aperiod of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets.Under ASC 718-10-25, no grant date can be established until a mutual understanding is reached between Sohu and the recipients clarifying thesubjective performance requirements. In accordance with ASC 718-10-55, as the service inception date preceded the grant date, compensation expensewas accrued beginning on the service inception date and will be re-measured on each subsequent reporting date before the grant date is established,based on the then-current fair value of the awards. The estimate of the awards’ fair values will be fixed in the period in which the grant date occurs, andcumulative compensation expense will be adjusted based on the fair value at the grant date.Sogou Share-based AwardsIn determining the fair value of share options granted by Sogou as share-based awards, a binomial valuation model was applied. The determination ofthe fair value is affected by the fair value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables,including risk-free interest rates, exercise multiples, expected forfeiture rates, expected share price volatility rates, and expected dividends. Before thecompletion of Sogou’s IPO, the fair values of the ordinary shares were assessed using the income approach/discounted cash flow method or based onthe mid-point of the estimated IPO price range, in each case with a discount for lack of marketability, given that the shares underlying the awards werenot publicly traded at the time of grant. After the completion of Sogou’s IPO, the fair values of the ordinary shares were determined based on thetrading price of Sogou’ ADSs in the public market. Certain persons who became Sogou employees when Tencent’s Soso search-related businesses weretransferred to Sogou in 2013 had been granted restricted share units under Tencent’s share award arrangements prior to the transfer of the businesses toSogou. These Tencent restricted share units will continue to vest under the original Tencent share award arrangements provided the transferredemployees continue to be employed by Sogou during the requisite service period. After the transfer of the Soso search-related businesses to Sogou,Sogou applied the guidance in ASC 505-50 to measure the related compensation expense based on the then-current fair value at each reporting date, asthe expense is deemed to have been incurred by Tencent as an investor on Sogou’s behalf. To determine the then-current fair value of the Tencentrestricted share units granted to these employees, the public market price of the underlying shares at each reporting date was applied. Because Sogou isnot required to reimburse Tencent for such share-based compensation expense, the related amount was recorded by Sogou as a capital contributionfrom Tencent.Changyou Share-based AwardsIn determining the fair value of ordinary shares and restricted share units granted by Changyou as share-based awards in 2008, the income approach/discounted cash flow method with a discount for lack of marketability was applied, given that the shares underlying the awards were not publiclytraded at the time of grant. Changyou’s 2008 Share Incentive Plan expired in August 2018 and is no longer available for granting new share-basedawards. In determining the fair value of restricted share units granted after Changyou’s IPO, the public market price of the underlying shares on thegrant dates was applied. F-27Table of ContentsOptions for the purchase of Changyou Class A ordinary shares contractually granted under the Changyou 2014 Share Incentive Plan are subject tovesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement andcertain subjective performance targets. Under ASC 718-10-25, no grant date can be established until a mutual understanding is reached betweenChangyou and the recipients clarifying the subjective performance requirements. In accordance with ASC 718-10-55, as the service inception datepreceded the grant date, compensation expense was accrued beginning on the service inception date and will be re-measured on each subsequentreporting date before the grant date is established, based on the then-current fair value of the awards. The estimates of the awards’ fair values will befixed in the period in which the grant date occurs, and cumulative compensation expense will be adjusted based on the fair values at the grant date. Indetermining the fair values of Changyou share options granted, the public market price of the underlying shares at each reporting date was used, and abinomial valuation model was applied.Compensation Expense RecognitionFor options and restricted share units granted with respect to Sohu (excluding Sohu Video) shares and Changyou shares, compensation expense isrecognized on an accelerated basis upon the requisite service period and certain subjective performance targets being met. For share options grantedwith respect to Sogou shares, compensation expense is recognized over the estimated period during which the service period requirement andperformance target will be met, which is usually within one year, or, after the performance target of Sogou’s completion of an IPO was met upon thecompletion of Sogou’s IPO on November 13, 2017, on an accelerated basis over the requisite service period, or, for options with only service periodrequirement, on an accelerated basis over the requisite service period. For Tencent restricted share units that Tencent had granted to employees whotransferred to Sogou with the Soso search and search-related businesses, compensation expense is recognized by Sogou on an accelerated basis over therequisite service period, and the fair value of the share-based compensation is re-measured at each reporting date until the service has been provided.The number of share-based awards for which the service is not expected to be rendered over the requisite period is estimated, and no compensationexpense is recorded for the number of awards so estimated.Sohu Video Share-based AwardsOn January 4, 2012, Sohu Video, the holding entity of Sohu’s video division, adopted a 2011 Share Incentive Plan (the “Video 2011 Share IncentivePlan”) which provides for the issuance of up to 25,000,000 ordinary shares of Sohu Video (representing approximately 10% of the outstanding SohuVideo shares on a fully-diluted basis) to management and key employees of the video division and to Sohu management. As of December 31, 2018,grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made, of which options for the purchase of4,972,800 ordinary shares were vested.For purposes of ASC 718-10-25, as of December 31, 2018, no grant date had occurred, because the broader terms and conditions of the option awardshad neither been finalized nor mutually agreed upon with the recipients. Therefore the fair value of the awards was not determinable and could not beaccounted for. In accordance with ASC 718-10-55, the Group’s management determined that the service inception date with respect to vested optionawards for the purchase of 4,972,800 shares had preceded the grant date. Therefore, the Group recognized compensation expense for these vested SohuVideo share-based awards and re-measured, and will re-measure, the compensation expense on each subsequent reporting date based on the then-current fair values of these vested awards until the grant date is established.TaxationPRC Corporate Income TaxesIncome taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for thecurrent year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Group’s financialstatements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets andliabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation allowance, if based onavailable evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In makingsuch determination, the Group considers factors including future reversals of existing taxable temporary differences, future profitability, and taxplanning strategies. If events were to occur in the future that would allow the Group to realize more of its deferred tax assets than the presently recordednet amount, an adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred. If eventswere to occur in the future that would require the Group to realize less of its deferred tax assets than the presently recorded net amount, an adjustmentwould be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred.Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. F-28Table of ContentsThe Group’s deferred tax assets are related to net operating losses and temporary differences between accounting basis and tax basis for its China-BasedSubsidiaries and VIEs, which are subject to corporate income tax in the PRC under the PRC Corporate Income Tax Law (the “CIT Law”).PRC Withholding Tax on DividendsThe CIT Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises in the PRC to their immediate holdingcompanies outside Mainland China. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdictionof the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangementbetween the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion withRespect to Taxes on Income,” if such holding company is considered a non-PRC resident enterprise and holds at least 25% of the equity interests in thePRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holdingcompany is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to awithholding tax rate of 10%.PRC Value Added TaxOn May 1, 2016, the transition from the imposition of PRC business tax to the imposition of VAT was expanded to all industries in China, and all ofthe Sohu Group’s revenues have been subject to VAT since that date. To record VAT payable, the Group adopted the net presentation method, whichpresents the difference between the output VAT (at rates of 6% or 17% for the years ended December 31, 2016 and 2017 and for the period fromJanuary 1, 2018 to April 30, 2018, and at rates of 6% or 16% after May 1, 2018) and the available input VAT amount (at the rate applicable to thesupplier).U.S. Corporate Income TaxSohu.com Inc., which was formerly the top-tier publicly-traded parent company of the Sohu Group, was dissolved and liquidated on May 31, 2018.Sohu.com Inc. was a Delaware corporation that was subject to U.S. corporate income tax on its taxable income at a rate of 21% for taxable yearsbeginning after December 31, 2017 and of up to 35% for prior tax years. U.S. federal tax legislation signed into law on December 22, 2017, commonlyreferred to as the Tax Cuts and Jobs Act (the “U.S. TCJA”), significantly modified the U.S. Internal Revenue Code by, among other things, reducing themaximum statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/oreliminating many business deductions; migrating the U.S. to a partial territorial tax system with a one-time transition tax (the “Toll Charge”) on amandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generallyeliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings.Certain activities conducted in the PRC resulted in U.S. corporate income taxes being imposed on Sohu.com Inc. when its subsidiaries that werecontrolled foreign corporations (“CFCs”) generated income that was subject to Subpart F of the U.S. Internal Revenue Code (“Subpart F”). Generally,passive income, such as rents, royalties, interest, dividends, and gains from disposal of the company’s investments, is among the types of incomesubject to taxation under Subpart F. Any income taxable under Subpart F was taxable in the U.S. at a federal corporate income tax rate of 21%. SubpartF income also included certain income from intra-Group transactions between Sohu.com Inc.’s non-U.S. subsidiaries and VIEs and Changyou’snon-U.S. subsidiaries and VIEs or Sogou’s non-U.S. subsidiaries and VIEs, or where Sohu.com Inc.’s non-U.S. subsidiaries or VIEs made an “investmentin U.S. property,” such as holding the stock in, or making a loan to, a U.S. corporation. Under a provision of the U.S. tax code commonly referred to asthe CFC look-through rule, Sohu.com Inc. did not have to treat dividends received by its CFC subsidiaries as Subpart F income includible in Sohu.comInc.’s taxable income in the U.S.To the extent that portions of Sohu.com Inc.’s U.S. taxable income, such as Subpart F income or global intangible low-taxed income (“GILTI”), hadbeen determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. could claim foreign tax credits to offset its U.S.income tax liabilities. Following the enactment of the U.S. TCJA, if dividends that Sohu.com Inc. received from its subsidiaries after January 1, 2018were determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. would generally not have been required to pay U.S.corporate income tax on those dividends. Liabilities for U.S. corporate income tax were accrued in the Company’s consolidated statements ofcomprehensive income and estimated tax payments were made when required by U.S. law. F-29Table of ContentsTreatment of Toll Charge Related to the U.S. TCJABeginning in the fourth quarter of 2017, the Sohu Group had recognized a provisional amount of income tax expense for the Toll Charge of$219 million, which represented management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based onthe deemed repatriation to the United States of its share of previously deferred earnings of certain of its non-U.S. subsidiaries, offset by a reduction of$4 million in liability for deferred U.S. income tax, as a result of the U.S. TCJA. The Sohu Group included the provisional amount of the Toll Charge of$219 million in its interim financial statements through the quarter ended September 30, 2018, in reliance on Staff Accounting Bulletin No. 118(“SAB 118”).For the fourth quarter of 2018, the Sohu Group’s management re-evaluated the impact on the Sohu Group of the Toll Charge under the U.S. TCJA.Management determined that it was more likely than not, based on the technical merits, that the tax position that the Sohu Group had no Toll Chargeliability would be sustained. The Group recognized a tax benefit in the amount of $77 million, which was the largest amount that managementdetermined to be greater than 50% likely to be realized upon settlement with the U.S. IRS. As a result, as of December 31, 2018 the Sohu Group had anunrecognized tax benefit in the amount of $142 million, which represented the difference between the tax benefit recognized in the fourth quarter of2018 and management’s previous estimate of the Toll Charge. In addition, the Sohu Group accrued $2 million in interest on the unrecognized taxbenefit.The tax benefit recognized and the unrecognized tax benefit in relation to the Toll Charge may be subject to further adjustment in subsequent periodsbased on facts and circumstances that arose after December 31, 2018, such as final IRS Toll Charge regulations published in February 2019, and anyfuture circumstances such as any guidance issued by the U.S. Department of the Treasury, any U.S. IRS challenge of the Group’s position on the TollCharge, and management’s further judgment and estimates.Uncertain Tax PositionsThe Sohu Group is subject to various taxes in different jurisdictions, primarily the U.S. and the PRC. Management reviews regularly the adequacy ofthe provisions for taxes as they relate to the Group’s income and transactions. In order to assess uncertain tax positions, the Group applies a more likelythan not threshold and a two-step approach for tax position measurement and financial statement recognition. For the two-step approach, the first stepis to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that theposition will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as thelargest amount that is more than 50% likely to be realized upon settlement.Net Income /(Loss) per ShareBasic net income /(loss) per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted netincome /(loss) per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstandingduring the period. Potential ordinary shares comprise shares issuable upon the exercise or settlement of share-based awards using the treasury stockmethod. The dilutive effect of share-based awards with performance requirements is not considered before the performance targets are actually met. Thecomputation of diluted net income /(loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net income /(loss) per share.Additionally, for purposes of calculating the numerator of diluted net income /(loss) per share, the net income /(loss) attributable to the Sohu Group iscalculated as follows:Sogou’s net income /(loss) attributable to SohuBefore Sogou’s IPOBefore Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu was determined using the percentage that the weighted average number of Sogoushares held by Sohu represented of the weighted average number of the Sogou Pre-IPO Preferred Shares and Pre-IPO Ordinary Shares, shares issuableupon the conversion of convertible preferred shares under the if-converted method, and shares issuable upon the exercise or settlement of share-basedawards under the treasury stock method, and was not determined by allocating Sogou’s net income /(loss) to Sohu using the methodology for thecalculation of net income /(loss) attributable to the Sogou noncontrolling shareholders.After Sogou’s IPOAfter Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Sogoushares held by Sohu represents of the weighted average number of Sogou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Sogou, which is used forthe calculation of basic net income per share. F-30Table of ContentsIn the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, the percentage of Sohu’s shareholding in Sogou wascalculated by treating convertible preferred shares issued by Sogou as having been converted at the beginning of the period and unvested Sogou shareoptions with the performance targets achieved as well as vested but unexercised Sogou share options as having been exercised during the period. Thedilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. Assuming ananti-dilutive effect, all of these Sogou shares and share options are excluded from the calculation of Sohu’s diluted income /(loss) per share. As a result,Sogou’s net income /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) pershare.Changyou’s net income /(loss) attributable to SohuChangyou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Changyou shares held bySohu represents of the weighted average number of Changyou ordinary shares and shares issuable upon the exercise or settlement of share-basedawards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Changyou, which is used forthe calculation of basic net income per share.In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, all of Changyou’s existing unvested restricted share unitsand share options, and vested restricted share units and share options that have not yet been settled, are treated as vested and settled by Changyouunder the treasury stock method, causing the percentage of the weighted average number of shares held by Sohu in Changyou to decrease. As a result,Changyou’s net income /(loss) attributable to Sohu on a diluted basis decreased accordingly. Assuming an anti-dilutive effect, all of these Changyourestricted share units and share options are excluded from the calculation of Sohu’s diluted net income /(loss) per share. As a result, Changyou’s netincome /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.Fair Value of Financial InstrumentsU.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financialinstruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs whenmeasuring fair value. The three-tier fair value hierarchy is:Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.Level 2 - include other inputs that are directly or indirectly observable in the market place.Level 3 - unobservable inputs which are supported by little or no market activity.The Sohu Group’s financial instruments consist primarily of cash equivalents, short-term investments, accounts receivable, financing receivables,prepaid and other current assets, long-term investments, restricted time deposits, accounts payable, accrued liabilities, receipts in advance and deferredrevenue, short-term bank loans, other short-term liabilities, long-term bank loans and long-term accounts payable.Cash EquivalentsThe Sohu Group’s cash equivalents mainly consist of time deposits with original maturities of three months or less, and highly liquid investments thatare readily convertible to known amounts of cash.Short-term InvestmentsFor investments in financial instruments with a variable interest rate indexed to the performance of underlying assets, the Sohu Group elected the fairvalue method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in theconsolidated statements of comprehensive income.Accounts Receivable, NetThe carrying value of accounts receivable is reduced by an allowance that reflects the Sohu Group’s best estimate of the amounts that will not becollected. The Group makes estimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance,including reviewing delinquent accounts receivable, performing an aging analysis and a customer credit analysis, and analyzing historical bad debtrecords and current economic trends. F-31Table of ContentsFinancing Receivables, NetFinancing receivables consist primarily of small consumer loans to individual borrowers. Such amounts are recorded at the principal amount andinterest accrued, net of allowance for credit losses that reflects Sogou’s best estimate of the amounts that will not be collected. Interest on loans isaccrued based on the contractual interest rates of the loans when earned. The loan periods granted by Sogou to the borrowers related to the smallconsumer loans are generally within one year. The allowance for credit losses is determined at a level believed to be reasonable to absorb probablelosses inherent in the loan portfolio as of each balance sheet date. The allowance is provided based on an assessment performed on a portfolio basis andis estimated on a quarterly basis or more often as necessary based on the delinquency rate, the aging of the amount due and other relevant factors.Foreign Exchange Forward ContractsForeign exchange forward contracts are initially recognized on the date a foreign exchange forward contract is entered into and are subsequentlymeasured at fair value.Restricted Time DepositsRestricted time deposits are valued based on the prevailing interest rates in the market using the discounted cash flow method.Equity InvestmentsInvestments in entities are recorded as equity investments under long-term investments. For entities over which the Group can exercise significantinfluence but does not own a majority equity interest or control, the equity method is applied, and the Group adjusts the carrying amount of aninvestment and recognizes investment income or loss for the Group’s share of the earnings or loss of the investee after the date of investment. For thoseequity investments accounted for other than under the equity method or those that result in consolidation, the fair value method is applied. However,for equity investments that do not have readily determinable fair values, the Group chooses to account for them at cost minus impairment, if any, plusor minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. If thismeasurement alternative is elected, changes in the carrying value of the equity investments will be required to be made whenever there are observableprice changes in transactions for identical or similar investments of the same issuer. The implementation guidance notes that an entity should make a“reasonable effort” to identify price changes that are known or that can reasonably be known.Long-Lived AssetsLong-lived assets include fixed assets and intangible assets.Fixed AssetsFixed assets mainly comprise office buildings, leasehold improvements, building improvements, vehicles, office furniture and computer equipment,and hardware. Fixed assets are recorded at cost less accumulated depreciation with no residual value. Depreciation is computed using the straight-linemethod over the estimated useful lives of the assets. Fixed Assets Estimated Useful Lives (years)Office buildings 36-47Leasehold improvements Lesser of term of the lease or the estimated useful lives of the assetsVehicles 4-10Office furniture 5Computer equipment and hardware 2-5Expenditure for maintenance and repairs is expensed as incurred.The gain or loss on the disposal of fixed assets is the difference between the net sale proceeds and the carrying amounts of the relevant assets and isrecognized in operating expenses in the consolidated statements of comprehensive income. F-32Table of ContentsIntangible AssetsIntangible assets mainly comprise purchased video content, operating rights for licensed games, domain names and trademarks, computer software, anddeveloped technologies. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assetsother than purchased video content is computed using the straight-line method over their estimated useful lives. Amortization of purchased videocontent is computed based on the trend in viewership accumulation over the shorter of the applicable license period or two years.The estimated useful lives of the Group’s intangible assets are listed below: Intangible Assets Estimated Useful Lives (years)Purchased video content 1 month to 2 yearsComputer software 1-5Developed technologies 3-10Domain names and trademarks 4-30Operating rights for licensed games over the contract termsSohu Video enters into nonmonetary transactions to exchange online broadcasting rights for purchased video content with other online videobroadcasting companies. Under ASC 845, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of theasset surrendered to obtain the acquired nonmonetary asset, and a gain or loss should be recognized on the exchange. The fair value of the assetreceived should be used to measure the cost if the fair value of the asset received is more reliable than the fair value of the asset surrendered. The SohuGroup records these nonmonetary exchanges at the fair values of the online broadcasting rights for purchased video content and recognize any net gainor loss from such exchange transactions.Impairment of Long-lived Assets other than Purchased Video ContentIn accordance with ASC 360-10-35, the Sohu Group reviews the carrying values of long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying value of an asset may not be recoverable. The evaluation is performed at the lowest level of identifiable cashflows independent of other assets. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cashflows the assets are expected to generate. If such review indicates that the carrying amount of the long-lived assets is not recoverable, the carryingamount of such assets is reduced to fair value. The estimation of future cash flows requires significant management judgment based on the Group’shistorical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Group’sbusiness model is determined by its management.Impairment of Purchased Video ContentPurchased video content is stated at the lower of cost less accumulated amortization, or net realizable value (“NRV”).In accordance with ASC 920-350-35, if management’s expectations of the programming usefulness of a program, series, package, or program segmentare revised downward, it may be necessary to write down unamortized cost to estimated NRV. A write-down from unamortized cost to a lower estimatedNRV establishes a new cost basis. Accordingly, the Group measures the video content’s impairment loss by comparing the content’s carrying value toits NRV. An impairment loss will be recorded if the carrying value of video content is higher than its NRV. The impairment to be recognized ismeasured by the amount by which the carrying value of video content exceeds its NRV.GoodwillGoodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Sohu Group’sacquisitions of interests in its subsidiaries and consolidated VIEs. If the initial accounting for a business combination is incomplete by the end of thereporting period in which the combination occurs, the Group reports in its financial statements provisional amounts for the items for which theaccounting is incomplete. If a measurement period adjustment is identified, the Group recognizes the adjustment as part of the acquisition accounting.The Sohu Group increases or decreases the provisional amounts of identifiable assets or liabilities by means of increases or decreases in goodwill formeasurement period adjustments.In accordance with ASC 350, the Group does not amortize goodwill, but tests it for impairment. The Group tests goodwill for impairment at thereporting unit level on an annual basis as of October 1, and between annual tests when an event occurs or circumstances change that could indicate thatthe asset might be impaired. Under ASC 350-20-35, the Group has the option to choose whether it will apply a qualitative assessment first and then aquantitative assessment, if necessary, or to apply a quantitative assessment directly. For reporting units applying a qualitative assessment first, theGroup starts the goodwill impairment test by assessing qualitative factors to determine whether it is more likely than not that the fair value of areporting unit is less than its carrying amount. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, thequantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of thefair value of the reporting unit with its carrying value. For reporting units directly applying the quantitative assessment, the Group performs thetwo-step goodwill impairment test by first quantitatively comparing the fair values of those reporting units to their carrying amounts, includinggoodwill. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair value, the Group performs the secondstep of the quantitative goodwill impairment test by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of thatgoodwill, and if the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognizedin an amount equal to that excess. F-33Table of ContentsApplication of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assetsand liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The Group estimates fairvalue using the income approach and the market approach. The judgment in estimating the fair value of reporting units includes estimating future cashflows, determining appropriate discount rates, control premium, comparable companies’ multipliers, and making other assumptions. Changes in theseestimates and assumptions could materially affect the determination of fair value for each reporting unit.Comprehensive IncomeComprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstancesexcluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented onthe Sohu Group’s consolidated balance sheets, includes a cumulative foreign currency translation adjustment, and change in unrealized gains /(losses)on equity securities classified as available-for-sale before the adoption of ASU 2016-01.Functional Currency and Foreign Currency TranslationAn entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of theenvironment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency byassessing various indicators, such as cash flows, sales price and market, expenses, financing and intra-Group transactions and arrangements. Thefunctional currency of Sohu.com Limited, and its predecessor Sohu.com Inc., is the U.S. dollar. The functional currency of the Sohu Group’ssubsidiaries in the U.S., the Cayman Islands, the British Virgin Islands and Hong Kong is the U.S. dollar. The functional currencies of the Sohu Group’ssubsidiaries and VIEs in other countries are the national currencies of those counties, rather than the U.S. dollar.Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using theexchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet dateare re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are includedin the consolidated statements of comprehensive income.Financial statements of entities with a functional currency other than the U.S. dollar are translated into U.S. dollars, which is the reporting currency.Assets and liabilities are translated at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at theaverage of the exchange rates in effect during the reporting period. Shareholders’ equity accounts are translated using the historical exchange rates atthe date the entry to shareholders’ equity was recorded, except for the change in retained earnings during the year, which is translated using thehistorical exchange rates used to translate each period’s income statement. Differences resulting from translating a foreign currency to the reportingcurrency are recorded in accumulated other comprehensive income in the consolidated balance sheets.Impact of Recently Issued Accounting PronouncementsRevenue from Contracts with Customers. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, ‘‘Revenue fromContracts with Customers (Topic 606).’’ This guidance supersedes current guidance on revenue recognition in Topic 605, ‘‘Revenue Recognition.’’ Inaddition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. On January 1, 2018, the SohuGroup adopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018. The adoption did nothave a material impact on retained earnings as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presentedunder ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Group’s historic accounting underASC 605. Additional disclosures have been made. Please see the Notes to Consolidated Financial Statements for details. F-34Table of ContentsFinancial Instruments (Subtopic 825-10). In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments- Recognition and Measurementof Financial Assets and Financial Liabilities. This new guidance amends certain aspects of recognition, measurement, presentation and disclosure offinancial instruments. The main provisions require equity investments (except those accounted for under the equity method of accounting or those thatresult in consolidation of the investee) to be measured at fair value through earnings, unless they qualify for a measurement alternative. The newguidance will require a modified retrospective application to all outstanding instruments beginning January 1, 2018, with a cumulative effectadjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. However, changes tothe accounting for equity securities without a readily determinable fair value will be applied prospectively. Additional disclosures have been made.Please see the Notes to Consolidated Financial Statements for details.Statements of Cash Flows (Topic 230): Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18, Statements of Cash Flows (Topic 230):Restricted Cash. This guidance requires that a statement of cash flows explain the changes during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cashequivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown onthe statements of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.The standard should be applied to each period presented using a retrospective transition method. The adoption of this standard resulted in restrictedcash and restricted time deposits being included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period totalamounts shown on the statements of cash flows. Please See Note 10.Other accounting standards adopted beginning January 1, 2018 do not have a significant impact on the Sohu Group’s consolidated financialstatements.Impact of Recently Issued Accounting Pronouncements not Yet AdoptedLeases. On February 25, 2016, the FASB issued ASU No. 2016-02, Leases, which requires an entity to recognize both assets and liabilities arising fromfinance and operating leases, along with additional qualitative and quantitative disclosures. ASU No. 2016-02 requires a lessee to recognize a liabilityin its balance sheet to make lease payments (a “lease liability”) and a right-of-use asset representing its right to use the underlying asset for the leaseterm. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest comparative period presented, or atthe beginning of the period of adoption. ASU 2016-02 is required to be adopted at the beginning of the first quarter of fiscal year 2019. The SohuGroup expects to record a right-of-use asset of approximately $26.7 million and a lease liability of approximately $24.2 million on ASU 2016-02’sadoption date of January 1, 2019, primarily related to the Sohu Group’s leased office space. The Sohu Group will use a modified retrospective approachand will not restate prior periods. The Sohu Group expects to implement new accounting policies as well as to elect certain practical expedientsavailable to it under ASU 2016-02, including those related to capitalization thresholds and leases with terms of less than 12 months. The Sohu Group’simplementation of the amended lease guidance is subject to the same internal controls over financial reporting that it applies to its consolidatedfinancial statements.Financial Instruments-Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), whichrequires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions,and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses onfinancial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2018. The Sohu Group does not expect to adopt ASU 2016-13 early and is currently evaluating the impact that the standard will have onits consolidated financial statements and related disclosures.Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.”The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment willnow be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidanceshould be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption ispermitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Sohu Group does not expect to adoptASU 2017-04 early and is currently evaluating the impact of adopting this standard on its consolidated financial statements. 3.SEGMENT INFORMATIONThe Sohu Group’s segments are business units that offer different services and are reviewed separately by the CODM, or the decision making group, indeciding how to allocate resources and in assessing performance. The Group’s CODM is the Company’s Chief Executive Officer. There are threesegments in the Group, consisting of the Sohu segment, the Sogou segment, and the Changyou segment. F-35Table of ContentsThe following tables present summary information by segment (in thousands): Year Ended December 31, 2016 Sohu Sogou Changyou Eliminations Consolidated Revenues (1) $468,515 $660,408 $525,385 $(3,877) $1,650,431 Segment cost of revenues (391,417) (302,565) (165,779) 327 (859,434) Segment gross profit 77,098 357,843 359,606 (3,550) 790,997 SBC (2) in cost of revenues (164) (171) (31) 0 (366) Gross profit 76,934 357,672 359,575 (3,550) 790,631 Operating expenses: Product development (3) (96,815) (132,749) (118,738) 4,342 (343,960) Sales and marketing (1) (3) (259,800) (121,303) (55,971) 4,688 (432,386) General and administrative (3) (47,804) (19,308) (45,642) 89 (112,665) SBC (2) in operating expenses (1,703) (8,680) (8,371) 0 (18,754) Total operating expenses (406,122) (282,040) (228,722) 9,119 (907,765) Operating profit /(loss) (329,188) 75,632 130,853 5,569 (117,134) Other income /(expense) (3) 5,360 (26,027) 15,523 (5,569) (10,713) Interest income (4) 8,879 5,198 21,490 (13,068) 22,499 Interest expense (4) (10,103) 0 (4,321) 13,068 (1,356) Exchange difference 2,349 5,346 5,108 0 12,803 Income /(loss) before income tax benefit /(expense) (322,703) 60,149 168,653 0 (93,901) Income tax benefit /(expense) 538 (27) (21,583) 0 (21,072) Net income /(loss) $(322,165) $60,122 $147,070 $0 $(114,973) Note (1): The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou and Changyousegments. Note (2): “SBC” stands for share-based compensation expense. Note (3): The elimination mainly consists of leasing income and expenses generated from a building that Sohu leases to Sogou. Note (4): The elimination represents interest income/ (expense) resulting from intra-Group loans between the Sohu segment and the Changyousegment. Year Ended December 31, 2017 Sohu Sogou Changyou Eliminations Consolidated Revenues (1) $374,696 $908,357 $580,261 $(2,352) $1,860,962 Segment cost of revenues (414,526) (456,861) (163,713) 132 (1,034,968) Segment gross profit (39,830) 451,496 416,548 (2,220) 825,994 SBC (2) in cost of revenues 415 (540) (73) 0 (198) Gross profit (39,415) 450,956 416,475 (2,220) 825,796 Operating expenses: Product development (3) (113,590) (156,359) (124,869) 6,192 (388,626) Sales and marketing (1) (3) (199,304) (152,121) (59,705) 4,000 (407,130) General and administrative (3) (44,563) (25,407) (37,218) 130 (107,058) F-36Table of ContentsGoodwill impairment and impairment of intangible assets acquired aspart of business acquisitions 0 0 (86,882) 0 (86,882) SBC (2) in operating expenses (765) (27,193) (17,320) 0 (45,278) Total operating expenses (358,222) (361,080) (325,994) 10,322 (1,034,974) Operating profit /(loss) (397,637) 89,876 90,481 8,102 (209,178) Other income /(expense) (3) 4,694 692 9,374 (8,102) 6,658 Interest income (4) 7,344 9,126 32,319 (24,651) 24,138 Interest expense (4) (24,367) 0 (4,372) 24,651 (4,088) Exchange difference (2,107) (7,082) (5,196) 0 (14,385) Income /(loss) before income tax expense (412,073) 92,612 122,606 0 (196,855) Income tax expense (217,959) (14,422) (40,767) 0 (273,148) Net income /(loss) $(630,032) $78,190 $81,839 $0 $(470,003) Note (1): The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou, and Changyousegments. Note (2): “SBC” stands for share-based compensation expense. Note (3): The elimination mainly consists of leasing income and expenses generated from a building that Sohu leases to Sogou. Note (4): The elimination represents interest income/ (expense) resulting from intra-Group loans between the Sohu segment and the Changyousegment. Year Ended December 31, 2018 Sohu Sogou Changyou Eliminations Consolidated Revenues (1) $274,670 $1,124,158 $485,763 $(1,562) $1,883,029 Segment cost of revenues (218,184) (692,801) (160,859) 54 (1,071,790) Segment gross profit 56,486 431,357 324,904 (1,508) 811,239 SBC (2) in cost of revenues 707 (669) 31 0 69 Gross profit 57,193 430,688 324,935 (1,508) 811,308 Operating expenses: Product development (3) (123,743) (191,426) (126,593) 6,733 (435,029) Sales and marketing (1) (3) (203,307) (144,867) (54,800) 2,800 (400,174) General and administrative (3) (48,664) (36,177) (33,622) 367 (118,096) Goodwill impairment and impairment of intangible assets acquired aspart of business acquisitions 0 0 (16,369) 0 (16,369) SBC (2) in operating expenses 4,940 (13,535) 6,430 0 (2,165) Total operating expenses (370,774) (386,005) (224,954) 9,900 (971,833) Operating profit /(loss) (313,581) 44,683 99,981 8,392 (160,525) Other income /(expense) (3) 345,416 41,489 22,879 (345,617) 64,167 Interest income (4) 14,001 8,037 34,409 (32,368) 24,079 Interest expense (4) (39,709) 0 (10,197) 32,368 (17,538) Exchange difference 1,981 5,725 1,320 0 9,026 Income /(loss) before income tax expense 8,108 99,934 148,392 (337,225) (80,791) Income tax benefit /(expense) 79,052 (1,153) (64,467) 0 13,432 Net income /(loss) $87,160 $98,781 $83,925 $(337,225) $(67,359) F-37Table of ContentsNote (1): The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou, and Changyousegments. Note (2): “SBC” stands for share-based compensation expense. Note (3): The elimination mainly consists of the distribution by Changyou of a dividend to Sohu in 2018 and leasing income and expenses generatedfrom a building that Sohu leases to Sogou. Note (4): The elimination represents interest income /(expense) resulting from intra-Group loans between the Sohu segment and the Changyousegment. As of December 31, 2017 Sohu Sogou Changyou Eliminations Consolidated Cash and cash equivalents $98,750 $694,207 $571,139 $0 $1,364,096 Accounts receivable, net 86,801 72,117 91,636 (86) 250,468 Fixed assets, net 200,561 139,209 189,947 0 529,717 Total assets (1) $1,124,759 $1,321,036 $1,922,023 $(978,579) $3,389,239 Note (1): The elimination for segment assets mainly consists of elimination of intra-Group loans between Sohu and Changyou, and elimination oflong-term investments in subsidiaries and consolidated VIEs. As of December 31, 2018 Sohu Sogou Changyou Eliminations Consolidated Cash and cash equivalents $180,004 $185,175 $454,534 $0 $819,713 Account and financing receivables, net 78,383 145,401 57,389 0 281,173 Fixed assets, net 186,758 147,495 170,745 0 504,998 Total assets (1) $1,319,490 $1,462,844 $1,965,484 $(1,449,309) $3,298,509 Note (1): The elimination for segment assets mainly consists of elimination of intra-Group loans between Sohu and Changyou, and elimination oflong-term investments in subsidiaries and consolidated VIEs. 4.SHARE-BASED COMPENSATION EXPENSESohu (excluding Sohu Video), Sogou, Changyou, and Sohu Video have incentive plans for the granting of share-based awards, including share optionsand restricted share units, to members of the boards of directors, management and other key employees.Share-based compensation expense was recognized in costs and expenses for the years ended December 31, 2016, 2017 and 2018 as follows (inthousands): Year Ended December 31, Share-based compensation expense 2016 2017 2018 Cost of revenues $366 $198 $(69) Product development expenses 9,184 23,547 6,131 Sales and marketing expenses 2,394 5,915 405 General and administrative expenses 7,176 15,817 (4,372) $19,120 $45,477 $2,095 F-38Table of ContentsShare-based compensation expense was recognized for share awards of Sohu (excluding Sohu Video), Sogou, Changyou and Sohu Video as follows (inthousands): Year Ended December 31, Share-based compensation expense 2016 2017 2018 For Sohu (excluding Sohu Video) share-based awards $2,761 $652 $(5,100) For Sogou share-based awards (1) 8,802 27,729 14,204 For Changyou share-based awards 8,402 17,394 (6,461) For Sohu Video share-based awards (845) (298) (548) $19,120 $45,477 $2,095 The negative amounts in the tables above resulted from re-measured compensation expense based on the then-current fair value of the awards on thereporting date. Note (1): Compensation expense for Sogou share-based awards also includes compensation expense for Tencent restricted share units that Tencent hadgranted to employees who transferred to Sogou with the Soso search and search-related businesses.There was no capitalized share-based compensation expense for the years ended December 31, 2018, 2017 and 2016. 5.ADVERTISING AND PROMOTIONAL EXPENSES, INCLUDED IN SALES AND MARKETING EXPENSESAdvertising and promotional expenses are included in sales and marketing expenses, and generally represent the expenses of promotions to create orstimulate a positive image of the Sohu Group or a desire to subscribe for the Group’s products and services. Advertising expenses are expensed asincurred. For the years ended December 31, 2018, 2017 and 2016, advertising and promotional expenses recognized in the consolidated statements ofcomprehensive income were $239.0 million, $249.7 million and $270.2 million, respectively. 6.OTHER INCOME /(EXPENSE), NETThe following table summarizes the Sohu Group’s other income /(expense) (in thousands): Year Ended December 31, 2016 2017 2018 Gain from the changes in fair value of financial instruments (1) 13,133 6,665 40,054 Investment income /(expense) (2) (1,908) (2,051) 14,565 Government grant 2,112 2,166 5,460 Donations (3) (27,982) (218) (70) Write-off of unpaid long-term accounts payable 0 2,031 0 Impairment loss on available-for-sale equity securities (4) 0 (5,754) 0 Others 3,932 3,819 4,158 $(10,713) $6,658 $64,167 Note (1): The increase for 2018 compared to 2017 mainly consisted of $33.4 million in income earned from investments in financial instruments.Note (2): The increase for 2018 compared to 2017 mainly consisted of $17.8 million in investment income recognized in the third quarter of 2018 bySogou due to the observable change in the price of Zhihu Technology Limited (“Zhihu”) after the adoption of ASU 2016-01, offset by a $3.6 millioninvestment loss representing a change in the fair value of Hylink Digital Solution Co., Ltd (“Hylink”).Note (3): In the second quarter of 2016, the Sohu Group recognized a one-time expense of $27.8 million that was related to a donation by Sogou toTsinghua University related to setting up a joint research institute focusing on artificial intelligence technology.Note (4): Before the adoption of ASU 2016-01, the Group recognized an other than temporary impairment loss of $5.8 million in the third quarter of2017 that was related to Keyeast Co., Ltd. (“Keyeast”), an investment measured as available-for-sale equity securities. The Sohu Group reported theinvestment at fair value using a market approach based on Keyeast’s stock price on the South Korean stock market. The fair value was continuallybelow its original cost for a twelve-month period ended July 31, 2017. Management considered the decline in the fair value to be other-than-temporary. F-39Table of Contents7.BALANCE SHEET COMPONENTS (IN THOUSANDS) As of December 31, 2017 2018 Account and financing receivables, net Accounts receivable $256,131 251,853 Financing receivables 0 46,238 Allowance for doubtful accounts and credit losses (5,663) (16,918) $250,468 281,173 The following table presents the movement of allowances for doubtful accounts and credit losses for the years of 2016, 2017 and 2018: Balance at thebeginning of year Additional provisionfor bad debt, net ofrecoveries Write-offs Exchangedifference Balance at theend of year 2016 3,976 7,109 (5,992) (252) 4,841 2017 4,841 9,076 (8,634) 380 5,663 2018 5,663 15,659 (3,848) (556) 16,918 As of December 31, 2017 2018 Prepaid and other current assets Matching loan due from a related party (See Note 8) $32,005 $31,607 Prepaid content and license 35,442 30,033 Prepaid taxes 35,551 30,524 Receivables from third party payment service providers 367 14,012 Prepaid cost of revenue 14,782 13,794 Inventory 4,730 12,726 Prepaid rental deposit 9,314 9,287 Receivables from third party payment platforms 3,350 8,844 Interest receivable from short term investments 2,515 3,645 Prepaid office rent and facilities expenses 3,265 3,025 Employee advances 4,109 2,275 Prepaid advertising and promotion fees 3,371 230 Loans to third parties 28,544 0 Due from 7Road 5,344 0 Others 9,986 8,303 $192,675 $168,305 Prepaid non-current assets Prepaid PRC income tax for the sale of assets associated with 17173.com bySohu to Changyou $4,020 $2,870 Others 191 237 $4,211 $3,107 Other short-term liabilities Contract deposits from advertisers $29,078 $40,073 Matching loans due to a related party (See Note 8) 31,192 32,719 Deposits related to Focus 29,889 21,648 Donation payable 7,652 0 Consideration payable for equity investment 6,427 5,960 Depository payable reimbursement 0 4,985 Early exercise of Sogou share options for trust arrangements 4,503 2,702 Accrued liabilities to suppliers 6,725 3,288 Government grant 765 0 Foreign exchange forward contracts 715 0 Others 19,354 12,710 $136,300 $124,085 F-40Table of ContentsReceipts in advance and deferred revenue Receipts in advance relating to: brand advertising business $12,858 $10,069 search and search-related business 66,223 65,465 online game business 18,498 19,014 others business 5,327 3,602 Total receipts in advance 102,906 98,150 Deferred revenue 24,852 26,632 $127,758 $124,782 8.RELATED PARTY TRANSACTIONSUnder an agreement between Sohu and Fox Financial Technology Group Limited (“Fox Financial,” formerly known as “SoEasy Internet FinanceGroup Limited”) entered into in August 2014, Sohu invested $4.8 million and $16.1 million, respectively, in Fox Financial in August 2014 and April2015. In February 2016, Sohu invested an additional $10.5 million in Fox Financial, see Note 10 - Fair Value Measurements - Financial InstrumentsMeasured at Fair Value - Equity Investments.Changyou’s Loan Arrangements with Fox FinancialCommencing in April 2015, certain subsidiaries of Changyou and certain subsidiaries of Fox Financial entered into a series of loan agreementspursuant to which the subsidiaries of Changyou are entitled to draw down HK dollar-denominated or U.S. dollar-denominated loans from the FoxFinancial subsidiaries and the Fox Financial subsidiaries are entitled to draw down equivalent RMB-denominated loans from the subsidiaries ofChangyou, to facilitate each other’s business operations. All of the loans carry a fixed rate of interest which approximates the current market interestrate.As of December 31, 2017, Changyou had U.S. dollar-denominated loans payable to Fox Financial in a total amount of approximately $29.8 million,and RMB-denominated loans receivable from Fox Financial in a total amount of approximately $29.8 million. For the year of 2017, Changyouincurred interest expense of $0.7 million and earned interest income of $1.2 million. As of December 31, 2017, total interest expense payable to FoxFinancial amounted to $1.4 million, which was recorded in other short-term liabilities; and total interest income receivable from Fox Financial was$2.2 million, which was recorded in prepaid and other current assets.In December 2018, Changyou entered into a supplemental agreement with Fox Financial pursuant to which all accrued and unpaid interest on theloans as of December 31, 2018 was added to the principal of the corresponding loans. As of December 31, 2018, Changyou had U.S. dollar-denominated loans payable to Fox Financial in a total amount of approximately $32.7 million, and RMB-denominated loans receivable from FoxFinancial in a total amount of approximately $31.6 million. For the year ended December 31, 2018, Changyou incurred interest expense of$0.5 million in connection with the loans payable and earned interest income of $1.1 million in connection with the loans receivable. 9.INTRA-GROUP LOAN AND SHARE PLEDGE AGREEMENTOn October 24, 2016, Sohu Media, a subsidiary of the Company, entered into a loan agreement (the “Loan Agreement”) with AmazGame, a subsidiaryof Changyou, pursuant to which Sohu Media may borrow from time to time from AmazGame up to RMB1.0 billion (or approximately $145.7 million).Principal amounts outstanding under the Loan Agreement bear interest at an annual rate of 6%. The outstanding principal of each advance will be dueone year from the date of the advance, subject to extension for an additional year with the consent of AmazGame.In December 2016, March 2017 and April 2017, Sohu Media received RMB500.0 million (or approximately $72.9 million), RMB200.0 million (or$29.1 million) and RMB300.0 million (or $43.7 million), respectively, from AmazGame. As of December 31, 2017, the total outstanding balance of theloan was RMB1.0 billion (or $153.0 million). In January 2018, Sohu Media entered into a supplementary agreement with AmazGame and VideoTianjin, a subsidiary of the Company, pursuant to which Sohu Media assigned and transferred the entire principal amount outstanding and all therelated rights and obligations under the Loan Agreement to Video Tianjin. In December 2018, Video Tianjin and AmazGame entered into anagreement extending the due date of each advance for an additional year. As of December 31, 2018, the total outstanding balance of the loan wasRMB1.0 billion (or $145.7 million). The intra-Group loan has been eliminated upon consolidation.On October 24, 2016, Sohu.com (Game) Limited (“Sohu Game”), a Cayman Islands company that is an indirect subsidiary of Sohu and is the directparent of Changyou, and Changyou entered into a share pledge agreement (the “Share Pledge Agreement”) pursuant to which Sohu Game pledged toChangyou Class B ordinary shares of Changyou held by Sohu Game. The number of Changyou Class B ordinary shares pledged by Sohu Game toChangyou is subject to upward adjustment from time to time while amounts are outstanding under the Loan Agreement if the price of Changyou’sADSs on the NASDAQ Global Select Market drops for at least 10 consecutive trading days by an amount of 20% or more from such price as of the dateof the Share Pledge Agreement, and is subject to further upward adjustment in the event of any additional incremental drops of 20% or more in theprice of Changyou’s ADSs during 10 consecutive trading days. The share pledge agreement gives Changyou the right to apply the outstandingprincipal and accrued interest on the loan to the repurchase of Changyou Class B ordinary shares from Sohu Game in the event that such principal andinterest under the Loan Agreement are not paid when due. As of December 31, 2018, the number of Class B ordinary shares pledged by Sohu Game toChangyou was 21,847,751. F-41Table of Contents10.FAIR VALUE MEASUREMENTSFair Value of Financial InstrumentsThe Sohu Group’s financial instruments consist primarily of cash equivalents, short-term investments, accounts receivable, prepaid and other currentassets, long-term investments, restricted time deposits, accounts payable, accrued liabilities, receipts in advance and deferred revenue, short-term bankloans, other short-term liabilities, long-term accounts payable and long-term bank loans.U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financialinstruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs whenmeasuring fair value. The three-tier fair value hierarchy is:Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.Level 2 - include other inputs that are directly or indirectly observable in the market place.Level 3 - unobservable inputs which are supported by little or no market activity.Financial Instruments Measured at Fair ValueThe following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2017 (inthousands): Fair value measurements at reporting date using Items As ofDecember 31,2017 Quoted Pricesin Active Marketsfor Identical Assets(Level 1) SignificantOtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Cash equivalents $1,136,892 $0 $1,136,892 $0 Short-term investments 818,934 0 818,934 0 Equity investments with readily determinablefair values 21,307 21,307 0 0 Foreign exchange forward contracts recognizedin other short-term liabilities 715 0 715 0 The following table sets forth the financial instruments, measured at fair value by level within the fair value hierarchy, as of December 31, 2018 (inthousands): Fair value measurements at reporting date using Items As ofDecember 31,2018 Quoted Pricesin Active Marketsfor Identical Assets(Level 1) SignificantOtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Cash equivalents $595,702 $0 $595,702 $0 Short-term investments 1,041,395 0 1,041,395 0 Restricted time deposits 244,179 0 244,179 0 Equity investments with readily determinablefair values 6,790 6,790 0 0 F-42Table of ContentsCash EquivalentsThe Sohu Group’s cash equivalents mainly consist of time deposits with original maturities of three months or less, notice deposits, and highly liquidinvestments that are readily convertible to known amounts of cash. The fair values of cash equivalents are determined based on the pervasive interestrates in the market. The Group classifies the valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements.Generally, there are no quoted prices in active markets for identical cash equivalents at the reporting date. In order to determine the fair value, theGroup must use the discounted cash flow method and observable inputs other than quoted prices in active markets for identical assets and liabilities,quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observablemarket data for substantially the full term of the assets or liabilities.Short-term InvestmentsIn accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, theSohu Group elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value arereflected in the consolidated statements of comprehensive income as other income /(expense). To estimate fair value, the Group refers to the quoted rateof return provided by banks at the end of each period using the discounted cash flow method. The Group classifies the valuation techniques that usethese inputs as Level 2 of fair value measurements.As of December 31, 2018 and December 31, 2017, the Sohu Group’s investment in these financial instruments was $1.0 billion and $818.9 million,respectively. The investment instruments were issued by commercial banks in China, and have a variable interest rate indexed to performance ofunderlying assets. Since these investments’ maturity dates are within one year, they are classified as short-term investments. For the year endedDecember 31, 2018 and 2017, the Sohu Group recorded a gain from changes in the fair value of short-term investments in the amounts of $40.3 millionand $13.9 million in the consolidated statements of comprehensive income, respectively.Foreign Exchange Forward ContractsIn September 2016 and January 2017, Changyou entered into foreign exchange forward contracts with banks in aggregate notional amounts of$100 million and $50 million, respectively. Changyou entered into such foreign exchange forward contracts in compliance with its risk managementpolicy for the purpose of eliminating the negative impact on earnings and equity resulting from fluctuations in the exchange rate between the U.S.dollar and the RMB. The instruments are marked-to-market at each period-end with the associated changes in fair value recognized in the line item“Other income /(expense), net” in the consolidated statements of comprehensive income and “Other short-term liabilities” or “Prepaid and other currentassets” in the consolidated balance sheets. The net cash inflow and outflow related to the settlement of the forward contracts are recorded in the lineitem “Other investing activities” under “Cash flows from investing activities” in the consolidated statements of cash flows.In January 2018, Changyou settled the remaining foreign exchange forward contracts with a realized loss of $0.2 million recognized in theconsolidated statements of comprehensive income for the year ended December 31, 2018. For the year ended December 31, 2017, the Sohu Grouprecorded an unrealized loss of $7.2 million, resulting from changes in the fair values of forward contracts in the consolidated statements ofcomprehensive income. For the years ended December 31, 2018 and 2017, the Sohu Group recorded cash outflows related to the forward contracts of$0.9 million and $3.5 million, respectively, in the consolidated statements of cash flows. As of December 31, 2018, the carrying value of the foreignexchange forward contracts recognized in other short-term liabilities was nil.The Group estimated the fair values of foreign exchange forward contracts using the Black-Scholes model. The fair values of the forward contracts wereestimated based on quoted forward exchange prices at the reporting date. The Group classifies the fair value measurement of the forward contractsbased on such inputs as Level 2 of fair value measurements.Restricted Time DepositsRestricted time deposits are valued based on the prevailing interest rates in the market using the discounted cash flow method. TheSohu Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.Changyou Loans from Offshore Banks, Secured by Time DepositsIn 2018, Changyou drew down loans from the Hong Kong branches of PRC banks, which were secured by an equivalent or greater amount of RMBdeposits by Changyou in the PRC branches of the banks. The loans from the Hong Kong branches of the lending banks were classified as short-term orlong-term bank loans based on the loans’ payment terms. For the year ended December 31, 2018, interest income from the restricted time depositssecuring the loans was $1.7 million, and expense for interest on the loans was $1.4 million. F-43Table of ContentsEquity InvestmentsASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, amends certain aspects of recognition, measurement,presentation and disclosure of financial instruments. The main provisions require equity investments (except those accounted for under the equitymethod of accounting or those that result in consolidation of the investee) to be measured at fair value through earnings, unless they qualify for ameasurement alternative. The new guidance will require modified retrospective application to all outstanding instruments beginning January 1, 2018,with a cumulative effect adjustment recorded to opening accumulated deficit as of the beginning of the first period in which the guidance becomeseffective. However, changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively.The following table illustrates the effect of the adoption of ASU 2016-01 by presenting a comparison of selected line items from the Group’sconsolidated statement of comprehensive income for the year ended December 31, 2018, as actually reported and as they would have been reportedunder standards previously in effect (in thousands, except per share data): As reported Without adoption ofASU 2016-01 Effect of changeHigher/(Lower) Operating loss $(160,525) (160,525) 0 Other income, net 64,167 49,828 14,339 Income tax benefit (13,432) (12,542) (890) Net loss (67,359) (82,588) 15,229 Foreign currency translation adjustments (37,339) (37,339) 0 Change in unrealized gain for equity securities withreadily determinable fair values 0 (2,743) 2,743 Other comprehensive loss (37,339) (40,082) 2,743 Comprehensive loss (104,698) (122,670) 17,972 Basic net loss per share attributable to Sohu.com Limited (4.11) (4.19) 0.08 Diluted net loss per share attributable to Sohu.com Limited (4.13) (4.21) 0.08 The following table illustrates the effect of the adoption of ASU 2016-01 by presenting a comparison of selected line items from the Group’sconsolidated balance sheet as of December 31, 2018, as actually reported and as they would have been reported under standards previously in effect (inthousands, except per share data): As reported Without adoption ofASU 2016-01 Effect of changeHigher/(Lower) Long term investments, net $108,356 90,357 17,999 Deferred tax liabilities 85,264 85,237 27 Accumulated other comprehensive income 24,719 29,477 (4,758) Accumulated deficit (394,801) (399,546) 4,745 The adoption of ASU 2016-01 did not change the Group’s consolidated statement of cash flows for the year ended December 31, 2018. F-44Table of ContentsEquity Investments Accounted for Using the Equity MethodInvestment in Fox FinancialUnder an agreement between Sohu and Fox Financial entered into in August 2014, Sohu invested $4.8 million and $16.1 million in Fox Financial onAugust 2014 and April 2015, respectively. In February 2016, Sohu invested an additional $10.5 million in Fox Financial. Sohu accounted for itsinvestments in Fox Financial under long-term investments. These investments include both preferred shares and ordinary shares. Sohu elected toaccount for its investment in Fox Financial’s preferred shares at cost less impairments, adjusted by observable price changes, since they were notconsidered to be ordinary shares in substance and had no readily determinable fair value. There was not any observable price change in Sohu’sinvestment in Fox Financial in the year ended December 31, 2018. Sohu accounted for its investment in Fox Financial’s ordinary shares under theequity method, since Sohu can exercise significant influence through its board seat in Fox Financial, but does not own a majority of Fox Financial’sequity capital or control Fox Financial.In March 2017, Fox Financial issued additional ordinary shares to new investors, while shares held by Sohu remained unchanged. As a result, Sohu’spercentage of ordinary shares held was diluted from 7% to 6%. The Group recognized dilution gain of $0.7 million in other income for the threemonths ended March 31, 2017. As of December 31, 2018, the carrying value of Sohu’s investment in Fox Financial was $23.8 million.Equity Investments with Readily Determinable Fair ValuesEffective as of January 1, 2018, all equity investments in unconsolidated entities (other than those accounted for using the equity method ofaccounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair valuepreviously reported in other comprehensive income) for equity securities with readily determinable fair values.Equity investments with readily determinable fair values are valued using the market approach based on the quoted prices in active markets at thereporting date. The Group classifies the valuation techniques that use these inputs as Level 1 of fair value measurements.Investment in KeyeastOn August 12, 2014, Sohu acquired approximately 6% of the total outstanding common shares of Keyeast, a Korean-listed company, for a purchaseprice of $15.1 million. The Sohu Group classified this investment as equity investments with readily determinable fair values under long-terminvestments, and reported it at fair value using a market approach based on Keyeast’s stock price on the South Korean stock market. The fair value ofthis investment was continually below its original cost for a twelve-month period ended July 31, 2017. Management considered the decline in the fairvalue to be other-than-temporary, and the Sohu Group recognized an impairment loss of $5.8 million in other income /(expense) in the Sohu Group’sconsolidated statements in the third quarter of 2017. Starting from January 1, 2018, Sohu applied ASU 2016-01 by means of a reclassification of$0.9 million from other comprehensive income to accumulated deficit in relation to the fair value change of investment in Keyeast previously reportedin other comprehensive income. In the first quarter of 2018, Sohu disposed of all of its shares in Keyeast for $11.2 million, and recognized a disposalgain of $1.0 million in other income /(expense) in the Sohu Group’s consolidated financial statements.Investment in Hylink Digital Solution Co., Ltd (“Hylink”)On May 5, 2011, Sohu acquired 2% of the equity interests of Hylink for a purchase price of $2.3 million (RMB15 million). Given that Sohu neithercontrols nor has significant influence over Hylink, and the equity interest of Hylink did not have a readily determinable fair value, Sohu previouslyaccounted for this investment using the cost method. On August 2, 2017, Hylink completed its IPO on the Shanghai Stock Exchange. Upon thecompletion of Hylink’s IPO, Sohu’s interest in Hylink was diluted to 1.5% of Hylink’s total ordinary shares then outstanding. The Sohu Groupreclassified this investment as an equity investment with a readily determinable fair value and measured its fair value based on Hylink’s stock price onthe Shanghai Stock Exchange. Beginning January 1, 2018, Sohu applied ASU2016-01 by means of a reclassification of $6.6 million (RMB43.2million) from other comprehensive income to accumulated deficit in relation to the change in the fair value of the investment in Hylink previouslyreported in other comprehensive income. As of December 31, 2018, the fair value of the Hylink equity securities held by Sohu was $6.8 million(RMB46.6 million) and Sohu recognized an unrealized loss representing a change in fair value of $3.9 million (RMB26.0 million) for the year endedDecember 31, 2018 in other income /(expense) in the Sohu Group’s consolidated financial statements.Equity Investments without Readily Determinable Fair ValuesBased on ASU 2016-01, an entity will be able to elect to record equity investments without readily determinable fair values and not accounted for bythe equity method at cost, less impairment, adjusted for subsequent observable price changes. Entities that elect this measurement alternative willreport changes in the carrying value of the equity investments in current earnings. F-45Table of ContentsIf this measurement alternative is elected, changes in the carrying value of the equity investment will be required to be made whenever there areobservable price changes in transactions for identical or similar investments of the same issuer. The implementation guidance notes that an entityshould make a “reasonable effort” to identify price changes that are known or that can reasonably be known. When observable price changes wereidentified, the Group used the back-solve method to re-measure the fair value of the investments and to determine the amount that should be recordedas upward or downward adjustments. The back-solve method requires considering the rights and preferences of each classes of equity and solving forthe total equity value that is consistent with a recent transaction of the subject company’s securities. This method requires making assumptions onfuture outcomes available to the subject company, the probability of each scenario, expected time to liquidity events, volatility and risk-free rate. TheGroup classifies these non-recurring fair value measurement as Level 3 of fair value measurement.Long-term Investment in ZhihuAs of December 31, 2018, Sogou had invested a cumulative total of $18.9 million in Zhihu, which is a company that engages primarily in the businessof operating an online question and answer-based knowledge and information-sharing platform. Sogou elected to account for the investment in Zhihuat cost less impairments, adjusted by observable price changes, since Sogou does not have significant influence over Zhihu and its investment in Zhihuis without readily determinable fair value. In the third quarter of 2018, Sogou recognized $17.8 million in investment income with respect to theobservable change in the price of Zhihu.Long-term Investment in Hainan Yun Jiang Technology Co., Ltd. (“Hainan Yun Jiang”)In March 2018, Sogou invested $12.7 million (or RMB80 million) in Hainan Yun Jiang, a high-tech enterprise that engages primarily in the businessof operating on-line and off-line education with artificial intelligence as its core. Sogou elected to account for the investment in Hainan Yun Jiang atcost less impairments, adjusted by observable price changes, since Sogou does not have significant influence over Hainan Yun Jiang and itsinvestment in Hainan Yun Jiang is without readily determinable fair value. There was no observable price change for the year ended December 31,2018.Short-term Receivables and PayablesAccounts receivable and prepaid and other current assets are financial assets with carrying values that approximate fair value due to their short-termnature. Short-term accounts payable, accrued liabilities, receipts in advance and deferred revenue, short-term bank loans and other short-term liabilitiesare financial liabilities with carrying values that approximate fair value due to their short-term nature. For short-term receivables and payables, theGroup estimated fair values using the discounted cash flow method. The Group classifies the valuation technique as Level 2 of fair valuemeasurements.Short-term Bank LoansFor short-term bank loans, the rates of interest under the agreements with the lending banks were determined based on the prevailing interest rates inthe market. The Sohu Group estimated fair values using the discounted cash flow method and classifies the valuation techniques that use these inputsas Level 2 of fair value measurements. -Factoring contract with recourse with HongKong and Shanghai Banking Corporation Limited (“HSBC”)In May 2017, Sohu entered into a factoring contract with recourse with HSBC, pursuant to which Sohu may borrow from HSBC from time to time up toa combined aggregate of RMB180.0 million (or $26.2 million), which is the upper limit reviewed by HSBC at least annually. The loan is secured by upto RMB198.0 million (or $28.8 million) of Sohu’s accounts receivable and guaranteed by Sohu Media. Interest accrues on the principal amounts of theloans outstanding at an annual rate agreed to by HSBC and Sohu upon drawdown. As of both December 31, 2018 and December 31, 2017, the totaloutstanding balance of the loan was nil. -Credit agreements with Ping An Bank Co., Ltd. (“Ping An Bank”)In May 2017, Sohu entered into credit agreements with Ping An Bank pursuant to which Sohu was entitled to borrow from Ping An Bank from time totime until May 18, 2020 up to a combined aggregate of RMB2.50 billion (or $364.3 million). The loan was initially secured by pledges of Sohu’s twobuildings and guaranteed by Sohu.com (Game) Limited (“Sohu Game”). The initial interest rate for the loans was an annual rate equal to 115% of therate published by the PBOC. In July 2017, Sohu entered into an amendment of its loan arrangements with Ping An Bank pursuant to which interest onoutstanding principal amounts accrued at a rate designated separately upon each drawdown based on the benchmark loan rate published by the PBOCwith reference to then prevailing market interest rates. In July 2017, Sohu drew down from Ping An Bank pursuant to the loan arrangements a loan witha term of 12 months in the amount of RMB400.0 million (or approximately $58.3 million) and an interest rate of 6.525% per annum, which was 150%of the rate published by the PBOC as of the date of the drawdown. In September 2017, Sohu entered into another amendment of its loan arrangementswith Ping An Bank pursuant to which the maximum amount that Sohu was entitled to borrow was reduced from RMB2.50 billion (or $364.3 million) toRMB600 million (or $87.4 million), and one of Sohu’s buildings, which serves as Sohu’s corporate headquarters, was released from the pledge. In April2018, Sohu repaid all of the outstanding balance under the loan arrangements with Ping An Bank and the other building of Sohu was released from thepledge. As of December 31, 2018 and December 31, 2017, the total outstanding balance of the loan was nil and RMB400 million (or $58.3 million),respectively. F-46Table of Contents-Credit agreements with Industrial and Commercial Bank of China Limited (“ICBC”)In September 2017, Sohu entered into credit agreements with ICBC pursuant to which Sohu was entitled to borrow from ICBC from time to time untilMarch 31, 2018 up to a combined aggregate of RMB800 million (or $116.6 million). The loan is secured by the pledge of Sohu’s building whichserves as Sohu’s corporate headquarters in Beijing. Interest accrues on the principal amounts of the loans outstanding at an annual rate equal to theLoan Prime Rate (“LPR”) published by the National Interbank Funding Center, plus 1.2%. The outstanding principal amount of the loan will bepayable in four equal installments, with the first installment payable 18 months after the drawdown and the other three installments payable semi-annually at the end of each of the three successive six-month periods after the first installment payment.As of December 31, 2018 and December 31, 2017, the total outstanding balance of the loan was RMB800 million (or $116.6 million) andRMB800 million (or $116.6 million), respectively. As of December 31, 2018, RMB400 million (or $58.3 million) was classified as a short-term bankloan and RMB400 million (or $58.3 million) was classified as a long-term bank loan based on the loan’s repayment terms. -Credit agreements with the China Merchants Bank Co., Ltd. (“CMB”)In April 2018, Sohu entered into credit agreements with CMB pursuant to which Sohu was entitled to borrow from CMB from time to time untilMarch 22, 2021 up to an aggregate of RMB700 million (or approximately $102.0 million)(the “CMB Loan”).In April, 2018, Sohu made an initial drawdown under the CMB Loan with a term of 12 months in the amount of RMB400 million (or $58.3 million)(the “First Drawdown”). The proceeds of the First Drawdown were used to repay in full the outstanding balance and all accrued and unpaid interestunder credit agreements between Sohu and Ping An Bank. The CMB Loan was secured by a pledge of Sohu’s building, which was released from thepleage after Ping An Bank received such repayment. Interest accrued on the outstanding principal balance at a rate of 6% per year. The outstandingprincipal amount of the First Drawdown is due in April, 2019.In June, 2018, Sohu made a drawdown under the CMB Loan with a term of 24 months in the amount of RMB300 million (or approximately $43.7million) (the “Subsequent Drawdown”). Interest accrued on the outstanding principal balance at a rate of 6% per year. The outstanding principalamount of the Subsequent Drawdown is payable in four installments, with the first installment of RMB45 million (or $6.7 million) having been paid inDecember 2018, and the other three installments payable semi-annually at the end of each of the three successive six-month periods after the firstinstallment payment.As of December 31, 2018, the total outstanding balance of the CMB loan was RMB655 million (or $95.4 million). As of December 31, 2018,RMB490 million (or $71.4 million) was classified as short-term bank loans and RMB165 million (or $24.1 million) was classified as long-term bankloans based on the loans’ repayment terms.Long-term PayablesLong-term payables mainly consists of long-term accounts payable, long-term bank loans, long-term tax liabilities and deferred tax liabilities(see Note 14).Long-term accounts payable are financial liabilities with carrying values that approximate fair value due to any changes in fair value, after consideringthe discount rate, being immaterial. For long-term accounts payable, the Group estimated fair values using the discounted cash flow method, which isunobservable in the market. The Sohu Group classifies the valuation technique as Level 2 of fair value measurements. F-47Table of ContentsAssets Measured at Fair Value on a Nonrecurring BasisThe following table sets forth assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of December 31, 2017 and2018 (in thousands) Fair value measurements at reporting date using Items As ofDecember 31,2017 Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Purchased video content recorded in prepaid andother assets $10,192 $ 0 $ 0 $10,192 Intangible assets, net 23,060 0 0 23,060 Goodwill 71,565 0 0 71,565 Fair value measurements at reporting date using Items As ofDecember 31,2018 Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Purchased video content recorded in prepaid andother assets $5,504 $ 0 $ 0 $5,504 Intangible assets, net 24,118 0 0 24,118 Goodwill 53,263 0 0 53,263 Purchased Video Content Recorded in Prepaid and Other AssetsThe impairment losses recognized in prepaid and other assets were mainly due to impairment losses for Sohu Video’s purchased video content. SeeNote 13 - Intangible Assets, Net.Intangible AssetsIntangible assets mainly comprise purchased video content, operating rights for licensed games, domain names and trademarks, computer software, anddeveloped technologies. The impairment losses recognized for intangible assets were mainly due to impairment losses for Sohu Video’s purchasedvideo content. See Note 13 - Intangible Assets, Net.GoodwillGoodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Group’sacquisitions of interests in its subsidiaries and consolidated VIEs. The impairment losses recognized for goodwill were mainly due to the 17173.comWebsite. See Note 12 - Goodwill. 11.FIXED ASSETSThe following table summarizes the Sohu Group’s fixed assets (in thousands): As of December 31, 2017 2018 Office buildings $391,490 $372,723 Computer equipment and hardware 388,693 418,624 Leasehold and building improvements 45,849 49,164 Office furniture 9,879 8,878 Vehicles 4,029 3,915 Fixed assets, gross 839,940 853,304 Accumulated depreciation (310,223) (348,306) Fixed assets, net $529,717 $504,998 For the years ended December 31, 2018, 2017 and 2016, depreciation expenses for fixed assets were $93.0 million, $83.1 million and $73.4 million,respectively. F-48Table of Contents12.GOODWILLChanges in the carrying value of goodwill by segment are as follows (in thousands): Sohu Sogou Changyou Total Balance as of December 31, 2016 Goodwill 72,011 5,565 96,949 174,525 Accumulated impairment losses (35,788) 0 (70,447) (106,235) $36,223 $5,565 $26,502 $68,290 Transactions in 2017 Goodwill associated with MoboTap reclassified from assets held for saleto assets held for use 0 0 83,470 83,470 Goodwill impairment recognized for MoboTap 0 0 (83,470) (83,470) Goodwill associated with an acquisition 1,000 0 0 1,000 Foreign currency translation adjustment 930 343 1,002 2,275 Balance as of December 31, 2017 $38,153 $5,908 $27,504 $71,565 Balance as of December 31, 2017 Goodwill 73,941 5,908 181,421 261,270 Accumulated impairment losses (35,788) 0 (153,917) (189,705) $38,153 $5,908 $27,504 $71,565 Transactions in 2018 Foreign currency translation adjustment (772) (283) (878) (1,933) Impairment losses 0 0 (16,369) (16,369) Balance as of December 31, 2018 $37,381 $5,625 $10,257 $53,263 Balance as of December 31, 2018 Goodwill 69,627 5,625 180,543 255,795 Accumulated impairment losses (32,246) 0 (170,286) (202,532) $37,381 5,625 $10,257 $53,263 There was one reporting unit under the Sohu segment and one reporting unit under the Sogou segment. The reporting units under the Changyousegment consisted of the Changyou online game business, the 17173.com Website, RaidCall, and the cinema advertising business.In the fourth quarter of 2018, the Sohu Group tested goodwill for impairment at the reporting unit level. The Group performed impairment tests usingthe qualitative and quantitative methods. For the Sohu and Sogou segments, impairment tests were conducted by quantitatively comparing the fairvalues of the reporting units to their carrying amounts. The Sohu and Sogou segments estimated the fair values by weighting the results from theincome approach and market approach. The valuation approach considers a number of factors that include expected future cash flows, growth rates,discount rates, and market price, and requires Sohu and Sogou to make certain assumptions and estimates regarding industry economic factors andfuture profitability of the business. For the Changyou segment, Changyou first qualitatively assessed whether it was more likely than not that the fairvalues of the reporting segments were less than their carrying amounts. For those reporting units where it was more likely than not that their fair valueswere less than their carrying amounts, Changyou performed the first step of a two-step quantitative goodwill impairment test. Changyou estimated thefair values using the income approach considering factors that included expected future cash flows, growth rates and discount rates. F-49Table of ContentsIn the fourth quarter of 2018, Changyou recognized a $16.4 million impairment loss for goodwill relating to the 17173.com Website, primarily due to(i) the launch of new initiatives for the 17173.com Website having fallen behind schedule in the fourth quarter of 2018 and the profit outlook for the17173.com Website being uncertain, and (ii) the relevant Chinese authority’s temporary suspension between April and December of 2018 of its reviewof, and issuance of publishing and authorization codes for, online games, which resulted in declines in the number of new games launched and therelated demand from game developers and operators for online advertising services on the 17173.com Website, both of which Changyou’smanagement determined had a material adverse impact on Changyou’s ability to generate revenues and net income from the 17173.com Website. As ofDecember 31, 2018, for the Sohu and Sogou segments, and the businesses in the Changyou segment other than the 17173.com Website, managementconcluded that the fair values of the reporting units exceeded their carrying values, indicating that the goodwill of the reporting units was notimpaired.In the third quarter of 2017, due to reinforced restrictions Chinese regulatory authorities imposed on online card and board games, some of Changyou’skey distribution partners informed Changyou that they had decided to stop the distribution and promotion of card and board games in the third quarterof 2017, which had an adverse impact on MoboTap’s performance, and also increased the uncertainty for its future operations and cash flow. As aresult, Changyou determined that it was unlikely that MoboTap would gain users and grow its online card and board games revenues in China,Changyou management performed an impairment test in the third quarter of 2017 using the discounted cash flow method, and an impairment loss of$83.5 million was recognized for goodwill to reflect the fair value of the MoboTap business. Changyou sold MoboTap in March 2018. 13.INTANGIBLE ASSETS, NETThe following table summarizes the Sohu Group’s intangible assets, net, as of December 31, 2017 and 2018 (in thousands): As of December 31, 2017 Items GrossCarryingAmount AccumulatedAmortization Impairment NetCarryingAmount Purchased video content $152,135 $(135,177) $(11,275) $5,683 Operating rights for licensed games 34,296 (17,882) (10,924) 5,490 Domain names and trademarks 33,630 (11,144) (13,279) 9,207 Computer software 17,413 (15,401) 0 2,012 Developed technologies 19,300 (5,020) (14,089) 191 Others 25,051 (15,189) (9,385) 477 Total $281,825 $(199,813) $(58,952) $23,060 As of December 31, 2018 Items GrossCarryingAmount AccumulatedAmortization Impairment NetCarryingAmount Purchased video content $177,307 $(156,198) $(18,556) $2,553 Operating rights for licensed games 46,328 (22,299) (11,806) 12,223 Domain names and trademarks 28,536 (11,124) (9,823) 7,589 Computer software 15,671 (14,022) 0 1,649 Developed technologies 8,902 (1,463) (7,439) 0 Others 7,204 (4,407) (2,693) 104 Total $283,948 $(209,513) $(50,317) $24,118 Impairment LossesIn 2018, Sohu recognized $10.4 million in losses related to Sohu Video’s purchased video content, of which $9.8 million was recognized asimpairment of intangible assets and $0.6 million was recognized as impairment of prepaid and other current assets, as Sohu Video’s revenues for 2018did not meet management’s expectations. F-50Table of ContentsIn 2017, Sohu recognized $70.6 million in losses related to Sohu Video’s purchased video content, of which $43.1 million was recognized asimpairment of intangible assets and $27.5 million was recognized as impairment of prepaid and other current assets. The impairment losses incurredwere mainly due to Sohu Video’s restructuring of its sales team and a strategy shift from purchasing expensive head content to self-producing content,as a result, revenues for 2017 did not meet management’s expectations. Also in 2017, Changyou recognized a $3.4 million impairment loss related tointangible assets for its MoboTap business, mainly due to reinforced restrictions that Chinese regulatory authorities imposed on online card and boardgames, which had an adverse impact on MoboTap’s current performance, and also increased the uncertainty for its future operations and cash flow.In 2016, the Group recognized $22.9 million in losses for impairment related to Sohu Video’s purchased video content and Changyou purchasedcontent and license rights to games. Impairment losses recognized consisted primarily of impairment losses incurred by Sohu of $18.6 million,including $2.9 million for intangible assets and $15.7 million for prepaid and other current assets, mainly due to the restructuring of the sales team ofSohu Video, which had an adverse impact on Sohu Video’s performance for 2016 and resulted in a lowering of management’s expectations of theprogramming usefulness of certain Sohu Video’s purchased video content.AmortizationIn 2018, 2017 and 2016, amortization of intangible assets was $59.4 million, $140.7 million and $131.2 million, respectively.As of December 31, 2018, amortization expenses for future periods are estimated to be as follows: For the year ending December 31, (in thousands) 2019 8,452 2020 6,526 2021 3,007 2022 1,101 2023 963 Thereafter 4,069 Total expected amortization expense $24,118 14.TAXATIONIncome TaxPRC Corporate Income TaxThe majority of the subsidiaries and VIEs of the Sohu Group are based in mainland China and are subject to income taxes in the PRC. These China-based subsidiaries and VIEs conduct substantially all of the Sohu Group’s operations, and generate most of the Sohu Group’s income or losses. The CITLaw applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to HNTEs, “Software Enterprises,” and KNSEs.Principal Entities Qualified as HNTEsUnder preferential tax treatment, HNTEs can enjoy an income tax rate of 15%, but need to re-apply every three years. During this three-year period, anHNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for thatyear. If an HNTE fails to meet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in thatyear, and must instead use the regular 25% CIT rate.As of December 31, 2018, the following principal entities of the Sohu Group were qualified as HNTEs and were entitled to an income tax rate of 15%.For Sohu’s Business -Sohu Internet. Sohu Internet re-applied for HNTE qualification and received approval in October 2018. Sohu Internet is entitled tocontinue to enjoy the beneficial tax rate as HNTEs for the years 2018 through 2020, and will need to re-apply for HNTE qualification in2021. -Sohu Media and Guangzhou Qianjun. Sohu Media and Guangzhou Qianjun re-applied for HNTE qualification and received approval inNovember 2017 and December 2017, respectively. Sohu Media and Guangzhou Qianjun are entitled to continue to enjoy the beneficial taxrate as HNTEs for the years 2017 through 2019, and will need to re-apply for HNTE qualification in 2020. F-51Table of Contents -Sohu New Momentum. Sohu New Momentum qualified as an HNTE for the years 2016 through 2018, and will need to re-apply for HNTEqualification in 2019.For Sogou’s Business -Sogou Information. Sogou Information re-applied for HNTE qualification and received approval in November 2018. Sogou Information isentitled to continue to enjoy the beneficial tax rate as HNTEs for the years 2018 through 2020, and will need to re-apply for HNTEqualification in 2021. -Sogou Technology. Sogou Technology re-applied for HNTE qualification and received approval in December 2017. Sogou Technology isentitled to continue to enjoy the beneficial tax rate as an HNTE for the years 2017 through 2019, and will need to re-apply for HNTEqualification in 2020. -Sogou Network. Sogou Network qualified as an HNTE for the years 2016 through 2018, and will need to re-apply for HNTE qualificationin 2019.For Changyou’s Business -Gamease and AmazGame. Gamease and AmazGame re-applied for HNTE qualification and received approval in October 2017 andDecember 2017, respectively. Gamease and AmazGame are entitled to continue to enjoy the beneficial tax rate as HNTEs for the years 2017through 2019, and will need to re-apply for HNTE qualification in 2020. -Gamespace. Gamespace qualified as an HNTE for the years 2016 through 2018, and will need to re-apply for HNTE qualification in 2019.Principal Entities Qualified as Software Enterprises and KNSEsThe CIT Law and its implementing regulations provide that a Software Enterprise is entitled to an income tax exemption for two years beginning withits first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years. An entity that qualifies as a KNSE is entitled to a furtherreduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessmenteach year to ensure they meet the criteria for qualification and file required supporting documents with the tax authorities before using the preferentialCIT rates. These enterprises will be subject to the tax authorities’ assessment each year as to whether they are entitled to use the relevant preferentialCIT treatments. If at any time during the preferential tax treatment years an enterprise uses the preferential CIT rates but the relevant authoritiesdetermine that it fails to meet applicable criteria for qualification, the relevant authorities may revoke the enterprise’s Software Enterprise/KNSE status.For Sohu’s Business -Sohu New Momentum. In 2018, Sohu New Momentum completed a self-assessment, filed required supporting documents, and wasqualified as a Software Enterprise, which entitled it to the second year of an income tax rate reduction from 25% to 12.5% for 2017. SohuNew Momentum will follow the same process in 2019 to entitle it to the third year of an income tax rate reduction from 25% to 12.5% for2018.For Sogou’s Business -Sogou Technology. In 2018, Sogou Technology completed a self-assessment and filed required supporting documents for KNSE status for2017. In 2018, Sogou Technology was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to apreferential income tax rate of 10% for 2017. Sogou Technology will follow the same process in 2019 for KNSE status for 2018.For Changyou’s Business -AmazGame. In 2018, AmazGame completed a self-assessment and filed required supporting documents for KNSE status for 2017. Also in2018, AmazGame was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to a preferential incometax rate of 10% for 2017. AmazGame will follow the same process in 2019 for KNSE status for 2018. F-52Table of Contents -Changyou Chuangxiang. In 2018, Changyou Chuangxiang completed a self-assessment, filed required supporting documents, and wasqualified as a Software Enterprise, which entitled it to the first year of an income tax exemption for 2017. Changyou Chuangxiang willfollow the same process in 2019 to entitle it to the second year of an income tax exemption for 2018.U.S. Corporate Income TaxSohu.com Inc., which was formerly the top-tier publicly-traded parent company of the Sohu Group, was dissolved and liquidated on May 31, 2018.Sohu.com Inc. was a Delaware corporation that was subject to U.S. corporate income tax on its taxable income at a rate of 21% for taxable yearsbeginning after December 31, 2017 and of up to 35% for prior tax years. U.S. federal tax legislation signed into law on December 22, 2017, commonlyreferred to as the Tax Cuts and Jobs Act (the “U.S. TCJA”), significantly modified the U.S. Internal Revenue Code by, among other things, reducing themaximum statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/oreliminating many business deductions; migrating the U.S. to a partial territorial tax system with a one-time Toll Charge on a mandatory deemedrepatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporateincome tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings.Certain activities conducted in the PRC resulted in U.S. corporate income taxes being imposed on Sohu.com Inc. when its subsidiaries that werecontrolled foreign corporations (“CFCs”) generated income that was subject to Subpart F of the U.S. Internal Revenue Code (“Subpart F”). Generally,passive income, such as rents, royalties, interest, dividends, and gains from disposal of the company’s investments, is among the types of incomesubject to taxation under Subpart F. Any income taxable under Subpart F was taxable in the U.S. at a federal corporate income tax rate of 21%. SubpartF income also included certain income from intra-Group transactions between Sohu.com Inc.’s non-U.S. subsidiaries and VIEs and Changyou’snon-U.S. subsidiaries and VIEs or Sogou’s non-U.S. subsidiaries and VIEs, or where Sohu.com Inc.’s non-U.S. subsidiaries or VIEs made an “investmentin U.S. property,” such as holding the stock in, or making a loan to, a U.S. corporation.To the extent that portions of Sohu.com Inc.’s U.S. taxable income, such as Subpart F income or GILTI, had been determined to be from sources outsideof the U.S., subject to certain limitations, Sohu.com Inc. could claim foreign tax credits to offset its U.S. income tax liabilities. Following the enactmentof the U.S. TCJA, if dividends that Sohu.com Inc. received from its subsidiaries after January 1, 2018 were determined to be from sources outside of theU.S., subject to certain limitations, Sohu.com Inc. would generally not have been required to pay U.S. corporate income tax on those dividends.Liabilities for U.S. corporate income tax were accrued in the Company’s consolidated statements of comprehensive income and estimated tax paymentswere made when required by U.S. law.Treatment of Toll Charge Related to the U.S. TCJABeginning in the fourth quarter of 2017, the Sohu Group had recognized a provisional amount of income tax expense for the Toll Charge of$219 million, which represented management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based onthe deemed repatriation to the United States of its share of previously deferred earnings of certain of its non-U.S. subsidiaries, offset by a reduction of$4 million in liability for deferred U.S. income tax, as a result of the U.S. TCJA. The Sohu Group included the provisional amount of the Toll Charge of$219 million in its interim financial statements through the quarter ended September 30, 2018, in reliance on SAB 118.For the fourth quarter of 2018, the Sohu Group’s management re-evaluated the impact on the Sohu Group of the Toll Charge under the U.S. TCJA.Management determined that it was more likely than not, based on the technical merits, that the tax position that the Sohu Group had no Toll Chargeliability would be sustained. The Group recognized a tax benefit in the amount of $77 million, which was the largest amount that managementdetermined to be greater than 50% likely to be realized upon settlement with the U.S. IRS. As a result, as of December 31, 2018 the Sohu Group had anunrecognized tax benefit in the amount of $142 million, which represented the difference between the tax benefit recognized in the fourth quarter of2018 and management’s previous estimate of the Toll Charge. In addition, the Sohu Group accrued $2 million in interest on the unrecognized taxbenefit.The tax benefit recognized and the unrecognized tax benefit in relation to the Toll Charge may be subject to further adjustment in subsequent periodsbased on facts and circumstances that arose after December 31, 2018, such as final IRS Toll Charge regulations published in February 2019, and anyfuture circumstances such as any guidance issued by the U.S. Department of the Treasury, any U.S. IRS challenge of the Group’s position on the TollCharge, if any, and management’s further judgment and estimates. F-53Table of ContentsCayman Island TaxUnder the current tax laws of the Cayman Islands, the Group is not subject to tax on its income or capital gains. In addition, no Cayman Islandswithholding tax will be imposed upon the payment of dividends by the Group to its shareholders.Hong Kong TaxThe Group’s subsidiaries incorporated in Hong Kong are subject to profits tax in Hong Kong at the rate of 16.5% for each of the years endedDecember 31, 2016, 2017 and 2018.Composition of Income Tax ExpenseSohu.com Inc., which was the former top-tier entity of the Sohu Group, was a Delaware corporation that was subject to United States income tax. OnMay 31, 2018, Sohu.com Inc. was dissolved and liquidated and Sohu.com Limited became the top-tier entity of the Sohu Group. Sohu.com Limited isnot subject to income or capital gains tax under the current laws of the Cayman Islands. There are no other taxes likely to be material to Sohu.comLimited levied by the government of the Cayman Islands.The components of income before income taxes are as follows (in thousands): Year ended December 31, 2016 2017 2018 Income /(loss) before income tax expense Income /(loss) from China operations $(88,440) $(75,893) $(33,091) Income /(loss) from non-China operations (5,461) (120,962) (47,700) Total income /(loss) before income tax expense $(93,901) $(196,855) $(80,791) Income tax expense applicable to China operations Current tax $13,635 $57,413 $15,040 Deferred tax 8,500 380 49,598 Subtotal income tax expense applicable to China operations 22,135 57,793 64,638 Non China income tax expense/(benefit) (2,134) 214,737 (78,539) Non China withholding tax expense 1,071 618 469 Total income tax expense $21,072 $273,148 $(13,432) For the fourth quarter of 2018, the Sohu Group’s management re-evaluated the impact on the Sohu Group of the Toll Charge under the U.S. TCJA.Management determined that it was more likely than not, based on the technical merits, that the tax position that the Sohu Group had no Toll Chargeliability would be sustained. The Group recognized a tax benefit in the amount of $77 million, which was the largest amount that managementdetermined to be greater than 50% likely to be realized upon settlement with the U.S. IRS. As a result, as of December 31, 2018 the Sohu Group had anunrecognized tax benefit in the amount of $142 million, which represented the difference between the tax benefit recognized in the fourth quarter of2018 and management’s previous estimate of the Toll Charge. In addition, the Sohu Group accrued $2 million in interest on the unrecognized taxbenefit.In 2017, of the $273.1 million income tax expense, $57.8 million was for PRC tax, mainly attributable to the Sohu Group’s business operations, and$214.7 million was for U.S. corporate income tax, resulting primarily from the Company’s recognition in the fourth quarter of 2017 of $219 million forthe Toll Charge, which represented management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based onthe deemed repatriation to the United States of Sohu.com Inc.’s share of previously deferred earnings of certain non-U.S. subsidiaries of Sohu.com Inc.,offset by a reduction of $4 million in liability for deferred U.S. income tax as a result of the U.S. TCJA. See “Treatment of Toll Charge Related to theU.S. TCJA” above.The combined effects of the income tax exemption and reduction available to the Group are as follows (in thousands, except per share data): Year Ended December 31, 2016 2017 2018 Tax holiday effect $30,872 $17,736 $28,385 Basic net income per share effect 0.80 0.46 0.73 F-54Table of ContentsEffective Tax RateThe CIT Law applies an income tax rate of 25% to all enterprises, but grants preferential tax treatment to HNTEs, Software Enterprises, and KNSEs.The U.S. TCJA significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income taxrate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S.to a territorial tax system with a one-time Toll Charge on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreignsubsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing fornew taxes on certain foreign earnings.The following is reconciliation between the statutory rate and the Group’s effective tax rate. For 2016 and 2017, the statutory rate represented the U.S.statutory rate of 35%, and for 2018, the statutory rate represented the PRC statutory rate of 25%. The table does not reflect any accruals related to theToll Charge. See “U.S. Corporate Income Tax” and “Treatment of Toll Charge Related to the U.S. TCJA.” Year Ended December 31, 2016 2017 2018 Statutory Rate: 35% 35% 25% Effect of tax holidays applicable to subsidiaries and consolidated VIEs (1) 33% 9% 35% Tax differential from statutory rate applicable to subsidiaries and consolidated VIEs (3%) (11%) 4% Effect of withholding taxes (2) (4%) (2%) (65%) Changes in valuation allowance for deferred tax assets (91%) (57%) (69%) Others 8% (2%) (4%) (22%) (28%) (74%) Note (1): The reversal of income tax for preferential income tax rates that Changyou’s and Sogou’s subsidiaries and VIEs were entitled to as KNSEs orSoftware Enterprises for 2016, 2017 and 2018 was included in the “Effect of tax holidays applicable to subsidiaries and consolidated VIEs” in theabove table.Note (2): The change was mainly due to additional income withholding tax of $47 million that was recognized in the first quarter of 2018 due to arevised policy for Changyou’s PRC subsidiaries with respect to their distribution of cash dividends. The revised policy was adopted to facilitate thedistribution of a special cash dividend in the aggregate amount of approximately $500.0 million that was declared by Changyou’s Board of Directorson April 5, 2018.PRC Withholding Tax on DividendsThe CIT Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises in the PRC to their immediate holdingcompanies outside Mainland China. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdictionof the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangementbetween the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion withRespect to Taxes on Income,” if such holding company is considered a non-PRC resident enterprise and holds at least 25% of the equity interests in thePRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holdingcompany is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to awithholding tax rate of 10%.Before 2018, in order to fund the distribution of a dividend to shareholders of the Sohu Group’s majority-owned subsidiary Changyou, Changyou’smanagement determined to cause one of its PRC subsidiaries to declare and distribute a cash dividend of all of its stand-alone 2012 earnings and halfof its stand-alone subsequent years’ earnings to its direct overseas parent company, Changyou HK, and adopted as a policy for such subsequent yearsfor its PRC subsidiaries a limit on payment of dividends to their direct overseas parent companies of one-half of such PRC subsidiaries’ earnings. In2018, in order to facilitate the distribution of a special cash dividend of $500.0 million declared by Changyou’s board of directors on April 5, 2018,Changyou revised its policy for its PRC subsidiaries with respect to their distribution of cash dividends. Under the revised policy, all of Changyou’sPRC subsidiaries (not including Changyou’s VIEs and their subsidiaries) will be able to distribute their cumulative available and undistributedearnings to their direct overseas parent companies in future periods. The change resulted in Changyou’s accrual of additional withholding incometaxes of approximately $47 million for the period before December 31, 2017, which was recognized in the Sohu Group’s consolidated financialstatements for the quarter ended March 31, 2018. As of December 31, 2018, the Sohu Group had accrued deferred tax liabilities related to Changyou inthe amount of $79.8 million for PRC withholding tax. F-55Table of ContentsWith the exception of that dividend, the Sohu Group does not intend to have any of its PRC subsidiaries or VIEs distribute any undistributed profits ofsuch subsidiaries or VIEs to their direct overseas parent companies, but rather intends that such profits will be permanently reinvested by suchsubsidiaries and VIEs for their PRC operations. As of December 31, 2018, the total amount of undistributed profits from the PRC subsidiaries and VIEsfor which no withholding tax had been accrued was $2.45 billion, and the unrecognized tax liabilities were $245.1 million.PRC Value-Added TaxOn May 1, 2016, the transition from the imposition of PRC business tax to the imposition of VAT was expanded to all industries in China, and as aresult all of the Sohu Group’s revenues have been subject to VAT since that date. To record VAT payable, the Group adopted the net presentationmethod, which presents the difference between the output VAT (at rates of 6% or 17% for the years ended December 31, 2016 and 2017 and for theperiod from January 1, 2018 to April 30, 2018, and at rates of 6% or 16% after May 1, 2018) and the available input VAT amount (at the rate applicableto the supplier).Deferred Tax Assets and LiabilitiesSignificant components of the Group’s deferred tax assets and liabilities consist of the following (in thousands): As of December 31, 2017 2018 Deferred tax assets: Net operating loss from operations $245,534 $270,807 Accrued bonus and commissions 25,164 26,704 Intangible assets transfer 538 286 Others 10,307 14,784 Total deferred tax assets 281,543 312,581 Less: Valuation allowance (256,347) (285,225) Net deferred tax assets $25,196 $27,356 Deferred tax liabilities Withholding tax for Dividend $(30,992) $(79,824) Deferred U.S. tax (5,498) 0 Intangible assets from business acquisitions (1,247) (1,087) Others (5,655) (4,353) Total deferred tax liabilities $(43,392) $(85,264) Net deferred tax assets are recorded under other assets in the consolidated balance sheets. As of December 31, 2018, the Group had net operating lossesfrom PRC entities of approximately $1.24 billion available to offset against future net profit for income tax purposes. The Group anticipates that it ismore likely than not that these net operating losses may not be utilized based on its estimate of the operation performance of these PRC entities;therefore, $264.5 million in deferred tax assets generated from net operating losses were offset by a valuation allowance.The following table sets forth the movement of the valuation allowances for deferred tax assets for the years presented (in thousands): For the Year EndedDecember 31, 2016 2017 2018 Beginning balance $153,559 216,174 256,347 Provision for the year 83,078 66,092 49,529 Reversal for the year (10,952) (39,004) (8,253) Foreign currency translation adjustment (9,511) 13,085 (12,398) Ending balance $216,174 256,347 285,225 F-56Table of ContentsIn 2018, $14.8 million of PRC net operating losses generated from previous years expired. Pursuant to a public announcement issued by the PRC StateAdministration of Taxation in August 2018, net operating losses of entities not qualified as HNTEs will expire between 2019 and 2023 if not utilizedand those of entities qualified as HNTEs will expire in 2028.Uncertain Tax PositionsThe following table summarizes the Group’s unrecognized tax benefit from January 1, 2016 to December 31, 2018 (in thousands): As of December 31, 2016 2017 2018 Beginning balance $39,244 $32,682 $31,138 Decreases related to prior year tax positions (6,649) (1,544) (1,190) Increases related to current year tax positions 87 0 144,414 Ending balance $32,682 $31,138 $174,363 The increase in 2018 was mainly due to an unrecognized tax benefit in the amount of $142 million, which represented the difference between the taxbenefit recognized in the fourth quarter of 2018 in relation to the Toll Charge and management’s previous estimate of the Toll Charge that would havebeen due by Sohu.com Inc. if it had not been dissolved and liquidated on May 31, 2018. The Group recognized interest in the amount of $2 million inconnection with the unrecognized tax benefit for the year ended December 31, 2018. The Group did not have any significant penalties associated withtax positions for the year ended December 31, 2018.In 2017, the decreases related to prior year tax positions mainly represented write-offs of $2.4 million related to uncertain tax positions generated in2009 and 2013.The material jurisdictions in which the Group is subject to potential examination include China and the United States. In general, the PRC taxauthorities have up to five years, and the U.S. IRS has up to three years and in certain cases up to six years, to conduct examinations of the tax filings ofthe Group. 15.COMMITMENTS AND CONTINGENCIESCommitmentsThe following table sets forth the Group’s commitments as of December 31, 2018 (in thousands): 2019 2020 2021 2022 2023 Thereafter TotalPaymentsRequired Purchase of cinema advertisement slot rights $56,396 40,579 18,064 6,103 4,019 0 125,161 Purchase of bandwidth 82,814 1,143 311 0 0 0 84,268 Operating lease obligations (1) 14,713 13,897 6,971 809 271 0 36,661 Interest payment commitment 16,754 11,119 7,062 0 0 0 34,935 Purchase of content and services – video 23,746 2,159 2,066 0 0 0 27,971 Expenditures for operating rights for licensed games with technologicalfeasibility 19,475 1,098 0 0 0 0 20,573 Expenditures for titles of games in development 6,990 725 0 0 0 0 7,715 Purchase of content and services – others 6,148 90 54 54 18 0 6,364 Fees for operating rights for licensed games in development 585 0 0 0 0 0 585 Others 5,640 0 0 0 0 0 5,640 Total Payments Required $233,261 70,810 34,528 6,966 4,308 0 349,873 Note (1): For the years ended December 31, 2018, 2017 and 2016, rental expense included in the operating lease was approximately $24.7 million,$23.9 million, and $23.9 million, respectively. F-57Table of ContentsLitigationThe Sohu Group is a party to various litigation matters which it considers routine and incidental to its business. The Sohu Group records a liabilitywhen the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. The Sohu Group evaluates, on aregular basis, developments in litigation matters that could affect the amount of liability that has been previously accrued and makes adjustments asappropriate. Management believes that the total liabilities to the Sohu Group that may arise as a result of currently pending legal proceedings will nothave a material adverse effect on the Group’s business, results of operations, financial condition and cash flows. Sogou is currently involved in severallawsuits in PRC courts where its competitors instituted proceedings or asserted counterclaims against the Sogou or the Sogou instituted proceedings orasserted counterclaims against its competitors. There are also four putative class action lawsuits that have been filed against Sogou in the United States,three in a State court in the State of California and one in the United States District Court for the Southern District of New York, that allege violationsof U.S. securities laws in connection with Sogou’s IPO in 2017. As of December 31, 2018, Sohu and Changyou had no significant litigationcontingencies, and Sogou had recorded estimated liabilities of $3.4 million for litigation contingencies as a component of accrued liabilities related toits currently pending proceedings.PRC Law and RegulationsThe Chinese market in which the Sohu Group operates poses certain macro-economic and regulatory risks and uncertainties. These uncertaintiesextend to the ability to operate an Internet business and to conduct brand advertising, search and search-related advertising, online game, and otherservices in the PRC. Though the PRC has, since 1978, implemented a wide range of market-oriented economic reforms, continued reforms and progresstowards a full market-oriented economy are uncertain. In addition, the telecommunication, information, and media industries remain highly regulated.Restrictions are currently in place and are unclear with respect to which segments of these industries foreign-owned entities, like the Sohu Group, mayoperate. The Chinese government may issue from time to time new laws or new interpretations of existing laws to regulate areas such astelecommunication, information and media. The Sohu Group’s legal structure and scope of operations in China could be subject to restrictions, whichcould result in limits on its ability to conduct business in the PRC. Certain risks related to PRC law that could affect the Sohu Group’s VIE structure arediscussed in Note 16 - VIEs.Regulatory risks also encompass interpretation by PRC tax authorities of current tax law, including the applicability of certain preferential taxtreatments.The Sohu Group’s sales, purchase and expense transactions are generally denominated in RMB and a significant portion of its assets and liabilities aredenominated in RMB. The RMB is not freely convertible into foreign currencies. In China, foreign exchange transactions are required by law to betransacted only by authorized financial institutions. Remittances in currencies other than RMB by its subsidiaries in China may require certainsupporting documentation in order to effect the remittance. 16.VIEsBackgroundPRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, onlinegames, mobile, value added telecommunications and certain other businesses in which the Sohu Group is engaged or could be deemed to be engaged.Consequently, the Sohu Group conducts certain of its operations and businesses in the PRC through its VIEs. The Sohu Group consolidates in itsconsolidated financial statements all of the VIEs of which the Group is the primary beneficiary.VIEs Consolidated within the Sohu GroupThe Sohu Group adopted the guidance of accounting for VIEs, which requires VIEs to be consolidated by the primary beneficiary of the entity.Management made evaluations of the relationships between the Sohu Group and its VIEs and the economic benefit flow of contractual arrangementswith the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of contractual arrangements with itsconsolidated VIEs, the Sohu Group controls the shareholders’ voting interests in those VIEs. As a result of such evaluation, the management concludedthat the Sohu Group is the primary beneficiary of the VIEs which the Group consolidates.All of the consolidated VIEs are incorporated and operated in the PRC, and the Group’s principal VIEs are directly or indirectly owned by Dr. CharlesZhang, the Sohu Group’s Chairman and Chief Executive Officer, or other executive officers and employees of the Sohu Group identified below. Capitalfor the consolidated VIEs was funded by the Sohu Group through loans provided to Dr. Charles Zhang and other executive officers and employees, andwas initially recorded as loans to related parties. These loans are eliminated for accounting purposes against the capital of the VIEs upon consolidation.Under contractual agreements with the Sohu Group, Dr. Charles Zhang and those other executive officers and employees of the Sohu Group who areshareholders of the consolidated VIEs are required to transfer their ownership in these entities to the Group, if permitted by PRC laws and regulations,or, if not so permitted, to designees of the Group at any time as requested by the Group to repay the loans outstanding. All voting rights of theconsolidated VIEs are assigned to the Sohu Group, and the Group has the right to designate all directors and senior management personnel of theconsolidated VIEs, and also has the obligation to absorb losses of the consolidated VIEs. Dr. Charles Zhang and those other executive officers andemployees of the Sohu Group who are shareholders of the consolidated VIEs have pledged their shares in the consolidated VIEs as collateral for theloans. As of December 31, 2018, the aggregate amount of these loans was $7.7 million. F-58Table of ContentsUnder its contractual arrangements with the consolidated VIEs, the Sohu Group has the power to direct activities of the VIEs, and can have assetstransferred freely out of the VIEs without any restrictions. Therefore, the Group considers that there is no asset of a consolidated VIE that can be usedonly to settle obligations of the VIEs, except for registered capital and PRC statutory reserves of the VIEs. As of December 31, 2018, the registeredcapital and PRC statutory reserves of the consolidated VIEs totaled $65.2 million. As all of the consolidated VIEs are incorporated as limited liabilitycompanies under the PRC Company Law, creditors of the consolidated VIEs do not have recourse to the general credit of the Sohu Group for any of theliabilities of the consolidated VIEs. Currently there is no contractual arrangement that could require the Sohu Group to provide additional financialsupport to the consolidated VIEs. As the Sohu Group is conducting certain business in the PRC mainly through the consolidated VIEs, the Group mayprovide such support on a discretionary basis in the future, which could expose the Group to a loss.The Sohu Group classified the consolidated VIEs within the Sohu Group as principal VIEs or immaterial VIEs based on certain criteria, such as theVIEs’ total assets or revenues. The following is a summary of the principal VIEs within the Sohu Group:Basic Information for Principal VIEs and Subsidiaries of Principal VIEsFor Sohu’s Business- High CenturyHigh Century was incorporated in 2001. As of December 31, 2018, Dr. Charles Zhang and Wei Li held 80% and 20% interests,respectively, in this entity.- Heng Da Yi TongHeng Da Yi Tong was incorporated in 2002. As of December 31, 2018, Dr. Charles Zhang and Wei Li held 80% and 20% interests,respectively, in this entity.- Sohu InternetSohu Internet was incorporated in 2003. As of December 31, 2018, High Century held a 100% interest in this entity.- DonglinDonglin was incorporated in 2010. As of December 31, 2018, Sohu Internet held a 100% interest in this entity.- Tianjin JinhuTianjin Jinhu was incorporated in 2011. In October 2016, Ye Deng transferred its 50% equity interest in Tianjin Jinhu to Xiufeng Deng. Asof December 31, 2018, Xiufeng Deng and Xuemei Zhang each held a 50% interest in this entity.- Focus InteractiveFocus Interactive was incorporated in July 2014. As of December 31, 2018, Heng Da Yi Tong held 100% of the equity interests in thisentity.- Guangzhou QianjunGuangzhou Qianjun was acquired in November 2014. As of December 31, 2018, Tianjin Jinhu held a 100% interest in this entity.For Sogou’s Business- Sogou Information F-59Table of ContentsSogou Information was incorporated in 2005. As of December 31, 2018, Xiaochuan Wang, Sogou’s Chief Executive Officer, High Centuryand Tencent held 10%, 45% and 45% interests, respectively, in this entity.- Chengdu EasypayChengdu Easypay was incorporated in 2015. As of December 31, 2018, Sogou Information and Beijing Shi Ji Si Su Technology Co., Ltd.(“Shi Ji Si Su”), a subsidiary of Sogou Information, held 9% and 91% interests, respectively, in this entity.For Changyou’s Business- GameaseGamease was incorporated in 2007. As of December 31, 2018, High Century held a 100% interest in this entity.- Shanghai ICEShanghai ICE was acquired by Changyou in 2010. As of December 31, 2018, Gamease held a 100% interest in this entity.- Guanyou GamespaceGuanyou Gamespace was incorporated in 2010. As of December 31, 2018, Changyou Star held a 100% interest in this entity.Financial InformationThe following financial information of the Sohu Group’s consolidated VIEs (including subsidiaries of VIEs) is included in the accompanyingconsolidated financial statements (in thousands): As of December 31, 2017 2018 ASSETS: Cash and cash equivalents $43,618 $65,864 Restricted cash 0 697 Account and financing receivables, net 95,305 122,884 Prepaid and other current assets 26,755 20,554 Short-term investments 12,303 7,305 Intra-Group receivables due from the Company’s subsidiaries 398,135 390,157 Total current assets 576,116 607,461 Long-term investments, net 32,266 45,871 Fixed assets, net 2,414 1,793 Intangible assets, net 11,719 18,240 Goodwill 37,291 36,353 Other non-current assets 2,614 1,925 Total assets $662,420 $711,643 LIABILITIES: Accounts payable $53,842 $84,749 Accrued liabilities 76,883 60,555 Receipts in advance and deferred revenue 46,939 43,020 Other current liabilities 97,991 86,851 Intra-Group payables due to the Company’s subsidiaries 197,367 273,672 Total current liabilities 473,022 548,847 Long-term tax liabilities 14,293 13,554 Deferred tax liabilities 3,451 2,239 Intra-Group payables due to the Company’s subsidiaries 20,560 18,897 Total liabilities $511,326 $583,537 F-60Table of Contents As of December 31, 2016 2017 2018 Net revenue $894,697 $881,284 $923,131 Net income /(loss) $9,557 $34,910 $(18,436) Year ended December 31, 2016 2017 2018 Net cash provided by /(used in) operating activities $(17,804) $(52,351) $69,925 Net cash used in investing activities (2,273) (14,020) (49,271) Net cash provided by /(used in) financing activities $0 $(131) $650 Summary of Significant Agreements Currently in EffectAgreements between Subsidiaries, Consolidated VIEs and Nominee ShareholdersLoan and share pledge agreement between Sohu Media and the shareholders of High Century: The agreement provides for loans to the shareholders ofHigh Century for them to make contributions to the registered capital of High Century in exchange for the equity interests in High Century, and theshareholders pledge those equity interests to Sohu Media as security for the loans. The agreement includes powers of attorney that give Sohu Mediathe power to appoint nominees to act on behalf of the shareholders of High Century in connection with all actions to be taken by High Century.Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in High Century, which are held by the Sohu Group’slegal department and may be completed and effected at Sohu Media’s election.Loan and share pledge agreement between Sohu Focus HK and the shareholders of Heng Da Yi Tong: The agreement provides for loans to theshareholders of Heng Da Yi Tong for them to make contributions to the registered capital of Heng Da Yi Tong in exchange for the equity interests inHeng Da Yi Tong, and the shareholders pledge those equity interests to Focus HK as security for the loans. The agreement includes powers of attorneythat give Focus HK the power to appoint nominees to act on behalf of the shareholders of Heng Da Yi Tong in connection with all actions to be takenby Heng Da Yi Tong. Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in Heng Da Yi Tong, which areheld by the Sohu Group’s legal department and may be completed and effected at Focus HK’s election.Loan agreements and equity pledge agreements between Video Tianjin and the shareholders of Tianjin Jinhu. The loan agreements provide for loansto the shareholders of Tianjin Jinhu for them to make contributions to the registered capital of Tianjin Jinhu in exchange for the equity interests inTianjin Jinhu. Under the equity pledge agreements, the shareholders of Tianjin Jinhu pledge to Video Tianjin their equity interests in Tianjin Jinhu tosecure the performance of their obligations under the loan agreements and Tianjin Jinhu’s obligations to Video Tianjin under their businessagreements. The loans are interest free and are repayable on demand, but the shareholders can only repay the loans by transferring to Video Tianjintheir equity interests in Tianjin Jinhu.Exclusive equity interest purchase right agreements between Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. Pursuant to theseagreements, Video Tianjin and any third party designated by it have the right, exercisable at any time when it becomes legal to do so under PRC law,to purchase from the shareholders of Tianjin Jinhu all or any part of their equity interests at the lowest purchase price permissible under PRC law.Business operation agreement among Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. The agreement sets forth the right of VideoTianjin to control the actions of the shareholders of Tianjin Jinhu. The agreement has a term of 10 years, renewable at the request of Video Tianjin.Powers of Attorney executed by the shareholders of Tianjin Jinhu in favor of Video Tianjin with a term of 10 years, extendable at the request of VideoTianjin. These powers of attorney give Video Tianjin the right to appoint nominees to act on behalf of each of the Tianjin Jinhu shareholders inconnection with all actions to be taken by Tianjin Jinhu. F-61Table of ContentsLoan and share pledge agreements between Sogou Technology and the shareholders of Sogou Information. The loan agreement provides for a loan toXiaochuan Wang, the individual shareholder of Sogou Information, to be used by him to make contributions to the registered capital of SogouInformation in exchange for his equity interest in Sogou Information. The loan is interest free-and is repayable on demand, but the shareholder mayrepay the loan only by transferring to Sogou Technology his equity interest in Sogou Information. Under the pledge agreement, all of the shareholdersof Sogou Information pledge their equity interests to Sogou Technology to secure the performance of their obligations under the various VIE-relatedagreements. If any shareholder of Sogou Information breaches any of his or its obligations under any VIE-related agreements, Sogou Technology isentitled to exercise its right as the beneficiary under the share pledge agreement. The share pledge agreement terminates only after all of theobligations of the shareholders under the various VIE-related agreements are no longer in effect.Exclusive equity interest purchase right agreements between Sogou Technology, Sogou Information and the shareholders of Sogou Information.Pursuant to these agreements, Sogou Technology and any third party designated by it have the right, exercisable at any time when it becomes legal todo so under PRC law, to purchase from the shareholders of Sogou Information all or any part of their equity interests at the lowest purchase pricepermissible under PRC law.Business operation agreement among Sogou Technology, Sogou Information and the shareholders of Sogou Information. The agreement sets forth theright of Sogou Technology to control the actions of the shareholders of Sogou Information. The agreement has a term of 10 years, renewable at therequest of Sogou Technology.Powers of Attorney executed by the shareholders of Sogou Information in favor of Sogou Technology with a term of 10 years, extendable at the requestof Sogou Technology. These powers of attorney give Sogou Technology the right to appoint nominees to act on behalf of each of the three SogouInformation shareholders in connection with all actions to be taken by Sogou Information.Loan agreements and equity pledge agreements between AmazGame and the sole shareholder of Gamease and between Gamespace and the soleshareholder of Guanyou Gamespace. The loan agreements provide for loans to the respective shareholders of Gamease and Guanyou Gamespace for theshareholders to make contributions to the registered capital of Gamease and Guanyou Gamespace in exchange for 100% of the equity interests inGamease and Guanyou Gamespace. The loans are interest free and are repayable on demand, but the shareholders can only repay the loans bytransferring to AmazGame and Gamespace, as the case may be, their equity interests in Gamease and Guanyou Gamespace. Under the equity pledgeagreements, the respective shareholders of Gamease and Guanyou Gamespace pledge to AmazGame and Gamespace, their equity interests in Gameaseand Guanyou Gamespace to secure the performance of their obligations under the loan agreements and Gamease’s and Guanyou Gamespace’sobligations to AmazGame and Gamespace under the various VIE-related agreements. If the shareholders breach their obligations under any VIE-relatedagreements (Gamease’s or Guanyou Gamespace’s breach of any of its obligations under the various applicable VIE-related agreements will be treated asits shareholder’s breach of its obligations), including the equity pledge agreements, AmazGame and Gamespace are entitled to exercise their rights asthe beneficiaries under the applicable equity pledge agreements, including all rights the respective shareholders have as shareholders of Gamease orGuanyou Gamespace.Equity interest purchase right agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, GuanyouGamespace and the sole shareholder of Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace have the right, exercisable atany time if and when it is legal to do so under PRC law, to purchase from the respective shareholders of Gamease and Guanyou Gamespace all or anypart of their equity interests in Gamease and Guanyou Gamespace at a purchase price equal to their initial contributions to the registered capital ofGamease and Guanyou Gamespace.Powers of attorney executed by the sole shareholder of Gamease in favor of AmazGame and by the sole shareholder of Guanyou Gamespace in favor ofGamespace, with a term of 10 years. These powers of attorney give the respective boards of directors of AmazGame and Gamespace the exclusive rightto appoint nominees to act on behalf of their respective shareholders in connection with all actions to be taken by Gamease and Guanyou Gamespace.Business operation agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, Guanyou Gamespace andthe sole shareholder of Guanyou Gamespace. These agreements set forth the right of AmazGame and Gamespace to control the actions of Gamease andGuanyou Gamespace, as the case may be, and the respective shareholders of Gamease and Guanyou Gamespace. Each agreement has a term of 10 years.Business Arrangements between Subsidiaries and Consolidated VIEsExclusive technology consulting and service agreement between Sohu Era and Sohu Internet. Pursuant to this agreement Sohu Era has the exclusiveright to provide technical consultation and other related services to Sohu Internet, in exchange for a percentage of the gross revenue of Sohu Internet.The agreement has an initial term of two years, and is renewable at the request of Sohu Era.Exclusive technology consulting and service agreement between Video Tianjin and Tianjin Jinhu. Pursuant to this agreement Video Tianjin has theexclusive right to provide technical consultation and other related services to Tianjin Jinhu in exchange for a fee. The agreement has a term of 10 yearsand is renewable at the request of Video Tianjin. F-62Table of ContentsExclusive technology consulting and service agreement between Sogou Technology and Sogou Information. Pursuant to this agreement SogouTechnology has the exclusive right to provide technical consultation and other related services to Sogou Information in exchange for a fee. Theagreement has a term of 10 years and is renewable at the request of Sogou Technology.Technology support and utilization agreements between AmazGame and Gamease and between Gamespace and Guanyou Gamespace. Pursuant tothese agreements, AmazGame and Gamespace have the exclusive right to provide certain product development and application services andtechnology support to Gamease and Guanyou Gamespace, respectively, for a fee equal to a predetermined percentage, subject to adjustment byAmazGame or Gamespace at any time, of Gamease’s and Guanyou Gamespace’s respective revenues. Each agreement terminates only when AmazGameor Gamespace is dissolved.Services and maintenance agreements between AmazGame and Gamease between Gamespace and Guanyou Gamespace. Pursuant to these agreements,AmazGame and Gamespace, respectively, provide marketing, staffing, business operation and maintenance services to Gamease and GuanyouGamespace, respectively, in exchange for a fee equal to the cost of providing such services plus a predetermined margin. Each agreement terminatesonly when AmazGame or Gamespace, as the case may be, is dissolved.Certain of the contractual arrangements described above between the VIEs and the related wholly-owned subsidiaries of the Sohu Group are silentregarding renewals. However, because the VIEs are controlled by the Sohu Group through powers of attorney granted to the Sohu Group by theshareholders of the VIEs, the contractual arrangements can be, and are expected to be, renewed at the subsidiaries’ election.VIE-Related RisksIt is possible that the Sohu Group’s operation of certain of its operations and businesses through VIEs could be found by PRC authorities to be inviolation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. If afinding were made by PRC authorities that the Sohu Group’s operation of certain of its operations and businesses through VIEs is prohibited,regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses would have broad discretion in dealing withsuch a violation, including levying fines, confiscating the Sohu Group’s income, revoking the business or operating licenses of the affected businesses,requiring the Sohu Group to restructure its ownership structure or operations, or requiring the Sohu Group to discontinue all or any portion of itsoperations. Any of these actions could cause significant disruption to the Sohu Group’s business operations, and have a severe adverse impact on theSohu Group’s cash flows, financial position, and operating performance. The Sohu Group’s management considers the possibility of such a finding byPRC regulatory authorities to be remote.In addition, it is possible that the contracts among the Sohu Group, the Sohu Group’s VIEs and shareholders of its VIEs would not be enforceable inChina if PRC government authorities or courts were to find that such contracts contravene PRC law and regulations or are otherwise not enforceable forpublic policy reasons. In the event that the Sohu Group was unable to enforce these contractual arrangements, the Sohu Group would not be able toexert effective control over the affected VIEs. Consequently, such VIEs’ results of operations, assets and liabilities would not be included in the SohuGroup’s consolidated financial statements. If such were the case, the Sohu Group’s cash flows, financial position and operating performance would beseverely adversely affected. The Sohu Group’s contractual arrangements with respect to its consolidated VIEs are in place. The Sohu Group’smanagement believes that such contracts are enforceable, and considers the possibility remote that PRC regulatory authorities with jurisdiction overthe Sohu Group’s operations and contractual relationships would find the contracts to be unenforceable.The Sohu Group’s operations and businesses rely on the operations and businesses of its VIEs, which hold certain recognized and unrecognizedrevenue-producing assets. The recognized revenue-producing assets include goodwill and intangible assets acquired through business acquisitions.Goodwill primarily represents the expected synergies from combining an acquired business with the Sohu Group. Intangible assets acquired throughbusiness acquisitions mainly consist of customer relationships, non-compete agreements, user bases, copyrights, trademarks and developedtechnologies. Unrecognized revenue-producing assets mainly consist of licenses and intellectual property. Licenses include operations licenses, suchas Internet information service licenses and licenses for providing content. Intellectual property developed by the Sohu Group mainly consists ofpatents, copyrights, trademarks, and domain names. The Sohu Group’s operations and businesses may be adversely impacted if the Sohu Group losesthe ability to use and enjoy assets held by these VIEs. F-63Table of Contents17.SOHU.COM LIMITED SHAREHOLDERS’ EQUITYSummary of the Company’s outstanding shares (in thousands): Number of Outstanding SharesAs of December 31, 2016 2017 2018 Balance, beginning of year 38,653 38,742 38,898 Issuance: 89 156 331 Balance, end of year 38,742 38,898 39,229 Share Incentive PlansSohu (excluding Sohu Video), Sogou, Changyou, and Sohu Video have incentive plans for the granting of share-based awards, including options andrestricted share units, to their directors, management and other key employees.1) Sohu.com Limited Share-based AwardsSohu’s 2018 Share Incentive PlanOn July 2, 2010, Sohu.com Inc.’s shareholders adopted the 2010 Stock Incentive Plan, which provides for the issuance of up to 1,500,000 shares ofSohu.com Inc.’s common stock, including stock issued pursuant to the vesting and settlement of restricted stock units and pursuant to the exercise ofstock options. The maximum term of any share-based award granted under the Sohu 2010 Stock Incentive Plan is ten years from the grant date.On April 2, 2018, Sohu.com Limited adopted the Sohu 2018 Share Incentive Plan, which provides for the issuance of up 1,148,565 ordinary shares ofSohu.com Limited. The Sohu 2018 Share Incentive Plan will expire in April 2028.Upon the dissolution of Sohu.com Inc. on May 31, 2018, Sohu.com Limited assumed all then existing obligations of Sohu.com Inc. with respect toequity incentive awards that had been granted under the Sohu 2010 Stock Incentive Plan and then remained outstanding, and such awards wereconverted into the right to receive upon exercise or settlement Sohu.com Limited’s ordinary shares under the Sohu 2018 Share Incentive Plan ratherthan shares of the common stock of Sohu.com Inc., subject to the other terms of such outstanding awards.As of December 31, 2018, 649,405 shares were available for grant under the Sohu 2018 Share Incentive Plan.i) Summary of Share Option ActivityIn February 2015, May 2016, September 2017 and November 2017, Sohu.com Inc.’s Board of Directors approved contractual grants to members of theCompany’s management and key employees of options for the purchase of an aggregate of 1,068,000, 13,000, 32,000 and 6,000 shares of commonstock of Sohu.com Inc., respectively, under the Sohu 2010 Stock Incentive Plan, with nominal exercise prices of $0.001, all of which were converted,on May 31, 2018, into the right to receive upon exercise Sohu.com Limited’s ordinary shares under the Sohu 2018 Share Incentive Plan. These shareoptions vest and become exercisable in four equal installments over a period of four years, with each installment vesting upon the satisfaction of aservice period requirement and certain subjective performance targets. These share options are substantially similar to restricted share units except forthe nominal exercise price, which would be zero for restricted share units.Under ASC 718-10-25 and ASC 718-10-55, no grant date can be established for these options until a mutual understanding is reached between theCompany and the recipients clarifying the subjective performance requirements. If the service inception date preceded the grant date, compensationexpense should be accrued beginning on the service inception date, and re-measured on each subsequent reporting date before the grant date isestablished, based on the then-current fair value of the awards. To determine the fair value of these options, the public market price of the underlyingshares at each reporting date is used and a binomial valuation model is applied.As of December 31, 2018, 578,500 of these options had been granted and had become vested on their respective vesting dates, as a mutualunderstanding of the subjective performance targets was reached between the Company and the recipients, the targets had been satisfied, and theservice period requirements had been fulfilled. The cumulative share-based compensation expense for these granted options has been adjusted andfixed based on their aggregate fair values, at their respective grant dates, of $22.8 million. F-64Table of ContentsA summary of option activity under the Sohu 2010 Stock Incentive Plan and the Sohu 2018 Share Incentive Plan, as applicable, as of and for the yearended December 31, 2018 is presented below: Options NumberOfShares(in thousands) WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValue (1)(in thousands) Outstanding as of January 1, 2018 223 $0.001 $ Granted 147 0.001 Exercised (328) 0.001 Forfeited or expired 0 Outstanding as of December 31, 2018 42 0.001 6.56 736 Vested as of December 31, 2018 42 0.001 6.56 736 Exercisable as of December 31, 2018 42 0.001 6.56 736 Note (1): The aggregated intrinsic value in the preceding table represents the difference between Sohu’s closing ADS price of $17.42 on December 31,2018 and the nominal exercise price of the options.For the years ended December 31, 2018, 2017 and 2016, total share-based compensation expense recognized for these options was negative$5.1 million, $2.4 million and $1.4 million, respectively. The negative amounts in the tables above resulted from re-measured compensation expensebased on the then-current fair value of the awards on the reporting date. For the years ended December 31, 2018, 2017 and 2016, the total fair values ofthese Sohu options vested on their respective vesting dates were $5.0 million, $7.1 million and $10.8 million, respectively. For the years endedDecember 31, 2018, 2017 and 2016, the total intrinsic value of options exercised was $6.2 million, $6.1 million and $2.5 million, respectively.ii) Summary of restricted stock unit activityA summary of restricted stock/share unit activity under the Sohu 2010 Stock Incentive Plan and the Sohu 2018 Share Incentive Plan, as applicable, asof and for the year ended December 31, 2018 is presented below: Restricted Stock Units Number ofUnits(in thousands) Weighted-AverageGrant-DateFair Value Unvested as of January 1, 2018 1 $72.92 Granted 0 Vested (1) 72.92 Forfeited 0 Unvested as of December 31, 2018 0 Expected to vest after December 31, 2018 0 For the years ended December 31, 2018, 2017 and 2016, total share-based compensation expense recognized for restricted stock/share units was nil,negative $1.7 million and $1.3 million, respectively.As of December 31, 2018, there was nil of unrecognized compensation expense related to unvested restricted stock/share units. The total fair value ontheir respective vesting dates of restricted stock/share units vested during the years ended December 31, 2018, 2017 and 2016 was nil, $0.3 million and$0.9 million, respectively.2) Sogou Inc. Share-based AwardsSogou 2010 Share Incentive PlanSogou adopted a share incentive plan on October 20, 2010 amended the plan effective August 22, 2014 to increase the aggregate number of SogouClass A Ordinary Shares issuable under the plan to 41,500,000 (as amended to date, the “Sogou 2010 Share Incentive Plan”). Awards of share rightsmay be granted under the Sogou 2010 Share Incentive Plan to management and other key employees of Sogou and of any present or future parents orsubsidiaries or VIEs of Sogou. The maximum term of any share incentive award granted under the Sogou 2010 Share Incentive Plan is ten years fromthe grant date. The Sogou 2010 Share Incentive Plan will expire on October 19, 2020.The options contractually granted under the Sogou 2010 Share Incentive Plan may be placed in one of the following three categories: (i)Performance-based options, which vest and become exercisable either in four equal installments or in two to four installments of specified sharenumbers over their specified vesting periods, with each installment vesting upon a service period requirement being met, as well as Sogou’sachievement of performance targets for the corresponding period. For purposes of recognition of share-based compensation expense, eachinstallment is considered to be granted as of the date that the performance targets have been set; or F-65Table of Contents(ii)Service-based options, which vest and become exercisable either in four equal installments or in two to four installments of specified sharenumbers over their specified vesting periods, with each installment vesting only upon a service period requirement being met; or (iii)IPO-based options, which were subject to completion of an IPO and vesting/ exercisability in five equal installments, with (i) the first installmentvesting upon the expiration of all underwriters’ lockup periods applicable to Sogou’s IPO and (ii) each of the four subsequent installmentsvesting on the first, second, third, and fourth anniversary dates of the completion of Sogou’s IPO.A summary of each of the above three categories of Sogou’s share options as of December 31, 2018 is presented below: ContractuallyGranted(in thousands) Granted(For Purposes of Share-based CompensationExpense)(in thousands) Vested andExercisable(in thousands) Exercised(in thousands) Performance-based options 29,687 27,199 27,060 26,592 Service-based options 1,674 1,674 486 156 IPO-based options 7,250 7,250 2,930 2,930 Total 38,611 36,123 30,476 29,678 A summary of Sogou share option activity under the Sogou 2010 Share Incentive Plan as of and for the year ended December 31, 2018 is presentedbelow: Options NumberOfShares(in thousands) WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValue (1)(in thousands) Outstanding as of January 1, 2018 9,753 $0.462 5.56 $ Granted 1,704 0.001 Exercised (4,515) 0.399 Forfeited or expired (497) 0.001 Outstanding as of December 31, 2018 6,445 0.419 5.29 31,137 Vested as of December 31, 2018 and expected to vest thereafter 6,059 0.446 5.10 29,109 Exercisable as of December 31, 2018 798 0.001 7.15 4,188 Note (1): The aggregate intrinsic values in the preceding table represent the difference between Sogou’s closing price of $5.25 per Class A OrdinaryShare on December 31, 2018 and the exercise prices of the share options.For the years ended December 31, 2018, 2017 and 2016, total share-based compensation expense recognized for Sogou share options under the Sogou2010 Share Incentive Plan was $12.5 million, $23.0 million and $7.6 million, respectively. As of December 31, 2018, there was $6.4 million ofunrecognized compensation expense related to unvested Sogou share options. The expense is expected to be recognized over a weighted averageperiod of 1.46 years. For the years ended December 31, 2018, 2017 and 2016, the total intrinsic value of options exercised was $33.2 million,$11.1 million, and $15.2 million, respectively.Prior to the completion of Sogou’s IPO, the fair values of Sogou Class A Ordinary Shares were assessed using the income approach /discounted cashflow method or based on the mid-point of the estimated Sogou IPO price range, in each case with a discount for lack of marketability, because theSogou Class A Ordinary Shares underlying the award were not publicly traded at the time of grant. The assessment required complex and subjectivejudgments regarding Sogou’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operatinghistory and prospects at the time the grants were made. After the completion of Sogou’s IPO, the fair values of the ordinary shares of Sogou weredetermined based on the market price of Sogou’s ADSs. F-66Table of ContentsThe fair value of the Sogou share options granted under the Sogou 2010 Incentive Plan was estimated on the date of grant with the assistance of aqualified professional appraiser, using the binomial valuation model with the following assumptions used: Assumptions Adopted 2016 2017 2018 Average risk-free interest rate 1.90%~2.77% 2.14%~3.00% 3.36% ~ 3.51% Exercise multiple 2~3 2~3 2 Expected forfeiture rate (post-vesting) 0%~12% 0%~12% 12% Weighted average expected option life 7 7 9 Volatility rate 43%~50% 39%~47% 40% ~ 46% Dividend yield 0% 0% 0% Weighted average fair value of share options 3.26 10.35 12.26 Sogou estimated the risk-free rate based on the market yields of U.S. Treasury securities with an estimated country-risk differential as of the valuationdate. An exercise multiple was estimated as the ratio of the fair value of the Sogou Class A Ordinary Shares over the exercise prices as of the time theoptions would be expected to be exercised, based on consideration of research studies regarding exercise patterns based on historical statistical data. InSogou’s valuation analysis, a multiple of three was applied for management and a multiple of two was applied for other key employees. Sogouestimated the forfeiture rate to be 0% or 1% for the Sogou share options granted to Sogou management and 12% for the Sogou share options granted toSogou’s other key employees. As Sogou’s ordinary shares had been publicly traded for only one year as of December 31, 2018, the expected volatilityat the valuation date was estimated based on the historical volatility of specified comparable companies for the periods before the grant dates withlength commensurate with the expected term of the Sogou share options. Sogou has no history or expectation of paying dividends on its ordinaryshares. Accordingly, the dividend yield was estimated to be 0%.Sogou 2017 Share Incentive PlanIn October 2017, Sogou adopted a share incentive plan (the “Sogou 2017 Share Incentive Plan”) which provides that the aggregate number of SogouClass A Ordinary Shares issuable under the plan is 28,000,000. Share incentive awards may be granted under the Sogou 2017 Share Incentive Plan toSogou’s management and employees and of any of its present or future parents or subsidiaries. The maximum term of any share incentive award grantedunder the Sogou 2017 Share Incentive Plan is ten years from the grant date.The options contractually granted under the Sogou 2017 Share Incentive Plan may be placed in one of the following two categories: (i)Performance-based options, which vest and become exercisable in four equal installments, with each installment vesting upon a service periodrequirement being met, as well as the Sogou Group’s achievement of performance targets for the corresponding period. For purposes ofrecognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance targets havebeen set; or (ii)Service-based options, which vest and become exercisable in four equal installments, with each installment vesting only upon a service periodrequirement being met.A summary of each of the above two categories of Sogou’s share options as of December 31, 2018 is presented below: ContractuallyGranted(in thousands) Granted(For Purposes of Share-based CompensationExpense)(in thousands) Vested andExercisable(in thousands) Exercised(in thousands) Performance-based options 70 0 0 0 Service-based options 730 730 0 0 Total 800 730 0 0 F-67Table of ContentsA summary of Sogou share option activity under the Sogou 2017 Share Incentive Plan as of and for the year ended December 31, 2018 is presentedbelow: Options NumberOfShares(in thousands) WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValue (1)(in thousands) Outstanding as of January 1, 2018 0 $ $ Granted 767 0.001 Exercised 0 Forfeited or expired (37) 0.001 Outstanding as of December 31, 2018 730 0.001 9.57 3,829 Vested as of December 31, 2018 and expected to vestthereafter 544 0.001 9.57 2,857 Exercisable as of December 31, 2018 0 Note (1): The aggregate intrinsic value in the preceding table represents the difference between the Sogou’s closing price of $5.25 per Class A OrdinaryShares on December 31, 2018 and the exercise prices of the share options.For the years ended December 31, 2018, total share-based compensation expense recognized for Sogou share options under the Sogou 2017 ShareIncentive Plan was $1.6 million. As of December 31, 2018 there was $4.0 million of unrecognized compensation expense related to unvested Sogoushare options. The expense is expected to be recognized over a weighted average period of 2.12 years.The method used to determine the fair value of the Sogou share options granted under the Sogou 2017 Share Incentive Plan was the same as themethod used for the share options granted under the Sogou 2010 Incentive Plan as described above, except for the assumptions used in the binomialvaluation model as presented below: Assumptions Adopted 2018 Average risk-free interest rate 3.41%~3.95% Exercise multiple 2 Expected forfeiture rate (post-vesting) 12% Weighted average expected option life 10 Volatility rate 40%~46% Dividend yield 0% Weighted average fair value of share options 10.09 Sohu Management Sogou Share Option ArrangementUnder an arrangement (the “Sohu Management Sogou Share Option Arrangement”) that was approved by the boards of directors of Sohu and Sogou inMarch 2011, Sohu has the right to provide to members of Sohu’s Board of Directors, management and other key employees of the Sohu, and certainmembers of management and other key employees of Sogou the opportunity to purchase from Sohu up to 12,000,000 Sogou Class A Ordinary Shares ata fixed exercise price of $0.625 or $0.001 per share. Of these 12,000,000 Sogou Class A Ordinary Shares, 8,800,000 are Sogou Class A Ordinary Sharespreviously held by Sohu and 3,200,000 are Sogou Class A Ordinary Shares that were newly-issued on April 14, 2011 by Sogou to Sohu at a price of$0.625 per share, or a total of $2.0 million. As of December 31, 2018, Sohu had contractually granted options for the purchase of 8,305,000 SogouClass A Ordinary Shares under the Sohu Management Sogou Share Option Arrangement.The options contractually granted under the Sohu Management Sogou Share Option Arrangement may be placed in one of the following twocategories: (i)Performance-based options, which vest and become exercisable in four equal installments, with each installment vesting upon a service periodrequirement being met, as well as the Sogou Group’s achievement of performance targets for the corresponding period. For purposes ofrecognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance targets havebeen set; or (ii)Service-based options, which were granted to members of Sohu’s Board of Directors. All of these share options vested and became exercisable in2015, as the service period requirement had been met. F-68Table of ContentsA summary of the above two categories of Sogou’s share options as of December 31, 2018 is presented below: ContractuallyGranted(in thousands) Granted(For Purposes of Share-based CompensationExpense)(in thousands) Vested andExercisable(in thousands) Exercised(in thousands) Performance-based options 8,290 8,290 8,290 8,290 Service-based options 15 15 15 6 Total 8,305 8,305 8,305 8,296 A summary of Sogou share option activity under the Sohu Management Sogou Share Option Arrangement as of and for the year ended December 31,2018 is presented below: NumberOfShares(in thousands) WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValue (1)(in thousands) Outstanding as of January 1, 2018 9 $0.001 7.38 $ Granted 0 Exercised 0 Forfeited or expired 0 Outstanding as of December 31, 2018 9 0.001 6.38 47 Vested as of December 31, 2018 9 0.001 6.38 47 Exercisable as of December 31, 2018 9 0.001 6.38 47 Note (1): The aggregate intrinsic values in the preceding table represent the difference between Sogou’s closing price of $5.25 per Class A ordinaryshare on December 31, 2018 and the exercise prices of the options.For the years ended December 31, 2018, 2017 and 2016, total share-based compensation expense recognized for Sogou share options under the SohuManagement Sogou Share Option Arrangement was nil, nil and $0.4 million, respectively. As of December 31, 2018, there was no unrecognizedcompensation expense related to unvested Sogou share options. For the years ended December 31, 2018, 2017 and 2016, the total fair values of theSogou share options under the Sohu Management Sogou Share Option Arrangement vested on their respective vesting dates were nil, nil, and$0.5 million, respectively. For the years ended December 31, 2018, 2017 and 2016, total intrinsic value of options exercised was nil, $0.2 million, and$4.5 million, respectively.The method used to determine the fair value of Sogou share options granted under the Sohu Management Sogou Share Option Arrangement was thesame as the method used for the Sogou share options granted under the Sogou 2010 Incentive Plan as described above, except for the assumptions usedin the binomial valuation model as presented below. There was no share-based compensation expense recognized under the Sohu Management SogouShare Option Arrangement for the year ended December 31, 2017 and 2018. Assumptions Adopted 2016 Average risk-free interest rate 2.01%~2.15% Exercise multiple 2~3 Expected forfeiture rate (post-vesting) 0% Weighted average expected option life 6 Volatility rate 43%~47% Dividend yield 0% Weighted average fair value of share options 3.02 Option ModificationIn the first and second quarter of 2013, a portion of the Sogou share options granted under the Sogou 2010 Share Incentive Plan and the SohuManagement Sogou Share Option Arrangement were exercised early, and the resulting Sogou ordinary shares were transferred to trusts with the originaloption grantees as beneficiaries. The trusts will distribute the Sogou ordinary shares to those beneficiaries in installments based on the vestingrequirements under the original option agreements. Although these trust arrangements caused a modification of the terms of these Sogou share options,the modification was not considered substantive. Accordingly, no incremental fair value related to these Sogou ordinary shares resulted from themodification, and the remaining share-based compensation expense for these Sogou ordinary shares continued to be recognized over the originalremaining vesting period. F-69Table of ContentsAs of December 31, 2018, 6,405,000 Sogou Class A Ordinary Shares that were purchased upon the early exercise of options granted under the Sogou2010 Share Incentive Plan remained unvested in accordance with the vesting requirements under the original option agreements. All Sogou Class AOrdinary Shares issued upon such early exercise that have become vested have been included in the disclosures under the headings “Sogou 2010 ShareIncentive Plan” and “Sohu Management Sogou Share Option Arrangement” above.In the first quarter of 2018, Sogou changed the vesting conditions of options for the purchase of 2,181,192 Sogou Class A Ordinary Sharescontractually granted under the Sogou 2010 Share Incentive Plan by removing as a condition of vesting Sogou’s achievement of performance targetsfor the period corresponding to the vesting schedule. Of these options, options for the purchase of 1,601,427 Sogou Class A Ordinary Shares had notbeen deemed granted, because their performance targets for the current period had not been set, so the removal of the performance targets resulted inthese options becoming subject to vesting only upon service-period requirements being met and being deemed granted immediately upon theeffectiveness of the changes. For the remaining options for the purchase of 579,765 Sogou Class A Ordinary Shares, which had been deemed granted,the removal of the performance targets constituted a modification. The modification was not considered substantive, because their performance targetshad been achieved before the modification. Based on valuation results, no incremental fair value related to these Sogou ordinary shares was recognizedin connection with the modification, and the remaining share-based compensation expense for these Sogou ordinary shares continued to be recognizedover the remaining vesting period.Sogou Share Repurchase TransactionIn January 2017, Sogou repurchased 720,000 of its Pre-IPO Class A Ordinary Shares from the former President and Chief Financial Officer of the SohuGroup for an aggregate price of $7.2 million. Approximately $4.0 million incremental share-based compensation expense associated with therepurchase, which was made pursuant to letter agreements entered into in 2016 between the Sohu Group and the former President and Chief FinancialOfficer of the Sohu Group in connection with her resignation, which amount is equal to the excess of the repurchase price over the fair value of SogouPre-IPO Class A Ordinary Shares as of the repurchase date, related to events occurring in 2016 and was recorded in the Sohu Group’s statements ofcomprehensive income for the first quarter of 2017. The Group assessed the impact and determined that it was not material to the quarter endedDecember 31, 2016, the year ended December 31, 2016, or the year ended December 31, 2017.Tencent Share-based Awards Granted to Employees Who Transferred to Sogou with the Soso Search and Search-related BusinessesCertain persons who became Sogou employees when Tencent’s Soso search and search-related businesses were transferred to Sogou on September 16,2013 had been granted restricted share units under Tencent’s share award arrangements prior to the transfer of the businesses. Following the transfer ofthe businesses, these Tencent restricted share units will continue to vest under the original Tencent share award arrangements provided the transferredemployees continue to be employed by Sogou during the requisite service period. After the transfer of the Soso search and search-related businesses toSogou, Sogou applied the guidance in ASC 505-50 to measure the related compensation expense, which is deemed to have been incurred by Tencentas an investor on Sogou’s behalf, based on the fair value at each reporting date. To determine the then-current fair value of the Tencent restricted shareunits granted to these employees, the public market price of the underlying shares at each reporting date was applied.For the years ended December 31, 2018, 2017 and 2016, share-based compensation expense of $0.1 million, $0.7 million and $0.8 million,respectively, related to these Tencent restricted share units was recognized in the Group’s consolidated statements of comprehensive income. As ofDecember 31, 2018, there were no unvested Tencent restricted share units held by employees of Sogou and there was no unrecognized compensationexpense related to these unvested restricted share units.3) Changyou.com Limited Share-based AwardsChangyou 2008 Share Incentive PlanChangyou’s 2008 Share Incentive Plan (the “Changyou 2008 Share Incentive Plan”) originally provided for the issuance of up to 2,000,000 Changyouordinary shares, including Changyou ordinary shares issued pursuant to the exercise of share options and upon vesting and settlement of restrictedshare units. The 2,000,000 reserved Changyou ordinary shares became 20,000,000 Changyou ordinary shares in March 2009 when Changyou effecteda ten-for-one share split of its ordinary shares. Most of the awards granted under the Changyou 2008 Share Incentive Plan vest over a period of fouryears. The maximum term of any share right granted under the Changyou 2008 Share Incentive Plan is ten years from the grant date. The Changyou2008 Share Incentive Plan expired in August 2018 and is no longer available for granting new share-based awards.All of the restricted Changyou ordinary shares and restricted share units granted under the Changyou 2008 Share Incentive Plan were vested as ofDecember 31, 2017, as the requisite service period for all these awards had been completed. There has been no share-based compensation expenserecognized under the Changyou 2008 Share Incentive Plan since then. F-70Table of ContentsChangyou 2014 Share Incentive PlanOn June 27, 2014, Changyou reserved 2,000,000 of its Class A ordinary shares under the Changyou.com Limited 2014 Share Incentive Plan (the“Changyou 2014 Share Incentive Plan”) for the purpose of making share incentive awards to certain members of its management and key employees.On November 2, 2014, Changyou’s Board approved an increase in the number of Class A ordinary shares reserved under the Changyou 2014 ShareIncentive Plan from 2,000,000 to 6,000,000. The maximum term of any share right granted under the Changyou 2014 Share Incentive Plan is ten yearsfrom the grant date. The Changyou 2014 Share Incentive Plan will expire in June 2024. As of December 31, 2018, 3,023,000 shares were available forgrant under the Changyou 2014 Share Incentive Plan.i) Summary of Share Option ActivityOn November 2, 2014, Changyou approved the contractual grant of an aggregate of 2,416,000 Class A restricted share units to certain members of itsmanagement and certain other employees. On February 16, 2015, Changyou’s Board of Directors approved the conversion of 2,400,000 of theseClass A restricted share units into options for the purchase of Class A ordinary shares at an exercise price of $0.01. On June 1, 2015, Changyou’s Boardof Directors approved the contractual grant of options for the purchase of an aggregate of 1,998,000 Class A ordinary shares to certain members of itsmanagement and certain other employees at an exercise price of $0.01. On July 28, 2016, Changyou’s Board of Directors approved the contractualgrant of options for the purchase of an aggregate of 100,000 Class A ordinary shares to certain member of its management at an exercise price of $0.01.These Changyou share options vest in four equal installments over a period of four years, with each installment vesting upon satisfaction of a serviceperiod requirement and the achievement of certain subjective performance targets. These Changyou share options are substantially similar to restrictedshare units except for the nominal exercise price, which would be zero for restricted share units.Under ASC 718-10-25 and ASC 718-10-55, no grant date can be established until a mutual understanding is reached between the Company and therecipients clarifying the subjective performance requirements. If the service inception date preceded the grant date, compensation expense should beaccrued beginning on the service inception date, and re-measured on each subsequent reporting date before the grant date is established, based on thethen-current fair value of the awards. To determine the fair value of these Changyou share options, the public market price of the underlying ChangyouClass A ordinary shares at each reporting date is used and a binomial valuation model is applied.As of December 31, 2018, 2,718,000 of these Changyou share options had been granted and had become vested on their respective vesting dates, as amutual understanding of the subjective performance targets had been reached between Changyou and the recipients, the targets had been satisfied, andthe service period requirements had been fulfilled. The cumulative share-based compensation expense of $35.4 million for these granted share optionswas adjusted and fixed based on the aggregate amounts of the fair values of these granted share options at their respective grant dates.A summary of share option activity under the Changyou 2014 Share Incentive Plan as of and for the year ended December 31, 2018 is presented below: NumberOfShares(in thousands) WeightedAverageExercisePrice WeightedAverageRemainingContractualLife (Years) AggregateIntrinsicValue (1)(in thousands) Outstanding as of January 1, 2018 947 $0.01 7.01 $17,240 Granted 719 0.01 Exercised (1,065) 0.01 Forfeited or expired 0 Outstanding as of December 31, 2018 601 0.01 5.98 5,487 Vested as of December 31, 2018 601 0.01 5,487 Exercisable as of December 31, 2018 601 0.01 Note (1): The aggregate intrinsic value in the preceding table represents the difference between Changyou’s closing price of $18.28 per ADS, or $9.14per Class A ordinary share, on December 31, 2018 and the nominal exercise price of the share option. F-71Table of ContentsFor the years ended December 31, 2018, 2017 and 2016, total share-based compensation expense recognized for these share options under theChangyou 2014 Share Incentive Plan was negative $6.5 million, $17.4 million and $8.3 million, respectively. For the years ended December 31, 2018,2017 and 2016, the total fair values of these Changyou share options vested on their respective vesting dates were $5.7 million, $14.8 million and$9.1 million, respectively. For the years ended December 31, 2018, 2017 and 2016, the total intrinsic value of share options exercised was$14.9 million, $10.3 million and $4.3 million, respectively.4) Sohu Video Share-based AwardsOn January 4, 2012, Sohu Video adopted the Video 2011 Share Incentive Plan, under which 25,000,000 ordinary shares of Sohu Video are reserved forthe purpose of making share incentive awards to management and key employees of Sohu Video and to Sohu management. The maximum term of anyshare incentive award granted under the Video 2011 Share Incentive Plan is ten years from the grant date. The Video 2011 Share Incentive Plan willexpire on January 3, 2022. As of December 31, 2018, grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had beencontractually made and were subject to vesting in four equal installments, with each installment vesting upon a service period requirement being met,as well as Sohu Video’s achievement of performance targets for the corresponding period. For purposes of ASC 718-10-25, as of December 31, 2018, nogrant date had occurred, because the broader terms and conditions of the option awards had neither been finalized nor mutually agreed upon with therecipients. As of December 31, 2018, options for the purchase of 4,972,800 Sohu Video ordinary shares were vested.For the years ended December 31, 2018, 2017 and 2016, total share-based compensation expense recognized for vested Sohu Video options under theVideo 2011 Share Incentive Plan was negative $0.5 million, negative $0.3 million and $0.8 million, respectively.The fair value as of December 31, 2018 and the Sohu Video options contractually granted to management and key employees of Sohu Video and toSohu management was estimated on the reporting date using the binomial valuation model, with the following assumptions used: Assumptions Adopted 2018 Average risk-free interest rate 3.19% Exercise multiple 2.8 Expected forfeiture rate (post-vesting) 14% Weighted average expected option life 3.0 Volatility rate 45.1% Dividend yield 0 Fair value 0.53 18.NONCONTROLLING INTERESTCurrently, the noncontrolling interests in the Sohu Group’s consolidated financial statements primarily consist of noncontrolling interests for Sogouand Changyou.Noncontrolling Interest in the Consolidated Balance SheetsAs of December 31, 2017 and 2018, noncontrolling interest in the consolidated balance sheets was $1.07 billion and $0.96 billion, respectively. As of December 31, 2017 2018 Sogou $623,785 $686,503 Changyou 442,818 277,608 Total $1,066,603 $964,111 Noncontrolling Interest of SogouAs of December 31, 2018 and 2017, noncontrolling interest of Sogou of $686.5 million and $623.8 million, respectively, was recognized in the SohuGroup’s consolidated balance sheets, both representing an economic interest of 67% and 66%, respectively, in Sogou’s net assets held by shareholdersother than Sohu and reflecting the reclassification of Sogou’s share-based compensation expense from shareholders’ additional paid-in capital tononcontrolling interest.Noncontrolling Interest of ChangyouAs of December 31, 2018 and 2017, noncontrolling interest of Changyou of $277.6 million and $442.8 million, respectively, was recognized in theSohu Group’s consolidated balance sheets, representing a 33% and 32% economic interest for 2018 and 2017, respectively, in Changyou’s net assetsheld by shareholders other than Sohu and reflecting the reclassification of Changyou’s share-based compensation expense from shareholders’additional paid-in capital to noncontrolling interest. F-72Table of ContentsNoncontrolling Interest in the Consolidated Statements of Comprehensive Income /(Loss)For the years ended December 31, 2018, 2017 and 2016, respectively, the Sohu Group had net income of $92.7 million, net income of $84.5 millionand net income of $109.0 million, respectively, attributable to the noncontrolling interest in the consolidated statements of comprehensive income/(loss). Year Ended December 31, 2016 2017 2018 Sogou $61,403 $77,025 $65,586 Changyou 47,645 7,603 27,137 Other 0 (105) 0 Total $109,048 $84,523 $92,723 Noncontrolling Interest of SogouFor the years ended December 31, 2018, 2017 and 2016, respectively, a $65.6 million net income, a $77.0 million net income and a $61.4 million netincome, respectively, attributable to the noncontrolling interest of Sogou was recognized in the Sohu Group’s consolidated statements ofcomprehensive income, representing Sogou’s net income /(loss) attributable to shareholders other than Sohu.Noncontrolling Interest of ChangyouFor the years ended December 31, 2018, 2017 and 2016, respectively, a $27.1 million net income, a $7.6 million net income and a $47.6 million netincome, respectively, attributable to the noncontrolling interest of Changyou was recognized in the Sohu Group’s consolidated statements ofcomprehensive income /(loss), representing a 33%, 32% and 31%, economic interest, respectively, in Changyou attributable to shareholders other thanSohu. 19.NET INCOME /(LOSS) PER SHAREBasic net income /(loss) per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted netincome /(loss) per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstandingduring the period. Potential ordinary shares comprise shares issuable upon the exercise or settlement of share-based awards using the treasury stockmethod. The dilutive effect of share-based awards with performance requirements is not considered before the performance targets are actually met. Thecomputation of diluted net income /(loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net income /(loss) per share. For the yearsended December 31, 2016, 2017 and 2018, 232,488, 263,497 and 292,622 ordinary shares, respectively, potentially issuable upon the exercise orsettlement of share-based awards using the treasury stock method were anti-dilutive and excluded from the denominator for calculation of diluted netloss per share.Additionally, for purposes of calculating the numerator of diluted net income /(loss) per share, the net income /(loss) attributable to Sohu is adjusted asfollows. The adjustment will not be made if there is an anti-dilutive effect.Sogou’s Net Income/(Loss) Attributable to SohuBefore Sogou’s IPOBefore Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu was determined using the percentage that the weighted average number of Sogoushares held by Sohu. represented of the weighted average number of Sogou Pre-IPO Preferred Shares and Sogou Pre-IPO Ordinary Shares outstanding,shares issuable upon the conversion of convertible preferred shares under the if-converted method, and shares issuable upon the exercise or settlementof share-based awards under the treasury stock method, and was not determined by allocating Sogou’s net income /(loss) to Sohu using themethodology for the calculation of net income /(loss) attributable to the Sogou noncontrolling shareholders. F-73Table of ContentsAfter Sogou’s IPOAfter Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Sogoushares held by Sohu represents of the weighted average number of Sogou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Sogou, which is used forthe calculation of basic net income per share.In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, the percentage of Sohu’s shareholding in Sogou wascalculated by treating convertible preferred shares issued by Sogou as having been converted at the beginning of the period and unvested Sogou shareoptions with the performance targets achieved as well as vested but unexercised Sogou share options as having been exercised during the period. Thedilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. The effect ofthis calculation is presented as “incremental dilution from Sogou” in the table below. Assuming an anti-dilutive effect, all of these Sogou shares andshare options are excluded from the calculation of Sohu’s diluted income /(loss) per share. As a result, Sogou’s net income /(loss) attributable to Sohuon a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.For the year ended December 31, 2018, all of the Sogou share options had a dilutive effect, and therefore were included in the calculation of Sohu.comLimited’s diluted net income /(loss) per share. This impact is presented as “incremental dilution from Sogou” in the table below.Changyou’s Net Income/(Loss) Attributable to SohuChangyou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Changyou shares held bySohu represents of the weighted average number of Changyou ordinary shares and shares issuable upon the exercise or settlement of share-basedawards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Changyou, which is used forthe calculation of basic net income per share.In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, all of Changyou’s existing unvested restricted share unitsand share options, and vested restricted share units and share options that have not yet been settled, are treated as vested and settled by Changyouunder the treasury stock method, causing the percentage of the weighted average number of shares held by Sohu in Changyou to decrease. As a result,Changyou’s net income /(loss) attributable to Sohu on a diluted basis decreased accordingly. The effect of this calculation is presented as “incrementaldilution from Changyou” in the table below. Assuming an anti-dilutive effect, all of these Changyou restricted share units and share options areexcluded from the calculation of Sohu’s diluted net income /(loss) per share. As a result, Changyou’s net income /(loss) attributable to Sohu on adiluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.For the year ended December 31, 2018, all of these Changyou restricted share units and share options had an dilutive effect, and therefore wereincluded in the calculation of Sohu.com Limited’s diluted net income /(loss) per share. This impact is presented as “incremental dilution fromChangyou” in the table below.The following table presents the calculation of the Sohu Group’s basic and diluted net loss per share (in thousands, except per share data). Year Ended December 31, 2016 2017 2018 Numerator: Net loss attributable to Sohu.com Limited, basic $(224,021) $(554,526) $(160,082) Effect of dilutive securities: Incremental dilution from Sogou 0 (1,233) (496) Incremental dilution from Changyou (1,639) (31) (382) Net loss attributable to Sohu.com Limited, diluted $(225,660) $(555,790) $(160,960) Denominator: Weighted average basic ordinary shares outstanding 38,706 38,858 38,959 Effect of dilutive securities: Share options and restricted share units 0 0 0 Weighted average diluted ordinary shares outstanding $38,706 $38,858 $38,959 Basic net loss per share attributable to Sohu.com Limited $(5.79) $(14.27) $(4.11) Diluted net loss per share attributable to Sohu.com Limited $(5.83) $(14.30) $(4.13) F-74Table of Contents20.CHINA CONTRIBUTION PLANThe Sohu Group’s subsidiaries and consolidated VIEs in China participate in a government-mandated multi-employer defined contribution planpursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Group’ssubsidiaries and consolidated VIEs to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthlycompensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Group’s China-based subsidiaries and consolidated VIEs have no further commitments beyond their monthly contributions. For the years ended December 31, 2018,2017 and 2016, the Group’s China based subsidiaries and consolidated VIEs contributed a total of $152.3 million, $139.2 million and $131.6 million,respectively, to these funds. 21.PROFIT APPROPRIATIONThe Sohu Group’s China-based subsidiaries and VIEs are required to make appropriations to certain non-distributable reserve funds.In accordance with the China Foreign Investment Enterprises laws, those of the Group’s China-based subsidiaries that are considered under PRC law tobe WFOEs are required to make appropriations from their after-tax profit as determined under generally accepted accounting principles in the PRC (the“after-tax-profit under PRC GAAP”) to non-distributable reserve funds, including (i) a general reserve fund, (ii) an enterprise expansion fund, and (iii) astaff bonus and welfare fund. Each year, at least 10% of the after-tax-profit under PRC GAAP is required to be set aside as general reserve fund untilsuch appropriations for the fund equal 50% of the registered capital of the applicable entity. The appropriation for the other two reserve funds is at theGroup’s discretion as determined by the Board of Directors of each entity.Pursuant to the China Company Laws, those of the Group’s China-based subsidiaries that are considered under PRC law to be domestically fundedenterprises, as well as the Group’s VIEs, are required to make appropriations from their after-tax-profit under PRC GAAP to non-distributable reservefunds, including a statutory surplus fund and a discretionary surplus fund. Each year, at least 10% of the after-tax-profit under PRC GAAP is required tobe set aside as statutory surplus fund until such appropriations for the fund equal 50% of the registered capital of the applicable entity. Theappropriation for the discretionary surplus fund is at the Company’s discretion as determined by the Board of Directors of each entity.Upon certain regulatory approvals and subject to certain limitations, the general reserve fund and the statutory surplus fund can be used to offset prioryear losses, if any, and can be converted into paid-in capital of the applicable entity.For the years ended December 31, 2018, 2017 and 2016, the total amount of profits contributed to these funds by the Group was $7.3 million,$12.0 million and $4.3 million, respectively. As of December 31, 2018 and 2017, the total amount of profits contributed to these funds by the Groupwas $70.3 million and $63.0 million, respectively.As a result of these and other restrictions under PRC laws and regulations, the Group’s China-based subsidiaries and VIEs are restricted in their abilityto transfer a portion of their net assets in the form of non-distributable reserve funds to the Company in the form of dividends, loans or advances. Eventhough the Company currently does not require any such dividends, loans or advances from its China-based subsidiaries and VIEs for working capitaland other funding purposes, the Company may in the future require additional cash resources from its China-based subsidiaries and VIEs due tochanges in business conditions, to fund future acquisitions and development, or to declare and pay dividends to or make distributions to itsshareholders. 22.CONCENTRATION RISKSBecause its operations are substantially conducted in the PRC, the Sohu Group is subject to PRC-related political, economic and legal risks. Besidesthese risks, the Sohu Group may also have the following concentration risks.Operation RiskFor the years ended December 31, 2018, 2017 and 2016, there were no revenues from customers that individually represent greater than 10% of thetotal online advertising revenues. F-75Table of ContentsFor the year ended December 31, 2018, revenues from TLBB were $200.9 million, accounting for approximately 52% of Changyou’s online gamerevenues, approximately 41% of Changyou’s total revenues and approximately 11% of the Sohu Group’s total revenues. For the year endedDecember 31, 2018, revenues from Legacy TLBB Mobile were $101.6 million, accounting for approximately 26% of Changyou’s online gamerevenues, approximately 21% of Changyou’s total revenues, and approximately 5% of the Sohu Group’s total revenues.Financial instruments that potentially subject the Sohu Group to concentration risks consist primarily of cash and cash equivalents and short-terminvestments. Cash and cash equivalents in Sohu Group are mainly denominated in RMB and in U.S. dollars. Short-term investments are denominatedin RMB. The Group may experience economic losses and negative impacts on earnings and equity as a result of fluctuations in the exchange ratebetween the U.S. dollar and the RMB. Moreover, the Chinese government imposes controls on the convertibility of RMB into foreign currencies and,in certain cases, the remittance of currency out of the PRC. The Group may experience difficulties in completing the administrative proceduresnecessary to obtain and remit foreign currency.Credit RiskAs of December 31, 2018, approximately 60% of the Sohu Group’s cash and cash equivalents and short-term investments were held in 17 financialinstitutions in Mainland China. The remaining cash and cash equivalents and short-term investments were held primarily in financial institutions inHong Kong and Macao.As of December 31, 2017, approximately 58% of the Sohu Group’s cash and cash equivalents and short-term investments were held in 19 financialinstitutions in Mainland China. The remaining cash and cash equivalents and short-term investments were held primarily in financial institutions inHong Kong and Macao.The Sohu Group holds its cash and bank deposits at Chinese financial institutions that are among the largest and most respected in the PRC and atinternational financial institutions with high ratings from internationally-recognized rating agencies. The management chooses these institutionsbecause of their reputations and track records for stability, and their known large cash reserves, and management periodically reviews theseinstitutions’ reputations, track records, and reported reserves.Management expects that any additional institutions that the Sohu Group uses for its cash and bank deposits will be chosen with similar criteria forsoundness. As a further means of managing its credit risk, the Sohu Group holds its cash and bank deposits in a number of different financialinstitutions. As of December 31, 2018 and 2017, the Sohu Group held its cash and bank deposits in different financial institutions and held no morethan approximately 35% and 30%, respectively, of its total cash at any single institution.Under PRC law, it is generally required that a commercial bank in the PRC that holds third party cash deposits protect the depositors’ rights over andinterests in their deposited money; PRC banks are subject to a series of risk control regulatory standards; and PRC bank regulatory authorities areempowered to take over the operation and management of any PRC bank that faces a material credit crisis.For the credit risk related to accounts receivable, the Sohu Group performs ongoing credit evaluations of its customers and, if necessary, maintainsreserves for potential credit losses. Historically, such losses have been within management’s expectations. 23.RESTRICTED NET ASSETSRelevant PRC law and regulations permit payment of dividends by PRC-based operating entities only out of their retained earnings, if any, asdetermined in accordance with PRC accounting standards and regulations. In addition, a PRC-based operating entity is required to annuallyappropriate 10% of net after-tax income to the statutory surplus reserve fund (see Note 21) prior to payment of any dividends, unless such reserve fundshave reached 50% of the entity’s registered capital. As a result of these and other restrictions under PRC law and regulations, PRC-based operatingentities are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. TheCompany may in the future require additional cash resources from PRC-based operating entities due to changes in business conditions, to fund futureacquisitions and development, or to declare and pay dividends to or distribution to its shareholders. As of December 31, 2018, the Group had restrictednet assets in the amount of $588.4 million. 24.SUBSEQUENT EVENTSOn March 15, 2019, Changyou’s board of directors approved a plan for Changyou to cease operation of RaidCall. The shutdown of RaidCall will notbe recorded as a discontinued operation, and Changyou does not expect to incur additional expenses for RaidCall, other than out-of-pocket expensesin connection with the shutdown process. F-76Table of Contents25.ADDITIONAL INFORMATION — CONDENSED FINANCIAL STATEMENTSThe condensed financial statements of Sohu.com Limited have been prepared in accordance with Securities and Exchange Commission RegulationS-X Rule 5-04 and Rule 12-04.The Company records its investments in subsidiaries and VIEs under the equity method of accounting. Such investments and long-term loans tosubsidiaries and VIEs are presented on the balance sheet as “Interests in subsidiaries and VIEs” and the loss of the subsidiaries and VIEs is presented as“Share of loss of subsidiaries and VIEs” in the statement of comprehensive income.The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these financial statements shouldbe read in conjunction with the notes to the Consolidated Financial Statements. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with U.S. GAAP 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 theCompany, except for those, if any, which have been separately disclosed in the consolidated financial statements. F-77Table of ContentsSOHU.COM LIMITEDCONDENSED BALANCE SHEETS(In thousands) As of December 31, 2017 2018 ASSETS Current assets: Cash and cash equivalents $2,845 $16,492 Prepaid and other current assets 2,285 1,169 Due from subsidiaries and VIEs 3,806 470,649 Total current assets 8,936 488,310 Interests in subsidiaries and VIEs 971,163 224,679 Other assets, net 0 27,736 Total assets $980,099 $740,725 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities 5,482 7,471 Long-term liabilities 223,983 144,414 Total liabilities 229,465 151,885 Shareholders’ equity: Ordinary Shares: $0.001 par value per share (75,400 shares authorized; 38,898 shares and 39,229 shares,respectively, issued and outstanding as of December 31, 2017 and 2018) 45 39 Additional paid-in capital 1,098,455 958,883 Treasury stock (5,890 shares and nil as of December 31, 2017 and 2018, respectively) (143,858) 0 Accumulated other comprehensive income 38,212 24,719 Accumulated deficit (242,220) (394,801) Total shareholders’ equity 750,634 588,840 Total liabilities and shareholders’ equity $980,099 $740,725 F-78Table of ContentsSOHU.COM LIMITEDCONDENSED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) Year Ended December 31, 2016 2017 2018 Revenues $0 $0 $0 Cost of revenues 0 0 0 Gross profit 0 0 0 Operating expenses: General and administrative 8,845 8,824 12,206 Operating loss (8,845) (8,824) (12,206) Share of loss of subsidiaries and VIEs (217,408) (331,106) (232,307) Other income /(expense) (54) 71 22 Interest income 107 152 5,865 Loss before income tax expense/(benefit) (226,200) (339,707) (238,626) Income tax expense/(benefit) (2,179) 214,819 (78,544) Net loss (224,021) (554,526) (160,082) Other comprehensive income /(loss) (46,931) 34,992 (13,494) Comprehensive loss $(270,952) $(519,534) $(173,576) F-79Table of ContentsSOHU.COM LIMITEDCONDENSED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2016 2017 2018 Cash flows from operating activities: Net loss $(224,021) $(554,526) $(160,082) Adjustments to reconcile net loss to net cash provided by operating activities: Investment loss from subsidiaries and VIEs 217,408 331,106 232,307 Share-based compensation expense /(benefit) 1,309 (814) (1,916) Others 0 0 (993) Changes in current assets and liabilities: Due from subsidiaries and VIEs 0 0 (2,963) Prepaid and other current assets 842 3,933 (3,996) Tax liabilities (2,014) 222,350 (79,569) Accrued liabilities (630) (8,194) 1,892 Net cash used in operating activities (7,106) (6,145) (15,320) Net decrease in cash, cash equivalents, restricted cash and restricted time deposits (7,106) (6,145) (15,320) Cash, cash equivalents, restricted cash and restricted time deposits at beginning of year 16,096 8,990 2,845 Cash and cash equivalents, restricted cash and restricted time deposits of Sohu.com Limited at the date of theliquidation of Sohu.com Inc. 0 0 29,207 Cash, cash equivalents, restricted cash and restricted time deposits at end of year $8,990 $2,845 $16,732 Reconciliation of cash, cash equivalents, and restricted time deposits to the condensed balance sheets: Cash and cash equivalents $8,990 $2,845 $16,492 Restricted time deposits included in other assets 0 0 240 Total cash, cash equivalents, restricted cash and restricted time deposits at end of year $8,990 $2,845 $16,732 F-80Exhibit 2.2 SOHU.COM LIMITEDANDTHE BANK OF NEW YORK MELLON As DepositaryANDOWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARESAmended and Restated Deposit AgreementDated as of January 14, 2019 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS 1 SECTION 1.1. American Depositary Shares. 1 SECTION 1.2. Commission. 2 SECTION 1.3. Company. 2 SECTION 1.4. Custodian. 2 SECTION 1.5. Delisting Event. 2 SECTION 1.6. Deliver; Surrender. 3 SECTION 1.7. Deposit Agreement. 3 SECTION 1.8. Depositary; Depositary’s Office. 3 SECTION 1.9. Deposited Securities. 4 SECTION 1.10. Disseminate. 4 SECTION 1.11. Dollars. 4 SECTION 1.12. DTC. 4 SECTION 1.13. Foreign Registrar. 4 SECTION 1.14. Holder. 4 SECTION 1.15. Insolvency Event. 5 SECTION 1.16. Owner. 5 SECTION 1.17. Receipts. 5 SECTION 1.18. Registrar. 5 SECTION 1.19. Replacement. 5 SECTION 1.20. Restricted Securities. 5 SECTION 1.21. Securities Act of 1933. 6 SECTION 1.22. Shares. 6 SECTION 1.23. SWIFT. 6 SECTION 1.24. Termination Option Event. 6 ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, DELIVERY, TRANSFER AND SURRENDER OF AMERICAN DEPOSITARYSHARES 6 SECTION 2.1. Form of Receipts; Registration and Transferability of American Depositary Shares. 6 SECTION 2.2. Deposit of Shares. 7 SECTION 2.3. Delivery of American Depositary Shares. 8 SECTION 2.4. Registration of Transfer of American Depositary Shares; Combination and Split-up of Receipts; Interchange ofCertificated and Uncertificated American Depositary Shares. 9 SECTION 2.5. Surrender of American Depositary Shares and Withdrawal of Deposited Securities. 10 SECTION 2.6. Limitations on Delivery, Transfer and Surrender of American Depositary Shares. 11 -i-SECTION 2.7. Lost Receipts, etc. 11 SECTION 2.8. Cancellation and Destruction of Surrendered Receipts. 12 SECTION 2.9. Pre-Release of American Depositary Shares. 12 SECTION 2.10. DTC Direct Registration System and Profile Modification System. 12 ARTICLE 3. CERTAIN OBLIGATIONS OF OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARES 13 SECTION 3.1. Filing Proofs, Certificates and Other Information. 13 SECTION 3.2. Liability of Owner for Taxes. 13 SECTION 3.3. Warranties on Deposit of Shares. 14 SECTION 3.4. Disclosure of Interests. 14 ARTICLE 4. THE DEPOSITED SECURITIES 15 SECTION 4.1. Cash Distributions. 15 SECTION 4.2. Distributions Other Than Cash, Shares or Rights. 15 SECTION 4.3. Distributions in Shares. 16 SECTION 4.4. Rights. 17 SECTION 4.5. Conversion of Foreign Currency. 18 SECTION 4.6. Fixing of Record Date. 19 SECTION 4.7. Voting of Deposited Shares. 20 SECTION 4.8. Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities. 21 SECTION 4.9. Reports. 22 SECTION 4.10. Lists of Owners. 23 SECTION 4.11. Withholding. 23 SECTION 4.12. Shareholder Rights Plan. 23 ARTICLE 5. THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY 25 SECTION 5.1. Maintenance of Office and Transfer Books by the Depositary 25 SECTION 5.2. Prevention or Delay of Performance by the Company or the Depositary. 26 SECTION 5.3. Obligations of the Depositary and the Company. 27 SECTION 5.4. Resignation and Removal of the Depositary. 28 SECTION 5.5. The Custodians. 29 SECTION 5.6. Notices and Reports. 29 SECTION 5.7. Distribution of Additional Shares, Rights, etc. 30 SECTION 5.8. Indemnification. 30 SECTION 5.9. Charges of Depositary. 31 -ii-SECTION 5.10. Retention of Depositary Documents. 32 SECTION 5.11. Exclusivity. 32 SECTION 5.12. Information for Regulatory Compliance. 32 ARTICLE 6. AMENDMENT AND TERMINATION 32 SECTION 6.1. Amendment. 32 SECTION 6.2. Termination. 33 ARTICLE 7. MISCELLANEOUS 34 SECTION 7.1. Counterparts; Signatures. 34 SECTION 7.2. No Third Party Beneficiaries. 34 SECTION 7.3. Severability. 34 SECTION 7.4. Owners and Holders as Parties; Binding Effect. 35 SECTION 7.5. Notices. 35 SECTION 7.6. Appointment of Agent for Service of Process; Submission to Jurisdiction; Jury Trial Waiver. 36 SECTION 7.7. Arbitration; Settlement of Disputes. 37 SECTION 7.8. Waiver of Immunities. 37 SECTION 7.9. Governing Law. 38 -iii-AMENDED AND RESTATED DEPOSIT AGREEMENTAMENDED AND RESTATED DEPOSIT AGREEMENT dated as of January 14, 2019 among SOHU.COM LIMITED, a companyorganized under the laws of the Cayman Islands (herein called the Company), THE BANK OF NEW YORK MELLON, a New York banking corporation(herein called the Depositary), and all Owners and Holders (each as hereinafter defined) from time to time of American Depositary Shares issuedhereunder.W I T N E S S E T H:WHEREAS, the Company and the Depositary entered into a deposit agreement dated as of April 23, 2018 (the “Prior DepositAgreement”);WHEREAS, the Company and the Depositary now wish to amend the Prior Deposit Agreement in various respects pursuant toSection 6.1 of the Prior Deposit Agreement;WHEREAS, the Company desires to provide, as set forth in this Amended and Restated Deposit Agreement, for the deposit ofShares (as hereinafter defined) of the Company from time to time with the Depositary or with the Custodian (as hereinafter defined) under this Amendedand Restated Deposit Agreement, for the creation of American Depositary Shares representing the Shares so deposited and for the execution anddelivery of American Depositary Receipts evidencing the American Depositary Shares; andWHEREAS, the American Depositary Receipts are to be substantially in the form of Exhibit A annexed to this Amended andRestated Deposit Agreement, with appropriate insertions, modifications and omissions, as set forth in this Amended and Restated Deposit Agreement;NOW, THEREFORE, in consideration of the premises, it is agreed by and between the parties hereto that the Prior DepositAgreement is hereby amended and restated as follows:ARTICLE 1. DEFINITIONSThe following definitions shall for all purposes, unless otherwise clearly indicated, apply to the respective terms used in thisDeposit Agreement:SECTION 1.1. American Depositary Shares.The term “American Depositary Shares” shall mean the securities created under this Deposit Agreement representing rights withrespect to the Deposited Securities. American Depositary Shares may be certificated securities evidenced by Receipts or uncertificated securities. Theform of Receipt annexed as Exhibit A to this Deposit Agreement shall be the prospectus required under the Securities Act of 1933 for sales of bothcertificated and uncertificated American Depositary Shares. Except for those provisions of this Deposit Agreement that refer specifically to Receipts, allthe provisions of this Deposit Agreement shall apply to both certificated and uncertificated American Depositary Shares. -1-Each American Depositary Share shall represent the number of Shares specified in Exhibit A to this Deposit Agreement, except that,if there is a distribution upon Deposited Securities covered by Section 4.3, a change in Deposited Securities covered by Section 4.8 with respect towhich additional American Depositary Shares are not delivered or a sale of Deposited Securities under Section 3.2 or 4.8, each American DepositaryShare shall thereafter represent the amount of Shares or other Deposited Securities that are then on deposit per American Depositary Share after givingeffect to that distribution, change or sale.SECTION 1.2. Commission.The term “Commission” shall mean the Securities and Exchange Commission of the United States or any successor governmentalagency in the United States.SECTION 1.3. Company.The term “Company” shall mean Sohu.com Limited, a company organized under the laws of the Cayman Islands, and its successors.SECTION 1.4. Custodian.The term “Custodian” shall mean The Hongkong and Shanghai Banking Corporation Limited, as custodian for the Depositary inHong Kong for the purposes of this Deposit Agreement, and any other firm or corporation the Depositary appoints under Section 5.5 as a substitute oradditional custodian under this Deposit Agreement, and shall also mean all of them collectively.SECTION 1.5. Delisting Event.A “Delisting Event” occurs if the American Depositary Shares are delisted from a securities exchange on which the AmericanDepositary Shares were listed and the Company has not listed or applied to list the American Depositary Shares on any other securities exchange. -2-SECTION 1.6. Deliver; Surrender.(a) The term “deliver”, or its noun form, when used with respect to Shares or other Deposited Securities, shall mean (i) book-entrytransfer of those Shares or other Deposited Securities to an account maintained by an institution authorized under applicable law to effect transfers ofsuch securities designated by the person entitled to that delivery or (ii) physical transfer of certificates evidencing those Shares or other DepositedSecurities registered in the name of, or duly endorsed or accompanied by proper instruments of transfer to, the person entitled to that delivery.(b) The term “deliver”, or its noun form, when used with respect to American Depositary Shares, shall mean (i) registration of thoseAmerican Depositary Shares in the name of DTC or its nominee and book-entry transfer of those American Depositary Shares to an account at DTCdesignated by the person entitled to that delivery, (ii) registration of those American Depositary Shares not evidenced by a Receipt on the books of theDepositary in the name requested by the person entitled to that delivery and mailing to that person of a statement confirming that registration or (iii) ifrequested by the person entitled to that delivery, execution and delivery at the Depositary’s Office to the person entitled to that delivery of one or moreReceipts evidencing those American Depositary Shares registered in the name requested by that person.(c) The term “surrender”, when used with respect to American Depositary Shares, shall mean (i) one or more book-entry transfers ofAmerican Depositary Shares to the DTC account of the Depositary, (ii) delivery to the Depositary at its Office of an instruction to surrender AmericanDepositary Shares not evidenced by a Receipt or (iii) surrender to the Depositary at its Office of one or more Receipts evidencing American DepositaryShares.SECTION 1.7. Deposit Agreement.The term “Deposit Agreement” shall mean this Deposit Agreement, as it may be amended from time to time in accordance with theprovisions of this Deposit Agreement.SECTION 1.8. Depositary; Depositary’s Office.The term “Depositary” shall mean The Bank of New York Mellon, a New York banking corporation, and any successor asdepositary under this Deposit Agreement. The term “Office”, when used with respect to the Depositary, shall mean the office at which its depositaryreceipts business is administered, which, at the date of this Deposit Agreement, is located at 101 Barclay Street, New York, New York 10286. -3-SECTION 1.9. Deposited Securities.The term “Deposited Securities” as of any time shall mean Shares at such time deposited or deemed to be deposited under thisDeposit Agreement, including without limitation, Shares that have not been successfully delivered upon surrender of American Depositary Shares, andany and all other securities, property and cash received by the Depositary or the Custodian in respect of Deposited Securities and at that time heldunder this Deposit Agreement.SECTION 1.10. Disseminate.The term “Disseminate,” when referring to a notice or other information to be sent by the Depositary to Owners, shall mean(i) sending that information to Owners in paper form by mail or another means or (ii) with the consent of Owners, another procedure that has the effectof making the information available to Owners, which may include (A) sending the information by electronic mail or electronic messaging or(B) sending in paper form or by electronic mail or messaging a statement that the information is available and may be accessed by the Owner on anInternet website and that it will be sent in paper form upon request by the Owner, when that information is so available and is sent in paper form aspromptly as practicable upon request.SECTION 1.11. Dollars.The term “Dollars” shall mean United States dollars.SECTION 1.12. DTC.The term “DTC” shall mean The Depository Trust Company or its successor.SECTION 1.13. Foreign Registrar.The term “Foreign Registrar” shall mean the entity that carries out the duties of registrar for the Shares and any other agent of theCompany for the transfer and registration of Shares, including, without limitation, any securities depository for the Shares.SECTION 1.14. Holder.The term “Holder” shall mean any person holding a Receipt or a security entitlement or other interest in American DepositaryShares, whether for its own account or for the account of another person, but that is not the Owner of that Receipt or those American Depositary Shares. -4-SECTION 1.15. Insolvency Event.An “Insolvency Event” occurs if the Company institutes proceedings to be adjudicated as bankrupt or insolvent, consents to theinstitution of bankruptcy or insolvency proceedings against it, files a petition or answer or consent seeking reorganization or relief under anyapplicable law in respect of bankruptcy or insolvency, consents to the filing of any petition of that kind or to the appointment of a receiver, liquidator,assignee, trustee, custodian or sequestrator (or other similar official) of it or any substantial part of its property or makes an assignment for the benefit ofcreditors, or if information becomes publicly available indicating that unsecured claims against the Company are not expected to be paid.SECTION 1.16. Owner.The term “Owner” shall mean the person in whose name American Depositary Shares are registered on the books of the Depositarymaintained for that purpose.SECTION 1.17. Receipts.The term “Receipts” shall mean the American Depositary Receipts issued under this Deposit Agreement evidencing certificatedAmerican Depositary Shares, as the same may be amended from time to time in accordance with the provisions of this Deposit Agreement.SECTION 1.18. Registrar.The term “Registrar” shall mean any corporation or other entity that is appointed by the Depositary to register American DepositaryShares and transfers of American Depositary Shares as provided in this Deposit Agreement.SECTION 1.19. Replacement.The term “Replacement” shall have the meaning assigned to it in Section 4.8.SECTION 1.20. Restricted Securities.The term “Restricted Securities” shall mean Shares that (i) are “restricted securities,” as defined in Rule 144 under the Securities Actof 1933, except for Shares that could be resold in reliance on Rule 144 without any conditions, (ii) are beneficially owned by an officer, director (orperson performing similar functions) or other affiliate of the Company, (iii) otherwise would require registration under the Securities Act of 1933 inconnection with the public offer and sale thereof in the United States or (iv) are subject to other restrictions on sale or deposit under the laws of theCayman Islands, a shareholder agreement or the articles of association or similar document of the Company. -5-SECTION 1.21. Securities Act of 1933.The term “Securities Act of 1933” shall mean the United States Securities Act of 1933, as from time to time amended.SECTION 1.22. Shares.The term “Shares” shall mean ordinary shares of the Company that are validly issued and outstanding, fully paid and nonassessableand that were not issued in violation of any pre-emptive or similar rights of the holders of outstanding securities of the Company; provided, however,that, if there shall occur any change in nominal or par value, a split-up or consolidation or any other reclassification or, upon the occurrence of an eventdescribed in Section 4.8, an exchange or conversion in respect of the Shares of the Company, the term “Shares” shall thereafter also mean the successorsecurities resulting from such change in nominal value, split-up or consolidation or such other reclassification or such exchange or conversion.SECTION 1.23. SWIFT.The term “SWIFT” shall mean the financial messaging network operated by the Society for Worldwide Interbank FinancialTelecommunication, or its successor.SECTION 1.24. Termination Option Event.The term “Termination Option Event” shall mean an event of a kind defined as such in Section 4.1, 4.2 or 4.8. ARTICLE 2.FORM OF RECEIPTS, DEPOSIT OF SHARES, DELIVERY, TRANSFER AND SURRENDER OF AMERICAN DEPOSITARY SHARESSECTION 2.1. Form of Receipts; Registration and Transferability of American Depositary Shares.Definitive Receipts shall be substantially in the form set forth in Exhibit A to this Deposit Agreement, with appropriate insertions,modifications and omissions, as permitted under this Deposit Agreement. No Receipt shall be entitled to any benefits under this Deposit Agreement orbe valid or obligatory for any purpose, unless that Receipt has been (i) executed by the Depositary by the manual signature of a duly authorized officerof the Depositary or (ii) executed by the facsimile signature of a duly authorized officer of the Depositary and countersigned by the manual signature ofa duly authorized signatory of the Depositary or the Registrar or a co-registrar. The Depositary shall maintain books on which (x) each Receipt soexecuted and delivered as provided in this Deposit Agreement and each transfer of that Receipt and (y) all American Depositary Shares delivered asprovided in this Deposit Agreement and all registrations of transfer of American Depositary Shares, shall be registered. A Receipt bearing the facsimilesignature of a person that was at any time a proper officer of the Depositary shall, subject to the other provisions of this paragraph, bind the Depositary,even if that person was not a proper officer of the Depositary on the date of issuance of that Receipt. -6-The Receipts and statements confirming registration of American Depositary Shares may have incorporated in or attached to themsuch legends or recitals or modifications not inconsistent with the provisions of this Deposit Agreement as may be required by the Depositary orrequired to comply with any applicable law or regulations thereunder or with the rules and regulations of any securities exchange upon whichAmerican Depositary Shares may be listed or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions towhich any particular Receipts and American Depositary Shares are subject by reason of the date of issuance of the underlying Deposited Securities orotherwise.American Depositary Shares evidenced by a Receipt, when the Receipt is properly endorsed or accompanied by proper instrumentsof transfer, shall be transferable as certificated registered securities under the laws of the State of New York. American Depositary Shares not evidencedby Receipts shall be transferable as uncertificated registered securities under the laws of the State of New York. The Depositary, notwithstanding anynotice to the contrary, may treat the Owner of American Depositary Shares as the absolute owner thereof for the purpose of determining the personentitled to distribution of dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes, andneither the Depositary nor the Company shall have any obligation or be subject to any liability under this Deposit Agreement to any Holder ofAmerican Depositary Shares (but only to the Owner of those American Depositary Shares).SECTION 2.2. Deposit of Shares.Subject to the terms and conditions of this Deposit Agreement, Shares or evidence of rights to receive Shares may be depositedunder this Deposit Agreement by delivery thereof to any Custodian, accompanied by any appropriate instruments or instructions for transfer, orendorsement, in form satisfactory to the Custodian.As conditions of accepting Shares for deposit, the Depositary may require (i) any certification required by the Depositary or theCustodian in accordance with the provisions of this Deposit Agreement, (ii) a written order directing the Depositary to deliver to, or upon the writtenorder of, the person or persons stated in that order American Depositary Shares representing those deposited Shares, (iii) evidence satisfactory to theDepositary that those Shares have been re-registered in the books of the Company or the Foreign Registrar in the name of the Depositary, a Custodianor a nominee of the Depositary or a Custodian, (iv) evidence satisfactory to the Depositary that any necessary approval has been granted by anygovernmental body in each applicable jurisdiction and (v) an agreement or assignment, or other instrument satisfactory to the Depositary, that providesfor the prompt transfer to the Custodian of any dividend, or right to subscribe for additional Shares or to receive other property, that any person inwhose name those Shares are or have been recorded may thereafter receive upon or in respect of those Shares, or, in lieu thereof, such agreement ofindemnity or other agreement as shall be satisfactory to the Depositary. -7-At the request and risk and expense of a person proposing to deposit Shares, and for the account of that person, the Depositary mayreceive certificates for Shares to be deposited, together with the other instruments specified in this Section, for the purpose of forwarding those Sharecertificates to the Custodian for deposit under this Deposit Agreement.The Depositary shall instruct each Custodian that, upon each delivery to a Custodian of a certificate or certificates for Shares to bedeposited under this Deposit Agreement, together with the other documents specified in this Section, that Custodian shall, as soon as transfer andrecordation can be accomplished, present that certificate or those certificates to the Company or the Foreign Registrar, if applicable, for transfer andrecordation of the Shares being deposited in the name of the Depositary or its nominee or that Custodian or its nominee.Deposited Securities shall be held by the Depositary or by a Custodian for the account and to the order of the Depositary or at suchother place or places as the Depositary shall determine.SECTION 2.3. Delivery of American Depositary Shares.The Depositary shall instruct each Custodian that, upon receipt by that Custodian of any deposit pursuant to Section 2.2, togetherwith the other documents or evidence required under that Section, that Custodian shall notify the Depositary of that deposit and the person or personsto whom or upon whose written order American Depositary Shares are deliverable in respect thereof. Upon receiving a notice of a deposit from aCustodian, or upon the receipt of Shares or evidence of the right to receive Shares by the Depositary, the Depositary, subject to the terms andconditions of this Deposit Agreement, shall deliver, to or upon the order of the person or persons entitled thereto, the number of American DepositaryShares issuable in respect of that deposit, but only upon payment to the Depositary of the fees and expenses of the Depositary for the delivery of thoseAmerican Depositary Shares as provided in Section 5.9, and of all taxes and governmental charges and fees payable in connection with that depositand the transfer of the deposited Shares. However, the Depositary shall deliver only whole numbers of American Depositary Shares. -8-SECTION 2.4. Registration of Transfer of American Depositary Shares; Combination and Split-up of Receipts; Interchange of Certificatedand Uncertificated American Depositary Shares.The Depositary, subject to the terms and conditions of this Deposit Agreement, shall register a transfer of American DepositaryShares on its transfer books upon (i) in the case of certificated American Depositary Shares, surrender of the Receipt evidencing those AmericanDepositary Shares, by the Owner or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer or (ii) in the caseof uncertificated American Depositary Shares, receipt from the Owner of a proper instruction (including, for the avoidance of doubt, instructionsthrough DRS and Profile as provided in Section 2.10), and, in either case, duly stamped as may be required by the laws of the State of New York and ofthe United States of America. Upon registration of a transfer, the Depositary shall deliver the transferred American Depositary Shares to or upon theorder of the person entitled thereto.The Depositary, subject to the terms and conditions of this Deposit Agreement, shall upon surrender of a Receipt or Receipts for thepurpose of effecting a split-up or combination of such Receipt or Receipts, execute and deliver a new Receipt or Receipts for any authorized number ofAmerican Depositary Shares requested, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered.The Depositary, upon surrender of certificated American Depositary Shares for the purpose of exchanging for uncertificatedAmerican Depositary Shares, shall cancel the Receipt evidencing those certificated American Depositary Shares and send the Owner a statementconfirming that the Owner is the owner of the same number of uncertificated American Depositary Shares. The Depositary, upon receipt of a properinstruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10) from the Owner of uncertificatedAmerican Depositary Shares for the purpose of exchanging for certificated American Depositary Shares, shall cancel those uncertificated AmericanDepositary Shares and register and deliver to the Owner a Receipt evidencing the same number of certificated American Depositary Shares.The Depositary may appoint one or more co-transfer agents for the purpose of effecting registration of transfers of AmericanDepositary Shares and combinations and split-ups of Receipts at designated transfer offices on behalf of the Depositary. In carrying out its functions, aco-transfer agent may require evidence of authority and compliance with applicable laws and other requirements by Owners or persons entitled toAmerican Depositary Shares and will be entitled to protection and indemnity to the same extent as the Depositary. -9-SECTION 2.5. Surrender of American Depositary Shares and Withdrawal of Deposited Securities.Upon surrender of American Depositary Shares for the purpose of withdrawal of the Deposited Securities represented thereby andpayment of the fee of the Depositary for the surrender of American Depositary Shares as provided in Section 5.9 and payment of all taxes andgovernmental charges payable in connection with that surrender and withdrawal of the Deposited Securities, and subject to the terms and conditions ofthis Deposit Agreement, the Owner of those American Depositary Shares shall be entitled to delivery (to the extent delivery can then be lawfully andpracticably made), to or as instructed by that Owner, of the amount of Deposited Securities at the time represented by those American DepositaryShares, but not any money or other property as to which a record date for distribution to Owners has passed (since money or other property of that kindwill be delivered or paid on the scheduled payment date to the Owner as of that record date), and except that the Depositary shall not be required toaccept surrender of American Depositary Shares for the purpose of withdrawal to the extent it would require delivery of a fraction of a DepositedSecurity. That delivery shall be made, as provided in this Section, without unreasonable delay.As a condition of accepting a surrender of American Depositary Shares for the purpose of withdrawal of Deposited Securities, theDepositary may require (i) that each surrendered Receipt be properly endorsed in blank or accompanied by proper instruments of transfer in blank and(ii) that the surrendering Owner execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities beingwithdrawn to be delivered to or upon the written order of a person or persons designated in that order.Thereupon, the Depositary shall direct the Custodian to deliver, subject to Sections 2.6, 3.1 and 3.2, the other terms and conditionsof this Deposit Agreement and local market rules and practices, to the surrendering Owner or to or upon the written order of the person or personsdesignated in the order delivered to the Depositary as above provided, the amount of Deposited Securities represented by the surrendered AmericanDepositary Shares, and the Depositary may charge the surrendering Owner a fee and its expenses for giving that direction by cable (including SWIFT)or facsimile transmission.If Deposited Securities are delivered physically upon surrender of American Depositary Shares for the purpose of withdrawal, thatdelivery will be made at the Custodian’s office, except that, at the request, risk and expense of an Owner surrendering American Depositary Shares forwithdrawal of Deposited Securities, and for the account of that Owner, the Depositary shall direct the Custodian to forward any cash or other propertycomprising, and forward a certificate or certificates, if applicable, and other proper documents of title, if any, for, the Deposited Securities representedby the surrendered American Depositary Shares to the Depositary for delivery at the Depositary’s Office or to another address specified in the orderreceived from the surrendering Owner. -10-SECTION 2.6. Limitations on Delivery, Transfer and Surrender of American Depositary Shares.As a condition precedent to the delivery, registration of transfer or surrender of any American Depositary Shares or split-up orcombination of any Receipt or withdrawal of any Deposited Securities, the Depositary, Custodian or Registrar may require payment from the depositorof Shares or the presenter of the Receipt or instruction for registration of transfer or surrender of American Depositary Shares not evidenced by aReceipt 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 as provided in thisDeposit Agreement, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also requirecompliance with any regulations the Depositary may establish consistent with the provisions of this Deposit Agreement, including, without limitation,this Section 2.6.The delivery of American Depositary Shares against deposit of Shares generally or against deposit of particular Shares may besuspended, or the registration of transfer of American Depositary Shares in particular instances may be refused, or the registration of transfer ofoutstanding American Depositary Shares generally may be suspended, during any period when the transfer books of the Depositary are closed, or if anysuch action is deemed necessary or advisable by the Depositary or the Company at any time or from time to time because of any requirement of law orof any government or governmental body or commission, or under any provision of this Deposit Agreement, or for any other reason. Notwithstandinganything to the contrary in this Deposit Agreement, the surrender of outstanding American Depositary Shares and withdrawal of Deposited Securitiesmay not be suspended, subject only to (i) temporary delays caused by closing of the transfer books of the Depositary or the Company or the ForeignRegistrar, if applicable, or the deposit of Shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment offees, taxes and similar charges, and (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the American DepositaryShares or to the withdrawal of the Deposited Securities.The Depositary shall not knowingly accept for deposit under this Deposit Agreement any Shares that, at the time of deposit, areRestricted Securities.SECTION 2.7. Lost Receipts, etc.If a Receipt is mutilated, destroyed, lost or stolen, the Depositary shall deliver to the Owner the American Depositary Sharesevidenced by that Receipt in uncertificated form or, if requested by the Owner, execute and deliver a new Receipt of like tenor in exchange andsubstitution for such mutilated Receipt, upon surrender and cancellation of that mutilated Receipt, or in lieu of and in substitution for that destroyed,lost or stolen Receipt. However, before the Depositary will deliver American Depositary Shares in uncertificated form or execute and deliver a newReceipt, in substitution for a destroyed, lost or stolen Receipt, the Owner must (a) file with the Depositary (i) a request for that replacement before theDepositary has notice that the Receipt has been acquired by a bona fide purchaser and (ii) a sufficient indemnity bond and (b) satisfy any otherreasonable requirements imposed by the Depositary. -11-SECTION 2.8. Cancellation and Destruction of Surrendered Receipts.The Depositary shall cancel all Receipts surrendered to it and is authorized to destroy Receipts so cancelled.SECTION 2.9. Pre-Release of American Depositary Shares.Notwithstanding Section 2.3, the Depositary may deliver American Depositary Shares prior to the receipt of Shares pursuant toSection 2.2 (a “Pre-Release”). The Depositary may, pursuant to Section 2.5, deliver Shares upon the surrender of American Depositary Shares that havebeen Pre-Released, whether or not that surrender is prior to the termination of that Pre-Release or the Depositary knows that those American DepositaryShares have been Pre-Released. The Depositary may receive American Depositary Shares in lieu of Shares in satisfaction of a Pre-Release. EachPre-Release must be (a) preceded or accompanied by a written representation from the person to whom American Depositary Shares or Shares are to bedelivered, that such person, or its customer, owns the Shares or American Depositary Shares to be remitted, as the case may be, (b) at all times fullycollateralized with cash or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five(5) business days’ notice, and (d) subject to all indemnities and credit regulations that the Depositary deems appropriate. The number of AmericanDepositary Shares outstanding at any time as a result of Pre-Release will not normally exceed thirty percent (30%) of all American Depositary Sharesoutstanding; provided, however, that the Depositary reserves the right to change or disregard that limit from time to time as it deems appropriate.The Depositary may retain for its own account any compensation received by it in connection with Pre-Release.SECTION 2.10. DTC Direct Registration System and Profile Modification System.(a) Notwithstanding the provisions of Section 2.4, the parties acknowledge that DTC’s Direct Registration System (“DRS”) andProfile Modification System (“Profile”) apply to the American Depositary Shares upon acceptance thereof to DRS by DTC. DRS is the systemadministered by DTC that facilitates interchange between registered holding of uncertificated securities and holding of security entitlements in thosesecurities through DTC and a DTC participant. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf of an Ownerof American Depositary Shares, to direct the Depositary to register a transfer of those American Depositary Shares to DTC or its nominee and to deliverthose American Depositary Shares to the DTC account of that DTC participant without receipt by the Depositary of prior authorization from the Ownerto register that transfer. -12-(b) In connection with DRS/Profile, the parties acknowledge that the Depositary will not determine whether the DTC participantthat is claiming to be acting on behalf of an Owner in requesting a registration of transfer and delivery as described in paragraph (a) above has theactual authority to act on behalf of that Owner (notwithstanding any requirements under the Uniform Commercial Code). For the avoidance of doubt,the provisions of Sections 5.3 and 5.8 apply to the matters arising from the use of the DRS/Profile. The parties agree that the Depositary’s reliance onand compliance with instructions received by the Depositary through the DRS/Profile system and otherwise in accordance with this Deposit Agreementshall not constitute negligence or bad faith on the part of the Depositary. ARTICLE 3.CERTAIN OBLIGATIONS OF OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARESSECTION 3.1. Filing Proofs, Certificates and Other Information.Any person presenting Shares for deposit or any Owner or Holder may be required from time to time to file with the Depositary orthe Custodian such proof of citizenship or residence, exchange control approval, or such information relating to the registration on the books of theCompany or the Foreign Registrar, if applicable, to execute such certificates and to make such representations and warranties, as the Depositary maydeem necessary or proper. The Depositary may withhold the delivery or registration of transfer of American Depositary Shares, the distribution of anydividend or other distribution or of the proceeds thereof or the delivery of any Deposited Securities until that proof or other information is filed orthose certificates are executed or those representations and warranties are made.SECTION 3.2. Liability of Owner for Taxes.If any tax or other governmental charge shall become payable by the Custodian or the Depositary with respect to or in connectionwith any American Depositary Shares or any Deposited Securities represented by any American Depositary Shares or in connection with a transactionto which Section 4.8 applies, that tax or other governmental charge shall be payable by the Owner of those American Depositary Shares to theDepositary. The Depositary may refuse to register any transfer of those American Depositary Shares or any withdrawal of Deposited Securitiesrepresented by those American Depositary Shares until that payment is made, and may withhold any dividends or other distributions or the proceedsthereof, or may sell for the account of the Owner any part or all of the Deposited Securities represented by those American Depositary Shares and applythose dividends or other distributions or the net proceeds of any sale of that kind in payment of that tax or other governmental charge but, even after asale of that kind, the Owner of those American Depositary Shares shall remain liable for any deficiency. The Depositary shall distribute any netproceeds of a sale made under this Section that are not used to pay taxes or governmental charges to the Owners entitled to them in accordance withSection 4.1. If the number of Shares represented by each American Depositary Share decreases as a result of a sale of Deposited Securities under thisSection, the Depositary may call for surrender of the American Depositary Shares to be exchanged on a mandatory basis for a lesser number ofAmerican Depositary Shares and may sell American Depositary Shares to the extent necessary to avoid distributing fractions of American DepositaryShares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them. -13-SECTION 3.3. Warranties on Deposit of Shares.Every person depositing Shares under this Deposit Agreement shall be deemed thereby to represent and warrant that those Sharesand each certificate therefor, if applicable, are validly issued, fully paid and nonassessable and were not issued in violation of any preemptive orsimilar rights of the holders of outstanding securities of the Company and that the person making that deposit is duly authorized so to do. Everydepositing person shall also be deemed to represent that the Shares, at the time of deposit, are not Restricted Securities. All representations andwarranties deemed made under this Section shall survive the deposit of Shares and delivery of American Depositary Shares.SECTION 3.4. Disclosure of Interests.When required in order to comply with applicable laws and regulations or the articles of association or similar document of theCompany, the Company may from time to time request each Owner and Holder to provide to the Depositary information relating to: (a) the capacity inwhich it holds American Depositary Shares, (b) the identity of any Holders or other persons or entities then or previously interested in those AmericanDepositary Shares and the nature of those interests and (c) any other matter where disclosure of such matter is required for that compliance. EachOwner and Holder agrees to provide all information known to it in response to a request made pursuant to this Section. Each Holder consents to thedisclosure by the Depositary and the Owner or any other Holder through which it holds American Depositary Shares, directly or indirectly, of allinformation responsive to a request made pursuant to this Section relating to that Holder that is known to that Owner or other Holder. The Depositaryagrees to use reasonable efforts, at the Company’s expense, to comply with written instructions requesting that the Depositary forward any requestauthorized under this Section to the Owners and to forward to the Company any responses it receives in response to that request. -14-ARTICLE 4. THE DEPOSITED SECURITIESSECTION 4.1. Cash Distributions.Whenever the Depositary receives any cash dividend or other cash distribution on Deposited Securities, the Depositary shall,subject to the provisions of Section 4.5, convert that dividend or other distribution into Dollars and distribute the amount thus received (net of the feesand expenses of the Depositary as provided in Section 5.9) to the Owners entitled thereto, in proportion to the number of American Depositary Sharesrepresenting those Deposited Securities held by them respectively; provided, however, that if the Custodian or the Depositary shall be required towithhold and does withhold from that cash dividend or other cash distribution an amount on account of taxes or other governmental charges, theamount distributed to the Owners of the American Depositary Shares representing those Deposited Securities shall be reduced accordingly. However,the Depositary will not pay any Owner a fraction of one cent, but will round each Owner’s entitlement to the nearest whole cent.The Company or its agent will remit to the appropriate governmental agency in each applicable jurisdiction all amounts withheldand owing to such agency. The Depositary will forward to the Company or its agent such information from its records as the Company may reasonablyrequest to enable the Company or its agent to file necessary reports with governmental agencies.If a cash distribution would represent a return of all or substantially all the value of the Deposited Securities underlying AmericanDepositary Shares, the Depositary may require surrender of those American Depositary Shares and may require payment of or deduct the fee forsurrender of American Depositary Shares (whether or not it is also requiring surrender of American Depositary Shares) as a condition of making thatcash distribution. A distribution of that kind shall be a Termination Option Event.SECTION 4.2. Distributions Other Than Cash, Shares or Rights.Subject to the provisions of Sections 4.11 and 5.9, whenever the Depositary receives any distribution other than a distributiondescribed in Section 4.1, 4.3 or 4.4 on Deposited Securities (but not in exchange for or in conversion or in lieu of Deposited Securities), the Depositaryshall cause the securities or property received by it to be distributed to the Owners entitled thereto, after deduction or upon payment of any fees andexpenses of the Depositary and any taxes or other governmental charges, in proportion to the number of American Depositary Shares representing suchDeposited Securities held by them respectively, in any manner that the Depositary deems equitable and practicable for accomplishing that distribution(which may be a distribution of depositary shares representing the securities received); provided, however, that if in the opinion of the Depositary suchdistribution cannot be made proportionately among the Owners entitled thereto, or if for any other reason (including, but not limited to, anyrequirement that the Company or the Depositary withhold an amount on account of taxes or other governmental charges or that securities receivedmust be registered under the Securities Act of 1933 in order to be distributed to Owners or Holders) the Depositary deems such distribution not to belawful and feasible, the Depositary may adopt such other method as it may deem equitable and practicable for the purpose of effecting suchdistribution, including, but not limited to, the public or private sale of the securities or property thus received, or any part thereof, and distribution ofthe net proceeds of any such sale (net of the fees and expenses of the Depositary as provided in Section 5.9) to the Owners entitled thereto, all in themanner and subject to the conditions set forth in Section 4.1. The Depositary may withhold any distribution of securities under this Section 4.2 if it hasnot received satisfactory assurances from the Company that the distribution does not require registration under the Securities Act of 1933. TheDepositary may sell, by public or private sale, an amount of securities or other property it would otherwise distribute under this Section 4.2 that issufficient to pay its fees and expenses in respect of that distribution. -15-If a distribution under this Section 4.2 would represent a return of all or substantially all the value of the Deposited Securitiesunderlying American Depositary Shares, the Depositary may require surrender of those American Depositary Shares and may require payment of ordeduct the fee for surrender of American Depositary Shares (whether or not it is also requiring surrender of American Depositary Shares) as a conditionof making that distribution. A distribution of that kind shall be a Termination Option Event.SECTION 4.3. Distributions in Shares.Whenever the Depositary receives any distribution on Deposited Securities consisting of a dividend in, or free distribution of,Shares, the Depositary may deliver to the Owners entitled thereto, in proportion to the number of American Depositary Shares representing thoseDeposited Securities held by them respectively, an aggregate number of American Depositary Shares representing the amount of Shares received as thatdividend or free distribution, subject to the terms and conditions of this Deposit Agreement with respect to the deposit of Shares and issuance ofAmerican Depositary Shares, including withholding of any tax or governmental charge as provided in Section 4.11 and payment of the fees andexpenses of the Depositary as provided in Section 5.9 (and the Depositary may sell, by public or private sale, an amount of the Shares received (orAmerican Depositary Shares representing those Shares) sufficient to pay its fees and expenses in respect of that distribution). In lieu of deliveringfractional American Depositary Shares, the Depositary may sell the amount of Shares represented by the aggregate of those fractions (or AmericanDepositary Shares representing those Shares) and distribute the net proceeds, all in the manner and subject to the conditions described in Section 4.1. Ifand to the extent that additional American Depositary Shares are not delivered and Shares or American Depositary Shares are not sold, each AmericanDepositary Share shall thenceforth also represent the additional Shares distributed on the Deposited Securities represented thereby. -16-If the Company declares a distribution in which holders of Deposited Securities have a right to elect whether to receive cash, Sharesor other securities or a combination of those things, or a right to elect to have a distribution sold on their behalf, the Depositary may, after consultationwith the Company, make that right of election available for exercise by Owners in any manner the Depositary considers to be lawful and practical. As acondition of making a distribution election right available to Owners, the Depositary may require satisfactory assurances from the Company that doingso does not require registration of any securities under the Securities Act of 1933.SECTION 4.4. Rights.(a) If rights are granted to the Depositary in respect of deposited Shares to purchase additional Shares or other securities, theCompany and the Depositary shall endeavor to consult as to the actions, if any, the Depositary should take in connection with that grant of rights. TheDepositary may, to the extent deemed by it to be lawful and practical (i) if requested in writing by the Company, grant to all or certain Owners rights toinstruct the Depositary to purchase the securities to which the rights relate and deliver those securities or American Depositary Shares representingthose securities to Owners, (ii) if requested in writing by the Company, deliver the rights to or to the order of certain Owners, or (iii) sell the rights to theextent practicable and distribute the net proceeds of that sale to Owners entitled to those proceeds. To the extent rights are not exercised, delivered ordisposed of under (i), (ii) or (iii) above, the Depositary shall permit the rights to lapse unexercised.(b) If the Depositary will act under (a)(i) above, the Company and the Depositary will enter into a separate agreement setting forththe conditions and procedures applicable to the particular offering. Upon instruction from an applicable Owner in the form the Depositary specifiedand upon payment by that Owner to the Depositary of an amount equal to the purchase price of the securities to be received upon the exercise of therights, the Depositary shall, on behalf of that Owner, exercise the rights and purchase the securities. The purchased securities shall be delivered to, or asinstructed by, the Depositary. The Depositary shall (i) deposit the purchased Shares under this Deposit Agreement and deliver American DepositaryShares representing those Shares to that Owner or (ii) deliver or cause the purchased Shares or other securities to be delivered to or to the order of thatOwner. The Depositary will not act under (a)(i) above unless the offer and sale of the securities to which the rights relate are registered under theSecurities Act of 1933 or the Depositary has received an opinion of United States counsel that is satisfactory to it to the effect that those securities maybe sold and delivered to the applicable Owners without registration under the Securities Act of 1933. -17-(c) If the Depositary will act under (a)(ii) above, the Company and the Depositary will enter into a separate agreement setting forththe conditions and procedures applicable to the particular offering. Upon (i) the request of an applicable Owner to deliver the rights allocable to theAmerican Depositary Shares of that Owner to an account specified by that Owner to which the rights can be delivered and (ii) receipt of suchdocuments as the Company and the Depositary agreed to require to comply with applicable law, the Depositary will deliver those rights as requestedby that Owner.(d) If the Depositary will act under (a)(iii) above, the Depositary will use reasonable efforts to sell the rights in proportion to thenumber of American Depositary Shares held by the applicable Owners and pay the net proceeds to the Owners otherwise entitled to the rights that weresold, upon an averaged or other practical basis without regard to any distinctions among such Owners because of exchange restrictions or the date ofdelivery of any American Depositary Shares or otherwise.(e) Payment or deduction of the fees of the Depositary as provided in Section 5.9 and payment or deduction of the expenses of theDepositary and any applicable taxes or other governmental charges shall be conditions of any delivery of securities or payment of cash proceeds underthis Section 4.4.(f) The Depositary shall not be responsible for any failure to determine that it may be lawful or feasible to make rights available toor exercise rights on behalf of Owners in general or any Owner in particular, or to sell rights.SECTION 4.5. Conversion of Foreign Currency.Whenever the Depositary or the Custodian receives foreign currency, by way of dividends or other distributions or the net proceedsfrom the sale of securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of theDepositary be converted on a reasonable basis into Dollars and the resulting Dollars transferred to the United States, the Depositary shall convert orcause to be converted by sale or in any other manner that it may determine that foreign currency into Dollars, and those Dollars shall be distributed tothe Owners entitled thereto. A cash distribution may be made upon an averaged or other practicable basis without regard to any distinctions amongOwners based on exchange restrictions, the date of delivery of any American Depositary Shares or otherwise and shall be net of any expenses ofconversion into Dollars incurred by the Depositary as provided in Section 5.9.If a conversion of foreign currency or the repatriation or distribution of Dollars can be effected only with the approval or license ofany government or agency thereof, the Depositary may, but will not be required to, file an application for that approval or license. -18-If the Depositary determines that in its judgment any foreign currency received by the Depositary or the Custodian is notconvertible on a reasonable basis into Dollars transferable to the United States, or if any approval or license of any government or agency thereof that isrequired for such conversion is not filed or sought by the Depositary or is not obtained within a reasonable period as determined by the Depositary, theDepositary may distribute the foreign currency received by the Depositary to, or in its discretion may hold such foreign currency uninvested andwithout liability for interest thereon for the respective accounts of, the Owners entitled to receive the same.If any conversion of foreign currency, in whole or in part, cannot be effected for distribution to some of the Owners entitled thereto,the Depositary may in its discretion make that conversion and distribution in Dollars to the extent practicable and permissible to the Owners entitledthereto and may distribute the balance of the foreign currency received by the Depositary to, or hold that balance uninvested and without liability forinterest thereon for the account of, the Owners entitled thereto.The Depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own accountand not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that itwill retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currencyconversion made under this Deposit Agreement and the rate that the Depositary or its affiliate receives when buying or selling foreign currency for itsown account. The Depositary makes no representation that the exchange rate used or obtained in any currency conversion under this DepositAgreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the mostfavorable to Owners, subject to the Depositary’s obligations under Section 5.3. The methodology used to determine exchange rates used in currencyconversions is available upon request.SECTION 4.6. Fixing of Record Date.Whenever a cash dividend, cash distribution or any other distribution is made on Deposited Securities or rights to purchase Sharesor other securities are issued with respect to Deposited Securities (which rights will be delivered to or exercised or sold on behalf of Owners inaccordance with Section 4.4) or the Depositary receives notice that a distribution or issuance of that kind will be made, or whenever the Depositaryreceives notice that a meeting of holders of Shares will be held in respect of which the Company has requested the Depositary to send a notice underSection 4.7, or whenever the Depositary will assess a fee or charge against the Owners, or whenever the Depositary causes a change in the number ofShares that are represented by each American Depositary Share, or whenever the Depositary otherwise finds it necessary or convenient, the Depositaryshall fix a record date, which shall be the same as, or as near as practicable to, any corresponding record date set by the Company with respect to Shares,(a) for the determination of the Owners (i) who shall be entitled to receive the benefit of that dividend or other distribution or those rights, (ii) who shallbe entitled to give instructions for the exercise of voting rights at that meeting or (iii) who shall be responsible for that fee or charge or (iv) for anyother purpose for which the record date was set, or (b) on or after which each American Depositary Share will represent the changed number of Shares.Subject to the provisions of Sections 4.1 through 4.5 and to the other terms and conditions of this Deposit Agreement, the Owners on a record datefixed by the Depositary shall be entitled to receive the amount distributable by the Depositary with respect to that dividend or other distribution orthose rights or the net proceeds of sale thereof in proportion to the number of American Depositary Shares held by them respectively, to give votinginstructions or to act in respect of the other matter for which that record date was fixed, or be responsible for that fee or charge, as the case may be. -19-SECTION 4.7. Voting of Deposited Shares.(a) Upon receipt of notice of any meeting of holders of Shares at which holders of Shares will be entitled to vote, if requested inwriting by the Company, the Depositary shall, as soon as practicable thereafter, Disseminate to the Owners a notice, the form of which shall be in thesole discretion of the Depositary, that shall contain (i) the information contained in the notice of meeting received by the Depositary, (ii) a statementthat the Owners as of the close of business on a specified record date will be entitled, subject to any applicable provision of Cayman Islands law and ofthe articles of association or similar documents of the Company, to instruct the Depositary as to the exercise of the voting rights pertaining to theamount of Shares represented by their respective American Depositary Shares, (iii) a statement as to the manner in which those instructions may begiven and (iv) the last date on which the Depositary will accept instructions (the “Instruction Cutoff Date”).(b) Upon the written request of an Owner of American Depositary Shares, as of the date of the request or, if a record date wasspecified by the Depositary, as of that record date, received on or before any Instruction Cutoff Date established by the Depositary, the Depositary may,and if the Depositary sent a notice under the preceding paragraph shall, endeavor, in so far as practicable, to vote or cause to be voted the amount ofdeposited Shares represented by those American Depositary Shares in accordance with the instructions set forth in that request. The Depositary shallnot vote or attempt to exercise the right to vote that attaches to the deposited Shares other than in accordance with instructions given by Owners andreceived by the Depositary.(c) There can be no assurance that Owners generally or any Owner in particular will receive the notice described in paragraph(a) above in time to enable Owners to give instructions to the Depositary prior to the Instruction Cutoff Date.(d) In order to give Owners a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating toShares, if the Company will request the Depositary to Disseminate a notice under paragraph (a) above, the Company shall give the Depositary notice ofthe meeting, details concerning the matters to be voted upon and copies of materials to be made available to holders of Shares in connection with themeeting not less than 45 days prior to the meeting date. -20-SECTION 4.8. Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities.(a) The Depositary shall not tender any Deposited Securities in response to any voluntary cash tender offer, exchange offer orsimilar offer made to holders of Deposited Securities (a “Voluntary Offer”), except when instructed in writing to do so by an Owner surrenderingAmerican Depositary Shares and subject to any conditions or procedures the Depositary may require.(b) If the Depositary receives a written notice that Deposited Securities have been redeemed for cash or otherwise purchased forcash in a transaction that is mandatory and binding on the Depositary as a holder of those Deposited Securities (a “Redemption”), the Depositary, at theexpense of the Company, shall (i) if required, surrender Deposited Securities that have been redeemed to the issuer of those securities or its agent on theredemption date, (ii) Disseminate a notice to Owners (A) notifying them of that Redemption, (B) calling for surrender of a corresponding number ofAmerican Depositary Shares and (C) notifying them that the called American Depositary Shares have been converted into a right only to receive themoney received by the Depositary upon that Redemption and those net proceeds shall be the Deposited Securities to which Owners of those convertedAmerican Depositary Shares shall be entitled upon surrenders of those American Depositary Shares in accordance with Section 2.5 or 6.2 and(iii) distribute the money received upon that Redemption to the Owners entitled to it upon surrender by them of called American Depositary Shares inaccordance with Section 2.5 (and, for the avoidance of doubt, Owners shall not be entitled to receive that money under Section 4.1). If the Redemptionaffects less than all the Deposited Securities, the Depositary shall call for surrender a corresponding portion of the outstanding American DepositaryShares and only those American Depositary Shares will automatically be converted into a right to receive the net proceeds of the Redemption. TheDepositary shall allocate the American Depositary Shares converted under the preceding sentence among the Owners pro-rata to their respectiveholdings of American Depositary Shares immediately prior to the Redemption, except that the allocations may be adjusted so that no fraction of aconverted American Depositary Share is allocated to any Owner. A Redemption of all or substantially all of the Deposited Securities shall be aTermination Option Event.(c) If the Depositary is notified of or there occurs any change in nominal value or any subdivision, combination or any otherreclassification of the Deposited Securities or any recapitalization, reorganization, sale of assets substantially as an entirety, merger or consolidationaffecting the issuer of the Deposited Securities or to which it is a party that is mandatory and binding on the Depositary as a holder of DepositedSecurities and, as a result, securities or other property have been or will be delivered in exchange, conversion, replacement or in lieu of, DepositedSecurities (a “Replacement”), the Depositary shall, if required, surrender the old Deposited Securities affected by that Replacement of Shares and hold,as new Deposited Securities under this Deposit Agreement, the new securities or other property delivered to it in that Replacement. However, theDepositary may elect to sell those new Deposited Securities if in the opinion of the Depositary it is not lawful or not practical for it to hold those newDeposited Securities under this Deposit Agreement because those new Deposited Securities may not be distributed to Owners without registrationunder the Securities Act of 1933 or for any other reason, at public or private sale, at such places and on such terms as it deems proper and proceed as ifthose new Deposited Securities had been Redeemed under paragraph (b) above. A Replacement shall be a Termination Option Event. -21-(d) In the case of a Replacement where the new Deposited Securities will continue to be held under this Deposit Agreement, theDepositary may call for the surrender of outstanding Receipts to be exchanged for new Receipts specifically describing the new Deposited Securitiesand the number of those new Deposited Securities represented by each American Depositary Share. If the number of Shares represented by eachAmerican Depositary Share decreases as a result of a Replacement, the Depositary may call for surrender of the American Depositary Shares to beexchanged on a mandatory basis for a lesser number of American Depositary Shares and may sell American Depositary Shares to the extent necessary toavoid distributing fractions of American Depositary Shares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them.(e) If there are no Deposited Securities with respect to American Depositary Shares, including if the Deposited Securities arecancelled, or the Deposited Securities with respect to American Depositary Shares have become apparently worthless, the Depositary may call forsurrender of those American Depositary Shares or may cancel those American Depositary Shares, upon notice to Owners, and a Termination OptionEvent occurs.SECTION 4.9. Reports.The Depositary shall make available for inspection by Owners at its Office any reports and communications, including any proxysolicitation material, received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) madegenerally available to the holders of those Deposited Securities by the Company. The Company shall furnish reports and communications, includingany proxy soliciting material to which this Section applies, to the Depositary in English, to the extent those materials are required to be translated intoEnglish pursuant to any regulations of the Commission. -22-SECTION 4.10. Lists of Owners.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, ofthe names, addresses and American Depositary Share holdings of all Owners.SECTION 4.11. Withholding.If the Depositary determines that any distribution received or to be made by the Depositary (including Shares and rights tosubscribe therefor) is subject to any tax or other governmental charge that the Depositary is obligated to withhold, the Depositary may sell, by publicor private sale, all or a portion of the distributed property (including Shares and rights to subscribe therefor) in the amounts and manner the Depositarydeems necessary and practicable to pay those taxes or charges, and the Depositary shall distribute the net proceeds of that sale, after deduction of thosetaxes or charges, to the Owners entitled thereto in proportion to the number of American Depositary Shares held by them respectively.Services for Owners and Holders that may permit them to obtain reduced rates of tax withholding at source or reclaim excess taxwithheld, and the fees and costs associated with using services of that kind, are not provided under, and are outside the scope of, this DepositAgreement.Each Owner and Holder agrees to indemnify the Company, the Depositary, the Custodian and their respective directors, employees,agents and affiliates for, and hold each of them harmless against, any claim by any governmental authority with respect to taxes, additions to tax,penalties or interest arising out of any refund of taxes, reduced withholding at source or other tax benefit received by it.SECTION 4.12. Shareholder Rights Plan.(a) The Company has adopted a shareholder rights plan pursuant to a Rights Agreement made and entered into as of January 14, 2019, asamended from time to time (the ”Rights Agreement”), by and between the Company and The Bank of New York Mellon, as Rights Agent (the ”RightsAgent”). Pursuant to the terms of the Rights Agreement, each holder of the Issuer’s Shares shall be entitled to certain rights (the ”Rights”). The RightsAgreement, the terms of which are hereby incorporated herein by reference, provides that the Rights, when exercisable, will entitle the holder topurchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Shares, par value $0.001 per share, ofthe Company (the “Preferred Shares”) at a price of $200 per one one-thousandth of a Preferred Share (the “Exercise Price”), subject to adjustment, uponpresentation and surrender to the Rights Agent of a Right Certificate (as defined in the Rights Agreement) and such other and further documentation asrequired by the Rights Agreement. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by any Person who is, wasor becomes, or acquires shares from, an Acquiring Person or any Affiliate of an Acquiring Person (as each such term is defined in the Rights Agreement,and generally relating to the ownership or purchase of large shareholdings), whether currently held by or on behalf of such Person or Affiliate or bycertain subsequent holders, may become null and void. -23-(b) Initially, the Rights will attach to all Shares outstanding as of the close of business on January 14, 2019 (the “Record Date”), and noseparate certificates for Rights will be distributed. The Rights will separate from the Shares on the Distribution Date (as defined in the RightsAgreement). Until the distribution of the Right Certificates (or earlier redemption or expiration of the Rights) the surrender for transfer of any Shares(which certificates for the Shares shall be deemed also to be Rights Certificates) shall also constitute the transfer of the Rights associated with theShares. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates.(c) Upon the earlier of receipt of the notice of the occurrence of the Distribution Date from the (i) Rights Agent, or (ii) the Company, theDepositary shall set a record date (the “Rights Record Date”) in accordance with the terms of this Deposit Agreement for the determination of theOwners entitled to receive a Rights Exercise Notice (as hereinafter defined). Pursuant to Section 4.4(b) hereof, the Depositary shall establish, in itsreasonable discretion, the timing and procedures to (i) distribute a notice the (“Rights Exercise Notice”) to Owners to enable Owners to issueinstructions to the Depositary whether to exercise the Rights attached to the Shares underlying such Owner’s American Depositary Shares as of theRights Record Date (upon payment of the subscription or purchase price and (ii) deliver or cause to be delivered to the order of the Owner the PreferredShares or receipts representing interests in such Preferred Shares or other securities to be delivered pursuant to the Rights Agreement. Nothing hereinshall obligate the Depositary to make available to the Owners a method to exercise rights to subscribe for the Preferred Shares.(d) The Depositary shall have no duty to distribute solicitation or informational materials to Owners except upon instruction by theCompany or the Rights Agent. If the Depositary distributes soliciting or informational materials in connection with the exercise of the Rights to theOwners at the request of the Company or the Rights Agent, the Depositary shall not be responsible for the content of any such materials provided to it.(e) If the amount of the Exercise Price is insufficient to pay the amount of the subscription price plus financial transaction taxes, theDepositary shall not be required to advance the amount of any such deficiency and may reduce the amount of such Owner’s subscription pro rata basedon the amount of such deficiency, unless the Owner delivers to the Depositary sufficient funds to cover the deficiency prior to any relevant deadlinesset by the Depositary. -24-(f) Notwithstanding anything to the contrary this Section 4.12, the Depositary shall not distribute the Exercise Notices to the Owners unless(i) the Depositary has received written notification from the Company (x) that a registration statement under the Securities Act of 1933 or any otherapplicable law has been filed with respect to the underlying Preferred Shares to be purchased upon exercise of the Rights and has become effective and,(y) if applicable, when the registration statement for the securities purchasable upon exercise of the Rights represented by depositary receipts has beendeclared effective, or (ii) the Depositary receives an opinion of counsel for the Company in the United States, in a form reasonably satisfactory to theDepositary, to the effect that the offering and sale of such securities purchasable upon exercise of the Rights are exempt from, or do not requireregistration under, the provisions of the Securities Act of 1933 or any other applicable laws.(g) There can be no assurance that Owners generally, or any Owner in particular, will be given the opportunity to receive or exercise Rightsin the same manner and pursuant to the same process as the holders of Shares.(j) The forgoing description of the Rights Agreement does not purport to be complete and is qualified in its entirety by reference to theRights Agreement. A current copy of the Rights Agreement will be mailed by the Company to any Owner without charge, following receipt by theCompany of a written request therefor in writing.ARTICLE 5. THE DEPOSITARY, THE CUSTODIANS AND THE COMPANYSECTION 5.1. Maintenance of Office and Transfer Books by the Depositary.Until termination of this Deposit Agreement in accordance with its terms, the Depositary shall maintain facilities for the executionand delivery, registration, registration of transfers and surrender of American Depositary Shares in accordance with the provisions of this DepositAgreement.The Depositary shall keep books for the registration of American Depositary Shares, which shall be open for inspection by theOwners at the Depositary’s Office during regular business hours, provided that such inspection is not for the purpose of communicating with Owners inthe interest of a business or object other than the business of the Company or a matter related to this Deposit Agreement or the American DepositaryShares.The Depositary may close the transfer books, at any time or from time to time, when deemed expedient by it in connection with theperformance of its duties under this Deposit Agreement.If any American Depositary Shares are listed on one or more stock exchanges, the Depositary shall act as Registrar or appoint aRegistrar or one or more co-registrars for registry of those American Depositary Shares in accordance with any requirements of that exchange or thoseexchanges. -25-SECTION 5.2. Prevention or Delay of Performance by the Company or the Depositary.Neither the Depositary nor the Company nor any of their respective directors, employees, agents or affiliates shall incur anyliability to any Owner or Holder:(i) if by reason of (A) any provision of any present or future law or regulation or other act of the government of the United States,any State of the United States or any other state or jurisdiction, or of any governmental or regulatory authority or stock exchange; (B) (in the case of theDepositary only) any provision, present or future, of the articles of association or similar document of the Company, or by reason of any provision ofany securities issued or distributed by the Company, or any offering or distribution thereof; or (C) any event or circumstance, whether natural or causedby a person or persons, that is beyond the ability of the Depositary or the Company, as the case may be, to prevent or counteract by reasonable care oreffort (including, but not limited to, earthquakes, floods, severe storms, fires, explosions, war, terrorism, civil unrest, labor disputes or criminal acts;interruptions or malfunctions of utility services, Internet or other communications lines or systems; unauthorized access to or attacks on computersystems or websites; or other failures or malfunctions of computer hardware or software or other systems or equipment), the Depositary or the Companyis, directly or indirectly, prevented from, forbidden to or delayed in, or could be subject to any civil or criminal penalty on account of doing orperforming and therefore does not do or perform, any act or thing that, by the terms of this Deposit Agreement or the Deposited Securities, it is providedshall be done or performed;(ii) for any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement (including any determination bythe Depositary to take, or not take, any action that this Deposit Agreement provides the Depositary may take);(iii) for the inability of any Owner or Holder to benefit from any distribution, offering, right or other benefit that is made availableto holders of Deposited Securities but is not, under the terms of this Deposit Agreement, made available to Owners or Holders; or(iv) for any special, consequential or punitive damages for any breach of the terms of this Deposit Agreement.Where, by the terms of a distribution to which Section 4.1, 4.2 or 4.3 applies, or an offering to which Section 4.4 applies, or for anyother reason, that distribution or offering may not be made available to Owners, and the Depositary may not dispose of that distribution or offering onbehalf of Owners and make the net proceeds available to Owners, then the Depositary shall not make that distribution or offering available to Owners,and shall allow any rights, if applicable, to lapse. -26-SECTION 5.3. Obligations of the Depositary and the Company.The Company assumes no obligation nor shall it be subject to any liability under this Deposit Agreement to any Owner or Holder,except that the Company agrees to perform its obligations specifically set forth in this Deposit Agreement without negligence or bad faith.The Depositary assumes no obligation nor shall it be subject to any liability under this Deposit Agreement to any Owner or Holder(including, without limitation, liability with respect to the validity or worth of the Deposited Securities), except that the Depositary agrees to performits obligations specifically set forth in this Deposit Agreement without negligence or bad faith, and the Depositary shall not be a fiduciary or have anyfiduciary duty to Owners or Holders.Neither the Depositary nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit or otherproceeding in respect of any Deposited Securities or in respect of the American Depositary Shares on behalf of any Owner or Holder or any otherperson.Each of the Depositary and the Company may rely, and shall be protected in relying upon, any written notice, request, direction orother document believed by it to be genuine and to have been signed or presented by the proper party or parties.Neither the Depositary nor the Company shall be liable for any action or non-action by it in reliance upon the advice of orinformation from legal counsel, accountants, any person presenting Shares for deposit, any Owner or any other person believed by it in good faith to becompetent to give such advice or information.The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previousact or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that inconnection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while itacted as Depositary.The Depositary shall not be liable for the acts or omissions of any securities depository, clearing agency or settlement system inconnection with or arising out of book-entry settlement of American Depositary Shares or Deposited Securities or otherwise. -27-In the absence of bad faith on its part, the Depositary shall not be responsible for any failure to carry out any instructions to voteany of the Deposited Securities, or for the manner in which any such vote is cast or the effect of any such vote.The Depositary shall have no duty to make any determination or provide any information as to the tax status of the Company orany liability for any tax consequences that may be incurred by Owners or Holders as a result of owning or holding American Depositary Shares. TheDepositary shall not be liable for the inability or failure of an Owner or Holder to obtain the benefit of a foreign tax credit, reduced rate of withholdingor refund of amounts withheld in respect of tax or any other tax benefit.No disclaimer of liability under the Securities Act of 1933 is intended by any provision of this Deposit Agreement.SECTION 5.4. Resignation and Removal of the Depositary.The Depositary may at any time resign as Depositary hereunder by written notice of its election so to do delivered to the Company,to become effective upon the appointment of a successor depositary and its acceptance of that appointment as provided in this Section. The effect ofresignation if a successor depositary is not appointed is provided for in Section 6.2.The Depositary may at any time be removed by the Company by 120 days’ prior written notice of that removal, to become effectiveupon the later of (i) the 120th day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance ofits appointment as provided in this Section.If the Depositary resigns or is removed, the Company shall use its best efforts to appoint a successor depositary, which shall be abank or trust company having an office in the Borough of Manhattan, The City of New York. Every successor depositary shall execute and deliver tothe Company an instrument in writing accepting its appointment under this Deposit Agreement. If the Depositary receives notice from the Companythat a successor depositary has been appointed following its resignation or removal, the Depositary, upon payment of all sums due it from theCompany, shall deliver to its successor a register listing all the Owners and their respective holdings of outstanding American Depositary Shares andshall deliver the Deposited Securities to or to the order of its successor. When the Depositary has taken the actions specified in the preceding sentence(i) the successor shall become the Depositary and shall have all the rights and shall assume all the duties of the Depositary under this DepositAgreement and (ii) the predecessor depositary shall cease to be the Depositary and shall be discharged and released from all obligations under thisDeposit Agreement, except for its duties under Section 5.8 with respect to the time before that discharge. A successor Depositary shall notify theOwners of its appointment as soon as practical after assuming the duties of Depositary. -28-Any corporation or other entity into or with which the Depositary may be merged or consolidated shall be the successor of theDepositary without the execution or filing of any document or any further act.SECTION 5.5. The Custodians.The Custodian shall be subject at all times and in all respects to the directions of the Depositary and shall be responsible solely toit. The Depositary in its discretion may at any time appoint a substitute or additional custodian or custodians, each of which shall thereafter be one ofthe Custodians under this Deposit Agreement. If the Depositary receives notice that a Custodian is resigning and, upon the effectiveness of thatresignation there would be no Custodian acting under this Deposit Agreement, the Depositary shall, as promptly as practicable after receiving thatnotice, appoint a substitute custodian or custodians, each of which shall thereafter be a Custodian under this Deposit Agreement. The Depositary shallrequire any Custodian that resigns or is removed to deliver all Deposited Securities held by it to another Custodian.SECTION 5.6. Notices and Reports.If the Company takes or decides to take any corporate action of a kind that is addressed in Sections 4.1 to 4.4, or 4.6 to 4.8, or thateffects or will effect a change of the name or legal structure of the Company, or that effects or will effect a change to the Shares, the Company shallnotify the Depositary and the Custodian of that action or decision as soon as it is lawful and practical to give that notice. The notice shall be in Englishand shall include all details that the Company is required to include in any notice to any governmental or regulatory authority or securities exchangeor is required to make available generally to holders of Shares by publication or otherwise.The Company will arrange for the translation into English, if not already in English, to the extent required pursuant to anyregulations of the Commission, and the prompt transmittal by the Company to the Depositary and the Custodian of all notices and any other reportsand communications which are made generally available by the Company to holders of its Shares. If requested in writing by the Company, theDepositary will Disseminate, at the Company’s expense, those notices, reports and communications to all Owners or otherwise make them available toOwners in a manner that the Company specifies as substantially equivalent to the manner in which those communications are made available toholders of Shares and compliant with the requirements of any securities exchange on which the American Depositary Shares are listed. The Companywill timely provide the Depositary with the quantity of such notices, reports, and communications, as requested by the Depositary from time to time, inorder for the Depositary to effect that Dissemination.The Company represents that as of the date of this Deposit Agreement, the statements in Article 11 of the Receipt with respect tothe Company’s obligation to file periodic reports under the United States Securities Exchange Act of 1934, as amended, are true and correct. TheCompany agrees to promptly notify the Depositary upon becoming aware of any change in the truth of any of those statements. -29-SECTION 5.7. Distribution of Additional Shares, Rights, etc.If the Company or any affiliate of the Company determines to make any issuance or distribution of (1) additional Shares, (2) rightsto subscribe for Shares, (3) securities convertible into Shares, or (4) rights to subscribe for such securities (each a “Distribution”), the Company shallnotify the Depositary in writing in English as promptly as practicable and in any event before the Distribution starts and, if requested in writing by theDepositary, the Company shall promptly furnish to the Depositary either (i) evidence satisfactory to the Depositary that the Distribution is registeredunder the Securities Act of 1933 or (ii) a written opinion from U.S. counsel for the Company that is reasonably satisfactory to the Depositary, statingthat the Distribution does not require, or, if made in the United States, would not require, registration under the Securities Act of 1933.The Company agrees with the Depositary that neither the Company nor any company controlled by, controlling or under commoncontrol with the Company will at any time deposit any Shares that, at the time of deposit, are Restricted Securities.SECTION 5.8. Indemnification.The Company agrees to indemnify the Depositary, its directors, employees, agents and affiliates and each Custodian against, andhold each of them harmless from, any liability or expense (including, but not limited to any fees and expenses incurred in seeking, enforcing orcollecting such indemnity and the fees and expenses of counsel) that may arise out of or in connection with (a) any registration with the Commission ofAmerican Depositary Shares or Deposited Securities or the offer or sale thereof in the United States or (b) acts performed or omitted, pursuant to theprovisions of or in connection with this Deposit Agreement and the American Depositary Shares, as the same may be amended, modified orsupplemented from time to time, (i) by either the Depositary or a Custodian or their respective directors, employees, agents and affiliates, except for anyliability or expense arising out of the negligence or bad faith of either of them, or (ii) by the Company or any of its directors, employees, agents andaffiliates.The Depositary agrees to indemnify the Company, its directors, employees, agents and affiliates and hold them harmless from anyliability or expense that may arise out of acts performed or omitted by the Depositary or any Custodian or their respective directors, employees, agentsand affiliates due to their negligence or bad faith. -30-SECTION 5.9. Charges of Depositary.The following charges shall be incurred by any party depositing or withdrawing Shares or by any party surrendering AmericanDepositary Shares or to whom American Depositary Shares are issued (including, without limitation, issuance pursuant to a stock dividend or stocksplit declared by the Company or an exchange of stock regarding the American Depositary Shares or Deposited Securities or a delivery of AmericanDepositary Shares pursuant to Section 4.3), or by Owners, as applicable: (1) taxes and other governmental charges, (2) such registration fees as mayfrom time to time be in effect for the registration of transfers of Shares generally on the Share register of the Company or Foreign Registrar andapplicable to transfers of Shares to or from the name of the Depositary or its nominee or the Custodian or its nominee on the making of deposits orwithdrawals hereunder, (3) such cable (including SWIFT) and facsimile transmission fees and expenses as are expressly provided in this DepositAgreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency pursuant to Section 4.5, (5) a fee of $5.00 or lessper 100 American Depositary Shares (or portion thereof) for the delivery of American Depositary Shares pursuant to Section 2.3, 4.3 or 4.4 and thesurrender of American Depositary Shares pursuant to Section 2.5 or 6.2, (6) a fee of $.05 or less per American Depositary Share (or portion thereof) forany cash distribution made pursuant to this Deposit Agreement, including, but not limited to Sections 4.1 through 4.4 and Section 4.8, (7) a fee for thedistribution of securities pursuant to Section 4.2 or of rights pursuant to Section 4.4 (where the Depositary will not exercise or sell those rights onbehalf of Owners), such fee being in an amount equal to the fee for the execution and delivery of American Depositary Shares referred to above whichwould have been charged as a result of the deposit of such securities under this Deposit Agreement (for purposes of this item 7 treating all suchsecurities as if they were Shares) but which securities are instead distributed by the Depositary to Owners, (8) in addition to any fee charged under item6 above, a fee of $.05 or less per American Depositary Share (or portion thereof) per annum for depositary services, which will be payable as providedin item 9 below, and (9) any other charges payable by the Depositary or the Custodian, any of the Depositary’s or Custodian’s agents or the agents ofthe Depositary’s or Custodian’s agents, in connection with the servicing of Shares or other Deposited Securities (which charges shall be assessedagainst Owners as of the date or dates set by the Depositary in accordance with Section 4.6 and shall be payable at the sole discretion of the Depositaryby billing those Owners for those charges or by deducting those charges from one or more cash dividends or other cash distributions).The Depositary may collect any of its fees by deduction from any cash distribution payable, or by selling a portion of any securitiesto be distributed, to Owners that are obligated to pay those fees.In performing its duties under this Deposit Agreement, the Depositary may use brokers, dealers, foreign currency dealers or otherservice providers that are owned by or affiliated with the Depositary and that may earn or share fees, spreads or commissions. -31-The Depositary, subject to Section 2.9, may own and deal in any class of securities of the Company and its affiliates and inAmerican Depositary Shares.SECTION 5.10. Retention of Depositary Documents.The Depositary is authorized to destroy those documents, records, bills and other data compiled during the term of this DepositAgreement at the times permitted by the laws or regulations governing the Depositary.SECTION 5.11. Exclusivity.Without prejudice to the Company’s rights under Section 5.4, the Company agrees not to appoint any other depositary for issuanceof depositary shares, depositary receipts or any similar securities or instruments so long as The Bank of New York Mellon is acting as Depositary underthis Deposit Agreement.SECTION 5.12. Information for Regulatory Compliance.Each of the Company and the Depositary shall provide to the other, as promptly as practicable, information from its records orotherwise available to it that it is not restricted by any law from disclosing to other parties and that is reasonably requested by the other to permit theother to comply with applicable law or requirements of governmental or regulatory authorities.ARTICLE 6. AMENDMENT AND TERMINATIONSECTION 6.1. Amendment.The form of the Receipts and any provisions of this Deposit Agreement may at any time and from time to time be amended byagreement between the Company and the Depositary without the consent of Owners or Holders in any respect that they may deem necessary ordesirable. Any amendment that would impose or increase any fees or charges (other than taxes and other governmental charges, registration fees, cable,telex or facsimile transmission costs, delivery costs or other such expenses), or that would otherwise prejudice any substantial existing right of Owners,shall, however, not become effective as to outstanding American Depositary Shares until the expiration of 30 days after notice of that amendment hasbeen Disseminated to the Owners of outstanding American Depositary Shares. Every Owner and Holder, at the time any amendment so becomeseffective, shall be deemed, by continuing to hold American Depositary Shares or any interest therein, to consent and agree to that amendment and to bebound by this Deposit Agreement as amended thereby. Upon the effectiveness of an amendment to the form of Receipt, including a change in thenumber of Shares represented by each American Depositary Share, the Depositary may call for surrender of Receipts to be replaced with new Receiptsin the amended form or call for surrender of American Depositary Shares to effect that change of ratio. In no event shall any amendment impair the rightof the Owner to surrender American Depositary Shares and receive delivery of the Deposited Securities represented thereby, except in order to complywith mandatory provisions of applicable law. -32-SECTION 6.2. Termination.(a) The Company may initiate termination of this Deposit Agreement by notice to the Depositary. The Depositary may initiatetermination of this Deposit Agreement if (i) at any time 60 days shall have expired after the Depositary delivered to the Company a written resignationnotice and a successor depositary has not been appointed and accepted its appointment as provided in Section 5.4, (ii) an Insolvency Event orDelisting Event occurs with respect to the Company or (iii) a Termination Option Event has occurred or will occur. If termination of this DepositAgreement is initiated, the Depositary shall Disseminate a notice of termination to the Owners of all American Depositary Shares then outstandingsetting a date for termination (the “Termination Date”), which shall be at least 90 days after the date of that notice, and this Deposit Agreement shallterminate on that Termination Date.(b) After the Termination Date, the Company shall be discharged from all obligations under this Deposit Agreement except for itsobligations to the Depositary under Sections 5.8 and 5.9.(c) At any time after the Termination Date, the Depositary may sell the Deposited Securities then held under this DepositAgreement and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, unsegregatedand without liability for interest, for the pro rata benefit of the Owners of American Depositary Shares that remain outstanding, and those Owners willbe general creditors of the Depositary with respect to those net proceeds and that other cash. After making that sale, the Depositary shall be dischargedfrom all obligations under this Deposit Agreement, except (i) to account for the net proceeds and other cash (after deducting, in each case, the fee of theDepositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares inaccordance with the terms and conditions of this Deposit Agreement and any applicable taxes or governmental charges) and (ii) for its obligationsunder Section 5.8 and (iii) to act as provided in paragraph (d) below.(d) After the Termination Date, the Depositary shall continue to receive dividends and other distributions pertaining to DepositedSecurities (that have not been sold), may sell rights and other property as provided in this Deposit Agreement and shall deliver Deposited Securities (orsale proceeds) upon surrender of American Depositary Shares (after payment or upon deduction, in each case, of the fee of the Depositary for thesurrender of American Depositary Shares, any expenses for the account of the Owner of those American Depositary Shares in accordance with the termsand conditions of this Deposit Agreement and any applicable taxes or governmental charges). After the Termination Date, the Depositary shall notaccept deposits of Shares or deliver American Depositary Shares. After the Termination Date, (i) the Depositary may refuse to accept surrenders ofAmerican Depositary Shares for the purpose of withdrawal of Deposited Securities (that have not been sold) or to reverse previously acceptedsurrenders of that kind that have not settled if in its judgment the requested withdrawal or reversal would interfere with its efforts to sell the DepositedSecurities, (ii) the Depositary will not be required to deliver cash proceeds of the sale of Deposited Securities until all Deposited Securities have beensold and (iii) the Depositary may discontinue the registration of transfers of American Depositary Shares and suspend the distribution of dividends andother distributions on Deposited Securities to the Owners and need not give any further notices or perform any further acts under this DepositAgreement except as provided in this Section. -33-ARTICLE 7. MISCELLANEOUSSECTION 7.1. Counterparts; Signatures.This Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of thosecounterparts shall constitute one and the same instrument. Copies of this Deposit Agreement shall be filed with the Depositary and the Custodians andshall be open to inspection by any Owner or Holder during regular business hours.Any manual signature on this Deposit Agreement that is faxed, scanned or photocopied, and any electronic signature valid underthe Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001, et. seq., shall for all purposes have the same validity, legal effectand admissibility in evidence as an original manual signature, and the parties hereby waive any objection to the contrary.SECTION 7.2. No Third Party Beneficiaries.This Deposit Agreement is for the exclusive benefit of the Company, the Depositary, the Owners and the Holders and theirrespective successors and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person.SECTION 7.3. Severability.In case any one or more of the provisions contained in this Deposit Agreement or in a Receipt should be or become invalid, illegalor unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained in this Deposit Agreement or thatReceipt shall in no way be affected, prejudiced or disturbed thereby. -34-SECTION 7.4. Owners and Holders as Parties; Binding Effect.The Owners and Holders from time to time shall be parties to this Deposit Agreement and shall be bound by all of the terms andconditions of this Deposit Agreement and of the Receipts by acceptance of American Depositary Shares or any interest therein.SECTION 7.5. Notices.Any and all notices to be given to the Company shall be in writing and shall be deemed to have been duly given if personallydelivered or sent by domestic first class or international air mail or air courier or sent by facsimile transmission or email attaching a pdf or similarbit-mapped image of a signed writing, provided that receipt of the facsimile transmission or email has been confirmed by the recipient, addressed toSohu.com Limited, Level 18, Sohu.com Media Plaza, Block 3, No. 2 Kexueyuan South Road, Haidian District, Beijing 100190, People’s Republic ofChina, Attention: Joanna LV, CFO, with a copy to Goulston & Storrs PC, 400 Atlantic Avenue, Boston, Massachusetts 02110, U.S.A., Attention:Timothy B. Bancroft, or any other place to which the Company may have transferred its principal office with notice to the Depositary.Any and all notices to be given to the Depositary shall be in writing and shall be deemed to have been duly given if in English andpersonally delivered or sent by first class domestic or international air mail or air courier or sent by facsimile transmission or email attaching a pdf orsimilar bit-mapped image of a signed writing, addressed to The Bank of New York Mellon, 101 Barclay Street, New York, New York 10286, Attention:Depositary Receipt Administration, or any other place to which the Depositary may have transferred its Office with notice to the Company.Delivery of a notice to the Company or Depositary by mail or air courier shall be deemed effected when deposited, postage prepaid,in a post-office letter box or received by an air courier service. Delivery of a notice to the Company or Depositary sent by facsimile transmission oremail shall be deemed effected when the recipient acknowledges receipt of that notice.A notice to be given to an Owner shall be deemed to have been duly given when Disseminated to that Owner. Dissemination inpaper form will be effective when personally delivered or sent by first class domestic or international air mail or air courier, addressed to that Owner atthe address of that Owner as it appears on the transfer books for American Depositary Shares of the Depositary, or, if that Owner has filed with theDepositary a written request that notices intended for that Owner be mailed to some other address, at the address designated in that request.Dissemination in electronic form will be effective when sent in the manner consented to by the Owner to the electronic address most recently providedby the Owner for that purpose. -35-SECTION 7.6. Appointment of Agent for Service of Process; Submission to Jurisdiction; Jury Trial Waiver.The Company hereby (i) designates and appoints the person named in Exhibit A to this Deposit Agreement, located in the State ofNew York, as the Company’s authorized agent upon which process may be served in any suit or proceeding arising out of or relating to the Shares orDeposited Securities, the American Depositary Shares, the Receipts or this Deposit Agreement (a “Proceeding”), (ii) consents and submits to thejurisdiction of any state or federal court in the State of New York in which any Proceeding may be instituted and (iii) agrees that service of processupon said authorized agent shall be deemed in every respect effective service of process upon the Company in any Proceeding. The Company agrees todeliver to the Depositary, upon the execution and delivery of this Deposit Agreement, a written acceptance by the agent named in Exhibit A to thisDeposit Agreement of its appointment as process agent. The Company further agrees to take any and all action, including the filing of any and all suchdocuments and instruments, as may be necessary to continue that designation and appointment in full force and effect, or to appoint and maintain theappointment of another process agent located in the United States as required above, and to deliver to the Depositary a written acceptance by thatagent of that appointment, for so long as any American Depositary Shares or Receipts remain outstanding or this Deposit Agreement remains in force.In the event the Company fails to maintain the designation and appointment of a process agent in the United States in full force and effect, theCompany hereby waives personal service of process upon it and consents that a service of process in connection with a Proceeding may be made bycertified or registered mail, return receipt requested, directed to the Company at its address last specified for notices under this Deposit Agreement, andservice so made shall be deemed completed five (5) days after the same shall have been so mailed.EACH PARTY TO THIS DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH OWNER AND HOLDER)HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIALBY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY DIRECTLY OR INDIRECTLYARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE AMERICAN DEPOSITARY SHARES OR THERECEIPTS, THIS DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF ORTHEREOF, INCLUDING, WITHOUT LIMITATION, ANY QUESTION REGARDING EXISTENCE, VALIDITY OR TERMINATION (WHETHERBASED ON CONTRACT, TORT OR ANY OTHER THEORY). -36-SECTION 7.7. Arbitration; Settlement of Disputes.Any controversy, claim or cause of action brought by any party hereto against the Company arising out of or relating to the Sharesor other Deposited Securities, the American Depositary Shares, the Receipts or this Deposit Agreement, or the breach hereof or thereof, if so elected bythe claimant, shall be settled by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association, andjudgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.The place of the arbitration shall be The City of New York, State of New York, United States of America, and the language of thearbitration shall be English.The number of arbitrators shall be three, each of whom shall be disinterested in the dispute or controversy, shall have no connectionwith any party thereto, and shall be an attorney experienced in international securities transactions. Each party shall appoint one arbitrator and the twoarbitrators shall select a third arbitrator who shall serve as chairperson of the tribunal. If a dispute, controversy or cause of action shall involve morethan two parties, the parties shall attempt to align themselves in two sides (i.e., claimant(s) and respondent(s)), each of which shall appoint onearbitrator as if there were only two parties to such dispute, controversy or cause of action. If such alignment and appointment shall not have occurredwithin thirty (30) calendar days after the initiating party serves the arbitration demand, the American Arbitration Association shall appoint the threearbitrators, each of whom shall have the qualifications described above. The parties and the American Arbitration Association may appoint from amongthe nationals of any country, whether or not a party is a national of that country.The arbitral tribunal shall have no authority to award any consequential, special or punitive damages or other damages notmeasured by the prevailing party’s actual damages and may not, in any event, make any ruling, finding or award that does not conform to the terms andconditions of this Deposit Agreement.SECTION 7.8. Waiver of Immunities.To the extent that the Company or any of its properties, assets or revenues may have or may hereafter become entitled to, or haveattributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding (including any arbitrationproceeding), from the giving of any relief in any respect thereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process,from attachment upon or prior to judgment, from attachment in aid of execution or judgment, or from execution of judgment, or other legal process orproceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time becommenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with the Shares or DepositedSecurities, the American Depositary Shares, the Receipts or this Deposit Agreement, the Company, to the fullest extent permitted by law, herebyirrevocably and unconditionally waives, and agrees not to plead or claim, any immunity of that kind and consents to relief and enforcement asprovided above. -37-SECTION 7.9. Governing Law.This Deposit Agreement and the Receipts shall be interpreted in accordance with and all rights hereunder and thereunder andprovisions hereof and thereof shall be governed by the laws of the State of New York. -38-IN WITNESS WHEREOF, SOHU.COM LIMITED and THE BANK OF NEW YORK MELLON have duly executed this Deposit Agreement as ofthe day and year first set forth above and all Owners and Holders shall become parties hereto upon acceptance by them of American Depositary Sharesor any interest therein. SOHU.COM LIMITED By: Name: Title: THE BANK OF NEW YORK MELLON, as Depositary By: Name: Title: -39-EXHIBIT A AMERICAN DEPOSITARY SHARES(Each American Depositary Share representsone (1) deposited Share)THE BANK OF NEW YORK MELLONAMERICAN DEPOSITARY RECEIPTFOR ORDINARY SHARES OFSOHU.COM LIMITED(ORGANIZED UNDER THE LAWS OF THE CAYMAN ISLANDS)The Bank of New York Mellon, as depositary (hereinafter called the “Depositary”), hereby certifies that , orregistered assigns IS THE OWNER OF AMERICAN DEPOSITARY SHARESrepresenting deposited ordinary shares (herein called “Shares”) of Sohu.com Limited, organized under the laws of the Cayman Islands (herein calledthe “Company”). At the date hereof, each American Depositary Share represents one (1) Share deposited or subject to deposit under the DepositAgreement (as such term is hereinafter defined) with a custodian for the Depositary (herein called the “Custodian”) that, as of the date of the DepositAgreement, was The Hongkong and Shanghai Banking Corporation Limited located in Hong Kong. The Depositary’s Office is located at a differentaddress than its principal executive office. Its Office is located at 101 Barclay Street, New York, N.Y. 10286, and its principal executive office islocated at 225 Liberty Street, New York, N.Y. 10286.THE DEPOSITARY’S OFFICE ADDRESS IS101 BARCLAY STREET, NEW YORK, N.Y. 10286 A-11.THE DEPOSIT AGREEMENT.This American Depositary Receipt is one of an issue (herein called “Receipts”), all issued and to be issued upon the terms and conditions setforth in the Deposit Agreement dated as of April 23, 2018 (herein called the “Deposit Agreement”) among the Company, the Depositary, and allOwners and Holders from time to time of American Depositary Shares issued thereunder, each of whom by accepting American Depositary Sharesagrees to become a party thereto and become bound by all the terms and conditions thereof. The Deposit Agreement sets forth the rights of Owners andHolders and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other securities, property and cashfrom time to time received in respect of those Shares and held thereunder (those Shares, securities, property, and cash are herein called “DepositedSecurities”). Copies of the Deposit Agreement are on file at the Depositary’s Office in New York City and at the office of the Custodian.The statements made on the face and reverse of this Receipt are summaries of certain provisions of the Deposit Agreement and are qualified byand subject to the detailed provisions of the Deposit Agreement, to which reference is hereby made. Capitalized terms defined in the DepositAgreement and not defined herein shall have the meanings set forth in the Deposit Agreement. 2.SURRENDER OF AMERICAN DEPOSITARY SHARES AND WITHDRAWAL OF SHARES.Upon surrender of American Depositary Shares for the purpose of withdrawal of the Deposited Securities represented thereby and payment of thefee of the Depositary for the surrender of American Depositary Shares as provided in Section 5.9 of the Deposit Agreement and payment of all taxes andgovernmental charges payable in connection with that surrender and withdrawal of the Deposited Securities, and subject to the terms and conditions ofthe Deposit Agreement, the Owner of those American Depositary Shares shall be entitled to delivery (to the extent delivery can then be lawfully andpracticably made), to or as instructed by that Owner, of the amount of Deposited Securities at the time represented by those American DepositaryShares, but not any money or other property as to which a record date for distribution to Owners has passed (since money or other property of that kindwill be delivered or paid on the scheduled payment date to the Owner as of that record date), and except that the Depositary shall not be required toaccept surrender of American Depositary Shares for the purpose withdrawal to the extent it would require delivery of a fraction of a Deposited Security.The Depositary shall direct the Custodian with respect to delivery of Deposited Securities and may charge the surrendering Owner a fee and itsexpenses for giving that direction by cable (including SWIFT) or facsimile transmission. If Deposited Securities are delivered physically uponsurrender of American Depositary Shares for the purpose of withdrawal, that delivery will be made at the Custodian’s office, except that, at the request,risk and expense of the surrendering Owner, and for the account of that Owner, the Depositary shall direct the Custodian to forward any cash or otherproperty comprising, and forward a certificate or certificates, if applicable, and other proper documents of title, if any, for, the Deposited Securitiesrepresented by the surrendered American Depositary Shares to the Depositary for delivery at the Depositary’s Office or to another address specified inthe order received from the surrendering Owner. A-23.REGISTRATION OF TRANSFER OF AMERICAN DEPOSITARY SHARES; COMBINATION AND SPLIT-UP OF RECEIPTS; INTERCHANGEOF CERTIFICATED AND UNCERTIFICATED AMERICAN DEPOSITARY SHARES.The Depositary, subject to the terms and conditions of the Deposit Agreement, shall register a transfer of American Depositary Shares on itstransfer books upon (i) in the case of certificated American Depositary Shares, surrender of the Receipt evidencing those American Depositary Shares,by the Owner or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer or (ii) in the case of uncertificatedAmerican Depositary Shares, receipt from the Owner of a proper instruction (including, for the avoidance of doubt, instructions through DRS andProfile as provided in Section 2.10 of that Agreement), and, in either case, duly stamped as may be required by the laws of the State of New York and ofthe United States of America. Upon registration of a transfer, the Depositary shall deliver the transferred American Depositary Shares to or upon theorder of the person entitled thereto.The Depositary, subject to the terms and conditions of the Deposit Agreement, shall upon surrender of a Receipt or Receipts for the purpose ofeffecting a split-up or combination of such Receipt or Receipts, execute and deliver a new Receipt or Receipts for any authorized number of AmericanDepositary Shares requested, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered.The Depositary, upon surrender of certificated American Depositary Shares for the purpose of exchanging for uncertificated American DepositaryShares, shall cancel the Receipt evidencing those certificated American Depositary Shares and send the Owner a statement confirming that the Owner isthe owner of the same number of uncertificated American Depositary Shares. The Depositary, upon receipt of a proper instruction (including, for theavoidance of doubt, instructions through DRS and Profile as provided in Section 2.10 of the Deposit Agreement) from the Owner of uncertificatedAmerican Depositary Shares for the purpose of exchanging for certificated American Depositary Shares, shall cancel those uncertificated AmericanDepositary Shares and register and deliver to the Owner a Receipt evidencing the same number of certificated American Depositary Shares.As a condition precedent to the delivery, registration of transfer, or surrender of any American Depositary Shares or split-up or combination ofany Receipt or withdrawal of any Deposited Securities, the Depositary, the Custodian, or Registrar may require payment from the depositor of theShares or the presenter of the Receipt or instruction for registration of transfer or surrender of American Depositary Shares not evidenced by a Receiptof a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including anysuch tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees as provided in the DepositAgreement, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliancewith any regulations the Depositary may establish consistent with the provisions of the Deposit Agreement. A-3The delivery of American Depositary Shares against deposit of Shares generally or against deposit of particular Shares may be suspended, or theregistration of transfer of American Depositary Shares in particular instances may be refused, or the registration of transfer of outstanding AmericanDepositary Shares generally may be suspended, during any period when the transfer books of the Depositary are closed, or if any such action is deemednecessary or advisable by the Depositary or the Company at any time or from time to time because of any requirement of law or of any government orgovernmental body or commission, or under any provision of the Deposit Agreement, or for any other reason. Notwithstanding anything to the contraryin the Deposit Agreement or this Receipt, the surrender of outstanding American Depositary Shares and withdrawal of Deposited Securities may not besuspended subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the Foreign Registrar, ifapplicable, or the deposit of Shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxesand similar charges, and (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the American Depositary Shares or to thewithdrawal of the Deposited Securities. The Depositary shall not knowingly accept for deposit under the Deposit Agreement any Shares that, at thetime of deposit, are Restricted Securities. 4.LIABILITY OF OWNER FOR TAXES.If any tax or other governmental charge shall become payable by the Custodian or the Depositary with respect to or in connection with anyAmerican Depositary Shares or any Deposited Securities represented by any American Depositary Shares or in connection with a transaction to whichSection 4.8 of the Deposit Agreement applies, that tax or other governmental charge shall be payable by the Owner of those American DepositaryShares to the Depositary. The Depositary may refuse to register any transfer of those American Depositary Shares or any withdrawal of DepositedSecurities represented by those American Depositary Shares until that payment is made, and may withhold any dividends or other distributions or theproceeds thereof, or may sell for the account of the Owner any part or all of the Deposited Securities represented by those American Depositary Shares,and may apply those dividends or other distributions or the net proceeds of any sale of that kind in payment of that tax or other governmental chargebut, even after a sale of that kind, the Owner shall remain liable for any deficiency. The Depositary shall distribute any net proceeds of a sale madeunder Section 3.2 of the Deposit Agreement that are not used to pay taxes or governmental charges to the Owners entitled to them in accordance withSection 4.1 of the Deposit Agreement. If the number of Shares represented by each American Depositary Share decreases as a result of a sale ofDeposited Securities under Section 3.2 of the Deposit Agreement, the Depositary may call for surrender of the American Depositary Shares to beexchanged on a mandatory basis for a lesser number of American Depositary Shares and may sell American Depositary Shares to the extent necessary toavoid distributing fractions of American Depositary Shares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them. A-45.WARRANTIES ON DEPOSIT OF SHARES.Every person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that those Shares and eachcertificate therefor, if applicable, are validly issued, fully paid and nonassessable and were not issued in violation of any preemptive or similar rights ofthe holders of outstanding securities of the Company and that the person making that deposit is duly authorized so to do. Every depositing personshall also be deemed to represent that the Shares, at the time of deposit, are not Restricted Securities. All representations and warranties deemed madeunder Section 3.3 of the Deposit Agreement shall survive the deposit of Shares and delivery of American Depositary Shares. 6.FILING PROOFS, CERTIFICATES, AND OTHER INFORMATION.Any person presenting Shares for deposit or any Owner or Holder may be required from time to time to file with the Depositary or the Custodiansuch proof of citizenship or residence, exchange control approval, or such information relating to the registration on the books of the Company or theForeign Registrar, if applicable, to execute such certificates and to make such representations and warranties, as the Depositary may deem necessary orproper. The Depositary may withhold the delivery or registration of transfer of any American Depositary Shares, the distribution of any dividend orother distribution or of the proceeds thereof or the delivery of any Deposited Securities until that proof or other information is filed or those certificatesare executed or those representations and warranties are made. As conditions of accepting Shares for deposit, the Depositary may require (i) anycertification required by the Depositary or the Custodian in accordance with the provisions of the Deposit Agreement, (ii) a written order directing theDepositary to deliver to, or upon the written order of, the person or persons stated in that order, the number of American Depositary Shares representingthose Deposited Shares, (iii) evidence satisfactory to the Depositary that those Shares have been re-registered in the books of the Company or theForeign Registrar in the name of the Depositary, a Custodian or a nominee of the Depositary or a Custodian, (iv) evidence satisfactory to the Depositarythat any necessary approval has been granted by any governmental body in each applicable jurisdiction and (v) an agreement or assignment, or otherinstrument satisfactory to the Depositary, that provides for the prompt transfer to the Custodian of any dividend, or right to subscribe for additionalShares or to receive other property, that any person in whose name those Shares are or have been recorded may thereafter receive upon or in respect ofthose Shares, or, in lieu thereof, such agreement of indemnity or other agreement as shall be satisfactory to the Depositary. A-57.CHARGES OF DEPOSITARY.The following charges shall be incurred by any party depositing or withdrawing Shares or by any party surrendering American Depositary Sharesor to whom American Depositary Shares are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by theCompany or an exchange of stock regarding the American Depositary Shares or Deposited Securities or a delivery of American Depositary Sharespursuant to Section 4.3 of the Deposit Agreement), or by Owners, as applicable: (1) taxes and other governmental charges, (2) such registration fees asmay from time to time be in effect for the registration of transfers of Shares generally on the Share register of the Company or Foreign Registrar andapplicable to transfers of Shares to or from the name of the Depositary or its nominee or the Custodian or its nominee on the making of deposits orwithdrawals hereunder, (3) such cable (including SWIFT) and facsimile transmission fees and expenses as are expressly provided in the DepositAgreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency pursuant to Section 4.5 of the Deposit Agreement,(5) a fee of $5.00 or less per 100 American Depositary Shares (or portion thereof) for the delivery of American Depositary Shares pursuant toSection 2.3, 4.3 or 4.4 of the Deposit Agreement and the surrender of American Depositary Shares pursuant to Section 2.5 or 6.2 of the DepositAgreement, (6) a fee of $.05 or less per American Depositary Share (or portion thereof) for any cash distribution made pursuant to the DepositAgreement, including, but not limited to Sections 4.1 through 4.4 and 4.8 of the Deposit Agreement, (7) a fee for the distribution of securities pursuantto Section 4.2 of the Deposit Agreement or of rights pursuant to Section 4.4 of that Agreement (where the Depositary will not exercise or sell thoserights on behalf of Owners), such fee being in an amount equal to the fee for the execution and delivery of American Depositary Shares referred toabove which would have been charged as a result of the deposit of such securities under the Deposit Agreement (for purposes of this item 7 treating allsuch securities as if they were Shares) but which securities are instead distributed by the Depositary to Owners, (8) in addition to any fee charged underitem 6, a fee of $.05 or less per American Depositary Share (or portion thereof) per annum for depositary services, which will be payable as provided initem 9 below, and (9) any other charges payable by the Depositary or the Custodian, any of the Depositary’s or Custodian’s agents or the agents of theDepositary’s or Custodian’s agents, in connection with the servicing of Shares or other Deposited Securities (which charges shall be assessed againstOwners as of the date or dates set by the Depositary in accordance with Section 4.6 of the Deposit Agreement and shall be payable at the sole discretionof the Depositary by billing those Owners for those charges or by deducting those charges from one or more cash dividends or other cash distributions). A-6The Depositary may collect any of its fees by deduction from any cash distribution payable, or by selling a portion of any securities to bedistributed, to Owners that are obligated to pay those fees.The Depositary, subject to Article 8 hereof, may own and deal in any class of securities of the Company and its affiliates and in AmericanDepositary Shares.From time to time, the Depositary may make payments to the Company to reimburse the Company for costs and expenses generally arising out ofestablishment and maintenance of the American Depositary Shares program, waive fees and expenses for services provided by the Depositary or sharerevenue from the fees collected from Owners or Holders. In performing its duties under the Deposit Agreement, the Depositary may use brokers, dealers,foreign currency dealers or other service providers that are owned by or affiliated with the Depositary and that may earn or share fees, spreads orcommissions. 8.PRE-RELEASE OF AMERICAN DEPOSITARY SHARES.Notwithstanding Section 2.3 of the Deposit Agreement, the Depositary may deliver American Depositary Shares prior to the receipt of Sharespursuant to Section 2.2 of the Deposit Agreement (a “Pre-Release”). The Depositary may, pursuant to Section 2.5 of the Deposit Agreement, deliverShares upon the surrender of American Depositary Shares that have been Pre-Released, whether or not that surrender is prior to the termination of thatPre-Release or the Depositary knows that those American Depositary Shares have been Pre-Released. The Depositary may receive American DepositaryShares in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release must be (a) preceded or accompanied by a written representation from theperson to whom American Depositary Shares or Shares are to be delivered, that such person, or its customer, owns the Shares or American DepositaryShares to be remitted, as the case may be, (b) at all times fully collateralized with cash or such other collateral as the Depositary deems appropriate,(c) terminable by the Depositary on not more than five (5) business days’ notice, and (d) subject to all indemnities and credit regulations that theDepositary deems appropriate. The number of American Depositary Shares outstanding at any time as a result of Pre-Release will not normally exceedthirty percent (30%) of all American Depositary Shares outstanding; provided, however, that the Depositary reserves the right to change or disregardthat limit from time to time as it deems appropriate.The Depositary may retain for its own account any compensation received by it in connection with Pre-Release. 9.TITLE TO AMERICAN DEPOSITARY SHARES. A-7It is a condition of the American Depositary Shares, and every successive Owner and Holder of American Depositary Shares, by accepting orholding the same, consents and agrees that American Depositary Shares evidenced by a Receipt, when the Receipt is properly endorsed oraccompanied by proper instruments of transfer, shall be transferable as certificated registered securities under the laws of the State of New York, andthat American Depositary Shares not evidenced by Receipts shall be transferable as uncertificated registered securities under the laws of the State ofNew York. The Depositary, notwithstanding any notice to the contrary, may treat the Owner of American Depositary Shares as the absolute ownerthereof for the purpose of determining the person entitled to distribution of dividends or other distributions or to any notice provided for in the DepositAgreement and for all other purposes, and neither the Depositary nor the Company shall have any obligation or be subject to any liability under theDeposit Agreement to any Holder of American Depositary Shares, but only to the Owner. 10.VALIDITY OF RECEIPT.This Receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or obligatory for any purpose, unless this Receipt shallhave been (i) executed by the Depositary by the manual signature of a duly authorized officer of the Depositary or (ii) executed by the facsimilesignature of a duly authorized officer of the Depositary and countersigned by the manual signature of a duly authorized signatory of the Depositary orthe Registrar or a co-registrar. 11.REPORTS; INSPECTION OF TRANSFER BOOKS.The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and, accordingly, files certain reports withthe Securities and Exchange Commission. Those reports will be available for inspection and copying through the Commission’s EDGAR system or atpublic reference facilities maintained by the Commission in Washington, D.C.The Depositary will make available for inspection by Owners at its Office any reports, notices and other communications, including any proxysoliciting material, received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) madegenerally available to the holders of those Deposited Securities by the Company. The Company shall furnish reports and communications, includingany proxy soliciting material to which Section 4.9 of the Deposit Agreement applies, to the Depositary in English, to the extent such materials arerequired to be translated into English pursuant to any regulations of the Commission.The Depositary will keep books for the registration of American Depositary Shares and transfers of American Depositary Shares, which shall beopen for inspection by the Owners at the Depositary’s Office during regular business hours, provided that such inspection shall not be for the purposeof communicating with Owners in the interest of a business or object other than the business of the Company or a matter related to the DepositAgreement or the American Depositary Shares. A-812.DIVIDENDS AND DISTRIBUTIONS.Whenever the Depositary receives any cash dividend or other cash distribution on Deposited Securities, the Depositary will, if at the time ofreceipt thereof any amounts received in a foreign currency can in the judgment of the Depositary be converted on a reasonable basis into Dollarstransferable to the United States, and subject to the Deposit Agreement, convert that dividend or other cash distribution into Dollars and distribute theamount thus received (net of the fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.9 of the Deposit Agreement) to theOwners entitled thereto; provided, however, that if the Custodian or the Depositary is required to withhold and does withhold from that cash dividendor other cash distribution an amount on account of taxes or other governmental charges, the amount distributed to the Owners of the AmericanDepositary Shares representing those Deposited Securities shall be reduced accordingly. If a cash distribution would represent a return of all orsubstantially all the value of the Deposited Securities underlying American Depositary Shares, the Depositary may require surrender of those AmericanDepositary Shares and may require payment of or deduct the fee for surrender of American Depositary Shares (whether or not it is also requiringsurrender of American Depositary Shares) as a condition of making that cash distribution. A distribution of that kind shall be a Termination OptionEvent.Subject to the provisions of Section 4.11 and 5.9 of the Deposit Agreement, whenever the Depositary receives any distribution other than adistribution described in Section 4.1, 4.3 or 4.4 of the Deposit Agreement on Deposited Securities (but not in exchange for or in conversion or in lieu ofDeposited Securities), the Depositary will cause the securities or property received by it to be distributed to the Owners entitled thereto, after deductionor upon payment of any fees and expenses of the Depositary and any taxes or other governmental charges, in any manner that the Depositary deemsequitable and practicable for accomplishing that distribution (which may be a distribution of depositary shares representing the securities received);provided, however, that if in the opinion of the Depositary such distribution cannot be made proportionately among the Owners of Receipts entitledthereto, or if for any other reason the Depositary deems such distribution not to be lawful and feasible, the Depositary may adopt such other method asit may deem equitable and practicable for the purpose of effecting such distribution, including, but not limited to, the public or private sale of thesecurities or property thus received, or any part thereof, and distribution of the net proceeds of any such sale (net of the fees and expenses of theDepositary as provided in Article 7 hereof and Section 5.9 of the Deposit Agreement) to the Owners entitled thereto all in the manner and subject to theconditions set forth in Section 4.1 of the Deposit Agreement. The Depositary may withhold any distribution of securities under Section 4.2 of theDeposit Agreement if it has not received satisfactory assurances from the Company that the distribution does not require registration under theSecurities Act of 1933. The Depositary may sell, by public or private sale, an amount of securities or other property it would otherwise distribute underthis Article that is sufficient to pay its fees and expenses in respect of that distribution. If a distribution under Section 4.2 of the Deposit Agreementwould represent a return of all of substantially all the value of the Deposited Securities underlying American Depositary Shares, the Depositary mayrequire surrender of those American Depositary Shares and may require payment of or deduct the fee for surrender of American Depositary Shares(whether or not it is also requiring surrender of American Depositary Shares) as a condition of making that distribution. A distribution of that kind shallbe a Termination Option Event. A-9Whenever the Depositary receives any distribution consisting of a dividend in, or free distribution of, Shares, the Depositary may deliver to theOwners entitled thereto, an aggregate number of American Depositary Shares representing the amount of Shares received as that dividend or freedistribution, subject to the terms and conditions of the Deposit Agreement with respect to the deposit of Shares and issuance of American DepositaryShares, including the withholding of any tax or other governmental charge as provided in Section 4.11 of the Deposit Agreement and the payment ofthe fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.9 of the Deposit Agreement (and the Depositary may sell, bypublic or private sale, an amount of Shares received (or American Depositary Shares representing those Shares) sufficient to pay its fees and expenses inrespect of that distribution). In lieu of delivering fractional American Depositary Shares, the Depositary may sell the amount of Shares represented bythe aggregate of those fractions (or American Depositary Shares representing those Shares) and distribute the net proceeds, all in the manner andsubject to the conditions described in Section 4.1 of the Deposit Agreement. If and to the extent that additional American Depositary Shares are notdelivered and Shares or American Depositary Shares are not sold, each American Depositary Share shall thenceforth also represent the additional Sharesdistributed on the Deposited Securities represented thereby.If the Company declares a distribution in which holders of Deposited Securities have a right to elect whether to receive cash, Shares or othersecurities or a combination of those things, or a right to elect to have a distribution sold on their behalf, the Depositary may, after consultation with theCompany, make that right of election available for exercise by Owners any manner the Depositary considers to be lawful and practical. As a conditionof making a distribution election right available to Owners, the Depositary may require satisfactory assurances from the Company that doing so doesnot require registration of any securities under the Securities Act of 1933.If the Depositary determines that any distribution received or to be made by the Depositary (including Shares and rights to subscribe therefor) issubject to any tax or other governmental charge that the Depositary is obligated to withhold, the Depositary may sell, by public or private sale, all or aportion of the distributed property (including Shares and rights to subscribe therefor) in the amounts and manner the Depositary deems necessary andpracticable to pay any those taxes or charges, and the Depositary shall distribute the net proceeds of that sale, after deduction of those taxes or charges,to the Owners entitled thereto in proportion to the number of American Depositary Shares held by them respectively. A-10Each Owner and Holder agrees to indemnify the Company, the Depositary, the Custodian and their respective directors, employees, agents andaffiliates for, and hold each of them harmless against, any claim by any governmental authority with respect to taxes, additions to tax, penalties orinterest arising out of any refund of taxes, reduced withholding at source or other tax benefit received by it. Services for Owners and Holders that maypermit them to obtain reduced rates of tax withholding at source or reclaim excess tax withheld, and the fees and costs associated with using services ofthat kind, are not provided under, and are outside the scope of, the Deposit Agreement. 13.RIGHTS.(a) If rights are granted to the Depositary in respect of deposited Shares to purchase additional Shares or other securities, the Company and theDepositary shall endeavor to consult as to the actions, if any, the Depositary should take in connection with that grant of rights. The Depositary may, tothe extent deemed by it to be lawful and practical (i) if requested in writing by the Company, grant to all or certain Owners rights to instruct theDepositary to purchase the securities to which the rights relate and deliver those securities or American Depositary Shares representing those securitiesto Owners, (ii) if requested in writing by the Company, deliver the rights to or to the order of certain Owners, or (iii) sell the rights to the extentpracticable and distribute the net proceeds of that sale to Owners entitled to those proceeds. To the extent rights are not exercised, delivered ordisposed of under (i), (ii) or (iii) above, the Depositary shall permit the rights to lapse unexercised.(b) If the Depositary will act under (a)(i) above, the Company and the Depositary will enter into a separate agreement setting forth theconditions and procedures applicable to the particular offering. Upon instruction from an applicable Owner in the form the Depositary specified andupon payment by that Owner to the Depositary of an amount equal to the purchase price of the securities to be received upon the exercise of the rights,the Depositary shall, on behalf of that Owner, exercise the rights and purchase the securities. The purchased securities shall be delivered to, or asinstructed by, the Depositary. The Depositary shall (i) deposit the purchased Shares under the Deposit Agreement and deliver American DepositaryShares representing those Shares to that Owner or (ii) deliver or cause the purchased Shares or other securities to be delivered to or to the order of thatOwner. The Depositary will not act under (a)(i) above unless the offer and sale of the securities to which the rights relate are registered under theSecurities Act of 1933 or the Depositary has received an opinion of United States counsel that is satisfactory to it to the effect that those securities maybe sold and delivered to the applicable Owners without registration under the Securities Act of 1933. A-11(c) If the Depositary will act under (a)(ii) above, the Company and the Depositary will enter into a separate agreement setting forth theconditions and procedures applicable to the particular offering. Upon (i) the request of an applicable Owner to deliver the rights allocable to theAmerican Depositary Shares of that Owner to an account specified by that Owner to which the rights can be delivered and (ii) receipt of suchdocuments as the Company and the Depositary agreed to require to comply with applicable law, the Depositary will deliver those rights as requestedby that Owner.(d) If the Depositary will act under (a)(iii) above, the Depositary will use reasonable efforts to sell the rights in proportion to the number ofAmerican Depositary Shares held by the applicable Owners and pay the net proceeds to the Owners otherwise entitled to the rights that were sold, uponan averaged or other practical basis without regard to any distinctions among such Owners because of exchange restrictions or the date of delivery ofany American Depositary Shares or otherwise.(e) Payment or deduction of the fees of the Depositary as provided in Section 5.9 of the Deposit Agreement and payment or deduction of theexpenses of the Depositary and any applicable taxes or other governmental charges shall be conditions of any delivery of securities or payment of cashproceeds under Section 4.4 of that Agreement.(f) The Depositary shall not be responsible for any failure to determine that it may be lawful or feasible to make rights available to or exerciserights on behalf of Owners in general or any Owner in particular , or to sell rights. 14.SHAREHOLDER RIGHTS PLAN.The Company has adopted a shareholder rights plan pursuant to a Rights Agreement made and entered into as of January 14, 2019, as amendedfrom time to time (the ”Rights Agreement”), by and between the Company and The Bank of New York Mellon, as Rights Agent (the ”Rights Agent”).Pursuant to the terms of the Rights Agreement, each holder of the Issuer’s Shares shall be entitled to certain rights (the ”Rights”). The RightsAgreement, the terms of which are hereby incorporated herein by reference, provides that the Rights, when exercisable, will entitle the holder topurchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Shares, par value $0.001 per share, ofthe Company (the “Preferred Shares”) at a price of $200 per one one-thousandth of a Preferred Share (the “Exercise Price”), subject to adjustment, uponpresentation and surrender to the Rights Agent of a Right Certificate (as defined in the Rights Agreement) and such other and further documentation asrequired by the Rights Agreement. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by any Person who is, wasor becomes, or acquires shares from, an Acquiring Person or any Affiliate of an Acquiring Person (as each such term is defined in the Rights Agreement,and generally relating to the ownership or purchase of large shareholdings), whether currently held by or on behalf of such Person or Affiliate or bycertain subsequent holders, may become null and void. A-12Upon the earlier of receipt of the notice of the occurrence of the Distribution Date from the (i) Rights Agent, or (ii) the Company, the Depositaryshall set a record date (the “Rights Record Date”) in accordance with the terms of this Deposit Agreement for the determination of the Owners entitledto receive a Rights Exercise Notice (as hereinafter defined). Pursuant to Section 4.4(b) of the Deposit Agreement, the Depositary shall establish, in itsreasonable discretion, the timing and procedures to (i) distribute a notice the (“Rights Exercise Notice”) to Owners to enable Owners to issueinstructions to the Depositary whether to exercise the Rights attached to the Shares underlying such Owner’s American Depositary Shares as of theRights Record Date (upon payment of the subscription or purchase price and (ii) deliver or cause to be delivered to the order of the Owner the PreferredShares or receipts representing interests in such Preferred Shares or other securities to be delivered pursuant to the Rights Agreement. Nothing hereinshall obligate the Depositary to make available to the Owners a method to exercise rights to subscribe for the Preferred Shares.The Depositary shall have no duty to distribute solicitation or informational materials to Owners except upon instruction by the Company or theRights Agent. If the Depositary distributes soliciting or informational materials in connection with the exercise of the Rights to the Owners at therequest of the Company or the Rights Agent, the Depositary shall not be responsible for the content of any such materials provided to it.If the amount of the Exercise Price is insufficient to pay the amount of the subscription price plus financial transaction taxes, the Depositary shallnot be required to advance the amount of any such deficiency and may reduce the amount of such Owner’s subscription pro rata based on the amountof such deficiency, unless the Owner delivers to the Depositary sufficient funds to cover the deficiency prior to any relevant deadlines set by theDepositary.Notwithstanding anything to the contrary in Section 4.12 of the Deposit Agreement, the Depositary shall not distribute the Exercise Notices tothe Owners unless (i) the Depositary has received written notification from the Company (x) that a registration statement under the Securities Act of1933 or any other applicable law has been filed with respect to the underlying Preferred Shares to be purchased upon exercise of the Rights and hasbecome effective and, (y) if applicable, when the registration statement for the securities purchasable upon exercise of the Rights represented bydepositary receipts has been declared effective, or (ii) the Depositary receives an opinion of counsel for the Company in the United States, in a formreasonably satisfactory to the Depositary, to the effect that the offering and sale of such securities purchasable upon exercise of the Rights is exemptfrom, or does not require registration under, the provisions of the Securities Act of 1933 or any other applicable laws. A-13The forgoing description of the Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the RightsAgreement. A current copy of the Rights Agreement will be mailed by the Company to any Owner without charge, following receipt by the Companyof a written request therefor in writing. 15.CONVERSION OF FOREIGN CURRENCY.Whenever the Depositary or the Custodian receives foreign currency, by way of dividends or other distributions or the net proceeds from the saleof securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of the Depositary beconverted on a reasonable basis into Dollars and the resulting Dollars transferred to the United States, the Depositary shall convert or cause to beconverted by sale or in any other manner that it may determine that foreign currency into Dollars, and those Dollars shall be distributed to the Ownersentitled thereto. A cash distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Owners basedon exchange restrictions, the date of delivery of any American Depositary Shares or otherwise and shall be net of any expenses of conversion intoDollars incurred by the Depositary as provided in Section 5.9 of the Deposit Agreement.If a conversion of foreign currency or the repatriation or distribution of Dollars can be effected only with the approval or license of anygovernment or agency thereof, the Depositary may, but will not be required to, file an application for that approval or license.If the Depositary determines that in its judgment any foreign currency received by the Depositary or the Custodian is not convertible on areasonable basis into Dollars transferable to the United States, or if any approval or license of any government or agency thereof that is required forsuch conversion is not filed or sought by the Depositary or is not obtained within a reasonable period as determined by the Depositary, the Depositarymay distribute the foreign currency received by the Depositary to, or in its discretion may hold such foreign currency uninvested and without liabilityfor interest thereon for the respective accounts of, the Owners entitled to receive the same.If any conversion of foreign currency, in whole or in part, cannot be effected for distribution to some of the Owners entitled thereto, theDepositary may in its discretion make that conversion and distribution in Dollars to the extent practicable and permissible to the Owners entitledthereto and may distribute the balance of the foreign currency received by the Depositary to, or hold that balance uninvested and without liability forinterest thereon for the account of, the Owners entitled thereto.The Depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not asagent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retainfor its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion madeunder the Deposit Agreement and the rate that the Depositary or its affiliate receives when buying or selling foreign currency for its own account. TheDepositary makes no representation that the exchange rate used or obtained in any currency conversion under the Deposit Agreement will be the mostfavorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to Owners, subjectto the Depositary’s obligations under Section 5.3 of that Agreement. The methodology used to determine exchange rates used in currency conversionsis available upon request. A-1416.RECORD DATES.Whenever a cash dividend, cash distribution or any other distribution is made on Deposited Securities or rights to purchase Shares or othersecurities are issued with respect to Deposited Securities (which rights will be delivered to or exercised or sold on behalf of Owners in accordance withSection 4.4 of the Deposit Agreement) or the Depositary receives notice that a distribution or issuance of that kind will be made, or whenever theDepositary receives notice that a meeting of holders of Shares will be held in respect of which the Company has requested the Depositary to send anotice under Section 4.7 of the Deposit Agreement, or whenever the Depositary will assess a fee or charge against the Owners, or whenever theDepositary causes a change in the number of Shares that are represented by each American Depositary Share, or whenever the Depositary otherwisefinds it necessary or convenient, the Depositary shall fix a record date, which shall be the same as, or as near as practicable to, any corresponding recorddate set by the Company with respect to Shares, (a) for the determination of the Owners (i) who shall be entitled to receive the benefit of that dividendor other distribution or those rights, (ii) who shall be entitled to give instructions for the exercise of voting rights at that meeting, (iii) who shall beresponsible for that fee or charge or (iv) for any other purpose for which the record date was set, or (b) on or after which each American Depositary Sharewill represent the changed number of Shares. Subject to the provisions of Sections 4.1 through 4.5 of the Deposit Agreement and to the other terms andconditions of the Deposit Agreement, the Owners on a record date fixed by the Depositary shall be entitled to receive the amount distributable by theDepositary with respect to that dividend or other distribution or those rights or the net proceeds of sale thereof in proportion to the number of AmericanDepositary Shares held by them respectively, to give voting instructions or to act in respect of the other matter for which that record date was fixed, orbe responsible for that fee or charge, as the case may be. 17.VOTING OF DEPOSITED SHARES.(a) Upon receipt of notice of any meeting of holders of Shares at which holders of Shares will be entitled to vote, if requested in writing by theCompany, the Depositary shall, as soon as practicable thereafter, Disseminate to the Owners a notice, the form of which shall be in the sole discretion ofthe Depositary, that shall contain (i) the information contained in the notice of meeting received by the Depositary, (ii) a statement that the Owners asof the close of business on a specified record date will be entitled, subject to any applicable provision of Cayman Islands law and of the articles ofassociation or similar documents of the Company, to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Sharesrepresented by their respective American Depositary Shares, (iii) a statement as to the manner in which those instructions may be given and (iv) the lastdate on which the Depositary will accept instructions (the “Instruction Cutoff Date”). A-15(b) Upon the written request of an Owner of American Depositary Shares, as of the date of the request or, if a record date was specified by theDepositary, as of that record date, received on or before any Instruction Cutoff Date established by the Depositary, the Depositary may, and if theDepositary sent a notice under the preceding paragraph shall, endeavor, in so far as practicable, to vote or cause to be voted the amount of depositedShares represented by those American Depositary Shares in accordance with the instructions set forth in that request. The Depositary shall not vote orattempt to exercise the right to vote that attaches to the deposited Shares other than in accordance with instructions given by Owners and received bythe Depositary.(c) There can be no assurance that Owners generally or any Owner in particular will receive the notice described in paragraph (a) above intime to enable Owners to give instructions to the Depositary prior to the Instruction Cutoff Date.(d) In order to give Owners a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating to Shares, if theCompany will request the Depositary to Disseminate a notice under paragraph (a) above, the Company shall give the Depositary notice of the meeting,details concerning the matters to be voted upon and copies of materials to be made available to holders of Shares in connection with the meeting notless than 45 days prior to the meeting date. 18.TENDER AND EXCHANGE OFFERS; REDEMPTION, REPLACEMENT OR CANCELLATION OF DEPOSITED SECURITIES.(a) The Depositary shall not tender any Deposited Securities in response to any voluntary cash tender offer, exchange offer or similar offer madeto holders of Deposited Securities (a “Voluntary Offer”), except when instructed in writing to do so by an Owner surrendering American DepositaryShares and subject to any conditions or procedures the Depositary may require.(b) If the Depositary receives a written notice that Deposited Securities have been redeemed for cash or otherwise purchased for cash in atransaction that is mandatory and binding on the Depositary as a holder of those Deposited Securities (a “Redemption”), the Depositary, at the expenseof the Company, shall (i) if required, surrender Deposited Securities that have been redeemed to the issuer of those securities or its agent on theredemption date, (ii) Disseminate a notice to Owners (A) notifying them of that Redemption, (B) calling for surrender of a corresponding number ofAmerican Depositary Shares and (C) notifying them that the called American Depositary Shares have been converted into a right only to receive themoney received by the Depositary upon that Redemption and those net proceeds shall be the Deposited Securities to which Owners of those convertedAmerican Depositary Shares shall be entitled upon surrenders of those American Depositary Shares in accordance with Section 2.5 or 6.2 of the DepositAgreement and (iii) distribute the money received upon that Redemption to the Owners entitled to it upon surrender by them of called AmericanDepositary Shares in accordance with Section 2.5 of that Agreement (and, for the avoidance of doubt, Owners shall not be entitled to receive thatmoney under Section 4.1 of that Agreement). If the Redemption affects less than all the Deposited Securities, the Depositary shall call for surrender acorresponding portion of the outstanding American Depositary Shares and only those American Depositary Shares will automatically be converted intoa right to receive the net proceeds of the Redemption. The Depositary shall allocate the American Depositary Shares converted under the precedingsentence among the Owners pro-rata to their respective holdings of American Depositary Shares immediately prior to the Redemption, except that theallocations may be adjusted so that no fraction of a converted American Depositary Share is allocated to any Owner. A Redemption of all orsubstantially all of the Deposited Securities shall be a Termination Option Event. A-16(c) If the Depositary is notified of or there occurs any change in nominal value or any subdivision, combination or any other reclassification ofthe Deposited Securities or any recapitalization, reorganization, sale of assets substantially as an entirety, merger or consolidation affecting the issuerof the Deposited Securities or to which it is a party that is mandatory and binding on the Depositary as a holder of Deposited Securities and, as a result,securities or other property have been or will be delivered in exchange, conversion, replacement or in lieu of, Deposited Securities (a “Replacement”),the Depositary shall, if required, surrender the old Deposited Securities affected by that Replacement of Shares and hold, as new Deposited Securitiesunder the Deposit Agreement, the new securities or other property delivered to it in that Replacement. However, the Depositary may elect to sell thosenew Deposited Securities if in the opinion of the Depositary it is not lawful or not practical for it to hold those new Deposited Securities under theDeposit Agreement because those new Deposited Securities may not be distributed to Owners without registration under the Securities Act of 1933 orfor any other reason, at public or private sale, at such places and on such terms as it deems proper and proceed as if those new Deposited Securities hadbeen Redeemed under paragraph (b) above. A Replacement shall be a Termination Option Event.(d) In the case of a Replacement where the new Deposited Securities will continue to be held under the Deposit Agreement, the Depositary maycall for the surrender of outstanding Receipts to be exchanged for new Receipts specifically describing the new Deposited Securities and the number ofthose new Deposited Securities represented by each American Depositary Share. If the number of Shares represented by each American DepositaryShare decreases as a result of a Replacement, the Depositary may call for surrender of the American Depositary Shares to be exchanged on a mandatorybasis for a lesser number of American Depositary Shares and may sell American Depositary Shares to the extent necessary to avoid distributingfractions of American Depositary Shares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them. A-17(e) If there are no Deposited Securities with respect to American Depositary Shares, including if the Deposited Securities are cancelled, or theDeposited Securities with respect to American Depositary Shares become apparently worthless, the Depositary may call for surrender of those AmericanDepositary Shares or may cancel those American Depositary Shares, upon notice to Owners, and a Termination Option Event occurs. 19.LIABILITY OF THE COMPANY AND DEPOSITARY.Neither the Depositary nor the Company nor any of their respective directors, employees, agents or affiliates shall incur any liability to anyOwner or Holder:(i) if by reason of (A) any provision of any present or future law or regulation or other act of the government of the United States, any State of theUnited States or any other state or jurisdiction, or of any governmental or regulatory authority or stock exchange; (B) (in the case of the Depositaryonly) any provision, present or future, of the articles of association or similar document of the Company, or by reason of any provision of any securitiesissued or distributed by the Company, or any offering or distribution thereof; or (C) any event or circumstance, whether natural or caused by a person orpersons, that is beyond the ability of the Depositary or the Company, as the case may be, to prevent or counteract by reasonable care or effort(including, but not limited to earthquakes, floods, severe storms, fires, explosions, war, terrorism, civil unrest, labor disputes or criminal acts;interruptions or malfunctions of utility services, Internet or other communications lines or systems; unauthorized access to or attacks on computersystems or websites; or other failures or malfunctions of computer hardware or software or other systems or equipment), the Depositary or the Companyis, directly or indirectly, prevented from, forbidden to or delayed in, or could be subject to any civil or criminal penalty on account of doing orperforming and therefore does not do or perform, any act or thing that, by the terms of the Deposit Agreement or the Deposited Securities, it is providedshall be done or performed;(ii) for any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement (including any determination by theDepositary to take, or not take, any action that the Deposit Agreement provides the Depositary may take);(iii) for the inability of any Owner or Holder to benefit from any distribution, offering, right or other benefit that is made available to holders ofDeposited Securities but is not, under the terms of the Deposit Agreement, made available to Owners or Holders; or A-18(iv) for any special, consequential or punitive damages for any breach of the terms of the Deposit Agreement.Where, by the terms of a distribution to which Section 4.1, 4.2 or 4.3 of the Deposit Agreement applies, or an offering to which Section 4.4 of thatAgreement applies, or for any other reason, that distribution or offering may not be made available to Owners, and the Depositary may not dispose ofthat distribution or offering on behalf of Owners and make the net proceeds available to Owners, then the Depositary shall not make that distribution oroffering available to Owners, and shall allow any rights, if applicable, to lapse.Neither the Company nor the Depositary assumes any obligation or shall be subject to any liability under the Deposit Agreement to Owners orHolders, except that they agree to perform their obligations specifically set forth in the Deposit Agreement without negligence or bad faith. TheDepositary shall not be a fiduciary or have any fiduciary duty to Owners or Holders. The Depositary shall not be subject to any liability with respect tothe validity or worth of the Deposited Securities. Neither the Depositary nor the Company shall be under any obligation to appear in, prosecute ordefend any action, suit, or other proceeding in respect of any Deposited Securities or in respect of the American Depositary Shares, on behalf of anyOwner or Holder or other person. Neither the Depositary nor the Company shall be liable for any action or non-action by it in reliance upon the adviceof or information from legal counsel, accountants, any person presenting Shares for deposit, any Owner or Holder, or any other person believed by it ingood faith to be competent to give such advice or information. Each of the Depositary and the Company may rely, and shall be protected in relyingupon, any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party orparties. The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act oromission of the Depositary or in connection with a matter arising wholly after the removal or resignation of the Depositary, provided that in connectionwith the issue out of which such potential liability arises, the Depositary performed its obligations without negligence or bad faith while it acted asDepositary. The Depositary shall not be liable for the acts or omissions of any securities depository, clearing agency or settlement system in connectionwith or arising out of book-entry settlement of American Depositary Shares or Deposited Securities or otherwise. In the absence of bad faith on its part,the Depositary shall not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities or for the manner in whichany such vote is cast or the effect of any such vote. The Depositary shall have no duty to make any determination or provide any information as to thetax status of the Company or any liability for any tax consequences that may be incurred by Owners or Holders as a result of owning or holdingAmerican Depositary Shares. The Depositary shall not be liable for the inability or failure of an Owner or Holder to obtain the benefit of a foreign taxcredit, reduced rate of withholding or refund of amounts withheld in respect of tax or any other tax benefit. No disclaimer of liability under theSecurities Act of 1933 is intended by any provision of the Deposit Agreement. A-1920.RESIGNATION AND REMOVAL OF THE DEPOSITARY; APPOINTMENT OF SUCCESSOR CUSTODIAN.The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of its election so to do delivered to theCompany, to become effective upon the appointment of a successor depositary and its acceptance of such appointment as provided in the DepositAgreement. The Depositary may at any time be removed by the Company by 120 days’ prior written notice of that removal, to become effective uponthe later of (i) the 120th day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance of itsappointment as provided in the Deposit Agreement. The Depositary in its discretion may at any time appoint a substitute or additional custodian orcustodians. 21.AMENDMENT.The form of the Receipts and any provisions of the Deposit Agreement may at any time and from time to time be amended by agreement betweenthe Company and the Depositary without the consent of Owners or Holders in any respect which they may deem necessary or desirable. Anyamendment that would impose or increase any fees or charges (other than taxes and other governmental charges, registration fees, cable, telex orfacsimile transmission costs, delivery costs or other such expenses), or that would otherwise prejudice any substantial existing right of Owners, shall,however, not become effective as to outstanding American Depositary Shares until the expiration of 30 days after notice of that amendment has beenDisseminated to the Owners of outstanding American Depositary Shares. Every Owner and Holder, at the time any amendment so becomes effective,shall be deemed, by continuing to hold American Depositary Shares or any interest therein, to consent and agree to that amendment and to be boundby the Deposit Agreement as amended thereby. Upon the effectiveness of an amendment to the form of Receipt, including a change in the number ofShares represented by each American Depositary Share, the Depositary may call for surrender of Receipts to be replaced with new Receipts in theamended form or call for surrender of American Depositary Shares to effect that change of ratio. In no event shall any amendment impair the right of theOwner to surrender American Depositary Shares and receive delivery of the Deposited Securities represented thereby, except in order to comply withmandatory provisions of applicable law. 22.TERMINATION OF DEPOSIT AGREEMENT.(a) The Company may initiate termination of the Deposit Agreement by notice to the Depositary. The Depositary may initiate termination ofthe Deposit Agreement if (i) at any time 60 days shall have expired after the Depositary delivered to the Company a written resignation notice and asuccessor depositary has not been appointed and accepted its appointment as provided in Section 5.4 of that Agreement, (ii) an Insolvency Event orDelisting Event occurs with respect to the Company or (iii) a Termination Option Event has occurred or will occur. If termination of the DepositAgreement is initiated, the Depositary shall Disseminate a notice of termination to the Owners of all American Depositary Shares then outstandingsetting a date for termination (the “Termination Date”), which shall be at least 90 days after the date of that notice, and the Deposit Agreement shallterminate on that Termination Date. A-20(b) After the Termination Date, the Company shall be discharged from all obligations under the Deposit Agreement except for its obligations tothe Depositary under Sections 5.8 and 5.9 of that Agreement.(c) At any time after the Termination Date, the Depositary may sell the Deposited Securities then held under the Deposit Agreement and maythereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, unsegregated and without liabilityfor interest, for the pro rata benefit of the Owners of American Depositary Shares that remain outstanding, and those Owners will be general creditors ofthe Depositary with respect to those net proceeds and that other cash. After making that sale, the Depositary shall be discharged from all obligationsunder the Deposit Agreement, except (i) to account for the net proceeds and other cash (after deducting, in each case, the fee of the Depositary for thesurrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares in accordance with the termsand conditions of the Deposit Agreement and any applicable taxes or governmental charges) and (ii) for its obligations under Section 5.8 of thatAgreement and (iii) to act as provided in paragraph (d) below.(d) After the Termination Date, the Depositary shall continue to receive dividends and other distributions pertaining to Deposited Securities(that have not been sold), may sell rights and other property as provided in the Deposit Agreement and shall deliver Deposited Securities (or saleproceeds) upon surrender of American Depositary Shares (after payment or upon deduction, in each case, of the fee of the Depositary for the surrenderof American Depositary Shares, any expenses for the account of the Owner of those American Depositary Shares in accordance with the terms andconditions of the Deposit Agreement and any applicable taxes or governmental charges). After the Termination Date, the Depositary shall not acceptdeposits of Shares or deliver American Depositary Shares. After the Termination Date, (i) the Depositary may refuse to accept surrenders of AmericanDepositary Shares for the purpose of withdrawal of Deposited Securities (that have not been sold) or to reverse previously accepted surrenders of thatkind that have not settled if in its judgment the requested withdrawal or reversal would interfere with its efforts to sell the Deposited Securities, (ii) theDepositary will not be required to deliver cash proceeds of the sale of Deposited Securities until all Deposited Securities have been sold and (iii) theDepositary may discontinue the registration of transfers of American Depositary Shares and suspend the distribution of dividends and otherdistributions on Deposited Securities to the Owners and need not give any further notices or perform any further acts under the Deposit Agreementexcept as provided in Section 6.2 of that Agreement. A-2123.DTC DIRECT REGISTRATION SYSTEM AND PROFILE MODIFICATION SYSTEM.(a) Notwithstanding the provisions of Section 2.4 of the Deposit Agreement, the parties acknowledge that DTC’s Direct Registration System(“DRS”) and Profile Modification System (“Profile”) apply to the American Depositary Shares upon acceptance thereof to DRS by DTC. DRS is thesystem administered by DTC that facilitates interchange between registered holding of uncertificated securities and holding of security entitlements inthose securities through DTC and a DTC participant. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf of anOwner of American Depositary Shares, to direct the Depositary to register a transfer of those American Depositary Shares to DTC or its nominee and todeliver those American Depositary Shares to the DTC account of that DTC participant without receipt by the Depositary of prior authorization from theOwner to register that transfer.(b) In connection with DRS/Profile, the parties acknowledge that the Depositary will not determine whether the DTC participant that isclaiming to be acting on behalf of an Owner in requesting registration of transfer and delivery described in paragraph (a) above has the actual authorityto act on behalf of that Owner (notwithstanding any requirements under the Uniform Commercial Code). For the avoidance of doubt, the provisions ofSections 5.3 and 5.8 of the Deposit Agreement apply to the matters arising from the use of the DRS/Profile. The parties agree that the Depositary’sreliance on and compliance with instructions received by the Depositary through the DRS/Profile system and otherwise in accordance with the DepositAgreement, shall not constitute negligence or bad faith on the part of the Depositary. 24.ARBITRATION; SETTLEMENT OF DISPUTES.Any controversy, claim or cause of action brought by any party hereto against the Company arising out of or relating to the Shares or otherDeposited Securities, the American Depositary Shares, the Receipts or the Deposit Agreement, or the breach hereof or thereof, if so elected by theclaimant, shall be settled by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association, and judgmentupon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.The place of the arbitration shall be The City of New York, State of New York, United States of America, and the language of the arbitration shallbe English A-22The number of arbitrators shall be three, each of whom shall be disinterested in the dispute or controversy, shall have no connection with anyparty thereto, and shall be an attorney experienced in international securities transactions. Each party shall appoint one arbitrator and the twoarbitrators shall select a third arbitrator who shall serve as chairperson of the tribunal. If a dispute, controversy or cause of action shall involve morethan two parties, the parties shall attempt to align themselves in two sides (i.e., claimant(s) and respondent(s)), each of which shall appoint onearbitrator as if there were only two parties to such dispute, controversy or cause of action. If such alignment and appointment shall not have occurredwithin thirty (30) calendar days after the initiating party serves the arbitration demand, the American Arbitration Association shall appoint the threearbitrators, each of whom shall have the qualifications described above. The parties and the American Arbitration Association may appoint from amongthe nationals of any country, whether or not a party is a national of that country.The arbitral tribunal shall have no authority to award any consequential, special or punitive damages or other damages not measured by theprevailing party’s actual damages and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions ofthe Deposit Agreement. 25.APPOINTMENT OF AGENT FOR SERVICE OF PROCESS; SUBMISSION TO JURISDICTION; JURY TRIAL WAIVER; WAIVER OFIMMUNITIES.The Company has (i) appointed CT Corporation System, 111 Eighth Avenue, New York, New York 10011, as the Company’s authorized agentupon which process may be served in any suit or proceeding (including any arbitration proceeding) arising out of or relating to the Shares or DepositedSecurities, the American Depositary Shares, the Receipts or this Agreement, (ii) consented and submitted to the jurisdiction of any state or federal courtin the State of New York in which any such suit or proceeding may be instituted, and (iii) agreed that service of process upon said authorized agentshall be deemed in every respect effective service of process upon the Company in any such suit or proceeding.EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH OWNER AND HOLDER) THEREBYIRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURYIN ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY DIRECTLY OR INDIRECTLY ARISING OUTOF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE AMERICAN DEPOSITARY SHARES OR THE RECEIPTS, THEDEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF,INCLUDING WITHOUT LIMITATION ANY QUESTION REGARDING EXISTENCE, VALIDITY OR TERMINATION (WHETHER BASED ONCONTRACT, TORT OR ANY OTHER THEORY). A-23To the extent that the Company or any of its properties, assets or revenues may have or hereafter become entitled to, or have attributed to it, anyright of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any respectthereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, fromattachment in aid of execution or judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, inany jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising outof or in connection with the Shares or Deposited Securities, the American Depositary Shares, the Receipts or the Deposit Agreement, the Company, tothe fullest extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consentsto such relief and enforcement. 25.DISCLOSURE OF INTERESTS.When required in order to comply with applicable laws and regulations or the articles of association or similar document of the Company, theCompany may from time to time request each Owner and Holder to provide to the Depositary information relating to: (a) the capacity in which itholds American Depositary Shares, (b) the identity of any Holders or other persons or entities then or previously interested in those AmericanDepositary Shares and the nature of those interests and (c) any other matter where disclosure of such matter is required for that compliance. Each Ownerand Holder agrees to provide all information known to it in response to a request made pursuant to Section 3.4 of the Deposit Agreement. EachHolder consents to the disclosure by the Depositary and the Owner or other Holder through which it holds American Depositary Shares, directly orindirectly, of all information responsive to a request made pursuant to that Section relating to that Holder that is known to that Owner or other Holder. A-24Exhibit 2.3SOHU.COM LIMITED.ANDTHE BANK OF NEW YORK MELLONSHAREHOLDERS’ RIGHTS AGREEMENTTABLE OF CONTENTS Page 1. Certain Definitions 1 2. Appointment of Rights Agent 7 3. Issuance of Right Certificates 8 4. Form of Right Certificates 10 5. Countersignature and Registration 12 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates 12 7. Exercise of Rights; Exercise Price; Expiration Date of Rights 13 8. Cancellation of Right Certificates 16 9. Reservation and Availability of Preferred Shares 16 10. Preferred Share Record Date 18 11. Adjustment of Number and Kind of Shares or Number of Rights 18 12. Certificate of Adjusted Exercise Price or Number of Shares 26 13. Consolidation, Merger or Sale or Transfer of Assets 26 14. Fractional Rights and Fractional Shares 30 15. Rights of Action 31 16. Agreement of Right Holders 31 17. Right Certificate Holder Not Deemed a Shareholder 32 18. Concerning the Rights Agent 32 19. Merger or Consolidation or Change of Name of Rights Agent 33 20. Duties of Rights Agent 34 21. Change of Rights Agent 37 22. Issuance of New Right Certificates 38 23. Termination 38 24. Exchange 39 25. Notice of Certain Events 41 26. Notices 42 27. Supplements and Amendments 42 -i-TABLE OF CONTENTS(continued) Page 28. Successors 43 29. Determinations and Actions by the Board of Directors 43 30. Benefits of this Agreement 44 31. Severability 44 32. Governing Law 44 33. Counterparts 45 34. Descriptive Headings 45 35. Force Majeure 45 36. Miscellaneous 45 Exhibit A—Form of Certificate of Designation of Series A Junior Participating Cumulative Preferred SharesExhibit B—Form of Right CertificateExhibit C—Summary of Rights -ii-SOHU.COM LIMITEDSHAREHOLDER RIGHTS AGREEMENTThis Shareholder Rights Agreement (“Agreement”), is made between Sohu.com Limited, a Cayman Islands company (the “Company”), and TheBank of New York Mellon, a New York banking corporation, as Rights Agent (the “Rights Agent”), as of January 14, 2019.W I T N E S S E T HWHEREAS, the Board of Directors of the Company desires to provide shareholders of the Company with the opportunity to benefit from thelong-term prospects and value of the Company; andWHEREAS, on January 11, 2019, the Board of Directors of the Company authorized and declared the grant of one Right (as such term ishereinafter defined) for each outstanding Ordinary Share, $.001 par value per share, of the Company outstanding as of the close of business on January14 , 2019 (the “Record Date”), and contemplates the issuance of one Right for each Ordinary Share of the Company issued (whether originally issuedor sold from the Company’s treasury) between the Record Date and the earlier of the Distribution Date or the Expiration Date (as such terms arehereinafter defined), provided, however, that Rights may be issued with respect to Ordinary Shares that become outstanding after the Distribution Dateand prior to the Expiration Date in accordance with Section 22, each Right initially being the right to purchase one one-thousandth of one Series AJunior Participating Cumulative Preferred Share of the Company having the rights, powers and preferences set forth on Exhibit A hereto, upon theterms and subject to the conditions hereinafter set forth (the “Rights”); andWHEREAS, the Company desires to appoint the Rights Agent to act as rights agent hereunder, in accordance with the terms and conditionshereof;WHEREAS, the Company, The Bank of New York Mellon and ADS Holders (as defined hereinafter) are parties to an Amended and RestatedDeposit Agreement dated on or about January 14 , 2019, as amended from time to time, (the “Deposit Agreement”), which sets forth the terms andconditions relating to the rights of the ADS Holders.NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:1. Certain Definitions». For purposes of this Agreement, the following terms have the meanings provided in this Section 1:1.1. “Acquiring Person” means any Person (as such term is hereinafter defined) who or which, together with all Affiliates (as such term ishereinafter defined) and Associates (as such term is hereinafter defined) of such Person, is or becomes the Beneficial Owner (as such term is hereinafterdefined) of 15% or more of the Ordinary Shares (as such term is hereinafter defined) then outstanding, but shall not include (a) the Company, (b) anySubsidiary (as such term is hereinafter defined) of the Company, (c) any employee benefit plan or compensation arrangement of the Company or anySubsidiary of the Company, (d) any Person who or which, together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of15% or more of the then outstanding ordinary shares as a result of the acquisition of Ordinary Shares directly from the Company, (e) any GrandfatheredShareholder, or (f) any Person serving as a depositary or custodian for securities of the Company trading on the NASDAQ Stock Market, the New YorkStock Exchange, or any other internationally recognized securities exchange of similar standing (the Persons described in clauses (a) through (f) aboveare referred to herein as “Exempt Persons”).Notwithstanding the foregoing,1.1.1. no Person shall become an “Acquiring Person” solely as the result of an acquisition by the Company of Ordinary Shareswhich, by reducing the number of Ordinary Shares outstanding, increases the proportionate number of Ordinary Shares beneficially owned by suchPerson to 15% or more of the Ordinary Shares then outstanding; provided, however, that if a Person becomes the Beneficial Owner of 15% or more ofthe Ordinary Shares then outstanding by reason of share purchases by the Company and, after such share purchases by the Company, becomes theBeneficial Owner of any additional shares (other than pursuant to a share split, share dividend or similar transaction) of Ordinary Shares andimmediately thereafter is the Beneficial Owner of 15% or more of the Ordinary Shares then outstanding, then such Person shall become an “AcquiringPerson”;1.1.2. a Person shall not be an “Acquiring Person” if the Board of Directors of the Company determines that a Person who wouldotherwise be an “Acquiring Person,” as defined pursuant to the foregoing provisions of this Section 1.1, has become such inadvertently (including,without limitation, because (A) such Person was unaware that it beneficially owned that number of Ordinary Shares that would otherwise cause suchPerson to be an “Acquiring Person” or (B) such Person was aware of the extent of its Beneficial Ownership of Ordinary Shares but had no actualknowledge of the consequences of such Beneficial Ownership under this Agreement) and without any intention of obtaining, changing or influencingcontrol of the Company, unless and until such Person has failed to divest as promptly as practicable (or within such period of time as the Board ofDirectors determines is reasonable) a sufficient number of Ordinary Shares of the Company so that such Person would no longer be an “AcquiringPerson,” as defined pursuant to the foregoing provisions of this Section 1.1;1.1.3. no Person shall become an “Acquiring Person” solely as a result of any unilateral grant of any security by the Company orthrough the exercise of any options, warrants, rights or similar interests (including restricted share) granted by the Company to its directors, officers andemployees; and1.1.4. no Person shall become an “Acquiring Person” solely as the result of the acquisition by such Person of BeneficialOwnership of Ordinary Shares from an individual who, as of the date of this Agreement, is the Beneficial Owner of 15% or more of the Ordinary Sharesthen outstanding if such Ordinary Shares are received by such Person upon such individual’s death pursuant to such individual’s will or pursuant to acharitable trust created by such individual for estate planning purposes. -2-With respect to any Person, for all purposes of this Agreement, any calculation of the number of Ordinary Shares outstanding at any particulartime, including for purposes of determining the particular percentage of the outstanding Ordinary Shares of which any such Person is the BeneficialOwner, shall include the number of Ordinary Shares not outstanding at the time of such calculation that such Person is otherwise deemed tobeneficially own for purposes of this Agreement, but the number of Ordinary Shares not outstanding that such Person is otherwise deemed tobeneficially own for purposes of this Agreement shall not be included for the purpose of computing the percentage of the outstanding Ordinary Sharesbeneficially owned by any other Person (unless such other Person is also deemed to beneficially own for purposes of this Agreement such OrdinaryShares not outstanding).1.2. “Adjustment Shares” has the meaning set forth in Section 11.1.2 hereof.1.3. “ADSs” means American Depositary Shares, each of which represents one Ordinary Share, as may be modified or otherwise adjustedfrom time to time.1.4. “ADS Holder(s)” means the holders and owners from time to time of ADSs issued pursuant to the Deposit Agreement.1.5. “Affiliate” and “Associate” have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulationsunder the Exchange Act (as hereinafter defined), as in effect on the date of this Agreement.1.6. A Person shall be deemed the “Beneficial Owner” of, and shall be deemed to “beneficially own,” any securities: (i) which such Personor any of such Person’s Affiliates or Associates, directly or indirectly, beneficially owns (as determined pursuant to Rule 13d-3 of the Rules under theExchange Act, as in effect on the date of this Agreement), or (ii) which such Person or any of such Person’s Affiliates or Associates, directly orindirectly, has:1.6.1. the right to acquire (whether such right is exercisable immediately or only after the passage of time or upon the satisfactionof any conditions or both) pursuant to any agreement, arrangement or understanding (whether or not in writing) (other than customary agreements withand between underwriters and selling group members with respect to a bona fide public offering of securities) or upon the exercise of conversion rights,exchange rights, other rights (other than the Rights), warrants or options, ADSs or otherwise; provided, however, that a Person shall not be deemed the“Beneficial Owner” of, or to “beneficially own,” (1) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person orany of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange; (2) securities issuable upon exerciseof the Rights at any time prior to the occurrence of a Triggering Event; (3) securities issuable upon exercise of Rights from and after the occurrence of aTriggering Event, which Rights were acquired by such first Person or any of such first Person’s Affiliates or Associates prior to the Distribution Date orpursuant to Section 3.1, 11.9 or 22 hereof; or (4) securities which such Person or any of such Person’s Affiliates or Associates may acquire, does or doacquire or may be deemed to have the right to acquire, pursuant to any merger or other acquisition agreement between the Company and such Person(or one or more of such Person’s Affiliates or Associates) if such agreement has been approved by the Board of Directors of the Company prior to suchPerson’s becoming an Acquiring Person; or -3-1.6.2. the right to vote pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however,that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any security under this Section 1.4.2 if the agreement,arrangement or understanding to vote such security (1) arises solely from a revocable proxy given in response to a public proxy or consent solicitationmade pursuant to, and in accordance with, the Rules under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D or13G under the Exchange Act (or any comparable or successor report), provided, that for purposes of this Section 1.6.2 and notwithstanding Section 4.8of the Deposit Agreement, an ADS Holder shall be deemed to have the right to vote an Ordinary Share represented by an ADS, if the ADS Holder hasthe right to acquire such Ordinary Share upon the due surrender of the ADS evidencing the Ordinary Share to the depositary agent in accordance withthe procedures set forth in the Deposit Agreement; or1.6.3. the right to dispose of pursuant to any agreement, arrangement or understanding (whether or not in writing) (other thancustomary arrangements with and between underwriters and selling group members with respect to a bona fide public offering of securities); or1.6.4. which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with whichsuch Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) (other thancustomary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for thepurpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in Section 1.4.2 hereof) or disposing of any securities of theCompany; provided, however, that (a) no Person engaged in business as an underwriter of securities shall be deemed the Beneficial Owner of anysecurities acquired through such Person’s participation as an underwriter in good faith in a firm commitment underwriting until the expiration of forty(40) days after the date of such acquisition, (b) no trustee or similar Person, organized, appointed or established by the Company or any Subsidiary ofthe Company, holding Ordinary Shares of the Company for or pursuant to the terms of any employee benefit plan or compensation arrangement of theCompany or any Subsidiary of the Company shall be deemed the Beneficial Owner of any securities acquired or held by such Person in such capacity,and (c) no Person shall be deemed the Beneficial Owner of any securities acquired or received from the Company by such Person pursuant to anemployee benefit plan or compensation arrangement of the Company or any Subsidiary of the Company; or1.6.5. which is an Ordinary Share represented by an ADS, if such Person has the right to acquire such Ordinary Share upon the duesurrender of the ADS evidencing the Ordinary Share to the depositary agent in accordance with the procedures set forth in the Deposit Agreement;provided, however, that no Person who is an officer, director or employee of an Exempt Person shall be deemed, solely by reason of such Person’s statusor authority as such, to be the “Beneficial Owner” of, to have “Beneficial Ownership” of or to “beneficially own” any securities that are “beneficiallyowned,” including, without limitation, in a fiduciary capacity, by an Exempt Person or by any other such officer, director or employee of an ExemptPerson. -4-1.7. “Book Entry” shall mean an uncertificated book entry for the Ordinary Shares.1.8. “Business Day” means any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York areauthorized or obligated by law or executive order to close.1.9. “Certificate of Designation” means the Certificate of Designation attached hereto as Exhibit A.1.10. “Close of Business” on any given date means 5:00 P.M., New York, New York time, on such date; provided, however, that if suchdate is not a Business Day “Close of Business” will mean 5:00 P.M., New York, New York time, on the next succeeding Business Day.1.11. “Current Value” has the meaning set forth in Section 11.1.3 hereof.1.12. “Deposit Agreement” shall have the meaning set forth in the preamble.1.13. “Depositary” means The Bank of New York Mellon or its successors or permitted assigns, in its capacity as depositary pursuant tothe Deposit Agreement.1.14. “Distribution Date” has the meaning set forth in Section 3.1 hereof.1.15. “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute.1.16. “Exercise Price” has the meaning set forth in Section 4.1 hereof.1.17. “Expiration Date” and “Final Expiration Date” have the meanings set forth in Section 7.1 hereof.1.18. “Fair Market Value” of any securities or other property shall be as determined in accordance with Section 11.4 hereof.1.19. “Grandfathered Shareholder” means any Person who was a Beneficial Owner of Ordinary Shares as of the date of this Agreementunless, at any time after the date of this Agreement, such Person becomes the Beneficial Owner of additional Ordinary Shares and immediately afterbecoming the Beneficial Owner of such additional Ordinary Shares, such Person is the Beneficial Owner of a number of Ordinary Shares whichrepresents more than 50% more Ordinary Shares than the number of Ordinary Shares of which the Person is the Beneficial Owner as of the date of thisAgreement and such Person becomes the Beneficial Owner of such additional Ordinary Shares without the prior written approval of the Board ofDirectors of the Company.1.20. “Group” has the meaning ascribed thereto in clause (b) of the definition of “Person.” -5-1.21. “Ordinary Shares” when used in reference to the Company means the ordinary shares, $.001 par value per share, of the Company orany other shares in the share capital of the Company into which such shares are reclassified or changed. “Ordinary Shares” when used with reference toany Person (other than the Company) organized in corporate form means (i) the shares or other equity interest of such Person with the greatest votingpower or (ii) the equity securities or other equity interest having power to control or direct the management of such Person or, if such Person is aSubsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person and which have issued any such outstandingshares, equity securities or equity interests. “Ordinary Shares” when used with reference to any Person not organized in corporate form means units ofequity interest which are entitled to exercise the greatest voting power of such Person or, in the case of a limited partnership, have the power to removeor otherwise replace the general partner or partners.1.22. “Person” means (a) an individual, a corporation, a partnership, a limited liability company, a limited liability partnership, anassociation, a joint venture, a joint share company, a trust, a business trust, a government or political subdivision, any unincorporated organization, orany other association or entity and any successor of any such entity, and (b) a “group” as that term is used for purposes of Section 13(d)(3) of theExchange Act (any such group under this clause (b), a “Group”).1.23. “Preferred Shares” means shares of Series A Junior Participating Cumulative Preferred Shares, $.001 par value per share, of theCompany having the rights, preferences and limitations set forth in the Certificate.1.24. “Preferred Share Equivalents” has the meaning set forth in Section 11.2 hereof.1.25. “Principal Party” has the meaning set forth in Section 13.2 hereof.1.26. “Receipts” means the American Depositary Receipts issued under the Deposit Agreement evidencing certificated ADSs.1.27. “Record Date” has the meaning set forth in the preamble to this Agreement.1.28. “Registered Holder” means, in relation to shares, the Person entered in the register of members of the Company maintained pursuantto the Cayman Islands Companies Law (2018 Revision) as amended, or any successor statute or law.”1.29. “Right Certificate” has the meaning set forth in Section 3.1.1.30. “Rules” when used with reference to the Exchange Act or the Securities Act, means the rules and regulations of the Securities andExchange Commission, or any successor federal agency under such acts.1.31. “Section 11.1.2 Event” has the meaning set forth in Section 11.1.2 hereof. -6-1.32. “Section 11.1.2 Trigger Date” has the meaning set forth in Section 11.1.3 hereof.1.33. “Section 13 Event” means any event described in clauses (a), (b) or (c) of Section 13.1 hereof.1.34. “Section 24.1 Exchange Ratio” has the meaning set forth in Section 24.1 hereof.1.35. “Securities Act” means the Securities Act of 1933, as amended, or any successor statute.1.36. “Share Acquisition Date” means the date of the first public announcement (which for purposes of this definition shall include,without limitation, the issuance of a press release or the filing of a publicly-available report or other document with the Securities and ExchangeCommission or any other governmental agency) by the Company or an Acquiring Person that an Acquiring Person has become such or such earlier dateas a majority of the Board of Directors of the Company has become aware of the existence of an Acquiring Person.1.37. “Spread” has the meaning set forth in Section 11.1.3 hereof.1.38. “Subsidiary” means, with reference to any Person, any corporation or other entity of which securities or other ownership interestshaving ordinary voting power sufficient, in the absence of contingencies, to elect a majority of the board of directors or other Persons performingsimilar functions of such corporation or other entity are at the time directly or indirectly beneficially owned or otherwise controlled by such Personeither alone or together with one or more Affiliates of such Person, and any corporation or other entity that is otherwise controlled by such Person.1.39. “Substitution Period” has the meaning set forth in Section 11.1.3 hereof.1.40. “Triggering Event” means any Section 11.1.2 Event or any Section 13 Event.1.41. “Trust” has the meaning set forth in Section 24.1 hereof.1.42. “Trust Agreement” has the meaning set forth in Section 24.1 hereof.2. Appointment of Rights Agent2.1 The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights in accordance with theexpress terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint suchCo-Rights Agents as it may deem necessary or desirable. In the event the Company appoints one or more Co-Rights Agents, the respective duties of theRights Agent and any Co-Rights Agents shall be as the Company shall determine (the term “Rights Agent” being used herein to refer, collectively, tothe Rights Agent together with any such co-Rights Agents), provided that such duties and determination are consistent with the terms and provisionsof this Agreement. The Company shall give thirty (30) days prior written notice to the Rights Agent of the appointment of one or more Co-RightsAgents and the respective duties of the Rights Agent and any such Co-Rights Agents. The Rights Agent shall have no duty to supervise, and shall inno event be liable for, the acts or omissions of any such Co-Rights Agent. -7-2.2 The Company shall provide and shall cause its officers, advisors, and agents, including without limitation, its transfer agent andregistrar, and any other service provider to cooperate with the Rights Agent and to provide the Rights Agent, upon request, with such information,documents and advice relating to the registered holders of Ordinary Shares as is within the possession or knowledge of such persons, and which in theopinion of the Rights Agent, is necessary in order to enable it to perform its duties hereunder. The Rights Agent shall not be responsible for, under anyduty to inquire into, or be deemed to make any assurances with respect to the accuracy, validity or propriety of any information, documents or adviceprovided to the Rights Agent by any of the aforementioned persons. The Rights Agent shall not be liable for any loss, damage or expense resultingfrom or arising out of the failure of the Company to cause any information, documents or advice to be provided to the Rights Agent as provided hereinand shall be held harmless by the Company when acting in reliance upon such information, documents or advice. All fees or costs charged by suchpersons shall be borne by the Company.3. Issuance of Right Certificates3.1 From the date hereof until the earlier of (a) the Close of Business on the tenth Business Day after the Share Acquisition Date or (b) theClose of Business on the tenth Business Day (or such other calendar day, if any, as the Board of Directors may determine in its sole discretion) after thedate a tender or exchange offer by any Person, other than an Exempt Person, is first published or sent or given within the meaning of Rule 14d-4(a) ofthe Exchange Act, or any successor rule, if, upon consummation thereof, such Person would be the Beneficial Owner of 15% or more of the OrdinaryShares then outstanding (including any such date which is after the date of this Agreement and prior to the issuance of the Rights) (the earlier of suchdates being herein referred to as the “Distribution Date”), (i) the Rights will be evidenced (subject to the provisions of Section 3.2 hereof) by thecertificates for the Ordinary Shares of the Company registered in the names of the holders of the Ordinary Shares of the Company and/or by Book Entryshares in respect of such Ordinary Shares) and not by separate certificates, and (ii) the Rights will be transferable only in connection with the transfer ofthe underlying Ordinary Shares of the Company. The Company shall give the Rights Agent prompt written notice of the Distribution Date. Promptlyafter the Distribution Date, upon (i) receipt of written notice of the Distribution Date by the Rights Agent from the Company, and (ii) being providedby the Company with a shareholder list and all necessary or relevant information, the Rights Agent will, at the Company’s expense, send, by first-class,insured, postage prepaid mail, to each Registered Holder of the Ordinary Shares of the Company as of the Close of Business on the Distribution Date(other than any Acquiring Person or any Associate or Affiliate of any Acquiring Person), at the address of such holder shown in the register of membersof the Company or the transfer agent or the registrar for Ordinary Shares, one or more certificates, in substantially the form of Exhibit B hereto (the“Right Certificates”), evidencing one Right for each Ordinary Share of the Company so held, subject to adjustment as provided herein. In the eventthat an adjustment in the number of Rights per Ordinary Share of the Company has been made pursuant to Section 11.15 hereof, the Company maymake the necessary and appropriate rounding adjustments (in accordance with Section 14.1 hereof) at the time of distribution of the Right Certificates,so that Right Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after theClose of Business on the Distribution Date, the Rights will be evidenced solely by such Right Certificates. The Company shall promptly notify theRights Agent in writing upon the occurrence of the Distribution Date. -8-3.2 On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase PreferredShares, in substantially the form of Exhibit C hereto (the “Summary of Rights”), by express courier or first-class, postage-prepaid mail, to eachRegistered Holder of Ordinary Shares as of the Close of Business on the Record Date (other than any Acquiring Person or any Associate or Affiliate ofany Acquiring Person), at the address of such holder shown in the register of members of the Company. With respect to certificates for the OrdinaryShares of the Company (or any Book Entry Ordinary Shares) issued prior to the Close of Business on the Record Date, the Rights will be evidenced bysuch certificates for the Ordinary Shares of the Company (or any Book Entry Ordinary Shares) together with the Summary of Rights on or until theDistribution Date (or the earlier expiration or termination of the Rights), and the Registered Holders of the Ordinary Shares of the Company also shallbe the Registered Holders of the associated Rights. Until the Distribution Date (or the earlier expiration or termination of the Rights), the transfer of anyof the certificates for the Ordinary Shares of the Company (or any Book Entry Ordinary Shares) outstanding prior to the date of this Agreement shallalso constitute the transfer of the Rights associated with the Ordinary Shares of the Company (or any Book Entry Ordinary Shares) represented by suchcertificate.3.3 Rights shall, without any further action, be granted in respect of all Ordinary Shares issued or disposed of by the Company after theRecord Date but prior to the earlier of the Distribution Date and the Expiration Date, or in certain circumstances provided in Section 22 hereof, after theDistribution Date. Certificates for the Ordinary Shares of the Company issued after the Record Date, but prior to the earlier of the Distribution Date orthe expiration or termination of the Rights, shall be deemed also to be certificates for Rights, and shall bear a legend, substantially in the form set forthbelow:“This certificate evidences and entitles the holder hereof to Rights set forth in a Shareholders’ Rights Agreement between the Company and TheBank of New York Mellon as Rights Agent (the “Rights Agent”), dated as of January 14, 2019, as it may be amended from time to time (the “RightsAgreement”), the terms of which are incorporated herein by reference and a copy of which is on file at the principal offices of the Company. TheCompany will mail to the Registered Holder of this certificate a copy of the Rights Agreement without charge upon written request. Under certaincircumstances set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by thiscertificate. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by any Person who is, was or becomes, or acquiresshares from, an Acquiring Person or any Affiliate of an Acquiring Person (as each such term is defined in the Rights Agreement, and generally relatingto the ownership or purchase of large shareholdings), whether currently held by or on behalf of such Person or Affiliate or by certain subsequentholders, may become null and void.” -9-With respect to any Book Entry Ordinary Shares, such legend shall be included in a notice to the Registered Holder of such shares in accordancewith applicable law. With respect to such certificates containing the foregoing legend, or notice of the foregoing legend delivered to holders of BookEntry shares, the Rights associated with the Ordinary Shares of the Company represented by such certificates or Book Entry Shares shall be evidencedby such certificates or Book Entry Shares alone until the Distribution Date (or the earlier expiration or termination of the Rights), and the transfer ofany of such certificates shall also constitute the transfer of the Rights associated with the Ordinary Shares of the Company represented by suchcertificates or Book Entry Shares. In the event that the Company purchases or otherwise acquires any Ordinary Shares of the Company after the RecordDate but prior to the Distribution Date, any Rights associated with such Ordinary Shares of the Company shall be deemed cancelled and retired so thatthe Company shall not be entitled to exercise any Rights associated with the Ordinary Shares of the Company which are no longer outstanding. Thefailure to print the foregoing legend on any such certificate representing Ordinary Shares of the Company or any defect therein shall not affect in anymanner whatsoever the application, enforceability or interpretation of the provisions of any part of this Agreement.3.4 Receipts representing such Ordinary Shares shall bear a legend, substantially in the form set forth below:“The Company has adopted a shareholder rights plan pursuant to a Shareholders’ Rights Agreement made and entered into as of January 14, 2019, as amended from time to time (the “Rights Agreement”), by and between the Company and The Bank of New York Mellon, as RightsAgent (the “Rights Agent”). Pursuant to the terms of the Rights Agreement, each holder of the Company’s Shares will be entitled to certain rights(the “Rights”). The Rights Agreement, the terms of which are hereby incorporated herein by reference, provides that the Rights, when exercisable,will entitle the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Shares,par value $0.001 per share, of the Company (the “Preferred Shares”) at a price of $200 per one one-thousandth of a Preferred Share (the “ExercisePrice”), subject to adjustment, upon presentation and surrender to the Rights Agent of a Right Certificate (as defined in the Rights Agreement)and such other and further documentation as required by the Rights Agreement. Under certain circumstances set forth in the Rights Agreement,Rights issued to, or held by any Person who is, was or becomes, or acquires shares from, an Acquiring Person or any Affiliate of an AcquiringPerson (as each such term is defined in the Rights Agreement, and generally relating to the ownership or purchase of large shareholdings),whether currently held by or on behalf of such Person or Affiliate or by certain subsequent holders, may become null and void.”If the Depositary issues Receipts in uncertificated form, then the legend required by Section 3.4, shall be contained in a written statementfurnished by the Company to each ADS Holder, as applicable, pursuant to applicable law and the provisions of the Deposit Agreement.4. Form of Right Certificates4.1 The Right Certificates (and the forms of election to purchase shares and of assignment and certificate to be printed on the reversethereof) shall each be substantially in the form of Exhibit B hereto and may have such marks of identification or designation and such legends,summaries or endorsements printed thereon as the Company may deem appropriate (but which do not affect the rights, duties, liabilities orresponsibilities of the Rights Agent) and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with anyapplicable law, rule or regulation or with any rule or regulation of any share exchange on which the Rights may from time to time be listed, or toconform to customary usage. The Right Certificates shall be in a form reasonably satisfactory to the Rights Agent. Subject to the provisions ofSection 11 and Section 22 hereof, the Right Certificates, whenever distributed, shall entitle the holders thereof to purchase such number of oneone-thousandths of a Preferred Share as is set forth therein at the price set forth therein (the “Exercise Price”), but the number of such shares, or fractionsthereof, or the Exercise Price shall be subject to adjustment as provided herein. -10-4.2 Any Right Certificate issued pursuant to Section 3.1 or Section 22 hereof that represents Rights beneficially owned by (a) anAcquiring Person or any Associate or Affiliate of an Acquiring Person, (b) a transferee of an Acquiring Person (or of any Associate or Affiliate of anAcquiring Person) who becomes a transferee after the Acquiring Person becomes such, or (c) a transferee of an Acquiring Person (or of any suchAssociate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuantto either (i) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to anyPerson with whom the Acquiring Person has any continuing agreement, arrangement or understanding (whether or not in writing) regarding thetransferred Rights, the Ordinary Shares of the Company associated with such Rights or the Company or (ii) a transfer which the Board of Directors ofthe Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of Section 7.5hereof, and subsequent transferees, either direct transferees or transferees through one or more intermediate transferees, of such Persons, and any RightCertificate issued pursuant to Section 6, Section 11 or Section 22 upon transfer, exchange, replacement or adjustment of any other Right Certificatereferred to in this sentence, shall have deleted therefrom the second sentence of the existing legend on such Right Certificate and in substitutiontherefor shall contain substantially the following legend:“The Rights represented by this Right Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or anAffiliate or an Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). This Right Certificate and the Rights representedhereby may become null and void under certain circumstances as specified in Section 7.5 of the Rights Agreement.”The Company shall give written notice to the Rights Agent promptly after it becomes aware of the existence and identity of any AcquiringPerson or any Associate or Affiliate thereof. The Company shall instruct the Rights Agent in writing of the Rights which should be so legended andshall supply the Rights Agent with such legended Right Certificates. The Rights Agent shall be conclusively deemed to have no knowledge thereof orduties with respect thereto until it receives such written notice. The failure to print the foregoing legend on any such Right Certificate or any defecttherein shall not affect in any manner whatsoever the application, enforceability or interpretation of the provisions of any part of this Agreement. -11-5. Countersignature and Registration5.1 The Right Certificates shall be executed on behalf of the Company by any two duly authorized officers, either manually or byfacsimile signature, and shall have affixed thereto the Company’s seal or a facsimile thereof which shall be attested to by the Secretary or any AssistantSecretary of the Company, either manually or by facsimile signature. The Right Certificates shall be countersigned by an authorized signatory of theRights Agent either manually or by facsimile signature and shall not be valid for any purpose unless so countersigned, and such countersignature uponany Right Certificate shall be conclusive evidence, and the only evidence, that such Right Certificate has been duly countersigned as requiredhereunder. In case any officer of the Company who has signed any of the Right Certificates ceases to be such officer of the Company beforecountersignature by the Rights Agent and issuance and delivery of the Right Certificate by the Company, such Right Certificates, nevertheless, may becountersigned by an authorized signatory of the Rights Agent, and issued and delivered by the Company with the same force and effect as though thePerson who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificates may be signed on behalf of theCompany by any Person who, at the actual date of the execution of such Right Certificate, is a proper officer of the Company to sign such RightCertificate, although at the date of the execution of this Rights Agreement any such Person was not such an officer.In case any authorized signatory of the Rights Agent who has countersigned any of the Right Certificates ceases to be so authorized beforedelivery by the Company, such Right Certificates, nevertheless, may be issued and delivered by the Company with the same force and effect as thoughthe person who countersigned such Right Certificates had not ceased to be so authorized; and any Right Certificates may be countersigned on behalfof the Rights Agent by any person who, at the actual date of the countersignature of such Right Certificate, is properly authorized to countersign suchRight Certificate, although at the date of the execution of this Rights Agreement any such person was not so authorized.5.2 Following the Distribution Date, receipt by the Rights Agent of notice to that effect and all other relevant information anddocuments, the Rights Agent will keep or cause to be kept, at one of its offices designated for such purpose, books for registration and transfer of theRight Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number ofRights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates.6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates6.1 Subject to the provisions of Section 4.2, Section 7.5 and Section 14 hereof, at any time after the Close of Business on the DistributionDate, and at or prior to the Close of Business on the Expiration Date, any Right Certificate or Certificates (other than Right Certificates representingRights that have become null and void or that have been exchanged) may be transferred, split up, combined or exchanged for one or more other RightCertificates, entitling the Registered Holder to purchase a like number of one one-thousandths of a Preferred Share (or following a Triggering Event,preferred shares, cash, property, debt securities, Ordinary Shares of the Company or any combination thereof) as the Right Certificate or RightCertificates surrendered then entitled such holder to purchase and at the same Exercise Price. Any Registered Holder desiring to transfer, split up,combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrenderthe Right Certificate or Right Certificates to be transferred, split up, combined or exchanged, with the form of assignment and certificate properlycompleted and duly executed by the Registered Holder thereof, at the office of the Rights Agent designated for such purpose, with such signature dulyguaranteed and such other and further documentation as the Rights Agent or the Company may require. The Right Certificates are only transferable onthe registry books of the Rights Agent. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to thetransfer of any such surrendered Right Certificate until the Registered Holder has (i) properly completed and duly executed the certificate contained inthe form of assignment on the reverse side of such Right Certificate and has provided such additional evidence of the identity of the Beneficial Owner(or former Beneficial Owner) or Affiliates or Associates from whom the Rights evidenced by such Right Certificate are to be transferred (or theBeneficial Owner to whom such Rights are to be transferred) as the Company or Rights Agent shall reasonably request, (ii) and paid a sum sufficient tocover any transfer tax or other tax or governmental charge that may be imposed in connection with any transfer, split up combination or exchange ofRights Certificates. Thereupon, subject to Section 4.2, Section 7.5 and Section 14 hereof, the Company shall execute and the Rights Agent shallcountersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested, registered by suchname or names as may be designated by the surrendering Registered Holder. The Rights Agent shall forward any such sum collected by it to theCompany or to such Persons as the Company shall specify by written notice. The Rights Agent shall have no duty or obligation under any Section ofthis Agreement that requires the payment of taxes or governmental charges unless and until it is satisfied that all such taxes or governmental chargeshave been paid in full. -12-6.2 Subject to the provisions of this Agreement, at any time after the Distribution Date and prior to the Close of Business on the earlier ofthe Expiration Date and the Final Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them ofthe loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactoryto them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the RightsAgent and cancellation of the Right Certificate, if mutilated, accompanied by a signature guarantee and such other and further documentation as theRights Agent may require, the Company shall cause a new Right Certificate of like tenor to be issued and delivered to the registered owner in lieu ofthe Right Certificate so lost, stolen, destroyed or mutilated. Notwithstanding any other provision hereof, the Company and the Rights Agent mayamend this Agreement to provide for uncertificated Rights in addition to or in place of Rights evidenced by Right Certificates, to the extent permittedby applicable law.7. Exercise of Rights; Exercise Price; Expiration Date of Rights7.1 Subject to Section 7.5 hereof, the Registered Holder of any Right Certificate may exercise the Rights evidenced thereby (except asotherwise provided herein) in whole or in part at any time commencing with the Distribution Date upon surrender of the Right Certificate, with theform of election to purchase and the certificate on the reverse side thereof properly completed and duly executed, to the Rights Agent at the office oroffices of the Rights Agent designated for such purpose, accompanied by a signature guarantee and such other documentation as the Rights Agent mayrequire, together with full payment of the aggregate Exercise Price for the total number of one one-thousandths of a Preferred Share (or other securities,cash or other assets, as the case may be) as to which such surrendered Rights are then exercised, at or prior to the earlier of (a) the Close of Business onthe tenth anniversary of the date of this Agreement (the “Final Expiration Date”), (b) the time at which the Rights are terminated as provided inSection 23 hereof, (c) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type describedin Sections 1.4.1(4) and 13.6 at which time the Rights are terminated, or (d) the time at which such Rights are exchanged as provided in Section 24hereof (the earliest of (a), (b), (c) or (d) being herein referred to as the “Expiration Date”). Except as set forth in Section 7.5 hereof and notwithstandingany other provision of this Agreement, any Person who prior to the Distribution Date becomes a Registered Holder of Ordinary Shares of the Companymay exercise all of the rights of a Registered Holder of a Right Certificate with respect to the Rights associated with such Ordinary Shares of theCompany in accordance with the provisions of this Agreement, as of the date such Person becomes a Registered Holder of Ordinary Shares of theCompany. -13-7.2 The Exercise Price for each one one-thousandth of a Preferred Share pursuant to the exercise of a Right shall initially be Two HundredUnited States Dollars US$200, shall be subject to adjustment from time to time as provided in Section 11 and Section 13 hereof and shall be payable inlawful money of the United States of America in accordance with Section 7.3 below.7.3 Either prior to or as promptly as practicable following the Distribution Date, the Company shall deposit with a corporation, trust,bank or similar institution in good standing organized under the laws of the United States or any State of the United States, which is authorized undersuch laws to exercise corporate trust or share transfer powers and is subject to supervision or examination by a federal or state authority (suchinstitution is hereinafter referred to as the “Depositary Agent”), certificates representing the Preferred Shares that may be acquired upon exercise of theRights and the Company shall enter into an agreement with such Depositary Agent pursuant to which the Depositary Agent shall issue depositaryreceipts representing interests in the Preferred Shares so deposited and take the steps required pursuant to Section 9.3 regarding the registration of thesecurities purchasable upon the exercise of such Rights. Except as otherwise provided herein, upon receipt of a Right Certificate representingexercisable Rights, with the form of election to purchase and the certificate on the reverse side thereof properly completed and duly executed,accompanied by a signature guarantee and such other documentation as the Rights Agent may require together with payment of the full Exercise Pricefor the Preferred Shares (or other securities, cash or other assets, as the case may be) to be purchased and an amount equal to any applicable transfer taxor governmental charge (as determined by the Rights Agent) in cash, or by certified check or bank draft payable to the order of the Company, theRights Agent shall, subject to Section 20.11 hereof, thereupon promptly (a) requisition from the Depositary Agent (or make available, if the RightsAgent is the Depository Agent) depository receipts or certificates representing the number of one one-thousandths of a Preferred Share to be purchasedand the Company irrevocably agrees to cause the Depositary Agent and any such transfer agent to deliver such depository receipts or certificates to theRights Agent, (b) when necessary to comply with this Agreement, requisition from the Company the amount of cash, if any, to be paid in lieu ofissuance of fractional shares in accordance with Section 14 hereof, (c) promptly after receipt of such certificates or, if applicable, depositary receipts,cause the same to be delivered to or upon the order of the Registered Holder of such Right Certificate, registered in such name or names as may bedesignated by such holder and (d) when appropriate, after receipt promptly deliver such cash to or upon the order of the Registered Holder of suchRight Certificate. In the event that the Company is obligated to issue other securities (including Ordinary Shares) of the Company, pay cash ordistribute other property pursuant to Section 11.1 hereof, the Company will make all arrangements necessary so that such securities, cash, or otherproperty is available for distribution by the Rights Agent, if and when necessary to comply with this Agreement. The payment of the Exercise Pricemay be made in cash or by certified or bank check payable to the order of the Company, or by wire transfer of immediately available funds to theaccount of the Company (provided that notice of such wire transfer shall be given by the holder of the related Right to the Rights Agent). The RightsAgent shall be entitled to rely, and shall be protected in relying, on a certificate duly executed by an officer of the Company to the effect that theDistribution Date has occurred. -14-7.4 In case the Registered Holder of any Right Certificate exercises less than all the Rights evidenced thereby, a new Right Certificateevidencing Rights equivalent to the Rights remaining unexercised shall be issued and delivered by the Company to the Rights Agent andcountersigned and delivered by the Rights Agent to the Registered Holder of such Right Certificate or to his duly authorized assigns, subject to theprovisions of Section 14 hereof.7.5 Notwithstanding any provision or language of this Agreement that might be construed to suggest the contrary, from and after the firstoccurrence of a Section 11.1.2 Event or Section 13 Event, any Rights beneficially owned by (a) an Acquiring Person or any Associate or Affiliate of anAcquiring Person, (b) a transferee of an Acquiring Person (or of any Associate or Affiliate of an Acquiring Person) who becomes a transferee after theAcquiring Person becomes such or (c) a transferee of an Acquiring Person (or of any Associate or Affiliate of an Acquiring Person) who becomes atransferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (i) a transfer (whether or not forconsideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person hasany continuing agreement, arrangement or understanding regarding the transferred Rights, the Ordinary Shares of the Company associated with suchRights or the Company, or (ii) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understandingwhich has as a primary purpose or effect the avoidance of this Section 7.5, and subsequent transferees, either direct transferees or transferees throughone or more intermediate transferees, of such Persons, shall be null and void without any further action and no holder of such Rights shall have anyrights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonableefforts to ensure that the provisions of this Section 7.5 and Section 4.2 hereof are complied with, but neither it nor the Rights Agent shall have anyliability to any holder of Right Certificates or other Person as a result of its failure to make any determination with respect to an Acquiring Person orany Affiliates or Associates of an Acquiring Person or any transferee of any of them hereunder. -15-7.6 Notwithstanding any provision or language of this Agreement that might be construed to suggest the contrary, neither the RightsAgent nor the Company shall be obligated to undertake any action with respect to a Registered Holder of Rights upon the occurrence of any purportedexercise as set forth in this Section 7 unless such Registered Holder has (a) properly completed and duly signed the certificate contained in the form ofelection to purchase set forth on the reverse side of the Right Certificate surrendered for such exercise and (b) provided such additional evidence of theidentity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof and such other information as the Company or theRights Agent shall reasonably request.7.7 Any funds that the Rights Agent receives in respect of payments for Preferred Shares resulting from the exercise of Rights shall bedeposited in a non-interest bearing account at the Rights Agent that the Rights Agent designates solely for such purpose. Such funds shall remain inthe Deposit Account until they are distributed to the Company in accordance with this Agreement.8. Cancellation of Right CertificatesAll Right Certificates surrendered for the purpose of and accepted for exercise, transfer, split up, combination or exchange shall, if surrendered tothe Company or any of its agents (other than the Rights Agent), be delivered to the Rights Agent for cancellation or in cancelled form, or, ifsurrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by anyof the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall socancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shalldeliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Right Certificates, andin such case shall deliver a certificate of destruction thereof to the Company.9. Reservation and Availability of Preferred Shares9.1 The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued PreferredShares or any Preferred Shares held in its treasury, the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstandingand exercisable Rights. Upon the occurrence of any events resulting in an increase in the aggregate number of Preferred Shares issuable upon exerciseof all outstanding Rights in excess of the number then reserved, the Company shall make appropriate increases in the number of shares so reserved.9.2 So long as the Preferred Shares issuable upon the exercise of Rights may be listed or admitted to trading on any national securitiesexchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all Preferred Shares issued orreserved for issuance to be listed or admitted to trading on such exchange upon official notice of issuance, upon such exercise. -16-9.3 From and after such time as the Rights become exercisable , the Company shall use its best efforts to (a) file, as soon as practicablefollowing the earliest date after the occurrence of a Section 11.1.2 Event on which the consideration to be delivered by the Company upon exercise ofthe Rights has been determined in accordance with Section 11.1.3 hereof, or as soon as required by law following the Distribution Date, as the case maybe, a registration statement under the Securities Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form,(b) cause such registration statement to become effective as soon as practicable after such filing and (c) cause such registration statement to remaineffective (with a prospectus that at all times meets the requirements of the Securities Act) until the earlier of (i) the date as of which the Rights are nolonger exercisable for such securities and (ii) the Expiration Date. The Company will also take such action as may be appropriate under, and which willensure compliance with, the securities or “blue sky” laws of the various states in connection with the exercisability of the Rights. The Company maytemporarily suspend (with prompt written notice thereof to the Rights Agent; and until such written notice is received by the Rights Agent, the RightsAgent may assume conclusively that no such suspension has occurred) for a period of time not to exceed ninety (90) days after the date determined inaccordance with the provisions of the first sentence of this Section 9.3, the exercisability of the Rights in order to prepare and file such registrationstatement and permit it to become effective. Upon such suspension, the Company shall issue a public announcement stating that the exercisability ofthe Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect, in each case withprompt written notice to the Rights Agent and without such written notice in each case, the Rights Agent may assume conclusively that no suchsuspension or lifting of such suspension has occurred. Notwithstanding any provision or language of this Agreement that might be construed tosuggest the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction has been obtained anduntil a registration statement under the Securities Act has been declared effective, unless an exemption therefrom is available. The Company shall issuewritten notification to the Rights Agent (x) when the registration statement referenced in clause (a) hereof has become effective, and (y) if applicable,when the registration statement for the securities purchasable upon exercise of the Rights represented by depositary receipts has been declaredeffective, or the Company shall deliver an opinion of counsel for the Company in the United States, in a form reasonably satisfactory to the RightsAgent, to the effect that the offering and sale of such securities purchasable upon exercise of the Rights is exempt from, or does not require registrationunder, the provisions of the Securities Act or any other applicable laws.9.4 The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares (or othersecurities of the Company) delivered upon the exercise of the Rights shall, at the time of delivery of the certificates or depositary receipts for suchshares (subject to payment of the Exercise Price), be duly and validly authorized and issued and fully paid and nonassessable.9.5 The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes andcharges which may be payable in respect of the issuance or delivery of the Right Certificates or of any certificates for Preferred Shares (or othersecurities of the Company) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable inrespect of any transfer or delivery of Right Certificates to a Person other than, or in respect of the issuance or delivery certificates or depositary receiptsfor the Preferred Shares (or other securities of the Company) in a name other than that of, the Registered Holder of the Right Certificates evidencingRights surrendered for exercise or to issue or deliver any certificates or depositary receipts for the Preferred Shares (or other securities of the Company)upon the exercise of any Rights until such tax has been paid (any such tax being payable by the holder of such Right Certificate at the time ofsurrender) or until it has been established to the Company’s or the Rights Agent’s reasonable satisfaction that no such tax is due. -17-10. Preferred Share Record DateEach Person in whose name any certificate for Preferred Shares (including any fraction of a Preferred Share) is issued upon the exercise of Rightsshall for all purposes be deemed to have become the Registered Holder of the Preferred Shares (or other securities of the Company) represented therebyon, and such certificate shall be dated the date upon which the Right Certificate evidencing such Rights was duly surrendered with the forms ofelection and certification properly completed and duly executed and full payment of the Exercise Price (and any applicable transfer taxes andgovernmental charges) was duly made; provided, however, that if the date of such surrender and payment is a date upon which the register of membersof the Company is closed, such Person shall be deemed to have become the Registered Holder of such shares on, and such certificate shall be dated, thenext succeeding Business Day on which the register of members of the Company is open; and further provided, however, that if delivery of PreferredShares (or other securities of the Company) is delayed pursuant to Section 9.3, such Person shall be deemed to have become the Registered Holder ofsuch Preferred Shares (or other securities of the Company) only when such shares first become deliverable. Prior to the exercise of the Rights evidencedthereby, the holder of a Right Certificate shall not be entitled to any rights of a shareholder of the Company with respect to shares for which the Rightsare exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, andshall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.11. Adjustment of Number and Kind of Shares or Number of Rights11.1 The number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time asprovided in this Section 11.11.1.1 In the event the Company at any time after the date of this Agreement (a) declares and pays a dividend on the Preferred Sharespayable in Preferred Shares, (b) subdivides the outstanding Preferred Shares, (c) combines the outstanding Preferred Shares into a smaller number ofshares or (d) issues any of its share capital in a reclassification of the Preferred Shares (including any such reclassification in connection with aconsolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11.1 andSection 7.5 hereof, the number and kind of share capital issuable at the time of the record date for such dividend or of the effective date of suchsubdivision, combination or reclassification, shall be proportionately adjusted so that the holder of any Right exercised after such time shall beentitled to receive the aggregate number and kind of share capital which, if such Right had been exercised immediately prior to such date and at a timewhen the register of members of the Company was open, such holder would have owned upon such exercise and been entitled to receive by virtue ofsuch dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise ofa Right be less than the aggregate par value of the share capital of the Company issuable upon exercise of a Right. If an event occurs which wouldrequire an adjustment under both Section 11.1.1 and Section 11.1.2 hereof, the adjustment provided for in this Section 11.1.1 shall be in addition to,and shall be made prior to, any adjustment required pursuant to Section 11.1.2 hereof. -18-11.1.2 Subject to the provisions of Section 24 hereof, in the event any Person, alone or together with its Affiliates and Associates,becomes an Acquiring Person (a “Section 11.1.2 Event”), then promptly following any such occurrence, proper provision shall be made so that eachholder of a Right, except as provided in Section 7.5 hereof, shall thereafter have a right to receive, upon exercise thereof at the then current ExercisePrice in accordance with the terms of this Agreement, and in lieu of Preferred Shares, such number of Ordinary Shares of the Company as shall equal theresult obtained by (a) multiplying the then current Exercise Price by the then number of one one-thousandths of a Preferred Share for which a Right wasexercisable immediately prior to the first occurrence of a Section 11.1.2 Event, whether or not such Right was then exercisable, and dividing thatproduct by (b) 50% of the Fair Market Value per one one-thousandth of a Preferred Share (determined pursuant to Section 11.4) on the date of theoccurrence of a Section 11.1.2 Event (such number of shares being referred to as the “Adjustment Shares”). From and after the occurrence of an eventspecified in Section 13.1 hereof, any Rights that theretofore have not been exercised pursuant to this Section 11.1.2 shall thereafter be exercisable onlyin accordance with Section 13 and not pursuant to this Section 11.1.2.11.1.3 The Company may at its option substitute for an Ordinary Share issuable upon the exercise of Rights in accordance with theforegoing subparagraph a number of Preferred Shares or fraction thereof such that the Fair Market Value of one Preferred Share multiplied by suchnumber or fraction is equal to the Fair Market Value of one Ordinary Share. In lieu of issuing any Preferred Shares in accordance with Section 11.1.2hereof, the Company, acting by or pursuant to resolution of the Board of Directors, may, and in the event that the number of Preferred Shares which areauthorized by the Certificate of Designation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is notsufficient to permit the exercise in full of the Rights in accordance with the foregoing Section 11.1.2, the Company, acting by or pursuant to resolutionof the Board of Directors, shall: (a) determine the excess of (i) the Fair Market Value of the Adjustment Shares issuable upon the exercise of a Right (the“Current Value”) over (ii) the Exercise Price attributable to each Right (such excess being referred to as the “Spread”) and (b) with respect to all or aportion of each Right (subject to Section 7.5 hereof), make adequate provision to the extent permissible under applicable law to substitute for theAdjustment Shares, upon payment of the applicable Exercise Price, (1) cash, (2) a reduction in the Exercise Price, (3) Preferred Share Equivalents whichthe Board of Directors has deemed to have the same value as Ordinary Shares of the Company, (4) debt securities of the Company, (5) other assets of theCompany or (6) any combination of the foregoing which, when added to any Preferred Shares issued upon such exercise, has an aggregate value equalto the Current Value, where such aggregate value has been determined by the Board of Directors based upon the advice of a nationally recognizedinvestment banking firm selected by the Board of Directors (such determination shall be filed in writing with the Rights Agent and shall be binding onthe Rights Agent); provided, however, that if the Company has not made adequate provision to deliver value pursuant to clause (b) above within thirty(30) days following, but not including, the later of (x) the first occurrence of a Section 11.1.2 Event and (y) the date on which the Company’s right oftermination pursuant to Section 23.1 expires (the later of (x) and (y) being referred to herein as the “Section 11.1.2 Trigger Date”), then the Companyshall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Exercise Price, Preferred Shares (to theextent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directorsdetermines in good faith that it is likely that sufficient additional Preferred Shares could be authorized for issuance upon exercise in full of the Rights,the 30-day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11.1.2 Trigger Date, inorder that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, beingreferred to herein as the “Substitution Period”). To the extent that the Company determines that some action need be taken pursuant to the first and/orsecond sentences of this Section 11.1.3, the Company (1) shall provide, subject to Section 7.5 hereof, that such action shall apply uniformly to alloutstanding Rights and (2) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek anyauthorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine thevalue thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights hasbeen temporarily suspended and a public announcement at such time as the suspension is no longer in effect (with written notice in each case to bepromptly delivered to the Rights Agent; and the Rights Agent shall be deemed to have no knowledge of such suspension or lifting of suspension untilit receives such written notice). For purposes of this Section 11.1.3, the value of the Preferred Shares shall be the Fair Market Value (as determinedpursuant to Section 11.4 hereof) per Preferred Share on the Section 11.1.2 Trigger Date and the value of any Preferred Share Equivalent shall be deemedto have the same value as the Preferred Share on such date. The Company shall give the Rights Agent written notice of all elections or determinationsunder Section 11 of this Agreement and the Rights Agent may conclusively assume that no elections or determinations under this section have beenmade until it receives written notice thereof. -19-11.2 If the Company fixes a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (fora period expiring within forty-five (45) calendar days after such record date) to subscribe for or purchase Preferred Shares (or securities having the sameor more favorable rights, privileges and preferences as the Preferred Shares (“Preferred Share Equivalents”)) or securities convertible into PreferredShares or Preferred Share Equivalents at a price per Preferred Share or per Preferred Share Equivalents (or having a conversion price per share, if asecurity convertible into Preferred Shares or Preferred Share Equivalents) less than the Fair Market Value (as determined pursuant to Section 11.4hereof) per Preferred Share on such record date, the Exercise Price to be in effect after such record date shall be determined by multiplying the ExercisePrice in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on suchrecord date, plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or Preferred ShareEquivalents to be offered (and the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Fair MarketValue and the denominator of which shall be the number of Preferred Shares outstanding on such record date, plus the number of additional PreferredShares and Preferred Share Equivalents to be offered for subscription or purchase (or into which the convertible securities so to be offered are initiallyconvertible); provided, however, that in no event shall the consideration to be paid upon the exercise of a Right be less than the aggregate par value ofthe share capital of the Company issuable upon exercise of a Right. In case such subscription price may be paid in a consideration part or all of whichis in a form other than cash, the value of such consideration shall be the Fair Market Value thereof determined in accordance with Section 11.4 hereof.Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Suchadjustments shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, theExercise Price shall be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed. -20-11.3 If the Company shall fix a record date for the making of a distribution to all holders of Preferred Shares (including any suchdistribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), of evidences ofindebtedness, cash (other than a regular periodic cash dividend out of the retained earnings or distributable reserves of the Company), assets (other thana dividend payable in Preferred Shares, but including any dividend payable in shares other than Preferred Shares) or convertible securities, subscriptionrights or warrants (excluding those referred to in Section 11.2, the Exercise Price to be in effect after such record date shall be determined bymultiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Fair Market Value (asdetermined pursuant to Section 11.4 hereof) per one one-thousandth of a Preferred Share on such record date, less the Fair Market Value (as determinedpursuant to Section 11.4 hereof) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such convertible securities,subscription rights or warrants applicable to one one-thousandth of a Preferred Share and the denominator of which shall be the Fair Market Value (asdetermined pursuant to Section 11.4 hereof) per one one-thousandth of a Preferred Share; provided, however, that in no event may the consideration tobe paid upon the exercise of a Right be less than the aggregate par value of the share capital of the Company issuable upon exercise of a Right. Suchadjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Exercise Priceshall again be adjusted to be the Exercise Price which would be in effect if such record date had not been fixed.11.4 For the purpose of this Agreement, the “Fair Market Value” of any Preferred Share, Ordinary Share or any other capital share or anyRight or other security or any other property shall be determined as provided in this Section 11.4.11.4.1 In the case of a publicly-traded share or other security, the Fair Market Value on any date shall be deemed to be the averageof the daily closing prices per share or per unit of such other security for the 30 consecutive Trading Days (as such term is hereinafter defined)immediately prior to, but not including, such date; provided, however, that in the event that the Fair Market Value per share of any share is determinedduring a period following the announcement by the issuer of such share of (a) a dividend or distribution on such share payable in shares of the sameclass or securities convertible into shares of the same class or (b) any subdivision, combination or reclassification of such share, and prior to theexpiration of the 30 Trading Day period after, but not including, the ex-dividend date for such dividend or distribution, or the record date for suchsubdivision, combination or reclassification, then, and in each such case, the Fair Market Value shall be properly adjusted to take into accountex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the averageof the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect tosecurities listed or admitted to trading on the NASDAQ Stock Market or the New York Stock Exchange or, if the securities are not listed or admitted totrading on the NASDAQ Stock Market or the New York Stock Exchange, as reported in the principal consolidated transaction reporting system withrespect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading; or, if not listed oradmitted to trading on a national securities exchange, the last quoted price (or, if not so quoted, the average of the last quoted high bid and low askedprices) in the over-the-counter market, as reported such system then in use; or, if on any such date no bids for such security are quoted by any suchorganization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such security selected bythe Board of Directors of the Company. If on any such date no market maker is making a market in such security, the Fair Market Value of such securityon such date shall be determined reasonably and with utmost good faith to the holders of the Rights by the Board of Directors of the Company,provided, however, that if at the time of such determination there is an Acquiring Person, the Fair Market Value of such security on such date shall bedetermined by a nationally recognized investment banking firm selected by the Board of Directors, which determination shall be described in astatement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. The term “Trading Day” means a day onwhich the principal national securities exchange on which such security is listed or admitted to trading is open for the transaction of business or, ifsuch security is not listed or admitted to trading on any national securities exchange, a Business Day. -21-11.4.2 If a security is not publicly held or not so listed or traded, “Fair Market Value” means the fair value per share or per otherunit of such security, determined reasonably and with utmost good faith to the holders of the Rights by the Board of Directors of the Company,provided, however, that if at the time of such determination there is an Acquiring Person, the Fair Market Value of such security on such date shall bedetermined by a nationally recognized investment banking firm selected by the Board of Directors, which determination shall be described in astatement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights; provided, however, that for the purposesof making any adjustment provided for by Section 11.1.2 hereof, the Fair Market Value of a Preferred Share shall not be less than the product of thethen Fair Market Value of an Ordinary Share multiplied by the higher of the then Dividend Multiple or Vote Multiple (as both of such terms aredefined in the Certificate of Designation attached as Exhibit A hereto) applicable to the Preferred Shares and shall not exceed 105% of the product ofthe then Fair Market Value of an Ordinary Share multiplied by the higher of the then Dividend Multiple or Vote Multiple applicable to the PreferredShares. -22-11.4.3 In the case of property other than securities, the Fair Market Value thereof shall be determined reasonably and with utmostgood faith to the holders of Rights by the Board of Directors of the Company, provided, however, that if at the time of such determination there is anAcquiring Person, the Fair Market Value of such property on such date shall be determined by a nationally recognized investment banking firmselected by the Board of Directors, which determination shall be described in a statement filed with the Rights Agent and shall be binding upon theRights Agent and the holders of the Rights.11.5 No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% inthe Exercise Price; provided, however, that any adjustments which by reason of this Section 11.5 are not required to be made shall be carried forwardand taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearesthundred-thousandth of an Ordinary Share of the Company or ten-millionth of a Preferred Share, as the case may be, or to such other figure as the Boardof Directors may deem appropriate. Notwithstanding the first sentence of this Section 11.5, any adjustment required by this Section 11 shall be madeno later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment or (ii) the Expiration Date.11.6 If as a result of any provision of Section 11.1 or Section 13.1 hereof, the holder of any Right thereafter exercised shall becomeentitled to receive any share capital of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exerciseof any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions withrespect to the Preferred Shares contained in Sections 11.1 through 11.5, Sections 11.7 through 11.11, and Section 11.13, inclusive, and the provisionsof Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Shares shall apply on like terms to any such other shares.11.7 All Rights originally issued by the Company subsequent to any adjustment made to the Exercise Price hereunder shall evidence theright to purchase, at the adjusted Exercise Price, the number of one one-thousandths of a Preferred Share (or other securities or amount of cash orcombination thereof) purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.11.8 Unless the Company has exercised its election as provided in Section 11.9, upon each adjustment of the Exercise Price as a result ofthe calculations made in Sections 11.2 and 11.3, each Right outstanding immediately prior to the making of such adjustment shall thereafter evidencethe right to purchase, at the adjusted Exercise Price, that number of one one-thousandths of a Preferred Share (calculated to the nearest oneten-millionth) as the Board of Directors reasonably determines is appropriate to preserve the economic value of the Rights, including, by way ofexample, that number obtained by (a) multiplying (i) the number of one one-thousandths of a Preferred Share for which a Right may be exercisableimmediately prior to this adjustment by (ii) the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (b) dividing theproduct so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. -23-11.9 The Company may elect on or after the date of any adjustment of the Exercise Price to adjust the number of Rights, in substitutionfor any adjustment in the number of Preferred Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment inthe number of Rights shall be exercisable for the number of one one-thousandths of a Preferred Share for which a Right was exercisable immediatelyprior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated tothe nearest one hundred-thousandth) obtained by dividing the Exercise Price in effect immediately prior to adjustment of the Exercise Price by theExercise Price in effect immediately after adjustment of the Exercise Price. The Company shall make a public announcement (with prompt writtennotice thereof to the Rights Agent; and until such written notice is received by the Rights Agent, the Rights Agent may assume conclusively that nosuch adjustment has occurred) of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, theamount of the adjustment to be made. This record date may be the date on which the Exercise Price is adjusted or any day thereafter, but, if the RightCertificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Right Certificates have been issued, uponeach adjustment of the number of Rights pursuant to this Section 11.9, the Company shall, as promptly as practicable, cause to be distributed toholders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to whichsuch holders are entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record insubstitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required bythe Company, new Right Certificates evidencing all the Rights to which such holders are entitled after such adjustment. Right Certificates so to bedistributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjustedExercise Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the publicannouncement.11.10 Irrespective of any adjustment or change in the Exercise Price or the number of one one-thousandths of a Preferred Share issuableupon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Exercise Price per share and thenumber of shares which were expressed in the initial Right Certificates issued hereunder without prejudice to any adjustment or change withoutprejudice to any adjustment or change.11.11 Before taking any action that would cause an adjustment reducing the Exercise Price below the then stated value, if any, of thenumber of one one-thousandths of a Preferred Share issuable upon exercise of the Rights, the Company shall take any corporate action which may, inthe opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable Preferred Shares at suchadjusted Exercise Price.11.12 In any case in which this Section 11 shall require that an adjustment in the Exercise Price be made effective as of a record date for aspecified event, the Company may elect to defer (with prompt written notice thereof to the Rights Agent; and until such written notice is received bythe Rights Agent, the Rights Agent may assume conclusively that no such adjustment has occurred) until the occurrence of such event the issuing tothe holder of any Right exercised after such record date the number of one one-thousandths of a Preferred Share or other capital share or securities ofthe Company, if any, issuable upon such exercise over and above the number of one one-thousandths of a Preferred Share and other capital share orsecurities of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however,that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additionalshares upon the occurrence of the event requiring such adjustment. -24-11.13 The Company shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly requiredby this Section 11, as and to the extent that in their good faith judgment a majority of the Board of Directors shall determine to be advisable in orderthat any consolidation or subdivision of the Preferred Shares, issuance wholly for cash of any Preferred Shares at less than the Fair Market Value,issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, share dividendsor issuance of rights, options or warrants referred to hereinabove in this Section 11, hereafter made by the Company to holders of its Preferred Shares,shall not be taxable to such shareholders. The Rights Agent may conclusively assume that no such determinations have been made until it receives awritten statement from the Company to such effect and may conclusively rely on such statement.11.14 The Company covenants and agrees that it shall not, at any time after the Distribution Date and so long as the Rights have not beenterminated pursuant to Section 23 hereof or exchanged pursuant to Section 24 hereof, (a) consolidate with (other than a Subsidiary of the Company in atransaction which complies with the proviso at the end of this sentence), (b) merge with or into, or (c) sell or transfer (or permit any Subsidiary to sell ortransfer), in one transaction or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earning power of theCompany and its Subsidiaries taken as a whole, to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or moretransactions each of which complies with the proviso at the end of this sentence) if (i) at the time of or immediately after such consolidation, merger orsale there are any rights, warrants or other instruments outstanding or agreements or arrangements in effect which would substantially diminish orotherwise eliminate the benefits intended to be afforded by the Rights; (ii) prior to, simultaneously with or immediately after such consolidation,merger or sale the shareholders of a Person who constitutes, or would constitute, the “Principal Party” for the purposes of Section 13.1 hereof havereceived a distribution of Rights previously owned by such Person or any of its Affiliates and Associates; provided, however, that this Section 11.14shall not affect the ability of any Subsidiary of the Company to consolidate with, merge with or into, or sell or transfer assets or earning power to, anyother Subsidiary of the Company; or (iii) the form or nature of organization of the Principal Party would preclude or limit the exercisability of theRights. The Company further covenants and agrees that after the Distribution Date it will not, except as permitted by Section 23 or Section 27 hereof,take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will substantiallydiminish or otherwise eliminate the benefits intended to be afforded by the Rights. -25-11.15 In the event the Company at any time after the date of this Agreement and prior to the Distribution Date (a) declares and pays anydividend on the outstanding Ordinary Shares of the Company payable in Ordinary Shares of the Company or (b) effects a subdivision, combination orconsolidation of the outstanding Ordinary Shares of the Company (by reclassification or otherwise than by payment of dividends in Ordinary Shares ofthe Company) into a greater or lesser number of Ordinary Shares of the Company, then in any such case (i) the number of one one-thousandths of aPreferred Share purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of oneone-thousandths of a Preferred Share so purchasable immediately prior to such event by a fraction, the numerator of which is the number of OrdinaryShares of the Company outstanding immediately prior to such event and the denominator of which is the number of Ordinary Shares of the Companyoutstanding immediately after such event, and (ii) each Ordinary Share of the Company outstanding immediately after such event shall have issuedwith respect to it that number of Rights which each Ordinary Share of the Company outstanding immediately prior to such event had issued withrespect to it. The adjustments provided for in this Section 11.15 shall be made successively whenever such a dividend is declared or paid or such asubdivision, combination or consolidation is effected. The Rights Agent may conclusively assume that no such determinations have been made until itreceives a written statement from the Company to such effect and may conclusively rely on such statement.11.16 The exercise of Rights under Section 11.1.2 shall only result in the loss of rights under Section 11.1.2 to the extent so exercisedand shall not otherwise affect the rights of holders of Right Certificates under this Rights Agreement, including rights to purchase securities of thePrincipal Party following a Section 13 Event which has occurred or may thereafter occur, as set forth in Section 13 hereof. Upon proper exercise of aRight Certificate under Section 11.1.2, the Rights Agent shall at the Company’s expense return such Right Certificate duly marked to indicate thatsuch exercise has occurred.12. Certificate of Adjusted Exercise Price or Number of SharesWhenever an adjustment is made as provided in Section 11 or Section 13 hereof, the Company shall (a) promptly prepare a certificate dulyexecuted by an officer of the Company setting forth such adjustment and a brief statement of the facts giving rise to such adjustment along withcomputations and methodology accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the PreferredShares and the Ordinary Shares of the Company a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate inaccordance with Section 26 hereof. Notwithstanding the foregoing sentence, the failure of the Company to make such certification or give such noticeshall not affect the validity of such adjustment or the force or effect of the requirement for such adjustment. The Rights Agent shall be fully protectedin relying on any such certificate and on any adjustment or statement contained therein and shall have no duty or liability with respect to, and shall notbe deemed to have knowledge of any adjustment unless and until it has received such certificate.13. Consolidation, Merger or Sale or Transfer of Assets -26-13.1 In the event that, following the Share Acquisition Date, directly or indirectly, (a) the Company consolidates with, or merges with andinto, any other Person (other than a Subsidiary of the Company in a transaction which is not prohibited by Section 11.14 hereof), and the Company isnot the continuing or surviving corporation of such consolidation or merger, (b) any Person (other than a Subsidiary of the Company in a transactionwhich is not prohibited by the proviso at the end of the first sentence of Section 11.14 hereof) consolidates with the Company, or merges with and intothe Company and the Company is the continuing or surviving corporation of such merger and, in connection with such merger, all or part of theoutstanding Ordinary Shares of the Company are changed into or exchanged or cancelled for shares or other securities of any other Person (or of theCompany) or cash or any other property, or (c) the Company sells, mortgages or otherwise transfers (or one or more of its Subsidiaries sells, mortgagesor otherwise transfers), in one transaction or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earningpower of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any Subsidiary of theCompany in one or more transactions, each of which is not prohibited by the proviso at the end of the first sentence of Section 11.14 hereof), then, andin each such case, proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7.5 hereof, has the right to receive,upon the exercise thereof at the then current Exercise Price in accordance with the terms of this Agreement, such number of validly authorized andissued, fully paid and non-assessable shares of freely tradeable Ordinary Shares of the Principal Party (as hereinafter defined in Section 13.2), free andclear of rights of call or first refusal, liens, encumbrances, transfer restrictions or other adverse claims, as is equal to the result obtained by(x) multiplying the then current Exercise Price by the number of one one-thousandths of a Preferred Share for which a Right is exercisable immediatelyprior to the first occurrence of a Section 13 Event, and dividing that product by (y) 50% of the Fair Market Value (determined pursuant to Section 11.4hereof) per Ordinary Share of such Principal Party on the date of consummation of such consolidation, merger, sale or transfer; provided, however, thatthe Exercise Price (as theretofore adjusted in accordance with the provisions hereof) and the number of Ordinary Shares of such Principal Party soreceivable upon exercise of a Right shall be subject to further adjustment as appropriate in accordance with Section 11.6 hereof to reflect any eventsoccurring in respect of the Ordinary Shares of such Principal Party after the occurrence of such consolidation, merger, sale or transfer; (ii) such PrincipalParty shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale, mortgage or transfer, all the obligations and duties ofthe Company pursuant to this Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such Principal Party, it being specificallyintended that the provisions of Section 11 hereof shall apply to such Principal Party; and (iv) such Principal Party shall take such steps (including, butnot limited to, the reservation of a sufficient number of Ordinary Shares to permit exercise of all outstanding Rights in accordance with thisSection 13.1 and the making of payments in cash and/or other securities in accordance with Section 11.1.3 hereof) in connection with suchconsummation as may be necessary to assure that the provisions hereof are thereafter applicable, as nearly as reasonably may be, in relation to itsOrdinary Shares thereafter deliverable upon the exercise of the Rights; provided that, upon the subsequent occurrence of any consolidation, merger,sale or transfer of assets or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled toreceive, upon exercise of a Right and payment of the Exercise Price as provided in this Section 13.1, such cash, shares, rights, warrants and otherproperty which such holder would have been entitled to receive had such holder, at the time of such transaction, owned the Ordinary Shares of thePrincipal Party receivable upon the exercise of a Right pursuant to this Section 13.1, and such Principal Party shall take such steps (including, but notlimited to, reservation of shares) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash,shares, rights, warrants and other property. -27-13.2 “Principal Party” means (a) in the case of any transaction described in clause (a) or (b) of the first sentence of Section 13.1, thePerson that is the issuer of any securities into which Ordinary Shares of the Company are converted or for which the Ordinary Shares are cancelled insuch merger or consolidation, or, if there is more than one such issuer, the issuer of Ordinary Shares that has the highest aggregate Fair Market Value(determined pursuant to Section 11.4), and if no securities are so issued, the Person that is the other party to the merger or consolidation, or, if there ismore than one such Person, the Person the Ordinary Shares of which has the highest aggregate Fair Market Value (determined pursuant toSection 11.4); and (b) in the case of any transaction described in clause (c) of the first sentence of Section 13.1, the Person that is the party receiving thegreatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to suchtransaction or transactions receives the same portion of the assets or earning power transferred pursuant to such transaction or transactions or if thePerson receiving the largest portion of the assets or earning power cannot be determined, whichever Person the Ordinary Shares of which has thehighest aggregate Fair Market Value (determined pursuant to Section 11.4); provided, however, that in any such case, (i) if the Ordinary Shares of suchPerson is not at such time and has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act(“Registered Ordinary Shares”) or such Person is not a corporation, and such Person is a direct or indirect Subsidiary or Affiliate of another Person whohas Registered Ordinary Shares outstanding, “Principal Party” shall refer to such other Person; (ii) if the Ordinary Shares of such Person is notRegistered Ordinary Shares or such Person is not a corporation, and such Person is a direct or indirect Subsidiary of another Person but is not a direct orindirect Subsidiary of another Person which has Registered Ordinary Shares outstanding, “Principal Party” shall refer to the ultimate parent entity ofsuch first-mentioned Person; (iii) if the Ordinary Shares of such Person is not Registered Ordinary Shares or such Person is not a corporation, and suchPerson is directly or indirectly controlled by more than one Person, and one or more of such other Persons has Registered Ordinary Shares outstanding,“Principal Party” shall refer to whichever of such other Persons is the issuer of the Registered Ordinary Shares having the highest aggregate Fair MarketValue (determined pursuant to Section 11.4); and (iv) if the Ordinary Shares of such Person is not Registered Ordinary Shares or such Person is not acorporation, and such Person is directly or indirectly controlled by more than one Person, and none of such other Persons has Registered OrdinaryShares outstanding, “Principal Party” shall refer to whichever ultimate parent entity is the Company having the greatest shareholders’ equity or, if nosuch ultimate parent entity is a corporation, “Principal Party” shall refer to whichever ultimate parent entity is the entity having the greatest net assets. -28-13.3 The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto (a) the Principal Party has asufficient number of authorized Ordinary Shares, which have not been issued or reserved for issuance, to permit the exercise in full of the Rights inaccordance with this Section 13, and (b) the Company and each Principal Party and each other Person who may become a Principal Party as a result ofsuch consolidation, merger, sale or transfer have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forthin Sections 13.1 and 13.2 and further providing that, as soon as practicable after the date of any consolidation, merger, sale or transfer of assetsmentioned in Section 13.1, the Principal Party at its own expense will:13.3.1 prepare and file a registration statement under the Securities Act with respect to the Rights and the securities purchasableupon exercise of the Rights on an appropriate form, use its reasonable best efforts to cause such registration statement to become effective as soon aspracticable after such filing and use its reasonable best efforts to cause such registration statement to remain effective (with a prospectus that at alltimes meets the requirements of the Securities Act) until the Expiration Date;13.3.2 use its reasonable best efforts to qualify or register the Rights and the securities purchasable upon exercise of the Rightsunder the blue sky laws of such jurisdictions as may be necessary or appropriate;13.3.3 use its reasonable best efforts to list (or continue the listing of) the Rights and the securities purchasable upon exercise of theRights on a national securities exchange;13.3.4 deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which complyin all respects with the requirements for registration on Form 10 under the Exchange Act; and13.3.5 obtain waivers of any rights of first refusal or preemptive rights in respect of the Ordinary Shares of the Principal Partysubject to purchase upon exercise of outstanding Rights.13.4 In case the Principal Party which is to be a party to a transaction referred to in this Section 13 has a provision in any of its authorizedsecurities or in its articles of association, memorandum of association, charter or by-laws or other instrument governing its corporate affairs, whichprovision would have the effect of (a) causing such Principal Party to issue (other than to holders of Rights pursuant to this Section 13), in connectionwith, or as a consequence of, the consummation of a transaction referred to in this Section 13, Ordinary Shares of such Principal Party at less than thethen current Fair Market Value (determined pursuant to Section 11.4) or securities exercisable for, or convertible into, Ordinary Shares of such PrincipalParty at less than such Fair Market Value, or (b) providing for any special payment, tax or similar provisions in connection with the issuance of theOrdinary Shares of such Principal Party pursuant to the provisions of this Section 13, then, in such event, the Company shall not consummate any suchtransaction unless prior thereto the Company and such Principal Party has executed and delivered to the Rights Agent a supplemental agreementproviding that the provision in question of such Principal Party has been cancelled, waived or amended, or that the authorized securities shall beredeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposedtransaction. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. -29-13.5 In no event shall the Rights Agent have any liability in respect of any such Principal Party transactions, including, withoutlimitation, the propriety thereof. The Rights Agent may rely and be fully protected in relying upon a certificate of the Company stating that theprovisions of this Section 13 have been fulfilled. Notwithstanding any provision or language of this Agreement that might be construed to suggest thecontrary, the prior written consent of the Rights Agent must be obtained in connection with any supplemental agreement which alters any of the rights,liabilities or duties of the Rights Agent.13.6 Notwithstanding anything contained herein, in the event of any merger or other acquisition transaction involving the Companypursuant to a merger or other acquisition agreement between the Company and any Person (or one or more of such Person’s Affiliates or Associates)which agreement has been approved by the Board of Directors prior to any Person becoming an Acquiring Person, this Agreement and the rights ofholders of Rights hereunder shall be terminated in accordance with Section 7.14. Fractional Rights and Fractional Shares14.1 The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11.15hereof, or to distribute Right Certificates which evidence fractional Rights. If the Company elects not to issue such fractional Rights, the Companyshall pay, in lieu of such fractional Rights, to the Registered Holders of the Right Certificates with regard to which such fractional Rights wouldotherwise be issuable, an amount in cash equal to the same fraction of the Fair Market Value of a whole Right, as determined pursuant to Section 11.4hereof.14.2 The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of oneone-thousandths of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other thanfractions which are integral multiples of one one-thousandths of a Preferred Share). In lieu of fractional Preferred Shares that are not integral multiplesof one one-thousandths of a Preferred Share, the Company may pay to the Registered Holders of Right Certificates at the time such Rights are exercisedas herein provided an amount in cash equal to the same fraction of the Fair Market Value of one one-thousandth of a Preferred Share. For purposes ofthis Section 14.2, the Fair Market Value of one one-thousandth of a Preferred Share shall be determined pursuant to Section 11.4 hereof for the TradingDay immediately prior to the date of such exercise. As soon as practicable, the Company shall notify the Rights Agent of any election pursuant to thisSection 14.2. The Rights Agent may assume conclusively that no such election has occurred until it receives such notice.14.3 The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractionalshares upon exercise of a Right, except as permitted by this Section 14.14.4 Whenever a payment for fractional Rights or fractional shares is to be made by the Rights Agent either under this Section or underSection 24, the Company shall (i) promptly prepare and deliver to the Rights Agent a certificate setting forth in reasonable detail the facts related tosuch payments and the prices and/or formulas utilized in calculating such payments, and (ii) provide sufficient monies to the Rights Agent in the formof immediately available funds which under applicable law or rule are irreversible and not subject to any security interest, levy or other encumbranceto making such payments. The Rights Agent shall be fully protected in relying upon such a certificate and shall have no duty with respect to, and shallnot be deemed to have knowledge of any payment for fractional Rights or fractional shares under any Section of this Agreement relating to thepayment of fractional Rights or fractional shares unless and until the Rights Agent shall have received such a certificate and sufficient monies. -30-15. Rights of ActionAll rights of action in respect of this Agreement, other than rights of action vested in the Rights Agent pursuant to this Agreement, are vested inthe respective Registered Holders of the Right Certificates (or, prior to the Distribution Date, the Registered Holders of the Ordinary Shares and ADSHolders of the Company); and any Registered Holder of any Right Certificate (or, prior to the Distribution Date, of the Ordinary Shares of theCompany), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, registered holdersof the Ordinary Shares and ADS Holders of the Company), may, in such Registered Holder’s own behalf and for such Registered Holder’s own benefit,enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right toexercise the Rights evidenced by such Right Certificate (or, prior to the Distribution Date, such Ordinary Shares) in the manner provided therein and inthis Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders ofRights, the registered holders of Ordinary Shares, or the ADS Holders would not have an adequate remedy at law for any breach of this Agreement andshall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligationshereunder of any Person subject to this Agreement.16. Agreement of Right HoldersEvery holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of aRight that:16.1 prior to the Distribution Date, each Right will be transferable only simultaneously and together with the transfer of Ordinary Sharesof the Company;16.2 after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at theoffice or offices of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer along with a form ofassignment and certificate set forth on the reverse side thereof duly executed, accompanied by a signature guarantee and such other and furtherdocumentation as the Rights Agent may require;16.3 subject to Sections 6.1 and 7.6, the Company and the Rights Agent may deem and treat the Person in whose name a Right Certificate(or, prior to the Distribution Date, the associated certificate representing (or Book Entry shares in respect of) Ordinary Shares of the Company) isregistered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the RightCertificates or the associated certificate representing (or notices provided to holders of Book Entry) Ordinary Shares of the Company made by anyoneother than the Company or the Rights Agent) for all purposes whatsoever, and, subject to the last sentence of Section 7.5, neither the Company nor theRights Agent shall be affected by any notice to the contrary; and -31-16.4 notwithstanding any provision or language of this Agreement that might be construed to suggest the contrary, neither the Companynor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations underthis Agreement by reason of any preliminary or permanent injunction or other order, judgment, decree or ruling (whether interlocutory or final) issuedby a court of competent jurisdiction or by a governmental, regulatory, self-regulatory or administrative agency or commission, or any statute, rule,regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of suchobligation; provided, however, that the Company shall use its best efforts to have any such injunction, order, judgment, decree or ruling lifted orotherwise overturned as soon as possible.17. Right Certificate Holder Not Deemed a ShareholderNo holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the PreferredShares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anythingcontained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a shareholderor member of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders or members at any meetingthereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders or members(except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by suchRight Certificate has been exercised in accordance with the provisions hereof.18. Concerning the Rights Agent18.1 In consideration for the services rendered hereunder, The Company shall pay the Rights Agent its fees in accordance with andpursuant to the written fee schedule agreed between the Company and the Rights Agent, plus the Rights Agent’s reasonable expenses and counsel fees,expenses and other disbursements incurred in the preparation, negotiations, delivery, amendments, administration and execution of this Agreement andthe exercise and performance of its duties hereunder, including but not limited to any taxes or charges imposed as a result of the action taken by ithereunder (other than taxes or charges imposed on income). Except to the extent expressly set forth in this Agreement, no provision of this Agreementshall require the Rights Agent to expend or risk the Rights Agent’s own funds or otherwise incur any financial liability in the performance of any of theRights Agent’s duties hereunder or in the exercise of the Rights Agent’s rights if there are reasonable grounds for believing that repayment of suchfunds or adequate indemnification against such risk or liability is not reasonably assured to it. -32-18.2 The Company agrees to indemnify the Rights Agent for, and to hold it harmless against, any and all loss, liability, damage,judgment, fine, penalty, claim, demand, settlement, cost or expense (including, without limitation, the fees and expenses of legal counsel), incurredwithout bad faith, gross negligence or willful misconduct on the part of the Rights Agent, (which bad faith, gross negligence or willful misconductmust be determined by a final, non-appealable judgment of a court of competent jurisdiction), for any action taken, suffered, or omitted to be taken bythe Rights Agent in connection with the acceptance, administration, exercise and performance of its duties under this Agreement, including the costsand expenses (including attorneys’ fees and expenses) of defending against any claim (whether asserted by the Company, any holders of Rights or anyother Person) of liability hereunder or arising from enforcing this Agreement. The costs and expenses incurred in enforcing this right of indemnificationshall be paid by the Company. The provisions of this Section 18.2 shall survive the termination of this Agreement, the exercise or expiration of theRights and the resignation, replacement or removal of the Rights Agent.18.3 The Rights Agent shall be authorized and protected against and shall incur no liability for or in respect of any action taken, sufferedor omitted to be taken by it in connection with its acceptance and administration of this Agreement and the exercise and performance of its dutieshereunder in reliance upon any Right Certificate or certificate representing Ordinary Shares of the Company, Preferred Shares, or other securities of theCompany, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, instruction, consent, certificate,statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by theproper Person or Persons, or otherwise upon the advice of counsel. The Rights Agent shall not be deemed to have any knowledge of any event of whichit was supposed to receive notice thereof hereunder, and the Rights Agent shall be fully protected and shall incur no liability for failing to take anyaction in connection therewith unless and until it has received such notice in writing.18.4 Notwithstanding any provision or language of this Agreement that might be construed to suggest the contrary, in no event shall theRights Agent be liable for special, incidental, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited tolost profits), even if the Rights Agent has been advised of the likelihood of the loss or damage and regardless of the form of the action.19. Merger or Consolidation or Change of Name of Rights Agent19.1 Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or anyPerson resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any Person succeeding to theshareholder services or share transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under thisAgreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such Person would beeligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shallsucceed to the agency created by this Agreement, any of the Right Certificates has been countersigned but not delivered, any such successor RightsAgent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that timeany of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the nameof the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full forceprovided in the Right Certificates and in this Agreement. -33-19.2 In case at any time the name of the Rights Agent is changed and at such time any of the Right Certificates have been countersignedbut not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case atthat time any of the Right Certificates have not been countersigned, the Rights Agent may countersign such Right Certificates either in its prior nameor in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.20. Duties of Rights Agent20.1 The Rights Agent undertakes to perform only the duties and obligations expressly imposed by this Agreement (and no impliedduties or obligations shall be read into this Agreement against the Rights Agent) upon the following terms and conditions, by all of which theCompany and the holders of Right Certificates, by their acceptance thereof, shall be bound.20.2 The Rights Agent may consult with legal counsel selected by it (who may be an employee of or outside legal counsel for theCompany or the Rights Agent or otherwise), and the advice or opinion of such counsel shall be full and complete authorization and protection to theRights Agent, and the Rights Agent shall incur no liability for, or in respect of any action taken, suffered or omitted to be taken by it in accordancewith such advice or opinion.20.3 The Rights Agent makes no, and will not be deemed to have made, representations with respect to, and shall have no duties,responsibilities or obligations with respect to determining, the validity, sufficiency, value or genuineness of any Ordinary Shares, Preferred Shares orPreferred Share Equivalents, Rights Certificate or other documents deposited with or delivered to it or any signature or endorsement set forth on or inconnection with such documents.20.4 The Rights Agent shall not be obligated to commence or voluntarily participate in any suit, action or proceeding arising out of orrelated to this Agreement.20.5 Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any factor matter (including, without limitation, the identity of any Acquiring Person and the determination of “Fair Market Value”) be proved or establishedby the Company prior to taking, suffering or omitting to take any action hereunder, such fact or matter (unless other evidence in respect thereof isherein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a Person believed by the RightsAgent to be a duly authorized officer of the Company and delivered to the Rights Agent. Any such certificate shall be full and complete authorizationand protection to the Rights Agent for any action taken, suffered or omitted to be taken by it under the provisions of this Agreement in reliance uponsuch certificate. -34-20.6 The Rights Agent shall be liable hereunder only for its own bad faith, gross negligence or willful misconduct (which bad faith, grossnegligence or willful misconduct must be determined by a final, non-appealable judgment of a court of competent jurisdiction).20.7 The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in theRight Certificates (except its countersignature thereof) or be required to verify or determine the correctness, validity or accurateness of the same, but allsuch statements and recitals are and shall be deemed to have been made by the Company only.20.8 The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it inconnection with its administration of this Agreement in reliance upon any Right Certificate, Receipt or certificate for Ordinary Shares, Preferred Sharesor Preferred Share Equivalents or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit,letter, notice, direction, consent, instruction, adjustment notice, certificate, statement, or other paper or document believed by it to be genuine and tobe signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.20.9 The Rights Agent shall (i) not have any liability for, or be under any responsibility in respect of the validity of this Agreement or theexecution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate(except its countersignature thereof); (ii) not have any liability for or be responsible for any breach by the Company of any covenant or conditioncontained in this Agreement or in any Right Certificate; (iii) not have any liability for or be responsible for any adjustment or change in theexercisability of the Rights (including the Rights becoming void pursuant to Section 7.5 hereof) or any change, adjustment or procedure requiredunder the provisions of Sections 11, 13 or 23.3 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining ofthe existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after theRights Agent’s actual receipt of a certificate describing any such adjustment furnished in accordance with Section 12 hereof), nor shall it beresponsible for any determination by the Board of Directors of the Company of the Fair Market Value of the Rights or Preferred Shares pursuant to theprovisions of Section 14 hereof; (iv) not by any act hereunder be deemed to make any representation or warranty as to the authorization or reservationof any Ordinary Shares of the Company or Preferred Shares or other security to be issued pursuant to this Agreement or any Right Certificate or as towhether any Ordinary Shares of the Company or Preferred Shares or other security will, when so issued, be validly authorized and issued, fully paid andnonassessable, nor shall the Rights Agent be responsible for the legality of the terms hereof in its capacity as an administrative agent.20.10 The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged anddelivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out orperforming by the Rights Agent of the provisions of this Agreement. -35-20.11 The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunderand to accept and rely on any certificates delivered pursuant to any provision hereof from any Person believed by the Rights Agent to be a dulyauthorized officer of the Company, and is authorized to apply to such officers for advice or instructions in connection with its duties, and suchinstructions shall be full authorization and protection to the Rights Agent, and the Rights Agent shall not be liable for or in respect of any action taken,suffered or omitted to be taken by it in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions.The Rights Agent shall be fully authorized and protected in relying upon the most recent instructions received by it from any such officer. Anyapplication by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any actionproposed to be taken, suffered or omitted to be taken by the Rights Agent under this Agreement and the date on and/or after which such action will betaken or such omission will be effective. The Rights Agent shall not be liable for any action taken, suffered or omitted to be taken by the Rights Agentin accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five(5) Business Days after the date any officer of the Company actually receives such application, unless any such officer has consented in writing to anearlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent has received written instructionsfrom the Company in response to such application specifying the action to be taken, suffered or omitted to be taken, or a written objection by theCompany to such proposal.20.12 The Rights Agent shall not have any responsibility in respect of the validity of this Agreement or the execution and deliveryhereto (except the due execution by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignaturethereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any RightCertificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 or responsible for the manner,method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect tothe exercise of Rights evidenced by Right Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to makeany representation or warranty as to the authorization or reservation of any Ordinary Shares, Preferred Shares or Preferred Share Equivalents to be issuedpursuant to this Agreement or any Right Certificate or as to whether any Ordinary Shares, Preferred Shares or Preferred Share Equivalents will, whenissued, be validly authorized and issued, fully paid and non-assessable.20.13 The Rights Agent and any shareholder, director, officer, Affiliate or employee of the Rights Agent may buy, sell or deal in any ofthe Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contractwith or lend money to the Company or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing hereinshall preclude the Rights Agent, or any such shareholder, director, officer, Affiliate or employee from acting in any other capacity for the Company orfor any other legal entity. -36-20.14 The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder eitheritself (through its directors, officers and employees) or by or through its attorneys or agents, subagents, custodians or subcustodians appointed by it,and the Rights Agent shall not be responsible or liable for any act, default, neglect or misconduct of any such attorneys or agents, subagents,custodians or subcustodians or for any loss to the Company or any other Person resulting from any such act, default, neglect or misconduct, absent badfaith, gross negligence or willful misconduct (which bad faith, gross negligence or willful misconduct must be determined by a final, non-appealablejudgment of a court of competent jurisdiction) in the selection and continued employment thereof.20.15 If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the formof assignment or form of election to purchase, as the case may be, has either not been properly completed or duly executed or indicates an affirmativeresponse to clause (1) or clause (2) thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer withoutfirst consulting with the Company. The Company shall give the Rights Agent prompt written instructions as to the action to be taken and the RightsAgent shall not be liable for actions it takes in accordance with such instructions.21. Change of Rights AgentThe Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days’ noticein writing mailed to the Company and to each transfer agent of the Ordinary Shares or Preferred Shares by first class mail and, following theDistribution Date, to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor RightsAgent (with or without cause) upon thirty (30) days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and toeach transfer agent of the Ordinary Shares and the Preferred Shares by registered or certified mail. If the Rights Agent shall resign or be removed or shallotherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointmentwithin a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by theresigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspectionby the Company), then the Company shall become the Rights Agent or the Registered Holder of any Right Certificate may apply, at the expense of theCompany, to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by theCompany or by such a court, shall be (a) a Person organized and doing business under the laws of the United States or of any state thereof, which isauthorized under such laws to exercise share transfer or corporate trust powers or conduct a shareholder services business and is subject to supervisionor examination in the conduct of its share transfer business by federal or state authority and which has at the time of its appointment as Rights Agent acombined capital and surplus of at least $100,000,000 or (b) an Affiliate of a Person described in clause (a) of this sentence. After appointment, thesuccessor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agentwithout further act or deed; but the predecessor Rights Agent, upon payment of its charges hereunder, shall deliver and transfer to the successor RightsAgent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose.Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and eachtransfer agent of the Ordinary Shares of the Company and the Preferred Shares, and, following the Distribution Date, mail a notice thereof in writing tothe Registered Holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall notaffect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.Notwithstanding the foregoing provisions, in the event of resignation, removal or incapacity of the Rights Agent, the Company shall have theauthority to act as the Rights Agent until a successor Rights Agent shall have assumed the duties of the Rights Agent hereunder. -37-22. Issuance of New Right CertificatesNotwithstanding any of the provisions of this Agreement or of the Rights, the Company may, at its option, issue new Right Certificatesevidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Exercise Price per share and thenumber or kind or class of share capital or other securities or property purchasable under the Right Certificates made in accordance with the provisionsof this Agreement. In addition, in connection with the issuance or sale of Ordinary Shares of the Company following the Distribution Date and prior tothe termination or expiration of the Rights, the Company (a) shall, with respect to Ordinary Shares of the Company so issued or sold pursuant to theexercise of share options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities hereafter issued by theCompany, in each case existing prior to the Distribution Date, and (b) may, in any other case, if deemed necessary or appropriate by the Board ofDirectors of the Company, with respect to Ordinary Shares of the Company so issued or sold pursuant to a contractual obligation of the Company ineach case existing prior to the Distribution Date, issue Right Certificates representing the appropriate number of Rights in connection with suchissuance or sale; provided, however, that (i) no such Right Certificate shall be issued if, and to the extent that, the Company is advised by counsel thatsuch issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Right Certificate wouldbe issued, and (ii) no such Right Certificate shall be issued if, and to the extent that, appropriate adjustments have otherwise been made in lieu of theissuance thereof.23. Termination23.1 The Board of Directors of the Company may, at its option, terminate all but not less than all of the then outstanding Rights. TheRights may be terminated only until the earlier to occur of (i) a Section 11.1.2 Event or (ii) the Final Expiration Date. The termination of the Rightsmay be made effective at such time, on such basis and with such conditions as the Board of Directors of the Company in its sole discretion mayestablish.23.2 Immediately upon the action of the Board of Directors ordering the termination of the Rights or such later time as the Board ofDirectors of the Company may establish for the effectiveness of such termination, and without any further action and without any notice, the right toexercise the Rights will terminate. The Company shall promptly give public notice of any such termination; provided, however, that the failure to give,or any defect in, any such notice shall not affect the validity of such termination. Promptly after the action of the Board of Directors ordering thetermination of the Rights or such later time as the Board of Directors of the Company may establish for the effectiveness of such termination, theCompany shall give written notice of such termination to the Rights Agent and the holders of the then outstanding Rights by mailing such notice tothe Rights Agent and to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the DistributionDate, on the registry books of the Transfer Agent for the Ordinary Shares of the Company. Any notice which is mailed in the manner herein providedshall be deemed given, whether or not the holder receives the notice. Neither the Company nor any of its Affiliates or Associates may terminate, acquireor purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or Section 24 hereof or in connectionwith the purchase of Ordinary Shares of the Company prior to the Distribution Date. -38-24. Exchange24.1 The Board of Directors of the Company may, at its option, at any time on or after the Distribution Date, exchange all or partof the then outstanding and exercisable Rights (which shall not include Rights that have become null and void pursuant to the provisions ofSection 7.5 hereof) for Ordinary Shares of the Company at an exchange ratio of one Ordinary Share of the Company per Right, or a fractional PreferredShare (or other preferred share) equivalent in value thereto, appropriately adjusted to reflect any share split, share dividend or similar transactionoccurring after the date hereof (such exchange ratio being hereinafter referred to as the “Section 24.1 Exchange Ratio”). The Rights Agent shall begiven written notice as soon as practicable of any such exchange and the Exchange Ratio pursuant to which such exchange is effected and shall bedeemed to have no knowledge thereof until it receives such notice. Notwithstanding the foregoing, the Board of Directors shall not be empowered toeffect such exchange at any time after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes theBeneficial Owner of 50% or more of the Ordinary Shares of the Company. From and after the occurrence of an event specified in Section 13.1 hereof,any Rights that theretofore have not been exchanged pursuant to this Section 24.1 shall thereafter be exercisable only in accordance with Section 13.1and may not be exchanged pursuant to this Section 24.1. The exchange of the Rights by the Board of Directors of the Company may be made effectiveat such time, on such basis and with such conditions as the Board of Directors of the Company in its sole discretion may establish. Prior to effecting anexchange pursuant to this Section 24, the Board of Directors of the Company may direct the Company to enter into a Trust Agreement in such form andwith such terms as the Board of Directors of the Company shall then approve (the “Trust Agreement”). If the Board of Directors of the Company sodirects, the Company shall enter into the Trust Agreement and shall issue to the trust created by such agreement (the “Trust”) all of the Ordinary Sharesissuable pursuant to the exchange, and all Persons entitled to receive shares pursuant to the exchange shall be entitled to receive such shares (and anydividends or distributions made thereon after the date on which such shares are deposited in the Trust) only from the Trust and solely upon compliancewith the relevant terms and provisions of the Trust Agreement. -39-24.2 Immediately upon the effectiveness of the action of the Board of Directors of the Company authorizing the exchange of any Rightspursuant to Section 24.1 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only rightthereafter of a holder of such Rights shall be to receive that number of Ordinary Shares of the Company equal to the number of such Rights held bysuch holder multiplied by the Section 24.1 Exchange Ratio. The Company shall promptly give public notice of any such exchange, and the RightsAgent shall be given prompt written notice of any such exchange (and until such written notice is received by the Rights Agent, the Rights Agent mayassume conclusively that no such exchange has occurred); provided, however, that the failure to give, or any defect in, such notice shall not affect thevalidity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addressesas they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whetheror not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Ordinary Shares for Rights willbe effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro ratabased on the number of Rights (other than Rights which have become null and void pursuant to the provisions of Section 7.5 hereof) held by eachholder of Rights.24.3 In any exchange pursuant to this Section 24, the Company, at its option, may substitute Preferred Shares (or Preferred ShareEquivalent, as such term is defined in Section 11.2 hereof) for Ordinary Shares of the Company exchangeable for Rights, at the initial rate of oneone-thousandth of a Preferred Share (or Preferred Share Equivalent) for each Ordinary Share of the Company, as appropriately adjusted to reflectadjustments in the voting rights of the Preferred Share pursuant to the terms thereof, so that the fraction of a Preferred Share delivered in lieu of eachOrdinary Share of the Company shall have the same voting rights as one Ordinary Share of the Company.24.4 In the event that there are not sufficient Ordinary Shares of the Company or Preferred Shares (or Preferred Share Equivalent) issuedbut not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Companyshall take all such action as may be necessary to authorize additional Ordinary Shares of the Company or Preferred Shares (or Preferred ShareEquivalent) for issuance upon exchange of the Rights.24.5 The Company shall not be required to issue fractions of Ordinary Shares of the Company or to distribute certificates which evidencefractional Ordinary Shares of the Company. If the Company elects not to issue such fractional Ordinary Shares of the Company, the Company shall pay,in lieu of such fractional Ordinary Shares of the Company, to the Registered Holders of the Right Certificates with regard to which such fractionalOrdinary Shares of the Company would otherwise be issuable, an amount in cash equal to the same fraction of the Fair Market Value of a wholeOrdinary Share of the Company. For the purposes of this Section 24.5, the Fair Market Value of a whole Ordinary Share of the Company shall be theclosing price of an Ordinary Share of the Company (as determined pursuant to the second sentence of Section 11.4.1 hereof) for the Trading Dayimmediately prior to the date of exchange pursuant to this Section 24. -40-25. Notice of Certain Events25.1 In case the Company proposes, at any time after the earlier of the Distribution Date or the Share Acquisition Date, to (a) pay anydividend payable in share of any class to the holders of Preferred Shares or to make any other distribution to the holders of Preferred Shares (other thana regular periodic cash dividend), (b) offer to the holders of Preferred Shares rights or warrants to subscribe for or to purchase any additional PreferredShares or shares of any other class or any other securities, rights or options, (c) effect any reclassification of its Preferred Shares (other than areclassification involving only the subdivision or combination of outstanding Preferred Shares), (d) effect any consolidation or merger into or with, orto effect any sale, mortgage or other transfer (or to permit one or more of its Subsidiaries to effect any sale, mortgage or other transfer), in onetransaction or a series of related transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to,any other Person (other than a Subsidiary of the Company in one or more transactions each of which is not prohibited by the proviso at the end of thefirst sentence of Section 11.14 hereof), (e) effect the liquidation, dissolution or winding up of the Company, or (f) pay any dividend on the OrdinaryShares of the Company payable in Ordinary Shares of the Company or to effect a subdivision, combination or consolidation of the Ordinary Shares ofthe Company (by reclassification or otherwise than by payment of dividends in Ordinary Shares of the Company) then in each such case, the Companyshall give to each holder of a Right Certificate and to the Rights Agent (the Rights Agent shall be deemed to have no knowledge of such event untilsuch written notice is received), in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for thepurposes of such share dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer,liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Ordinary Shares of the Companyand/or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above atleast twenty (20) days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and in the case of any suchother action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of theOrdinary Shares of the Company and/or Preferred Shares, whichever is earlier; provided, however, no such notice shall be required pursuant to thisSection 25 as a result of any Subsidiary of the Company effecting a consolidation or merger with or into, or effecting a sale or other transfer of assets orearnings power to, any other Subsidiary of the Company in a manner not inconsistent with the provisions of this Agreement. The failure to give noticerequired by this Section 25.1 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon anysuch action.25.2 In case any Section 11.1.2 Event shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to eachRegistered Holder of a Right Certificate and to the Rights Agent (the Rights Agent shall be deemed to have no knowledge of such event until suchwritten notice is received), in accordance with Section 26 hereof, a notice of the occurrence of such event, which shall specify the event and theconsequences of the event to holders of Rights under Section 11.1.2 hereof. -41-26. NoticesNotices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on theCompany shall be sufficiently given or made if in writing and sent by fax to the numbers set for below or by internationally recognized express courieraddressed (until another address is filed in writing with the Rights Agent) as follows:Sohu.com LimitedSohu.com Media PlazaBlock 3No. 2 Kexueyuan South RoadHaidian DistrictBeijing 100190, People’s Republic of ChinaAttention: Chief Financial OfficerEmail: joannalu@sohu-inc.comwith a copy to:Goulston & Storrs PC400 Atlantic AvenueBoston, Massachusetts 02110Attn: Timothy B. Bancroft, Esq.Email: tbancroft@goulstonstorrs.comSubject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by theholder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if in writing and sent by first-class mail, postage prepaid,by facsimile transmission or by nationally-recognized overnight courier addressed (until another address is filed in writing with the Company) asfollows:The Bank of New York Mellon240 Greenwich Street, 22 WestBNY Mellon Depositary ReceiptsNew York, New York 10286Attention: Sohu RM TeamGlobal Client SolutionsNotices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificateshall be sufficiently given or made if in writing and sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder asshown on the registry books of the Company.27. Supplements and Amendments -42-For so long as the Rights are then terminable, the Company may in its sole and absolute discretion, and the Rights Agent shall, if the Companyso directs, supplement or amend any provision of this Agreement as the Company may deem necessary or desirable without the approval of any holdersof Rights. At any time when the Rights are no longer terminable, except as provided in the penultimate sentence of this Section 27, the Company may,and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights, providedthat no such supplement or amendment may (a) adversely affect the interests of the holders of Rights as such (other than an Acquiring Person or anAffiliate or Associate of an Acquiring Person), (b) cause this Agreement again to become amendable other than in accordance with this sentence or(c) cause the Rights again to become terminable. Upon the delivery of a certificate from an appropriate officer of the Company which states that thesupplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment, providedthat any supplement or amendment that does not amend Sections 18, 19, 20 or 21 hereof or this Section 27 in a manner adverse to the Rights Agentshall become effective immediately upon execution by the Company, whether or not also executed by the Rights Agent.28. SuccessorsAll of the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to thebenefit of their respective successors and assigns hereunder.29. Determinations and Actions by the Board of DirectorsFor all purposes of this Agreement, any calculation of the number of Ordinary Shares of the Company outstanding at any particular time,including for purposes of determining the particular percentage of such outstanding Ordinary Shares of the Company of which any Person is theBeneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the Rules under the Exchange Act as in effect on the datehereof. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights andpowers specifically granted to the Board of Directors or to the Company, or as may be necessary or advisable in the administration of this Agreement,including without limitation, the right and power to (a) interpret the provisions of this Agreement and (b) make all determinations deemed necessary oradvisable for the administration of this Agreement (including a determination to terminate or not terminate the Rights or to amend the Agreement). Allsuch actions, calculations, interpretations and determinations (including, for purposes of clause (ii) below, all omissions with respect to the foregoing)which are done or made by the Board of Directors in good faith shall be final, conclusive and binding on the Company, the Rights Agent, the holdersof the Rights and all other parties. Notwithstanding any provision or language of this Agreement that might be construed to suggest the contrary, for allpurposes of this Agreement, (a) the Rights Agent is entitled always to assume that the Board of Directors of the Company acted in good faith and shallbe fully protected and incur no liability in reliance thereon and (b) all determinations made by the Board of Directors in accordance with thisAgreement shall be binding on the Rights Agent. -43-30. Benefits of this AgreementNothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the Registered Holders of theRight Certificates (and, prior to the Distribution Date, the Ordinary Shares of the Company) any legal or equitable right, remedy or claim under thisAgreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the Registered Holders of the RightCertificates (and, prior to the Distribution Date, Registered Holders of the Ordinary Shares of the Company).31. SeverabilityIf any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, voidor unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall inno way be affected, impaired or invalidated; provided, that if any such excluded term, provision, covenant or restriction shall adversely affect therights, immunities, duties or obligations of the Rights Agent, notwithstanding any provision or language of this Agreement that might be construed tosuggest the contrary, the Rights Agent shall be entitled to resign immediately.32. Governing Law; Jurisdiction; Jury Trial WaiverThis Agreement, each Right and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of NewYork, U.S.A. and for all purposes shall be governed by and construed and enforced in accordance with the laws of such state applicable to contracts tobe made and to be performed entirely within such state. Notwithstanding anything contained herein, the rights of holders of Ordinary Shares, thePreferred Shares or Preferred Share Equivalents, as such, and the obligations and duties of the Company in respect of the holders of Ordinary Shares, thePreferred Shares, and Preferred Share Equivalents, as such, shall be governed by the laws of the Cayman Islands (or, if applicable, such other laws asmay govern such Ordinary Shares, the Preferred Shares, or Preferred Share Equivalents) and if and to the extent that the laws of the Cayman Islandsapply to the holders of Rights, the holders shall be entitled to enforce this Agreement pursuant to the Cayman Islands Contracts (Rights of ThirdParties) Law. All actions and proceedings brought by or against the Rights Agent relating to or arising from, directly or indirectly, this Agreement maybe litigated in any state or federal court in the State of New York and the Company hereby submits to the personal jurisdiction of such courts andconsents that any service of process may be made by certified or registered mail, return receipt requested, directed to the Company at its address lastspecified for notices hereunder. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLELAW, THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. -44-33. CounterpartsThis Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original,and all such counterparts shall together constitute but one and the same instrument.34. Descriptive HeadingsDescriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning orconstruction of any of the provisions hereof.35. Force MajeureNotwithstanding any provision or language of this Agreement that might be construed to suggest the contrary, the Rights Agent shall not incurany liability for not performing, or a delay in the performance of, any act, duty, obligation or responsibility by reason of any occurrence beyond thereasonable control of the Rights Agent (including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions,interruptions or malfunctions or computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrievalsystems, labor difficulties, war or civil unrest).36. MiscellaneousThe Company acknowledges that the Rights Agent is subject to the customer identification program (“Customer Identification Program”)requirements under the USA PATRIOT Act and its implementing regulations, and that the Rights Agent must obtain, verify and record information thatallows the Rights Agent to identify the Company. Accordingly, prior to accepting an appointment hereunder, the Rights Agent may requestinformation from the Company that will help the Rights Agent to identify the Company, including without limitation the Company’s physical address,tax identification number, organizational documents, certificate of good standing, license to do business, or any other information that the RightsAgent deems necessary. The Company agrees that the Rights Agent cannot accept an appointment hereunder unless and until the Rights Agent verifiesthe Company’s identity in accordance with the Customer Identification Program requirements.SIGNATURE PAGE FOLLOWS -45-IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. SOHU.COM LIMITEDBy: Name: Title:THE BANK OF NEW YORK MELLON, as Rights AgentBy: Name: Title: -46-EXHIBIT AFORM OFCERTIFICATE OF DESIGNATIONOFSERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED SHARESOFSOHU.COM LIMITED Exhibit A - Page 1DESIGNATIONS, POWERS, PREFERENCES, AND RELATIVE, PARTICIPATING,OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,LIMITATIONS OR RESTRICTIONS THEREOF,OFSERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED SHARESOFSOHU.COM LIMITEDSection 1. Designation and Amount. The shares of such series shall be designated as “Series A Junior Participating Cumulative Preferred Shares,”$.001 par value, (hereinafter called “Series A Preferred Shares”), and the number of shares initially constituting such series shall be 200,000. Suchnumber of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number ofSeries A Preferred Shares to a number less than that of the shares then outstanding plus the number of Series A Preferred Shares issuable upon exerciseof outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Company.Section 2. Dividends and Distributions.(A) (i) Subject to the rights of the holders of any shares of any class or series of share capital ranking prior and superior to the Series APreferred Shares with respect to dividends, the holders of Series A Preferred Shares, in preference to the holders of ordinary shares, par value $0.001 pershare, of the Company (the “Ordinary Shares”) and of any other class or series of share ranking junior to the Series A Preferred Shares, shall be entitledto receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on thefirst day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”),commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a Series A Preferred Share, in an amount pershare (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions for adjustment hereinafter set forth, 1,000 times theaggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or otherdistributions other than a dividend payable in Ordinary Shares or a subdivision of the outstanding Ordinary Shares (by reclassification or otherwise),declared on the Ordinary Shares since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly DividendPayment Date, since the first issuance of any share or fraction of a Series A Preferred Share. The multiple of cash and non-cash dividends declared onthe Ordinary Shares to which holders of the Series A Preferred Shares are entitled, which shall be 1,000 initially but which shall be adjusted from timeto time as hereinafter provided, is hereinafter referred to as the “Dividend Multiple.” In the event the Company at any time after January 14, 2019 (the“Rights Declaration Date”) (i) declares and pays any dividend on the Ordinary Shares payable in Ordinary Shares, or (ii) effects a subdivision orcombination or consolidation of the outstanding Ordinary Shares (by reclassification or otherwise than by payment of a dividend in Ordinary Shares)into a greater or lesser number of Ordinary Shares, then in each such case the Dividend Multiple thereafter applicable to the determination of theamount of dividends which holders of Series A Preferred Shares shall be entitled to receive shall be the Dividend Multiple applicable immediatelyprior to such event multiplied by a fraction, the numerator of which is the number of Ordinary Shares outstanding immediately after such event and thedenominator of which is the number of Ordinary Shares that were outstanding immediately prior to such event. Exhibit A - Page 2(ii) Notwithstanding anything else contained in this paragraph (A), the Company shall, out of funds legally available for thatpurpose, declare a dividend or distribution on the Series A Preferred Shares as provided in this paragraph (A) immediately after it declares a dividend ordistribution on the Ordinary Shares (other than a dividend payable in Ordinary Shares); provided that, in the event no dividend or distribution has beendeclared on the Ordinary Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly DividendPayment Date, a dividend of $1.00 per share on the Series A Preferred Shares shall nevertheless be payable on such subsequent Quarterly DividendPayment Date.(B) Dividends shall begin to accrue and be cumulative on outstanding Series A Preferred Shares from the Quarterly Dividend PaymentDate next preceding the date of issue of such Series A Preferred Shares, unless the date of issue of such shares is prior to the record date for the firstQuarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the dateof issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series A Preferred Shares entitled toreceive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and becumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the Series A PreferredShares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on ashare-by-share basis among all such shares at the time outstanding. The Board of Directors may fix in accordance with applicable law a record date forthe determination of holders of Series A Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record dateshall be not more than such number of days prior to the date fixed for the payment thereof as may be allowed by applicable law.Section 3. Voting Rights. In addition to any other voting rights required by law, the holders of Series A Preferred Shares shall have the followingvoting rights:(A) Subject to the provision for adjustment hereinafter set forth, each Series A Preferred Share shall entitle the holder thereof to 1,000votes on all matters submitted to a vote of the shareholders of the Company. The number of votes which a holder of a Series A Preferred Share isentitled to cast, which shall initially be 1,000 but which may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the“Vote Multiple.” In the event the Company at any time after the Rights Declaration Date (i) declares or pay any dividend on Ordinary Shares payablein Ordinary Shares, or (ii) effects a subdivision or combination or consolidation of the outstanding Ordinary Shares (by reclassification or otherwisethan by payment of a dividend in Ordinary Shares) into a greater or lesser number of Ordinary Shares, then in each such case the Vote Multiplethereafter applicable to the determination of the number of votes per share to which holders of Series A Preferred Shares are entitled shall be the VoteMultiple immediately prior to such event multiplied by a fraction, the numerator of which is the number of Ordinary Shares outstanding immediatelyafter such event and the denominator of which is the number of Ordinary Shares that were outstanding immediately prior to such event. Exhibit A - Page 3(B) Except as otherwise provided herein or by law, the holders of Series A Preferred Shares and the holders of Ordinary Shares and theholders of any other share capital of this Company having general voting rights, shall vote together as one class on all matters submitted to a vote ofshareholders of the Company.(C) Except as otherwise required by applicable law or as set forth herein, holders of Series A Preferred Shares shall have no special votingrights and their consent shall not be required (except to the extent they are entitled to vote with holders of Ordinary Shares as set forth herein) fortaking any corporate action.Section 4. Certain Restrictions.(A) Whenever dividends or distributions payable on the Series A Preferred Shares as provided in Section 2 are in arrears, thereafter and untilall accrued and unpaid dividends and distributions, whether or not declared, on Series A Preferred Shares outstanding have been paid in full, theCompany shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration anyshare capital ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares other than (I) suchredemptions or purchases that may be deemed to occur upon the exercise of share options, warrants or similar rights or grant, vesting or lapse ofrestrictions on the grant of any other performance shares, restricted share, restricted share units or other equity awards to the extent that such sharesrepresent all or a portion of (x) the exercise or purchase price of such options, warrants or similar rights or other equity awards and (y) the amount ofwithholding taxes owed by the recipient of such award in respect of such grant, exercise, vesting or lapse or restrictions and (II) the repurchase,redemption, or other acquisition or retirement for value of any such shares from employees, former employees, directors, former directors, consultants orformer consultants of the Company or their respective estate, spouse, former spouse or family member, pursuant to the terms of the agreements pursuantto which such shares were acquired; (ii) declare or pay dividends on or make any other distributions on any share capital ranking on a parity (either asto dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Shares, except dividends paid ratably on the Series A PreferredShares and all such parity share on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such sharesare then entitled; (iii) except as permitted in subsection 4(A)(iv) below, redeem, purchase or otherwise acquire for consideration any share capitalranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Shares, provided that theCompany may at any time redeem, purchase or otherwise acquire any such parity share in exchange for any share capital of the Company rankingjunior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Shares; or (iv) purchase or otherwise acquire forconsideration any Series A Preferred Shares, or any share capital ranking on a parity (either as to dividends or upon liquidation, dissolution or windingup) with the Series A Preferred Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the Board ofDirectors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and otherrelative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among therespective series or classes. Exhibit A - Page 4(B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any share capital ofthe Company unless the Company could, under subsection (A) of this Section 4, purchase or otherwise acquire such shares at such time and in suchmanner.Section 5. Reacquired Shares. Any Series A Preferred Shares purchased or otherwise acquired by the Company in any manner whatsoever shallbe cancelled. Any Series A Preferred Shares so cancelled shall not reduce the authorized share capital of the Company and may be reissued as part of anew series of preferred shares to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuanceset forth herein.Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Company,no distribution shall be made (a) to the holders of share capital ranking junior (either as to dividends or upon liquidation, dissolution or winding up) tothe Series A Preferred Shares unless, prior thereto, the holders of Series A Preferred Shares have received an amount equal to accrued and unpaiddividends and distributions thereon, whether or not declared, to the date of such payment, plus an amount equal to the greater of (1) $1,000.00 pershare or (2) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to bedistributed per share to holders of Ordinary Shares, or (b) to the holders of share ranking on a parity (either as to dividends or upon liquidation,dissolution or winding up) with the Series A Preferred Shares, except distributions made ratably on the Series A Preferred Shares and all other suchparity share in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. Inthe event the Company at any time after the Rights Declaration Date (i) declares or pays any dividend on Ordinary Shares payable in Ordinary Shares,or (ii) effects a subdivision or combination or consolidation of the outstanding Ordinary Shares (by reclassification or otherwise than by payment of adividend in Ordinary Shares) into a greater or lesser number of Ordinary Shares, then in each such case the aggregate amount per share to which holdersof Series A Preferred Shares were entitled immediately prior to such event under clause (a) of this paragraph shall be adjusted by multiplying suchamount by a fraction, the numerator of which is the number of Ordinary Shares outstanding immediately after such event and the denominator of whichis the number of Ordinary Shares that were outstanding immediately prior to such event.In the event, however, that there are not sufficient assets available to permit payment in full of the liquidation preference provided for above andthe liquidation preferences of all other classes and series of share of the Company, if any, that rank on a parity with the Series A Preferred Shares inrespect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Preferred Shares and the holdersof such parity shares in proportion to their respective liquidation preferences. Exhibit A - Page 5Neither the consolidation of nor merging of the Company with or into any other corporation or corporations, nor the sale or other transfer of all orsubstantially all of the assets of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning ofthis Section 6.Section 7. Consolidation, Merger, etc. In case the Company enters into any consolidation, merger, combination or other transaction in which theoutstanding Ordinary Shares are cancelled or exchanged for or changed into other shares or securities, cash and/or any other property, then in any suchcase the Series A Preferred Shares shall at the same time be similarly cancelled or exchanged for or changed in an amount per share (subject to theprovision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of shares, securities, cash and/or any other property (payablein kind), as the case may be, into which or for which each Ordinary Share is cancelled or changed or exchanged, plus accrued and unpaid dividends, ifany, payable with respect to the Series A Preferred Shares. In the event the Company at any time after the Rights Declaration Date (i) declares or paysany dividend on Ordinary Shares payable in Ordinary Shares, or (ii) effects a subdivision or combination or consolidation of the outstanding OrdinaryShares (by reclassification or otherwise than by payment of a dividend in Ordinary Shares) into a greater or lesser number of Ordinary Shares, then ineach such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Preferred Shares shall be adjusted bymultiplying such amount by a fraction, the numerator of which is the number of Ordinary Shares outstanding immediately after such event and thedenominator of which is the number of Ordinary Shares that were outstanding immediately prior to such event.Section 8. Redemption. The Series A Preferred Shares shall not be redeemable; provided, however, that the foregoing shall not limit the ability ofthe Company to purchase or otherwise deal in such shares to the extent otherwise permitted hereby and by law.Section 9. Ranking. Unless otherwise provided in the Memorandum of Association and Articles of Association of the Company, as in effect fromtime to time, or in the rights attached to a subsequently-designated series of preferred shares of the Company, the Series A Preferred Shares shall rankjunior to any other series of the Company’s preferred shares subsequently issued, as to the payment of dividends and the distribution of assets onliquidation, dissolution or winding up and shall rank senior to the Ordinary Shares.Section 10. Amendment. The Memorandum of Association and the Articles of Association of the Company, as in effect from time to time, andthis Certificate of Designation may not be amended in any manner that would materially alter or change the powers, preferences or special rights of theSeries A Preferred Shares so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding Series APreferred Shares, voting separately as a class.Section 11. Fractional Shares. Series A Preferred Shares may be issued in whole shares or in any fraction of a share that is one one-thousandth(1/1,000) of a share or any integral multiple of such fraction, which shall entitle the holder, in proportion to such holder’s fractional shares, to exercisevoting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Shares. In lieu offractional shares, the Company may elect to make a cash payment as provided in the Rights Agreement for fractions of a share other than oneone-thousandth (1/1,000) of a share or any integral multiple thereof. Exhibit A - Page 6EXHIBIT BFORM OF RIGHT CERTIFICATE Certificate No. R- Number Rights NOT EXERCISABLE AFTER JANUARY 13, 2029 OR EARLIER IF NOTICE OF TERMINATION IS GIVEN. THE RIGHTS ARE SUBJECT TOTERMINATION, AT THE OPTION OF SOHU.COM LIMITED, ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS AGREEMENTBETWEEN SOHU.COM LIMITED AND THE BANK OF NEW YORK MELLON, AS RIGHTS AGENT, DATED AS OF JANUARY 14, 2019 (THE“RIGHTS AGREEMENT”). UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN SECTION 7.5 OF THE RIGHTS AGREEMENT, RIGHTSBENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON (AS SUCH TERMS AREDEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID AND WILLNO LONGER BE TRANSFERABLE.SOHU.COM LIMITEDRIGHT CERTIFICATEThis certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitlesthe owner thereof, subject to the terms, provisions and conditions of the Shareholder Rights Agreement dated as of January 14 , 2019 (as amended fromtime to time, the “Rights Agreement”) between SOHU.COM LIMITED (the “Company”) and The Bank of New York Mellon, a New York bankingcorporation, as Rights Agent (the “Rights Agent”), to purchase from the Company at any time after the Distribution Date (as such term is defined in theRights Agreement) and prior to the close of business on January 13 , 2029 at the office or offices of the Rights Agent designated for such purpose, or itssuccessors as Rights Agent, one one-thousandth of a fully paid, non-assessable share of Series A Junior Participating Cumulative Preferred Shares (the“Preferred Shares”) of the Company, at a purchase price of $200 per one one-thousandth of a share (the “Exercise Price”), upon presentation andsurrender of this Right Certificate with the Form of Election to Purchase and the related Certification properly completed and duly executed,accompanied by a signature guarantee and such other documents as the Rights Agent may require. The number of Rights evidenced by this RightCertificate (and the number of one one-thousandths of a Preferred Share which may be purchased upon exercise thereof) set forth above, and theExercise Price per share set forth above, are the number and Exercise Price as of January 14 , 2019 based on the Preferred Shares as constituted at suchdate.Upon the occurrence of a Section 11.1.2 Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this RightCertificate are beneficially owned by (a) an Acquiring Person, or an Affiliate or Associate of any such Person (as such terms are defined in the RightsAgreement), (b) a transferee of any such Acquiring Person or an Associate or Affiliate of any such Acquiring Person or (c) under certain circumstancesspecified in the Rights Agreement, a transferee of a Person who, after such transfer, became an Acquiring Person or an Affiliate or Associate of anAcquiring Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after theoccurrence of such Section 11.1.2 Event. Exhibit B - Page 1As provided in the Rights Agreement, the Exercise Price and the number of one one-thousandth of a Preferred Share or other securities which maybe purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening ofcertain events.This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditionsare hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of therights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates,which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in theRights Agreement. Copies of the Rights Agreement are on file at the principal office of the Company and are available upon written request to theCompany.This Right Certificate, with or without other Right Certificates, upon surrender at the office or offices of the Rights Agent designated for suchpurpose, may be exchanged for another Right Certificate or Certificates of like tenor and date evidencing Rights entitling the holder to purchase a likeaggregate number of Preferred Shares as the Rights evidenced by the Right Certificate or Certificates surrendered had entitled such holder to purchase.If this Right Certificate is exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Certificates for thenumber of whole Rights not exercised. If this Right Certificate is exercised in whole or in part pursuant to Section 11.1.2 of the Rights Agreement, theholder shall be entitled to receive this Right Certificate duly marked to indicate that such exercise has occurred as set forth in the Rights Agreement.Under certain circumstances, subject to the provisions of the Rights Agreement, the Board of Directors of the Company at its option mayexchange all or any part of the Rights evidenced by this Right Certificate for shares of the Company’s Ordinary Shares or Preferred Shares at anexchange ratio (subject to adjustment) of one Ordinary Share or one one-thousandth of a Preferred Share per Right.Subject to the provisions of the Rights Agreement, the Rights evidenced by this Right Certificate may be terminated by the Board of Directors ofthe Company at its option.The Company is not obligated to issue fractional shares of share upon the exercise of any Right or Rights evidenced hereby (other than fractionswhich are integral multiples of one one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by depositaryreceipts). If the Company elects not to issue such fractional shares, in lieu thereof a cash payment will be made, as provided in the Rights Agreement. Exhibit B - Page 2No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of PreferredShares, Ordinary Shares or any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything containedin the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any rightto vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to anycorporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receivedividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate have been exercised as provided in theRights Agreement.This Right Certificate shall not be valid or obligatory for any purpose until it has been countersigned by an authorized signatory of the RightsAgent. Exhibit B - Page 3WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Corporate Seal SOHU.COM LIMITED COUNTERSIGNED: By: THE BANK OF NEW YORK MELLON Name: Title: By: Attest: Authorized Signatory Date of countersignature: Name: Title: Exhibit B - Page 4Form of Reverse Side of Right CertificateFORM OF ASSIGNMENT(To be executed by the Registered Holder if suchholder desires to transfer the Right Certificate.)FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) theRights evidenced by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint as Attorney, to transfer the within Rights on the books of the within-named Company, with full power ofsubstitution.Dated:Signature: Printed name: Signatures must be guaranteed by a participant in a Medallion Signature Guarantee Program at a guarantee level acceptable to the Company’sRights Agent.Signature Guaranteed: Exhibit B - Page 5CERTIFICATIONThe undersigned hereby certifies by checking the appropriate boxes that:(1) the Rights evidenced by this Right Certificate are are not being transferred by or on behalf of a Person who is or was an AcquiringPerson or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement); and(2) after due inquiry and to the best knowledge of the undersigned, the undersigned did did not directly or indirectly acquire the Rightsevidenced by this Right Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of any such Person.Dated:Signature: Printed name: Exhibit B - Page 6NOTICEThe signature to the foregoing Assignment and Certification must correspond to the name as written upon the face of this Right Certificate inevery particular, without alteration or enlargement or any change whatsoever. Exhibit B - Page 7FORM OF ELECTION TO PURCHASE(To be executed if holder desires to exercise the Right Certificate.)To SOHU.COM LIMITEDThe undersigned hereby irrevocably elects to exercise Rights represented by this Right Certificate to purchase the Preferred Sharesissuable upon the exercise of the Rights (or such other securities of the Company or of any other Person which may be issuable upon the exercise of theRights) and requests that certificates for such shares be issued in the name of :Please insert social security or other identifying taxpayer number: (Please print name and address)If such number of Rights shall not be all the Rights evidenced by this Right Certificate or if the Rights are being exercised pursuant toSection 11.1.2 of the Rights Agreement, a new Right Certificate for the balance of such Rights shall be registered in the name of and deliveredto : Please insert social security or other identifying taxpayer number:Please insert social security or other identifying taxpayer number: (Please print name and address)Signature: Signatures must be guaranteed by a participant in a Medallion Signature Guarantee Program at a guarantee level acceptable to the Company’sRights Agent.Signature Guaranteed: Exhibit B - Page 8CERTIFICATEThe undersigned hereby certifies by checking the appropriate boxes that:(1) the Rights evidenced by this Right Certificate are are not being exercised by or on behalf of a Person who is or was an AcquiringPerson or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement); and(2) after due inquiry and to the best knowledge of the undersigned, the undersigned did did not directly or indirectly acquire the Rightsevidenced by this Right Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of any such Person.Dated:Signature: Printed name: Exhibit B - Page 9NOTICEThe signature to the foregoing Election to Purchase and Certification must correspond to the name as written upon the face of this RightCertificate in every particular, without alteration or enlargement or any change whatsoever. Exhibit B - Page 10Exhibit CUNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANYPERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREESTHEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.SUMMARY OF RIGHTS TO PURCHASEPREFERRED SHARES OFSOHU.COM LIMITEDOn January 11, 2019, the Board of Directors of Sohu.com Limited (the “Company”) authorized and declared the granting of one preferred sharepurchase right (a “Right”) for each outstanding Ordinary Share, par value $0.001 per share, of the Company (the “Ordinary Shares”). The grant is madeas of January 14, 2019 (the “Record Date”) to the Registered Holders of Ordinary Shares on that date. Each Right entitles the Registered Holder topurchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Shares, par value $0.001 per share, ofthe Company (the “Preferred Shares”) at a price of $200 per one one-thousandth of a Preferred Share (the “Exercise Price”), subject to adjustment. Thedescription and terms of the Rights are set forth in a Rights Agreement dated as of January 14 , 2019, as the same may be amended from time to time(the “Rights Agreement”), between the Company and The Bank of New York Mellon, a New York banking corporation, as Rights Agent (the “RightsAgent”).Until the earlier to occur of (a) the close of business on the tenth business day after a public announcement that a Person or group of affiliated orassociated Persons (with certain exceptions, an “Acquiring Person”) has acquired beneficial ownership of 15% or more of the outstanding OrdinaryShares or (b) the Close of Business on the tenth Business Day (or such other calendar day, if any, as the Board of Directors may determine in its solediscretion) after the date a tender or exchange offer by any Person, other than an Exempt Person, is first published or sent or given within the meaningof Rule 14d-4(a) of the Exchange Act, or any successor rule, if, upon consummation thereof, such Person would be the Beneficial Owner of 15% ormore of the Ordinary Shares then outstanding (including any such date which is after the date of the Rights Agreement and prior to the issuance of theRights) (the earlier of such dates being herein referred to as the “Distribution Date”), (i) the Rights will be evidenced, with respect to any of theOrdinary Share certificates outstanding as of the Record Date, by such certificate together with this Summary of Rights and (ii) the Rights will betransferable only in connection with the transfer of the underlying Ordinary Shares of the Company.Until the Distribution Date (or earlier expiration of the Rights), new Ordinary Share certificates issued after the Record Date upon transfer or newissuances of Ordinary Shares will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or the earlierexpiration or termination of the Rights), the transfer of any of the certificates for the Ordinary Shares (or any Book Entry Ordinary Shares) outstandingprior to the date of the Rights Agreement shall also constitute the transfer of the Rights associated with the Ordinary Shares of the Company (or anyBook Entry Ordinary Shares) represented by such certificate. Promptly after the Distribution Date, separate certificates evidencing the Rights (“RightCertificates”) will be mailed to the Registered Holders of the Ordinary Shares as of the close of business on the Distribution Date and such separateRight Certificates alone will evidence the Rights. Exhibit C - Page 11The Rights are not exercisable until the Distribution Date. The Rights will expire on January 13 , 2029 (the “Final Expiration Date”), unless theFinal Expiration Date is advanced or extended or unless the Rights are earlier terminated or exchanged by the Company, in each case as describedbelow, or upon the occurrence of certain transactions.The Exercise Price payable, and the number of Preferred Shares or other securities or property issuable, upon exercise of the Rights is subject toadjustment from time to time to prevent dilution (i) in the event of a share dividend on, or a subdivision, combination or reclassification of, thePreferred Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights or warrants to subscribe for or purchase Preferred Shares at a price,or securities convertible into Preferred Shares with a conversion price, less than the then-current market price of the Preferred Shares or (iii) upon thedistribution to holders of the Preferred Shares of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payablein Preferred Shares) or of subscription rights or warrants (other than those referred to above).The number of outstanding Rights is subject to adjustment in the event of a share dividend on the Ordinary Shares payable in Ordinary Shares orsubdivisions, consolidations or combinations of the Ordinary Shares occurring, in any such case, prior to the Distribution Date.Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled, when, as and if declared,to a minimum preferential quarterly dividend payment of the greater of (a) $1.00 per share, and (b) subject to the provisions for adjustment, 1,000 timesthe aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends orother distributions other than a dividend payable in Ordinary Shares or a subdivision of the outstanding Ordinary Shares (by reclassification orotherwise), declared on the Ordinary Shares since the immediately preceding quarterly dividend payment date. Each Preferred Share will have 1,000votes, voting together with the Ordinary Shares. Finally, in the event of any merger, consolidation or other transaction in which outstanding OrdinaryShares are converted or exchanged, each Preferred Share will be entitled to receive 1,000 times the amount received per Ordinary Share. These rightsare protected by customary antidilution provisions.Because of the nature of the Preferred Shares’ dividend, liquidation and voting rights, the value of the one one-thousandth interest in a PreferredShare purchasable upon exercise of each Right should approximate the value of one Ordinary Share. Exhibit C - Page 12In the event that any Person or group of affiliated or associated Persons becomes an Acquiring Person, each holder of a Right, other than Rightsbeneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right thatnumber of Ordinary Shares having a market value of two times the exercise price of the Right.In the event that, after a Person or group has become an Acquiring Person, the Company is acquired in a merger or other business combinationtransaction or 50% or more of its consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Right (otherthan Rights beneficially owned by an Acquiring Person which will have become void) will thereafter have the right to receive upon the exercise of aRight that number of ordinary shares of the Person with whom the Company has engaged in the foregoing transaction (or its parent) that at the time ofsuch transaction have a market value of two times the exercise price of the Right.At any time after any Person or group becomes an Acquiring Person and prior to the earlier of one of the events described in the previousparagraph or the acquisition by such Acquiring Person of 50% or more of the outstanding Ordinary Shares, the Board of Directors of the Company mayexchange the Rights (other than Rights owned by such Acquiring Person which will have become void), in whole or in part, for Ordinary Shares orPreferred Shares (or a series of the Company’s preferred share having equivalent rights, preferences and privileges), at an exchange ratio of oneOrdinary Share, or a fractional Preferred Share (or other preferred share) equivalent in value thereto, per Right.With certain exceptions, no adjustment in the Exercise Price will be required until cumulative adjustments require an adjustment of at least 1% insuch Exercise Price.At any time prior to the time an Acquiring Person becomes such, the Board of Directors of the Company may terminate the Rights in whole, butnot in part. The termination of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors of theCompany in its sole discretion may establish. Immediately upon any termination of the Rights, the right to exercise the Rights will terminate.For so long as the Rights are then terminable the Company may amend the Rights Agreement in any manner. After the Rights are no longerterminable, the Company may amend the Rights Agreement in any manner that does not adversely affect the interests of holders of the Rights.Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a shareholder of the Company, including, withoutlimitation, the right to vote or to receive dividends.A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form8-A dated January 14 , 2019. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rightsdoes not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, as the same may be amended from time to time,which is hereby incorporated herein by reference. Exhibit C - Page 13Exhibit 4.80EMPLOYMENT AGREEMENTEMPLOYMENT AGREEMENT, effective as of May 1, 2018, by and between Sohu.com Inc., a Delaware corporation, and Joanna Lv, anindividual (the “Employee”).1. Definitions. Capitalized terms used herein and not otherwise defined in the text below will have the meanings ascribed thereto on Annex 1.2. Employment; Duties.(a) The Company agrees to employ the Employee in the capacity and with such responsibilities as are generally set forth on Annex 2.(b) The Employee hereby agrees to devote her full time and best efforts in such capacities as are set forth on Annex 2 on the terms andconditions set forth herein. Notwithstanding the foregoing, the Employee may engage in other activities, such as activities involving professional,charitable, educational, religious and similar types of organizations, provided the Employee complies with the Employee Non-competition,Non-solicitation, Confidential Information and Work Product Agreement effective as of May 1, 2018 that is attached hereto as Annex 3 (the“Employee Obligations Agreement”) and such other activities do not interfere with or prohibit the performance of the Employee’s duties under thisAgreement, or conflict in any material way with the business of the Company or of its subsidiaries and affiliates.(c) The Employee will use best efforts during the Term to ensure that the Company’s business and the businesses of its subsidiaries andaffiliates are conducted in accordance with all applicable laws and regulations of all jurisdictions in which such businesses are conducted.3. Compensation.(a) Base Annual Income. During the Term, the Company will pay the Employee an annual base salary as set forth on Annex 2, payablemonthly pursuant to the Company’s normal payroll practices.(b) Discretionary Bonus. During the Term, the Company, in its sole discretion, may award to the Employee an annual bonus based on theEmployee’s performance and other factors deemed relevant by the Company’s Board of Directors.(c) Stock Options and Other Equity Incentives. The Employee will be eligible to participate in any stock option or other equity incentiveprograms available to officers or employees of the Company.(d) Reimbursement of Expenses. The Company will reimburse the Employee for reasonable expenses incurred by the Employee in thecourse of, and necessary in connection with, the performance by the Employee of her duties to the Company, provided that such expenses aresubstantiated in accordance with the Company’s policies. -1-4. Other Employee Benefits.(a) Vacation; Sick Leave. The Employee will be entitled to such number of weeks of paid vacation each year as are set forth on Annex 2,the taking of which must be coordinated with the Company’s CEO in accordance with the Company’s standard vacation policy. Unless otherwiseapproved by the Company’s Board of Directors, vacation that is not used in a particular year may only be carried forward to subsequent years inaccordance with the Company’s policies in effect from time to time. The Employee will be eligible for sick leave in accordance with the Company’spolicies in effect from time to time.(b) Healthcare Plan. The Company will arrange for membership in the Company’s group healthcare plan for the Employee, theEmployee’s spouse and, if applicable, the Employee’s children under 18 years old, in accordance with the Company’s standard policies from time totime with respect to health insurance and in accordance with the rules established for individual participation in such plan and under applicable law.(c) Life and Disability Insurance. The Company will provide term life and disability insurance payable to the Employee, in each case inan amount up to a maximum of RMB2,000,000 in effect from time to time, provided however, that such amount will be reduced by the amount of anylife insurance or death or disability benefit coverage, as applicable, that is provided to the Employee under any other benefit plans or arrangements ofthe Company. Such policies will be in accordance with the Company’s standard policies from time to time with respect to such insurance and the rulesestablished for individual participation in such plans and under applicable law.(d) Other Benefits. Pursuant to the Company’s policies in effect from time to time and the applicable plan rules, the Employee will beeligible to participate in other employee benefit plans of general application, which may include, without limitation, housing allowance orreimbursement, tuition fees for the Employee’s children, if any, at an international school and tax equalization, which shall, in any event, includebenefits at the levels set forth on Annex 2.5. Certain Representations, Warranties and Covenants of the Employee.(a) Related Company Positions. The Employee agrees that the Employee and members of the Employee’s immediate family will not haveany financial interest directly or indirectly (including through any entity in which the Employee or any member of the Employee’s immediate familyhas a position or financial interest) in any transactions with the Company or any subsidiaries or affiliates thereof unless all such transactions, prior tobeing entered into, have been disclosed to the Board of Directors and approved by a majority of the independent members of the Board of Directorsand comply with all other Company policies and applicable law as may be in effect from time to time. The Employee also agrees that she will informthe Board of Directors of the Company of any transactions involving the Company or any of its subsidiaries or affiliates in which senior officers,including but not limited to the Employee, or their immediate family members have a financial interest. -2-(b) Discounts, Rebates or Commissions. Unless expressly permitted by written policies and procedures of the Company in effect fromtime to time that may be applicable to the Employee, neither the Employee nor any immediate family member will be entitled to receive or obtaindirectly or indirectly any discount, rebate or commission in respect of any sale or purchase of goods or services effected or other business transacted(whether or not by the Employee) by or on behalf of the Company or any of its subsidiaries or affiliates, and if the Employee or any immediate familymember (or any firm or company in which the Employee or any immediate family member is interested) obtains any such discount, rebate orcommission, the Employee will pay to the Company an amount equal to the amount so received (or the proportionate amount received by any suchfirm or company to the extent of the Employee’s or family member’s interest therein).6. Term; Termination.(a) Unless sooner terminated pursuant to the provisions of this Section 6, the term of this Agreement (the “Term”) will be Three (3) yearsafter the effective date.(b) Voluntary Termination by the Employee. Notwithstanding anything herein to the contrary, the Employee may voluntarily Terminatethis Agreement by providing the Company with ninety (90) days’ advance written notice (“Voluntary Termination”), in which case, the Employee willnot be entitled to receive payment of any severance benefits or other amounts by reason of the Termination other than accrued salary and vacationthrough the date of the Termination. The Employee’s right to all other benefits will terminate as of the date of Termination, other than anycontinuation required by applicable law. Without limiting the foregoing, if, in connection with a Change in Control, the surviving entity or successorto Sohu’s business offers the Employee employment on substantially equivalent terms to those set forth in this Agreement and such offer is notaccepted by the Employee, the refusal by the Employee to accept such offer and the subsequent termination of the Employee’s employment by theCompany shall be deemed to be a voluntary termination of employment by the Employee and shall not be treated as a termination by the Companywithout Cause.(c) Termination by the Company for Cause. Notwithstanding anything herein to the contrary, the Company may Terminate thisAgreement for Cause by written notice to the Employee, effective immediately upon the delivery of such notice. In such case, the Employee will not beentitled to receive payment of any severance benefits or other amounts by reason of the Termination other than accrued salary and vacation throughthe date of the Termination. The Employee’s right to all other benefits will terminate, other than any continuation required by applicable law. -3-(d) Termination by the Employee with Good Reason or Termination by the Company without Cause. Notwithstanding anything herein tothe contrary, the Employee may Terminate this Agreement for Good Reason, and the Company may Terminate this Agreement without Cause, in eithercase upon thirty (30) days’ advance written notice by the party Terminating this Agreement to the other party and the Termination shall be effective asof the expiration of such thirty (30) day period. If the Employee Terminates with Good Reason or the Company Terminates without Cause, theEmployee will be entitled to continue to receive payment of severance benefits equal to the Employee’s monthly base salary in effect on the date ofTermination for the shorter of (i) six (6) months and (ii) the remainder of the Term of this Agreement (the “Severance Period”), provided that theEmployee complies with the Employee Obligations Agreement during the Severance Period and executes a release agreement in the form requested bythe Company at the time of such Termination that releases the Company from any and all claims arising from or related to the employment relationshipand/or such Termination. Such payments will be made ratably over the Severance Period according to the Company’s standard payroll schedule. TheEmployee will also receive payment of the bonus for the remainder of the year of the Termination, but only to the extent that the bonus would havebeen earned had the Employee continued in employment through the end of such year, as determined in good faith by the Company’s CEO, Board ofDirectors, or Compensation Committee based on the specific corporate and individual performance targets established for such fiscal year, and only tothe extent that bonuses are paid for such fiscal year to other similarly situated employees. Health insurance benefits with the same coverage (e.g.,medical, dental, optical and mental health coverage) provided to the Employee prior to the Termination and in all other material respects comparableto those in place immediately prior to the Termination will be provided at the Company’s expense during the Severance Period. The Company willalso continue to carry the Employee on its Directors and Officers insurance policy for six (6) years following the Date of Termination at the Company’sexpense with respect to insurable events which occurred during the Employee’s term as a director or officer of the Company, with such coverage beingat least comparable to that in effect immediately prior to the Termination Date; provided, however, that (i) such terms, conditions and exceptions willnot be, in the aggregate, materially less favorable to the Employee than those in effect on the Termination Date and (ii) if the aggregate annualpremiums for such insurance at any time during such period exceed two hundred percent (200%) of the per annum rate of premium currently paid bythe Company for such insurance, then the Company will provide the maximum coverage that is then available at an annual premium equal to twohundred percent (200%) of such rate.(e) Termination by Reason of Death or Disability. A Termination of the Employee’s employment by reason of death or Disability shallnot be deemed to be a Termination by the Company (for or without Cause) or by the Employee (for or without Good Reason). In the event that theEmployee’s employment with the Company Terminates as a result of the Employee’s death or Disability, the Employee or the Employee’s estate orrepresentative, as applicable, will receive all accrued salary and accrued vacation as of the date of the Employee’s death or Disability and any otherbenefits payable under the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of deathor Disability and in accordance with applicable law. In addition, the Employee or the Employee’s estate or representative, as applicable, will receivethe bonus for the year in which the death or Disability occurs to the extent that a bonus would have been earned had the Employee continued inemployment through the end of such year, as determined in good faith by the Company’s CEO, Board of Directors, or Compensation Committee basedon the specific corporate and individual performance targets established for such fiscal year, and only to the extent that bonuses are paid for such fiscalyear to other similarly situated employees. -4-(f) Misconduct After Termination of Employment. Notwithstanding the foregoing, if the Employee after the termination of heremployment violates or fails to fully comply with the Employee Obligations Agreement, thereafter (i) the Employee shall not be entitled to anypayments from the Company, (ii) any insurance or other benefits that have continued shall terminate immediately, (iii) the Employee shall promptlyreimburse to the Company all amounts that have been paid to the Employee pursuant to this Section 6; and (iv) if the Employee would not, in theabsence of such violation or failure to comply, have been entitled to severance payments from the Company equal to at least six (6) months’ basesalary, the Employee shall pay to the Company an amount equal to the difference between six (6) months’ base salary and the amount of severance paymeasured by base salary reimbursed to the Company by the Employee pursuant to clause (iii) of this sentence.7. Equity-Based Compensation-Related Provisions.(a) Termination by the Company Without Cause after a Change in Control. If Company Terminates this Agreement without Cause withintwelve (12) months following a Change in Control, the vesting and exercisability of each of the Employee’s outstanding stock options or other equity-based incentive awards (“Awards”) will accelerate such that the Award will become fully vested and exercisable upon the effectiveness of theTermination, and any repurchase right of the Company with respect to shares of stock or other equity issued upon exercise of the Award willcompletely lapse, in each case subject to paragraph (c) below (“Forfeiture of Options for Misconduct”).(b) Termination other than by the Company Without Cause after a Change in Control. If the Employee’s employment with the CompanyTerminates for any reason, unless the Company Terminates this Agreement without Cause within twelve (12) months following a Change in Control,the vesting and exercisability of each of the Employee’s outstanding Awards shall cease upon the effectiveness of the Termination, such that anyunvested Award shall be cancelled.(c) Forfeiture of Options for Misconduct. If the Employee fails to comply with the terms of this Agreement, the Employee ObligationsAgreement, or the written policies and procedures of the Company, as the same may be amended from time to time, or acts against the specificinstructions of the Board of Directors of the Company or if this Agreement is terminated by the Company for Cause (each a “Penalty Breach”), theEmployee will forfeit any Awards that have been granted to her or to which the Employee may be entitled, whether the same are then vested or not, andthe same shall thereafter not be exercisable at all, and all shares of common stock of the Company, if any, purchased by the Employee pursuant to theexercise of Awards and still then owned by the Employee may be repurchased by the Company, at its sole discretion, at the price paid by the Employeefor such shares of common stock. The terms of all outstanding option grants are hereby amended to conform with this provision. -5-8. Employee Obligations Agreement. By signing this Agreement, the Employee hereby agrees to execute and deliver to the Company theEmployee Obligations Agreement, and such execution and delivery shall be a condition to the Employee’s entitlement to her rights under thisAgreement.9. Governing Law; Resolution of Disputes. This Agreement will be governed by and construed and enforced in accordance with the laws of theState of New York if the Employee is not a citizen of the People’s Republic of China (the “PRC”), and in accordance with the laws of the PRC if theEmployee is a citizen of the PRC, in each case exclusive of such jurisdiction’s principles of conflicts of law. If, under the applicable law, any portion ofthis Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion will be deemed to bemodified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement; the invalidity of any such portion will not affectthe force, effect and validity of the remaining portion hereof. Each of the parties hereto irrevocably agrees that any dispute or controversy arising outof, relating to, or concerning any interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held inHong Kong under the Hong Kong International Arbitration Centre Administered Arbitration Rules (the “Arbitration Rules”) in force when a Notice ofArbitration with respect thereto is submitted in accordance with the Arbitration Rules. There shall be one arbitrator, selected in accordance with theArbitration Rules. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on thearbitrator’s decision in any court having jurisdiction. The parties to the arbitration shall each pay an equal share of the costs and expenses of sucharbitration, and each party shall separately pay for its respective counsel fees and expenses; provided, however, that the prevailing party in any sucharbitration shall be entitled to recover from the non-prevailing party its reasonable costs and attorney fees.10. Notices. All notices, requests and other communications under this Agreement must be in writing (including email, facsimile or similarwriting and express mail or courier delivery or in person delivery, but excluding ordinary mail delivery) and given to the address stated below: (a)if to the Employee, to the address, email address or facsimile number that is on file with the Company from time to time, as may beupdated by the Employee; -6- (b)if to the Company, to: Sohu.com Inc.Level 18, Sohu.com Media PlazaBlock 3, No. 2 Kexueyuan South Road, Haidian DistrictBeijing 100190People’s Republic of ChinaAttention: Charles Zhang Chairman and Chief Executive Officer Fax: (86-10) 5641-2892with a copy to: Goulston & Storrs 400 Atlantic AvenueBoston, MA 02110Attention: Timothy B. Bancroft Email: tbancroft@goulstonstorrs.com Fax: (617) 574-4112or to such other address, email address, or facsimile number as either party may hereafter specify for the purpose by written notice to the other party inthe manner provided in this Section 10. All such notices, requests and other communications will be deemed received: (i) if given by email or facsimilenumber, when transmitted to the email address or facsimile number specified in this Section 10 if confirmation of receipt is received; (ii) if given byexpress mail or courier delivery, when delivered; and (iii) if given in person, when delivered.11. Miscellaneous.(a) Entire Agreement. This Agreement, together with the Employee Obligations Agreement, constitutes the entire understanding betweenthe Company and the Employee relating to the subject matter hereof on and after the effective date and supersedes and cancels all prior andcontemporaneous written and oral agreements and understandings with respect to the subject matter of this Agreement. No agreements orrepresentations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forthexpressly in this Agreement.(b) Modification; Waiver. No provision of this Agreement may be modified, waived or discharged unless modification, waiver ordischarge is agreed to in writing signed by the Employee and such officer of the Company as may be specifically designated by its Board of Directors.No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to beperformed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.(c) Successors; Binding Agreement. This Agreement will be binding upon and will inure to the benefit of the Employee, the Employee’sheirs, executors, administrators and beneficiaries, and the Company and its successors (whether direct or indirect, by purchase, merger, consolidation orotherwise), subject to the terms and conditions set forth herein. -7-(d) Withholding Taxes. All amounts payable to the Employee under this Agreement will be subject to applicable withholding of income,wage and other taxes to the extent required by applicable law.(e) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement will not affect the validity orenforceability of any other provision of this Agreement, which will remain in full force and effect.(f) Language. This Agreement is written in the English language only. The English language also will be the controlling language for allfuture communications between the parties hereto concerning this Agreement.(g) Counterparts. This Agreement may be signed in any number of counterparts, each of which will be deemed an original, with the sameeffect as if the signatures thereto and hereto were upon the same instrument.SIGNATURE PAGE FOLLOWS -8-IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Signature of Employee: Sohu.com Inc. By: Printed name of employee:Joanna Lv Name: Charles ZhangTitle: Chief Executive Officer -9-Annex 1Certain Definitions“Cause” means: (i)willful misconduct or gross negligence by the Employee, or any willful or grossly negligent omission to perform any act, resulting in injuryto the Company or any subsidiaries or affiliates thereof; (ii)misconduct or negligence of the Employee that results in gain or personal enrichment of the Employee to the detriment of the Company orany subsidiaries or affiliates thereof; (iii)breach of any of the Employee’s agreements with the Company, including those set forth herein and in the Employee ObligationsAgreement, and including, but not limited to, the repeated failure to perform substantially the Employee’s duties to the Company or anysubsidiaries or affiliates thereof, excessive absenteeism or dishonesty; (iv)any attempt by the Employee to assign or delegate this Agreement or any of the rights, duties, responsibilities, privileges or obligationshereunder without the prior approval of the Board of Directors of the Company (except in respect of any delegation by the Employee of heremployment duties hereunder to other employees of the Company in accordance with its usual business practice); (v)the Employee’s indictment or conviction for, or confession of, a felony or any crime involving moral turpitude under the laws of the UnitedStates or any State thereof, or under the laws of China, or Hong Kong; (vi)declaration by a court that the Employee is insane or incompetent to manage her business affairs; (vii)habitual drug or alcohol abuse which materially impairs the Employee’s ability to perform her duties; or (viii)filing of any petition or other proceeding seeking to find the Employee bankrupt or insolvent.“Change in Control” means the occurrence of any of the following events: (i)any person (within the meaning of Section 13(d) or Section 14(d)(2) of the Securities Exchange Act of 1934) other than the Company, anytrustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly orindirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomesthe direct or beneficial owner of securities representing fifty percent (50%) or more of the combined voting power of the Company’s then-outstanding securities; -10- (ii)during any period of two (2) consecutive years after the date of this Agreement, individuals who at the beginning of such period constitutethe Board of Directors of the Company, and all new directors (other than directors designated by a person who has entered into anagreement with the Company to effect a transaction described in (i), (iii), or (iv) of this definition) whose election or nomination to theBoard was approved by a vote of at least two-thirds of the directors then in office, cease for any reason to constitute at least a majority ofthe members of the Board; (iii)the effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which wouldresult in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent(either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combinedvoting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with thepower to elect at least a majority of the board of directors or other governing body of such surviving entity; (iv)the complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets; or (v)there occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A(or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or notthe Company is then subject to such reporting requirement.“Company” means Sohu.com Inc. and, unless the context suggests to the contrary, all of its subsidiaries and related companies. -11-“Disability” means the Employee becomes physically or mentally impaired to an extent which renders her unable to perform the essential functions ofher job, with or without reasonable accommodation, for a period of six consecutive months, or an aggregate of nine months in any two year period.“Good Reason” means the occurrence of any of the following events without the Employee’s express written consent, provided that the Employee hasgiven notice to the Company of such event and the Company has not remedied the problem within fifteen (15) days: (i)any significant change in the duties and responsibilities of the Employee inconsistent in any material and adverse respect with theEmployee’s title and position (including status, officer positions and reporting requirements), authority, duties or responsibilities ascontemplated by Annex 2 to this Agreement. For the purposes of this Agreement, because of the evolving nature of the Employer’sbusiness, the Company’s changing of Employee’s reporting relationships and department(s) will not be considered a significant change induties and responsibilities; (ii)any material breach by the Company of this Agreement, including without limitation any reduction of the Employee’s base salary or theCompany’s failure to pay to the Employee any portion of the Employee’s compensation; or (iii)the failure, in the event of a Change in Control in which the Company is not the surviving entity, of the surviving entity or the successor tothe Company’s business to assume this Agreement pursuant to its terms or to offer the Employee employment on substantially equivalentterms to those set forth in this Agreement.“Termination” (and any similar, capitalized use of the term, such as “Terminate”) means, according to the context, the termination of this Agreement orthe Employee’s ceasing to render employment services. -12-Annex 2Particular Terms of Employee’s EmploymentTitle(s): Chief Financial Officer Reporting Requirement:The Employee will report to the Company’s Board of Directors and the Audit Committee thereof, and to the Company’s ChiefExecutive Officer. Responsibilities:Such duties and responsibilities as are ordinarily associated with the Employee’s title(s) in a United States publicly-tradedcorporation and such other duties as may be specified by the Board of Directors from time to time. Base Salary:RMB1,200,000 per year or as adjusted by the Board of Directors from time to time.# of Weeks of Paid Vacation per Year: Three (3)Other Benefits:Annual allowance after tax of RMB300,000 per year.Health, life and disability insurance as per company policy.Bonus (50% of annual base pay will be the Employee’s initial target bonus, subject to amended and adjustment in accordance with the seniormanagement bonus plan as it may be amended and in effect from time to time) as specifically approved each year. -13-Annex 3FORM OF EMPLOYEE NON-COMPETITION, NON-SOLICITATION,CONFIDENTIAL INFORMATION AND WORK PRODUCT AGREEMENTIn consideration of my employment and the compensation paid to me by Sohu.com Inc., a Delaware corporation, or a subsidiary or other affiliateor related company thereof (Sohu.com Inc. or any such subsidiary or related company or other affiliate referred to herein individually and collectivelyas “SOHU”), and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, I agree as follows:1. Non-Competition. During my employment with SOHU and continuing after the termination of my employment for the longer of (i) oneyear after the termination of my employment with SOHU for any reason and (ii) such period of time as SOHU is paying to me any severance benefits,(the “Noncompete Period”), I will not, on my own behalf, or as owner, manager, stockholder (other than as stockholder of less than 2% of theoutstanding stock of a company that is publicly traded or listed on a stock exchange), consultant, director, officer or employee of or in any othermanner connected with any business entity, participate or be involved in any Competitor without the prior written authorization of the Board ofDirectors of SOHU. “Competitor” means any business of the type and character of business in which SOHU engages or proposes to engage and mayinclude, without limitation, an individual, company, enterprise, partnership enterprise, government office, committee, social organization or otherorganization that, in any event, produces, distributes or provides the same or substantially similar kind of product or service as SOHU. On the date ofthis Employee Non-competition, Non-solicitation, Confidential Information and Work Product Agreement (this “Agreement”), “Competitors” includewithout limitation: Tencent, Sina, NetEase, Phoenix, Autohome, BitAuto, Youku Tudou, iQiyi, SouFun, Leju, YY, Baidu, Qihoo, Alibaba, Cheetah,IFLYTEK, TouTiao, UCWeb, Google, Shanda, Perfect World, Giant, Kalends Inc., iDreamsky Technology Ltd., NetDragon, Kingsoft, Yahoo, Microsoft,Facebook, and Twitter. Such list may be updated by the Company from time to time so that it is consistent with the list of competitors disclosed in theCompany’s quarterly reports on Form 10-Q or annual reports on Form 10-K filed with the U.S. Securities and Exchange Commission.2. Nonsolicitation. During the Noncompete Period, I will not, either for my own account or for the account of any other person: (i) solicit,induce, attempt to hire, or hire any employee or contractor of SOHU or any other person who may have been employed or engaged by SOHU during theterm of my employment with SOHU unless that person has not worked with SOHU within the six months following my last day of employment withSOHU; (ii) solicit business or relationship in competition with SOHU from any of SOHU’s customers, suppliers or partners or any other entity withwhich SOHU does business; (iii) assist in such hiring or solicitation by any other person or business entity or encourage any such employee toterminate her employment with SOHU; or (iv) encourage any such customer, supplier or partner or any other entity to terminate its relationship withSOHU. -14-3. Confidential Information.(a) While employed by SOHU and indefinitely thereafter, I will not, directly or indirectly, use any Confidential Information (ashereinafter defined) other than pursuant to my employment by and for the benefit of SOHU, or disclose any such Confidential Information to anyoneoutside of SOHU or to anyone within SOHU who has not been authorized to receive such information, except as directed in writing by an authorizedrepresentative of SOHU.(b) “Confidential Information” means all trade secrets, proprietary information, and other data and information, in any form, belonging toSOHU or any of their respective clients, customers, consultants, licensees or affiliates that is held in confidence by SOHU. Confidential Informationincludes, but is not limited to computer software, the structure of SOHU’s online directories and search engines, business plans and arrangements,customer lists, marketing materials, financial information, research, and any other information identified or treated as confidential by SOHU or any oftheir respective clients, customer, consultants, licensees or affiliates. Notwithstanding the foregoing, Confidential Information does not includeinformation which SOHU has voluntarily disclosed to the public without restriction, or which is otherwise known to the public at large.4. Rights in Work Product.(a) I agree that all Work Product (as hereinafter defined) will be the sole property of SOHU. I agree that all Work Product that constitutesoriginal works of authorship protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act and,therefore, the property of SOHU. I agree to waive, and hereby waive and irrevocably and exclusively assign to SOHU, all right, title and interest I mayhave in or to any other Work Product and, to the extent that such rights may not be waived or assigned, I agree not to assert such rights against SOHUor its licensees (and sublicensees), successors or assigns.(b) I agree to promptly disclose all Work Product to the appropriate individuals in SOHU as such Work Product is created in accordancewith the requirements of my job and as directed by SOHU.(c) “Work Product” means any and all inventions, improvements, developments, concepts, ideas, expressions, processes, prototypes,plans, drawings, designs, models, formulations, specifications, methods, techniques, shop-practices, discoveries, innovations, creations, technologies,formulas, algorithms, data, computer databases, reports, laboratory notebooks, papers, writings, photographs, source and object codes, softwareprograms, other works of authorship, and know-how and show-how, or parts thereof conceived, developed, or otherwise made by me alone or jointlywith others (i) during the period of my employment with SOHU or (ii) during the six month period next succeeding the termination of my employmentwith SOHU if the same in any way relates to the present or proposed products, programs or services of SOHU or to tasks assigned to me during thecourse of my employment, whether or not patentable or subject to copyright or trademark protection, whether or not reduced to tangible form orreduced to practice, whether or not made during my regular working hours, and whether or not made on SOHU premises. -15-5. Employee’s Prior Obligations. I hereby certify I have no continuing obligation to any previous employer or other person or entity whichrequires me not to disclose any information to SOHU.6. Employee’s Obligation to Cooperate. At any time during my employment with SOHU and thereafter upon the request of SOHU, I will executeall documents and perform all lawful acts that SOHU considers necessary or advisable to secure its rights hereunder and to carry out the intent of thisAgreement. Without limiting the generality of the foregoing, I agree to render to SOHU or its nominee all reasonable assistance as may be required: (a)In the prosecution or applications for letters patent, foreign and domestic, or re-issues, extensions and continuations thereof; (b)In the prosecution or defense of interferences which may be declared involving any of said applications or patents; (c)In any administrative proceeding or litigation in which SOHU may be involved relating to any Work Product; and (d)In the execution of documents and the taking of all other lawful acts which SOHU considers necessary or advisable in creating andprotecting its copyright, patent, trademark, trade secret and other proprietary rights in any Work Product.The reasonable out-of-pocket expenses incurred by me in rendering such assistance at the request of SOHU will be reimbursed by SOHU. If I am nolonger an employee of SOHU at the time I render such assistance, SOHU will pay me a reasonable fee for my time.7. Termination; Return of SOHU Property. Upon the termination of my employment with SOHU for any reason, or at any time upon SOHU’srequest, I will return to SOHU all Work Product and Confidential Information and notes, memoranda, records, customer lists, proposals, business plansand other documents, computer software, materials, tools, equipment and other property in my possession or under my control, relating to any workdone for SOHU, or otherwise belonging to SOHU, it being acknowledged that all such items are the sole property of SOHU. Further, before obtainingmy final paycheck, I agree to sign a certificate stating the following:“Termination CertificateThis is to certify that I do not have in my possession or custody, nor have I failed to return, any Work Product (as defined in the EmployeeNon-competition, Non-solicitation, Confidential Information and Work Product Agreement between me and Sohu.com Inc. (“SOHU”) orany notes, memoranda, records, customer lists, proposals, business plans or other documents or any computer software, materials, tools,equipment or other property (or copies of any of the foregoing) belonging to SOHU.” -16-8. General Provisions.(a) This Agreement contains the entire agreement between me and SOHU with respect to the subject matter hereof and supersedes all priorand contemporaneous agreements and understandings related to the subject matter hereof, whether written or oral; provided however, that, with respectto periods through the date hereof, this Agreement will not supersede the Employee Non-competition, Non-solicitation, Confidential Information andWork Product Agreement between SOHU and me that was in effect prior to the date hereof (the “Prior Employee Obligations Agreement”), which willcontinue in full force and effect with respect to such periods. This Agreement may not be modified except by written agreement signed by SOHU andme.(b) This Agreement will be governed by and construed and enforced in accordance with the laws of the State of New York if theEmployee is not a citizen of the People’s Republic of China (the “PRC”), and in accordance with the laws of the PRC if the Employee is a citizen of thePRC, in each case exclusive of such jurisdiction’s principles of conflicts of law. If, under the applicable law, any portion of this Agreement is at anytime deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion will be deemed to be modified or altered toconform thereto or, if that is not possible, to be omitted from this Agreement; the invalidity of any such portion will not affect the force, effect andvalidity of the remaining portion hereof. Each of the parties hereto irrevocably (i) agrees that any dispute or controversy arising out of, relating to, orconcerning any interpretation, construction, performance or breach of this Agreement, shall be settled to be held in the Hong Kong S.A.R. under theHong Kong International Arbitration Centre Administered Arbitration Rules (the “Arbitration Rules”) in force when a Notice of Arbitration withrespect thereto is submitted in accordance with the Arbitration Rules. There shall be one arbitrator, selected in accordance with the Arbitration Rules.The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator’sdecision in any court having jurisdiction. The parties to the arbitration shall each pay an equal share of the costs and expenses of such arbitration, andeach party shall separately pay for its respective counsel fees and expenses; provided, however, that the prevailing party in any such arbitration shallbe entitled to recover from the non-prevailing party its reasonable costs and attorney fees.(c) In the event that any provision of this Agreement is determined by any court of competent jurisdiction to be unenforceable by reasonof its extending for too great a period of time, over too large a geographic area, over too great a range of activities, it will be interpreted to extend onlyover the maximum period of time, geographic area or range of activities as to which it may be enforceable. -17-(d) If, after application of paragraph (c) above, any provision of this Agreement will be determined to be invalid, illegal or otherwiseunenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement will not beaffected thereby. Any invalid, illegal or unenforceable provision of this Agreement will be severed, and after any such severance, all other provisionshereof will remain in full force and effect.(e) SOHU and I agree that either of us may waive or fail to enforce violations of any part of this Agreement without waiving the right inthe future to insist on strict compliance with all or parts of this Agreement.(f) My obligations under this Agreement will survive the termination of my employment with SOHU regardless of the manner of orreasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with SOHU. Myobligations under this Agreement will be binding upon my heirs, executors and administrators, and the provisions of this Agreement will inure to thebenefit of the successors and assigns of SOHU.(g) I agree and acknowledge that the rights and obligations set forth in this Agreement are of a unique and special nature and necessary toensure the preservation, protection and continuity of SOHU’s business, employees, Confidential Information, and intellectual property rights.Accordingly, SOHU is without an adequate legal remedy in the event of my violation of any of the covenants set forth in this Agreement. I agree,therefore, that, in addition to all other rights and remedies, at law or in equity or otherwise, that may be available to SOHU, each of the covenants madeby me under this Agreement shall be enforceable by injunction, specific performance or other equitable relief, without any requirement that SOHUhave to post a bond or that SOHU have to prove any damages. -18-IN WITNESS WHEREOF, the undersigned employee and SOHU have executed this Employee Non-competition, Non-solicitation, ConfidentialInformation and Work Product Agreement.Effective as of May 1, 2018 and signed on . Signature of Employee: Sohu.com Inc. By: Printed name of employee:Joanna Lv Name: Charles ZhangTitle: Chief Executive Officer -19-Exhibit 8.1Principal Subsidiaries and VIEs of the Registrant Name of Entity Jurisdiction ofIncorporation Ownership Subsidiaries: For Sohu’s Business: Sohu.com (Hong Kong) Limited (“Sohu Hong Kong”) Hong Kong 100% Beijing Sohu New Era Information Technology Co., Ltd. (“Sohu Era”) People’s Republic of China 100% All Honest International Limited (“All Honest”) British Virgin Islands 100% Sohu.com (Search) Limited (“Sohu Search”) Cayman Islands 100% Beijing Sohu New Media Information Technology Co., Ltd. (“Sohu Media”) People’s Republic of China 100% Sohu.com (Game) Limited (“Sohu Game”) Cayman Islands 100% Beijing Sohu New Momentum Information Technology Co., Ltd. (“Sohu New Momentum”) People’s Republic of China 100% Fox Video Investment Holding Limited (“Video Investment”) Cayman Islands 100% Fox Video Limited (“Sohu Video”) Cayman Islands 100% Fox Video (HK) Limited (“Video HK”) Hong Kong 100% Fox Information Technology (Tianjin) Limited (“Video Tianjin”) People’s Republic of China 100% Focus Investment Holding Limited (“Focus Investment”) Cayman Islands 100% Sohu Focus Limited (“Sohu Focus”) Cayman Islands 100% Sohu Focus (HK) Limited (“Focus HK”) Hong Kong 100% For Sogou’s Business: Vast Creation Advertising Media Services Limited (“Vast Creation”) Hong Kong 33% Sogou Inc. (“Sogou”) Cayman Islands 33% Sogou (BVI) Limited (“Sogou BVI”) British Virgin Islands 33% Beijing Sogou Technology Development Co., Ltd. (“Sogou Technology”) People’s Republic of China 33% Sogou Hong Kong Limited (“Sogou HK”) Hong Kong 33% Beijing Sogou Network Technology Co., Ltd (“Sogou Network”) People’s Republic of China 33% Sogou Technology Hong Kong Limited (“Sogou Technology HK”) Hong Kong 33% Tianjin Sogou Network Technology Co., Ltd (“Tianjin Sogou Network”) People’s Republic of China 33% Sogou (Shantou) Internet Microcredit Co., Ltd. (“Sogou Microcredit”) People’s Republic of China 33% For Changyou’s Business: Changyou.com Limited (“Changyou”) Cayman Islands 67% Changyou.com (HK) Limited (“Changyou HK”) Hong Kong 67% Beijing AmazGame Age Internet Technology Co., Ltd. (“AmazGame”) People’s Republic of China 67% Beijing Changyou Gamespace Software Technology Co., Ltd. (“Gamespace”) People’s Republic of China 67% Beijing Yang Fan Jing He Information Consulting Co., Ltd. (“Yang Fan Jing He”) People’s Republic of China 67% Shanghai Jingmao Culture Communication Co., Ltd. (“Shanghai Jingmao”) People’s Republic of China 67% Beijing Changyou Jingmao Film & Culture Communication Co., Ltd. (“Beijing Jingmao”) People’s Republic of China 67% 7Road.com Limited (“7Road”) Cayman Islands 67% Name of Entity Jurisdiction ofIncorporation Ownership 7Road.com HK limited (“7Road HK”) Hong Kong 67% Changyou.com Webgames (HK) Limited (“Changyou HK Webgames”) Hong Kong 67% Shenzhen Brilliant Imagination Technologies Co., Ltd. (“Brilliant Imagination”) People’s Republic of China 67% Beijing Changyou Chuangxiang Software Technology Co., Ltd. (“Changyou Chuangxiang”) People’s Republic of China 67% VIEs: For Sohu’s Business: Beijing Century High-Tech Investment Co., Ltd. (“High Century”) People’s Republic of China 100% Beijing Heng Da Yi Tong Information Technology Co., Ltd. (“Heng Da Yi Tong”) People’s Republic of China 100% Beijing Sohu Internet Information Service Co., Ltd. (“Sohu Internet”) People’s Republic of China 100% Beijing Sohu Donglin Advertising Co., Ltd. (“Donglin”) People’s Republic of China 100% Tianjin Jinhu Culture Development Co., Ltd (“Tianjin Jinhu”) People’s Republic of China 100% Beijing Focus Interactive Information Service Co., Ltd. (“Focus Interactive”) People’s Republic of China 100% Guangzhou Qianjun Network Technology Co., Ltd (“Guangzhou Qianjun”) People’s Republic of China 100% For Sogou’s Business: Beijing Sogou Information Service Co., Ltd. (“Sogou Information”) People’s Republic of China 33% Chengdu Easypay Technology Co., Ltd. (“Chengdu Easypay”) People’s Republic of China 33% For Changyou’s Business: Beijing Gamease Age Digital Technology Co., Ltd. (“Gamease”) People’s Republic of China 67% Shanghai ICE Information Technology Co., Ltd. (“Shanghai ICE”) People’s Republic of China 67% Beijing Guanyou Gamespace Digital Technology Co., Ltd. (“Guanyou Gamespace”) People’s Republic of China 67% Exhibit 11.1SOHU.COM LIMITEDCODE OF ETHICS AND CONDUCT FOR DIRECTORS,OFFICERS, AND EMPLOYEESIt is the policy of Sohu.com Limited, a Cayman Islands company, that the directors, officers, and employees of Sohu.com Limited and each of itssubsidiaries and variable interest entities (collectively, the “Company”) adhere to the following principles governing their professional and ethicalconduct in the fulfillment of their respective responsibilities: 1.Each director, officer, and employee shall act with honesty and integrity and in an ethical manner. Each director, officer, and employee shallendeavor to deal fairly with the Company’s customers, suppliers, competitors, and employees. 2.Each director, officer, and employee shall avoid conflicts of interest between his or her personal, private interests and the interests of theCompany and seek to avoid the appearance of such conflicts of interest. A conflict of interest may arise when an individual takes actions or hasinterests that make it difficult to perform his or her Company work objectively and effectively, or when an individual uses his or her position atthe Company for improper personal benefit. Actual and potential conflicts of interest must be promptly called to the attention of the ChiefExecutive Officer or Chief Financial Officer of the Company. Any transactions or relationships of a director or executive officer potentiallyinvolving any such conflict of interest shall be prohibited except with the prior written consent of the Audit Committee of the Company’s Boardof Directors. Any such conflicts of interest or potential conflicts of interest shall be resolved in an ethical manner with due consideration beinggiven to the legitimate interests of the Company. 3.Each director, officer, and employee shall perform his or her responsibilities and duties in such a manner as to ensure that periodic reportsrequired to be filed with the Securities and Exchange Commission (the “SEC”) and other public communications made by the Company,including press releases and spoken statements, contain information that is full, fair, accurate, timely, and understandable. 4.Each director, officer, and employee shall comply with the laws of all U.S. and non-U.S. governmental entities applicable to the Company,including the Cayman Islands and the People’s Republic of China, and all rules and regulations of agencies having jurisdiction over theCompany, including laws pertaining to insider trading of Company securities. 5.Each director, officer, and employee shall act in good faith, responsibly, with due care and diligence, without misrepresenting or omittingmaterial facts or allowing his or her independent judgment to be compromised. 6.Each director, officer, and employee shall respect the confidentiality of information acquired in the course of the performance of his or herresponsibilities, except when authorized by persons with appropriate authority or legally obligated to disclose such information. No director,officer, or employee shall use confidential information acquired in the course of the performance of his or her responsibilities for improperpersonal advantage. The prohibitions of this paragraph are intended to be in addition to, and not in limitation of, any other obligations ofconfidentiality a director, officer, or employee owes to the Company.7.Each director, officer, and employee shall proactively attempt to promote ethical behavior among his or her subordinates and peers. 8.Each director, officer, and employee shall use Company assets and resources employed by or entrusted to him or her in a responsible manner forlegitimate business purposes and not for improper personal advantage. 9.No director, officer, or employee shall exploit the Company’s corporate opportunities or compete with the Company in violation of anon-competition agreement with the Company.Any violation or potential violation of this code by a director or executive officer should be promptly reported to the Chief Executive Officer or ChiefFinancial Officer of the Company, who will report all such reported violations and potential violations to the Audit Committee of the Board ofDirectors of the Company. Any such violation or potential violation also may be reported directly to the Audit Committee or any member thereof, or toany executive officer within the Company that the person reporting deems to be appropriate. There will be no reprisals for reporting an actual orpossible violation of this code provided the reporting person is not a party to or responsible for (alone or with others) the violation. With respect todirectors and executive officers, the Audit Committee shall have the power and authority to monitor compliance with this code, investigate potential oralleged violations of the code, make determinations (including acting on requests for waivers from the provisions hereof), and make recommendationsto appropriate executive officers or to the Board of Directors of the Company with respect to penalties and consequences for violations of this code.The appropriate executive officers of the Company and, in the case of violations or alleged violations by executive officers of the Company, the Boardof Directors of the Company are authorized to take appropriate disciplinary action, including dismissal of the offender (after opportunity to be heard).If, in the determination of the Company’s Board of Directors with the assistance of counsel, any violation amounts to, or potentially amounts to, illegalactivity, the Company may report the violation to appropriate authorities.Any violation or potential violation of this code by an employee, other than a director or executive officer, should be promptly reported to the ChiefExecutive Officer or Chief Financial Officer of the Company or to any executive officer within the Company that the person reporting deems to beappropriate. Employees who violate this code may be subject to disciplinary action (after opportunity to be heard). It is also important to understandthat violation of certain of the policies set forth in this code may subject the individual employee to civil liability and damages, regulatory sanction,and/or criminal prosecution. There will be no reprisals for reporting an actual or possible violation of this code provided the reporting person is not aparty to or responsible for (alone or with others) the violation.Each director and executive officer of the Company shall be required, on an annual basis, to acknowledge and certify as to his or her compliance withthis code to the Audit Committee. Any waivers of this code for directors and executive officers of the Company must be approved by the Board ofDirectors of the Company and must be promptly disclosed (including the reasons for the waiver) in the Company’s public filings in accordance withlaw and the rules and regulations of the SEC and the NASDAQ Stock Market LLC Listing Rules. In addition, substantive amendments to this codemust be promptly disclosed in the Company’s public filings in accordance with law and the rules and regulations of the SEC. 2Exhibit 12.1I, Charles Zhang, certify that: 1.I have reviewed this annual report on Form 20-F of Sohu.com Limited; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 28, 2019 /s/ Charles Zhang Charles Zhang, Chief Executive Officer and Chairman of the Board ofDirectorsExhibit 12.2I, Joanna Lv, certify that: 1.I have reviewed this annual report on Form 20-F of Sohu.com Limited; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 28, 2019 /s/ Joanna Lv Joanna Lv, Chief Financial OfficerExhibit 13.1Certification Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934In connection with the Annual Report of Sohu.com Limited (the “Company”) on Form 20-F for the fiscal year ended December 31, 2018 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Charles Zhang, Chief Executive Officer and Chairman of the Board ofDirectors of the Company, certify, pursuant to U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of December 31, 2018and results of operations of the Company for the fiscal year ended December 31, 2018. /s/ Charles ZhangCharles Zhang, Chief Executive Officer andChairman of the Board of DirectorsMarch 28, 2019Exhibit 13.2Certification Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934In connection with the Annual Report of Sohu.com Limited (the “Company”) on Form 20-F for the fiscal year ended December 31, 2018 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Joanna Lv, Chief Financial Officer of the Company, certify, pursuant toU.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of December 31, 2018and results of operations of the Company for the fiscal year ended December 31, 2018. /s/ Joanna LvJoanna Lv, Chief Financial OfficerMarch 28, 2019Exhibit 15.1Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-174955) of Sohu.com Limited of our reportdated March 28, 2019 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in thisForm 20-F./s/ PricewaterhouseCoopers Zhong Tian LLPPricewaterhouseCoopers Zhong Tian LLPBeijing, the People’s Republic of ChinaMarch 28, 2019 1Exhibit 15.2Consent of Haiwen & Partners, PRC CounselMarch 28, 2019Sohu.com Limited18/F, SOHU.com Media PlazaBlock 3, No. 2 Kexueyuan South RoadHaidian DistrictBeijing 100190People’s Republic of ChinaSubject: Consent of Haiwen & PartnersWe hereby consent to the filing of this consent letter as an exhibit to the annual report on Form 20-F of Sohu.com Limited (the “Company”) for theCompany’s fiscal year ended December 31, 2018 being filed with the U.S. Securities and Exchange Commission (the “SEC”) on or about March 28,2019 (the “Form 20-F”).We also hereby consent to the use of our firm name and summaries of our firm’s opinions under the headings “Information on the company–Government Regulation and Legal uncertainties” in the Form 20-F.Yours faithfully, /s/ Haiwen & PartnersHaiwen & Partners

Continue reading text version or see original annual report in PDF format above